Some Predictions For 2019

Bond Yields Continue to Fall in First Half of Year

The epoch bond bubble continues to build and become a dagger over the worldwide economy and markets. Wall Street Shills are fond of claiming that global bond yields remain at historically low levels due to central bank manipulations, but this argument is no longer tenable. It was once true, but QE on a net global basis has now gone negative. And the data shows the amount of U.S. publicly traded debt relative to GDP is much greater today than it was prior to the start of the Great Recession—even after adjusted for the size of the Fed’s balance sheet--in other words, taking into account all the debt the Fed has purchased and is still rolling over.

The amount of publicly traded debt in the U.S. has soared to 58% of GDP. This is up from 29% in 2007 when the U.S. 10-year Note was yielding 5%. The Fed is now selling $50b of bonds each month, with an extra $7.8T in publicly traded debt that it doesn't own; and that equates to nearly 2x the amount of debt compared to GDP than what existed just prior to the Great Recession. This debt must now be absorbed by the private market and at a fair market price, instead of just purchased mindlessly by the Fed…and yet yields are still falling. This means investors are piling into sovereign debt for safety ahead of the global economic crisis even though they understand that debt is, for the most part, insolvent.

Recession Begins Prior to Year’s End

The yield curve continues to invert and presages a recession that begins in late 2019. Meanwhile, the nucleus of the next credit crisis (the leveraged loan and junk bond markets) implode; as corporations need to roll over more than $800 billion of debt at much higher interest rates this year.

My Inflation/Deflation and Economic Cycle Model has 20 components. 19 out of 20 indicators are indicating we are about to enter into a recession. Only initial unemployment claims remain at a positive level. I believe GDP growth in Q1 2019 will have a one handle in front of it because the 2nd derivatives of growth and inflation are slowing significantly. Therefore, we are headed into sector 1 of my Inflation/Deflation and Growth Spectrum; where assets are falling sharply as the economy is deflating.

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, more

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