Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Time to Invest for Stagflation

Stock-Markets / Stagflation Apr 11, 2016 - 12:48 PM GMT

By: Michael_Pento

Stock-Markets

Whether you call it a 1970's style stagflation or, as we call it, a recessflation, investors need to prepare their portfolios to profit from a protracted period of rising prices in the context of zero growth. Here are some facts: Growth in the U.S. has averaged just 2% since 2010. However, Q4 2015 GDP growth grew at a 1.4% annualized rate and the Atlanta Fed model has Q1 GDP growth slowing to just 0.1%. The simple truth is that the rate of growth is slowing towards 0%, just as asset prices continue to rise to record levels due to vast intervention from central banks.


The U.S. is now in the process of moving away from an environment of disinflation and slow growth, to one of inflation and recession. Indeed, the entire global economy is careening towards an epic recessflation crisis.

Central bankers have bombarded the world with unprecedented levels of QE, ZIRP and NIRP for the past 7 years, which has produced a significant amount of inflation in equities, real estate and bond prices--especially in relation to income and GDP growth. Now, all this money printing has finally started to spill over into core consumer prices. In the U.S., CPI has risen 2.3% year-on-year, which is the largest increase since May 2012, and well above the Fed's 2% inflation target. The home price to income ratio has soared back to 4.4:1 and the ratio of total market cap to GDP at 117 is in extreme overvalued territory. This bubble in stock prices is evident despite the fact that the S&P 500 is in a revenue and profits recession.

But a recessflation isn't just an issue here at home. China exports fell 11.2% in January, while imports dropped 18.8% from the year prior. Yet, that sign of economic stagnation hasn't stopped home prices in Shanghai from soaring over 50% from January 2015!

What is the game plan of global governments to combat falling GDP growth and rising asset inflation? More stimulus of course. Japan's Prime Minister, Shinzo Abe, has proposed to increase government spending by 5-10 trillion yen in this year's fiscal budget to encourage more consumption. But Japan has already run budget deficits worth 8% of GDP for the past several years, which has piled onto the nation's government debt that is now nearly 250% of GDP. Nevertheless, despite over three years' worth of Abenomics (money printing and deficit spending), business sentiment in Japan hit a three-year low this March.

Over in Euroland, where ECB head Mario Draghi has been busy pushing sovereign debt into negative territory, he has now resorted to buying non-bank corporate debt. Indeed, 15 billion euro's worth of business debt now trades with a negative yield. Even debt in the primary market is being sold with yields less than zero percent. Mario Draghi has so distorted the capital markets that corporations are now being paid when they issue debt.

There are now $7 trillion worth of sovereign debt (30% of the developed world's total) with a negative yield.

Not to be outdone by her foreign counterparts, Janet Yellen (the Queen of the dole of doves that perch at the FOMC) promised recently in a speech before the Economic Club of New York to move slower than a frozen dead snail when raising the Fed Funds Rate. This was a clear attempt to prevent the dollar from rising any further against our major trading partners.

The truth is governments and central banks "solved" the Great Recession by creating the greatest global bubble in real estate, stocks and fixed income in economic history. Now the fuse has been lit for complete market chaos and the achievement of central banks' inflation goals will lead to its destruction.

Central banks are incapable of producing viable GDP growth. The only condition these money printers have ever been able to achieve throughout history is inflation. But inflation isn't the product of economic growth, nor does it come from a low unemployment rate--unlike what modern day Keynesians contend to be fact. It doesn't even come from the piling up of excess bank reserves. Rather, it comes from a deliberate government-led attack on the value of paper currency. It is accomplished through direct central bank monetization of humongous deficits. And, unfortunately for the world's middle classes, this is exactly where we are headed.

But what central bankers seem unable to understand is that economic growth comes from productivity; not a weakening currency. Inflation kills growth by destroying the purchasing power of consumers and savers, just as it also encourages huge capital imbalances and a massive accumulation of non-productive debt.

There's a tremendous shock coming to markets when it becomes clear that inflation and growth are not joined at the hip. And that governments were competent in their ability to create inflation, but completely whiffed on producing growth. In fact, history has proven that inflation coupled with recessions are the more likely pairing of economic conditions.

Until central banks learn that they aren't a viable alternative to free markets, we will suffer through steep recessions that are also marked with periods of both deflation and inflation. Investors must now be prepared to weather such volatile conditions. A dynamic strategy that incorporates the ability to own precious metals and also short the broader market is an essential hedge towards the goal of preserving the purchasing power of your wealth.

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 Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2016 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

© 2005-2022 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