Michael Pento – Crash in 3rd Quarter?

I like Michael Pento. He seems like a good guy, a Christian, trying to do right for his clients…which is a hard ask in an economy created by devious central bankers. I want to give him some space on this page.

I couldn’t imagine having to pay such close attention to the american economy being destroyed. If I had any spare cash I’d send it to him to manage.

As to his glimpse into the 3rd quarter…I do not know what it will look like, but certainly it will be worse than the quarters before it…because we know that centrally planning an economy is impossible, and only leads to the destruction of any trace of free functioning markets. It’s a takeover. Over time this leads to the ruination of a country. Will the crash begin in earnest in the 3rd quarter? Mr. Pento makes a pretty strong argument for it:

When Will the Party End?

I’d like to explain why these already-stretched markets could crash by the start of the 3rd quarter. I’ve been warning over the past month, or about, that my Inflation/Deflation and Economic Cycle Model SM is forecasting a potential crash in equities around the start of Q3 this year. Of course, this timing could change and I would only take action in the portfolio if the Model validates this forecast to be correct. Nevertheless, here’s why the bubble we are currently riding higher in the portfolio could burst around that time.

During the late Q2 early Q3 timeframe the following macroeconomic conditions will be occurring:

1. The second derivative of y/y growth and inflation will be surging.

2. As a direct consequence, Bond yields will be surging

3. Whatever tax increases to pay for the Biden administration’s stimulus packages should have been passed.

4. The next trillion-dollar COVID stimulus package will be months in the rear-view mirror and the $900 billion package signed by Trump in late December will be even further behind.

5. The chatter around Fed tapering its $120 billion per month bond purchase program will then reach a crescendo. Just look how the market sold off today on just a routine Fed meeting—one without the spiking inflation yet to come. By the way, Mr. Powell reinforced his record-breaking easy monetary policy.

6. Finally, the COVID vaccines will be close to reaching maximum distribution and their genuine efficacy and effect on the economy will then be known. If the vaccines work anywhere near as advertised, Powell indicated in his press conference today that it would be a strong catalyst towards normalizing monetary policy. Hence, the economy will then realize its maximum re-opening status–thus, putting further upward pressure on interest rates.

To sum up: we will have higher taxes, much higher interest rates and rapidly rising inflation. All this will occur at the same time the market will be worrying about front-running the Fed’s exit from record manipulation of bond and stock prices. There will be immense pressure on the Fed to cut back on monetary stimulus at exactly the wrong time: the cyclical peak of economic growth. Indeed, the ROC in growth will be on the precipice of rapidly falling during late Q3 and Q4 because of waning fiscal stimulus, the threat of reduced monetary stimulus and interest rates that are becoming intractable.

This will leave Mr. Powell with a huge problem. If the stock and bond prices are already crashing due to inflation (while the Fed Funds Rate is already at 0% and QE is at a record high rate, then the Fed won’t be automatically able to save the day by instituting more QE and rate cuts. While it is true that a central banker can easily fix a bear market caused by recession and deflation–simply by pledging to create more inflation–it cannot easily arrest a bear market if it is caused by spiking rates and inflation through the process of printing more money.

Powell may be rendered powerless to stop the market from plunging precipitously. It may only be in the wake of the carnage of a deflationary depression that Powell’s move to buy stocks has any real benefit. Only then will his printing press become effective. Alas, that will be way too late for those who suffered going over the cliff and the multiple years you have to wait to make up the loss. PPS is ready to protect our gains and profit from the coming gargantuan reconciliation of asset prices. In contrast, the deep state of Wall Street will buy and hold your retirement account into the abyss.

See more at https://pentoport.com/

Author: Robert Slye

Robert Slye is the editor and publisher of ManAndWar.com. Contact him at rs@manandwar.com

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