• 13 hours Tesla Set To Deliver 1 Million Electric Vehicles Next Year
  • 1 day Holiday Spending Already Soaring Amid Pandemic
  • 2 days Another Stock Market Crash Could be Looming
  • 3 days Trump Loses Another Leg Of The WeChat Battle
  • 4 days DOW Plunges Amid WInter COVID-19 Surge Fears
  • 5 days Big Profits Are No Longer The Top Priority For Oil Investors
  • 6 days Banksy’s Littered ‘Monet’ Sells for $10M
  • 8 days Three Renewable Energy IPOs To Watch
  • 9 days Bitcoin Nears $13,000 As PayPal Joins The Crypto Fray
  • 10 days DOJ Declares The Obvious: Google Is A “Monopoly”
  • 11 days Alibaba Is About To Make History Again
  • 12 days Robinhood Users Are Latest Target Of Pandemic Hackers
  • 14 days The Hydrogen Boom Will Provide A $200B Boost To Wind And Solar Energy
  • 16 days Will The 5G Rollout Overshadow This Major Merger?
  • 16 days Corporate Bitcoin Holdings Boost Crypto Confidence
  • 17 days Indonesia Rolls Out Augmented Reality Innovation To Combat COVID
  • 17 days Banks Are Getting Rich On Pandemic Overdrafts
  • 18 days The Real Reason China Is Betting Big On Renewables
  • 18 days Europe Wants To End The Big Tech Monopoly
  • 19 days New Breakthrough Could Transform Rare Earth Mining
How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Michael Pento

Michael Pento

Pentoport

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…

Contact Author

  1. Home
  2. Markets
  3. Other

Markets Should Fear Central Banks More Than Trump

Trump’s economic agenda has become further delayed by what seems like daily leaks from the White House. This may finally bring about the long-awaited equity market pullback of at least 5 percent. However, what will prove to be far more troubling than Trump’s ongoing feuds with the DOJ and the press, is the upcoming market collapse due to the removal of the bids from global central banks.

The markets have been feeding off artificial interest rates from our Federal Reserve and that of the European Central Bank and the Bank of Japan for years. In addition, the global economy has been stimulated further by a tremendous amount of new debt generated from China that was underwritten by the PBOC. After it reached the saturation point of empty cities, China is now building out its “Belt and Road Initiative” that could add trillions of dollars to the debt-fueled stimulus scheme that has been spewed out over the world-wide economy.

Adding to this, the NY Fed just informed us that households are spending like its 2008. In fact, Americans are now in more debt than they were at the height of the 2008 credit bubble – a new high of $12.7 trillion - exceeding debt loads right before the entire financial system fell apart. In fact, Total U.S. debt has now reached 350 percent of GDP.

The perma-bulls on Wall Street argue this willingness to take on debt demonstrates optimism among banks and consumers about economic growth. But the truth is the bull market in equities has been fueled by a record breaking pace of Central Bank money printing and an unsustainable accumulation of global debt that has reached $230 trillion, or 300 percent of GDP.

Right now, the daily leaks out of the White House are sucking all the oxygen out of the room. But worse, they are delaying what Wall Street really needs to sustain the illusion of economic viability--a massive corporate tax cut that is not offset by eliminating deductions or reduced spending. After all, the market is in a desperate need of a reason to justify these valuations now that the Fed has abandoned Wall Street—at least for the time being.

But the truth is this extremely complacent and overvalued market has been susceptible to a correction for a very long time. But just like Trump, it has so far behaved like it is coated in Teflon. North Korean Atomic bomb tests, Russia election interference, Trump’s alleged obstruction of justice, an earnings recession, GDP with a zero handle; who cares? As long as a tax cut could be on the way and global central banks keep printing money at a record pace, what could go wrong?

It is still unclear if the latest Trump scandal provides an opportunity to yet again overlook these salient facts and simply view this sell off as just another buying opportunity. However, in the longer term we believe that the inevitable exodus of Central Bank manipulation of interest rates is going to bring chaos to the major averages, as it blows up the asset bubbles that have been underwritten by the mountain of new debt purchased by these same banks.

The Fed has ended its QE programs, for now, and is marching down the dangerous path of interest rate normalization. And the ECB will be forced to follow shortly. It is then that these bankers will realize that the record amount of debt they sponsored requires a record low level of debt service payments to keep the solvency illusion afloat. Once this bond bubble pops it will prove devastating for those investors that have been inculcated by central banks for decades that every single down tick in stocks is a buying opportunity, along with the mistaken and dangerous belief that active investing should have gone extinct long ago.

By Michael Pento, President and Founder of Pento Portfolio Strategies

Back to homepage

Leave a comment

Leave a comment