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Video: The Worst Part of the Bear Market is Dead Ahead

By Tom Winnifrith | Friday 23 September 2022


Asset manager Michael Pento says the bear market is here to stay, and the next phase is coming:  so far we’ve only experienced the opening salvo.

He argues that Wall Street will soon realize that earnings are in decline and that we’re in a global recession with hawkish global central bankers. The market bottom might be around 3300 on the S&P but that is optimistic. Total equity valuations remain considerably overvalued, and they need to correct to fair value.

Pento says that the yield curve is more inverted than any time in the last forty years. This normally signals recession, and this time is no different. The Fed is buying all the assets, causing interest rate repression. There is no mystery as to the causes of inflation, it’s money printing. The Fed has to raise rates to 4% by March 2023. Michael says, “The fact the Fed thinks they can get to four percent and do 95 billion a month in QT is asinine. The Fed is having a very difficult time controlling inflation, and now they don’t care what happens to the economy. They cannot pivot, they have to regain credibility. This will be one of the deepest recessions we have ever seen."

He argues that the Fed really has no clue about anything, especially the causes of inflation. There has been almost no job creation this year. We’re seeing inventories build, which is boosting Q3 GDP, but that won’t last. Inflation is a massive embarrassment to the Fed, but they will destroy the economy and markets to accomplish it.

Pento argues that Government is fighting inflation by giving away more money and cancelling student debt. More money isn’t going to make college more affordable. So it is just creating more demand for services, which will just cause prices to rise further. Subsidies do not fight inflation. We need to increase the supply of goods and services by improving productivity. We’ve done everything we could to kill productivity through the pandemic.

Tax receipts always fall in recession, and debt service payments are increasing quickly for the government. The national debt is skyrocketing, and a fair interest rate would probably be in double-digits. There are no easy answers in the current system. The negative effects of the rate hikes have barely begun to be felt. Pento says that Inflation always peaks during recession, don’t listen to the pundits who claim we’ve peaked.

The four horseman of the economic apocalypse are cash, U.S. sovereign debt, the dollar, and shorts. If you own those four things, you will probably not lose money in this bear market. You might even make money. It’s clear we’re heading to a liquidity crisis. You want flexibility in this environment. When rates and the dollar begin to fall sometime in 2023 you will see gold rally.

All this is explained in the latest podcast from Palisade Capital.

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