Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Interest Rate Threshold Keeps Dropping

Interest-Rates / US Interest Rates Jan 28, 2021 - 02:20 PM GMT

By: Michael_Pento

Interest-Rates Initial Jobless claims totaled 900,000 for the week ending January 16th, after shedding 965,000 in the week prior. These numbers are over four times greater than they were a year ago. I find this to be not only sad but also remarkable in that we are still losing close to one million jobs per week a year after the Wuhan virus first broke out. More signs of economic stress were found in the December Retail Sales report. Sales dropped 0.7% last month, and the data for November was revised down to show a decline of 1.4%, instead of the 1.1% previously reported. Figures such as these illustrate just how fragile the economy still is, which will automatically put upward pressure on the level of outstanding debt. And, gives the new Administration impetus to pass more and bigger fiscal stimulus packages. That's really bad news for any of us left that still care about debt and deficits.



The US budget deficit is up 60.7% in only the first three months of the budget year. The amount of annual red ink so far in fiscal 2021 was a record-breaking $572.9 billion, which is $216.3 billion higher than the same October-December period a year ago. Remarkably, we are living in the good old days of fiscal rectitude when compared to what lies ahead.

President Obama took a full eight years to add $9 trillion to the outstanding debt load. The MAGA President accomplished this baleful deed in only four.  Now, Joe Biden indicates his opening salvo for spending will be a $1.9 trillion COVID relief package, which will quickly be followed up by another two-trillion-dollar economic spending deal. It took over two hundred years' worth of US history to accumulate $1 trillion in National debt. We did 4x that amount in the past 12 months alone, with the promise of trillions more in debt already on the way. Safe to say, there is no home for the party of fiscal and monetary conservatives any longer. Libertarians have become ostracized pariahs. The Tea Party went extinct moments after its birth. 

This brings us to the Vice-Chair of the Fed, Richard Clarida, who said on an interview with CNBC recently that the Fed won't raise interest rates until there exists a 2% rate of inflation for an entire year. Not only this, but former Vice-Chair Alan Blinder said in a recent Bloomberg interview that there would be "smooth cooperation between the Treasury and Fed." Aren't you relieved? So much for the separation between the Treasury and Fed. Treasury Secretary Janet Yellen will work well with the current holder of her former position (Fed Chair Powell) to ensure the purchasing power of your savings will get destroyed at an even faster pace than it is already.

Our Nation's debt to GDP ratio has now climbed above 130%. More importantly, that debt has surged to equal 800% of our entire federal annual revenue. We have basically become an insolvent nation with annual deficits that mimic a banana republic. They are adding 15% of GDP per year to the whole insolvent dung heap. This record amount of debt will soon be held in the context of rapidly rising inflation due to the Fed's monetization of direct government payments to the private sector. All this will be taking place at the same time the market will become concerned that the indiscriminate buyer of $120 billion of debt each month (the Fed) must someday soon begin removing its bid for these bonds. Perhaps, this will occur not so much due to any fear of inflation on the part of the Fed—central banks are now completely enamored with the idea of higher inflation—but rather because of the bond market's reaction to inflation. Spiking yields will lead to a stampede of front-runners to try and sell ahead of the Fed and crashing bond prices.

The problem here is that each Fed-induced boom/bust cycle has served to addict the economy and market to lower and lower interest rates. The historical average Fed Funds Rate (FFR) has been about 5.5%. However, it only took a 5.25% FFR in June of 2006 to collapse the real estate market and the entire global economy. The FFR was still 25 bps below average, but that was too high to sustain the housing bubble and its related debt. Likewise, in December 2018, the FFR was inched back to just 2.5%. Nevertheless, that lower rate was enough to crash the REPO and stock market--pushing the Fed once again into retreat on its rate hiking cycle. This was true even though that rate was far less than half its average.

The simple truth was, asset-price valuations had soared to a level that only made sense in an environment of ultra-low interest rates. It's the same for debt, which had climbed to a level that was untenable without near-zero servicing costs.

Today, the level of debt and asset prices have broken all previous records and valuation metrics. Therefore, it makes sense to assume that the level of interest rates necessary to topple the market and economy is much lower than the previous high-water mark of 2.5%. The Total market to GDP at the end of 2018 was "just" 123%. Today it sits at a perilously close to 200%. Similarly, Total Non-financial Debt was 260% at the end of 2018. This ratio now stands at 310%. This combination of record debt, which sits on top of a historic equity bubble, ensures that the Fed's next foray into normalizing interest rates won't last very long before the entire artificial edifice comes crashing down once again. This is especially true given the fact that the current rate of QE ($120 billion per month) is 50% greater than it has ever been before.

The fact is, Mr. Powell and his cohort of counterfeiters will never be able to normalize interest rates—not even remotely close. Forget about raising rates; they most likely will not even be able to exit QE this time around without cratering the markets. The only saving grace for investors will be to eschew the deep state of Wall Street's mantra of passively holding a diversified portfolio of stocks and bonds. Rather, they must actively manage these cycles between inflation and deflation. This has become especially imperative because each progressive boom/bust cycle is becoming more destabilizing and pernicious.

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.

© 2019 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