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
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
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

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Economic Recovery's New Clothes

Economics / Economic Recovery Mar 17, 2014 - 04:25 PM GMT

By: Michael_Pento

Economics

I sometimes feel that the economy is living out the Hans Christian Andersen's fable called "The Emperor's New Clothes". He wrote the story back in 1837 about a vain emperor who hired a couple of charlatans that promise to make him the finest robes out of invisible thread. They convinced the Emperor that anyone not appreciating the sartorial splendor of the two swindlers should be deemed hopelessly stupid and unfit for their positions.


The current economic "recovery" and stock market rally have many similarities to Mr. Anderson's work. The underlying fundamentals behind the S&P 500's 180% advance since March of 2009 should be blatantly recognized as phony, even to a child. Yet traders and economists appear to willingly overlook the nakedness of it all.

There has been a subpar increase in personal income, employment, corporate revenue and GDP since the supposed end of the Great Recession back in the summer of 2009. But the key point to understand is, whatever phony growth that has been achieved came from governments' ability to borrow and print enough money to keep asset prices from plummeting. One can't say that equity and real estate values are soaring once again because the economy has healed, and therefore, it's has nothing to do with the Fed. Without the support of protracted and humongous monetary welfare, gratis of the central bank, debt levels, money supply and asset prices would need to contract to a level that can be supported by markets-rather than by government decree.

For example, the U.S. has incurred an additional $6 Trillion more in total debt than it had at the end of 2007. What our government and central bank have been able to achieve is set in stone our economy's addictions to debt, low interest rates and money printing by taking all of those conditions into incredible extremes. The Fed has kept the short end of the yield curve at zero percent for over five years and promises to keep interest rates there for as far as its eyes can see. Our central bank has also increased the amount of high-powered money from $800 billion to $4.2 trillion-and that number is still growing.

The economy and markets are much further away from removing the hand of government manipulations than at any other time in our nation's history. There has been no structural or entitlement reforms done at all. In contrast, Washington has succeeded in piling on an additional entitlement program (The Affordable Care Act), which the nation has no capability of paying for, adding to the myriad of entitlement programs that are already insolvent. Nothing of substance has changed for the good, only the government's ability to massively increase the amount of aggregate debt outstanding and appear to remain solvent by temporarily servicing that debt at an artificially-low rate.

Economically sensitive markets are clearly exclaiming that this recovery is naked. Industrial metals like copper have fallen 17%, while aluminum is down 10% YOY. Also, emerging market currencies and equity markets are reeling from the end of the dollar carry trade. However, faltering economic data in the U.S. has been conveniently and summarily dismissed due to winter's snow. But unless we are headed into another ice age, the excuse of cold weather will soon be undressed with the spring thaw.

The hole in the weather excuse is that the entire globe is showing signs of weakness. Chinese exports tumbled 18.1% from the year ago period, while the Shanghai stock market was down 12.5% during the same time frame.

The obscene amount of money printing by the Bank of Japan has caused the current account deficit to hit yet another all-time record high. The deficit for January was 1.59 trillion Yen ($15.4 billion) and the overall economy grew just 0.7% on an annualized basis in the final three months of 2013. This was a downward revision from the initially projected 1% growth rate.

The government of Japan is a paragon of the Keynesian experiment to avoid a cathartic recession by forcing higher the rate of money supply growth, depreciating the currency, levying new taxes, creating more inflation and drastically increasing the amount of aggregate debt outstanding. It has been well over a year since Abenomics took over in Japan and its failure should be nakedly obvious. Soaring debt levels, huge trade imbalances, a plummeting currency, a sputtering economy and insolvency are the tradeoffs for a stock market that is rising in nominal terms, and not yet back to the where it was before the Great Recession began over five years ago.

Given the above facts, it seems silly to buy into the belief that the global economy is on a sustainable growth pattern. Yet, the overwhelming majority of market pundits purport that fable to true. Perhaps, it is just more expedient and profitable to agree with what our leaders tells us is the truth, rather than to trust what our own eyes see and conscience dictates.

The sad truth is that global governments, in cooperation with their central banks, have now rendered much of the developed world insolvent. And that condition will be made evident to all once interest rates rise and the artificial support of bonds, stocks and real estate is finally, either voluntarily or involuntarily, removed.

For now, investors have decided to ignore the obvious and pretend that the economy-much like the townsfolk in Anderson's story--is in "excellent and magnificent" condition. But, once the economy crashes yet again, we will understand with the clarity of hindsight that the recovery was completely bare.

Michael Pento 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.
       

© 2014 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