Fiscal Cliffs And The Self-Destructing Treasury

This is one of the reasons why monitoring the progression or regression of the virus is key. The longer it takes to produce a vaccine (if there is one coming that works and people actually get vaccinated) the further away from recovery the economy gets. And, the more reliant t becomes on continuous massive deficits and helicopter money. This is especially true given the recent surge in new cases and, more importantly, hospitalizations and deaths.

In contrast, the deep state of Wall Street will claim that once the virus dissipates into history, the fiscal and monetary crutches can be safely removed. However, the rate-rebellion that occurred during the fall of 2018 and the REPO crash in the second half of 2019, have already proved beyond a doubt that markets can't function on their own. This is exactly because asset prices and interest rates have been so egregiously falsified that any move towards mean reversion equates to economic Armageddon. After all, it is virtually impossible for interest rates to normalize in innocuous fashion when normalization entails the 10-year Note surging to 6% from 0.6%.

The Fed is now the 3rd largest holder of the biggest corporate bond ETF (LQD). And, it owns big positions in 15 other corporate bond ETFs--including junk bonds. You can forget about our central bank ever selling these holdings. However, whenever Mr. Powell stops buying these assets, the carnage will begin. Unfortunately, this is the mandatory result that will occur when a record number of insolvent junk bond issuers get to borrow a record amount of money at the lowest rates in history.

A successful money manager needs to stay on top of all these dynamics in order to correctly allocate a portfolio. And, knowing how to navigate these cycles of inflation and deflation is an investor’s only chance for improving their standard of living.

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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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Angry Old Lady 9 months ago Member's comment

Are those of us who are retired eligible for PUA?