Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Silver Short-Term Trend Analysis - 26th June 19
Iran and the Dying Days Of the US Empire - 26th June 19
Why a Saturated Online Gaming Market Spells Good News for Gamblers - 26th June 19
Natural Gas Sets Up Bottom Pattern - 26th June 19
Has Gold Price Broken Out Or Not? Technicals And Fundamentals - 26th June 19
Stocks and XAU Gold Miners Next Bull and Bear Markets are Now Set Up - 26th June 19
Gold Price Trend Forcast to End September 2019 - Video - 25th June 19
Today’s Pets.com and NINJA Loan Economy - 25th June 19
Testing the Fed’s Narrative with the Fed’s Data: QT Edition - 25th June 19
What "Pro Traders" use to Find Profitable Trades - eBook - 25th June 19
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Inflation Target Regrets

Economics / Inflation Oct 09, 2018 - 05:30 PM GMT

By: Michael_Pento

Economics

Beginning this fall, and continuing throughout 2019, the stock market’s performance should be vastly different from what has occurred during the prior few years. Indeed, the huge reconciliation of stock prices is arriving now.

The primary reason behind this is the watershed change in global central banks’ monetary policies. For years central banks had been keeping rates near 0%, or below, and at the same time printing over a hundred billion dollars’ worth of fiat currencies each and every month to purchase bonds and stocks. That is all changing now. According to Capital Economics, fourteen major global central banks are either in the process right now, or have indicated that they be will next year, in the process of raising interest rates. At the same time, QE on a global net basis will plunge from $180 billion per month at its peak during 2017, to $0 by December…and will then go negative in 2019.


The amount of corporate stock buybacks will plunge next year as well. Estimates of between $500 billion to $1 trillion of stock buybacks have occurred so far due to the one-time mandatory repatriation of foreign earnings found in Trump’s tax cut package passed in December of 2017. However, that one-time boost from repatriation is waning quickly. In addition, there are now much higher borrowing costs for corporations that have relied on the process of issuing debt to buy back shares. This will only get more expensive next year and will also attenuate the number of corporate buybacks.

The benefits corporations enjoyed from lower taxes this year are being gradually offset by rising debt service payments and tariffs. This pressure on these fronts will also increase greatly next year.

There will most assuredly be a plunge in earnings growth rates from the current 25% pace, to the low single digits at best when Q1 ’19 gets compared to Q1 of this year. When you combine that surge in borrowing costs with; the stronger dollar, tariffs from the trade war, oil price spike, rising wages, the slowdown in China, the chaos in EM currencies--along with the significant bond market and equity market volatility around the world--you can clearly understand why S&P 500 companies will endure much greater pressure on earnings next year. And, given the fact that these corporations generate nearly half of their revenues in from foreign markets, don’t expect their share prices to be immune.

But emerging markets are not the only nations that are in turmoil. Recently, the Italian stock market plunged 4% and bank stocks were halted, as the Italian 10 year Note yield surged 32 bps. That yield has gone from 1% in 2016, to 3.60% today. Bond yields are surging in Italy right now, while the ECB cut its bond purchases in half again to €15T this month--and is scheduled to end QE by the end of December. Therefore, the Italian bond market is going to have to exist on its own next year along with the faltering Italian economy. Spiking interest rates are serving to increase deficits even further, which in turn sends rates yet higher.

Italian debt is now rated just two notches above junk. But a downgrade from any of 3 credit rating agencies should cause another huge spike in borrowing costs. This could force the ECB to back away from its hawkish stance—but it will be too little too late--and the euro should be sent crashing against the USD. If Mario Draghi does not return to QE, but rather allows the Italian bond market to continue to collapse, the entire European banking system is at risk of failure in 2019. Of course, this would imperil the global banking system as well. Perhaps this is one of the reasons why U.S. banking shares have not appreciated this year.

In fact, when you turn off the cheerleaders on CNBC and actually look closer at the data in the U.S., you will find that the distress found throughout the globe is already effecting the domestic economy. Pending home sales fell 1.8% for August, according to the National Association of Realtors' seasonally adjusted index. Sales were down 2.3% compared with August 2017. That was the fourth monthly decline in the past five months and was the slowest sales pace since January.

Turning to autos: Ford, Toyota, Nissan and Honda reported y/y monthly sales declines in September of 11.2%, 10.4%, 12.2% and 7%, respectively. So, despite upbeat employment data, two of the most significant parts of the US economy are in outright contraction mode.

In other words, the notion that central banks saved the world by counterfeiting $14 trillion worth of new credit and by pushing interest rates to 0% and below for a decade is absurdly ridiculous. Rather, what they did end up creating was unprecedented and massive imbalances in the global economy, along with a humongous bubble in asset prices that exist worldwide. From which there is no escaping without devastating consequences.

This long awaited day of reckoning has been held in abeyance until now. However, the incredibly stupid and dangerous goal of governments to create a sustainable rate of inflation throughout the world has now been achieved. Inflation was masked for years by remaining sequestered in asset prices alone. But now it has spread to consumer prices and wages. Therefore, central banks have no choice but to react ex-post to keep inflation from transcending their fatuous and dangerous targets.

But, what they cannot fully understand it that there is a record $250 trillion of global debt that was issued in order to push up asset prices to unchartered valuations. And those asset price bubbles are completely dependent upon never-ending and ever-increasing central bank and government stimuli to remain in a bubble; or the entire artificial construct comes crashing down.

However, the inflation pump has been turned off this year and will go into reverse throughout next year. This change is not so much by choice but due to asset price levels and inflation rates that are at risk of becoming intractable if central banks did not act.

That is the trenchant difference from the past few years. It is going to be extremely painful for investors that are unprepared for this incredible change. It has become essential to model these changes that are now occurring in the growth and inflation dynamic. The Pento Portfolio Strategies’ proprietary Inflation/Deflation and Economic Cycle Model SM indicates there should soon be an opportunity to profit from the coming deflationary crash in markets; and then the strategy would be to pick up the pieces in the middle of the carnage to ride the next wave of inflation higher.

Michael Pento produces the weekly podcast “The Mid-week Reality Check”, is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com

mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.               

Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 

Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance www.earthoflight.caLicenses. Michael Pento graduated from Rowan University in 1991.

© 2018 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules