Some Predictions For 2019
Some Predictions For 2019 by Michael Pento – Gold-Eagle
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.
Trade War Truce
The Main Stream Financial Media will continue to obsess over Trump’s twitter account to find out if some U.S. trade delegation met with someone in China and had a nice conversation. And, if President Trump announces that General Tso’s chicken is his favorite meal.
Trump will end the trade war soon and claim that it was the biggest and greatest deal in human history. Hence, my prediction: the tariffs against China are lifted in Q1 2019. This is what all the perma-bulls are waiting for. But that isn’t going to bail out the market. A trade deal with Mexico was reached back on August 27th, but that didn’t stop its stock market from crashing 20%. And it won’t help the U.S. market for very long either.
Debt and Deficits Soar Globally
Sovereign debt skyrockets at an even faster pace than the breakneck speed witnessed since the Great Recession. In this same vein, in the U.S. the federal budget deficit surged to a record for the month of November to reach a negative $204.9 billion. The Treasury Department says that the deficit for November was $66.4 billion higher than November of ’17. For the first 2 months of this fiscal year, the deficit totaled $305.4 billion, up 51.4% from the same period last year. Deficits this high outside of a recession are both highly unusual and dangerous.