Author Archives: pmontesdeoca

Pento, “Stock Market Will Fall at least 50%”

 

In a recent interview, money manager Michael Pento of Pento Portfolio Strategies predicted a collapse of the global bond market and a fall in stock prices of “at least 50 percent.” He recommended gold and silver as a hedge against the coming collapse.

 

Pento said that Yellen and the Fed think they have solved all the problems from the Great Recession. “They believe that now. . .they can slowly raise interest rates.” He believes that this policy will “pop the bond bubble…[and]…lead to the worst recession in the history of world economics.”

 

The European Central Bank (ECB) announced they are going to start tapering off their $80 billion a month of easing. “You are going to see a bond market revolt,” Pento said. The free market is going to aggressively start shorting bonds, which will lead to a spike in yields in Europe, which is going to drag up bond yields across the globe. “That’s when this thing will all unravel and unravel very, very quickly,” Pento said. He foresees a bond bubble collapse and “global chaos,” based on the $230 trillion in global debt.

 

Pento also sees chaos coming in the currency markets. He said, “The dollar hasn’t gone anywhere but down this year, even though the Fed has announced three rate hikes.” He predicted that if the ECB raises rates, “Our dollar is going to collapse.” If the ECB starts tapering, a massive number of bonds will hit the market, which will increase rates to the European inflation rate of 2%. This process will lead to “chaos in equity prices” and “will derail the world economy,” which is based on “artificially low interest rates and debt.”

 

Pento believes that President Trump will “probably do an explicit default down the road,” but first he will do “what banks and central banks do best throughout history; default on debt through inflation.” He predicts the Fed will raise rates twice more this year, until the rate is about 1.75%. The economy will grind along; Q1 GDP was 0.9 percent. “We’re going to raise interest rates, flatten out the yield curve, and at that point inflation breakeven rates will contract. Whenever the yield curve flattens, the money supply shrinks, and we’ll have a rapid increase in real interest rates.” Then, we’ll be “right back in the middle of August 2008.” The Fed then will take back their “pitiful handful of rate hikes,” which is “not going to help.” The Fed will have to “do direct purchase of assets held by the public, as Japan does; buying stocks from the public or directly buying bonds from the government.” He predicts a “massive bout of stagflation.” He pointed out that during the 1970s period of stagflation, there was “no solace in a balanced portfolio; stocks went nowhere, bond prices got crushed.”

 

Yellen said she would raise rates four times in 2017 and another four or five times in 2018; that did not happen. The last thing, Pento said, the Fed or President Trump wants is a strong US dollar. Pento said, “The economy cannot handle aggressive rate hikes.” Such a policy would “cause a massive correction in stock prices,” which the Fed and the government do not want.

 

So why is the Fed raising rates? Pento said, They “want to put bullets in the chamber so they can lower interest rates when the recession hits. As long as stocks rise, they will raise interest rates.” The Fed repeatedly creates asset bubbles, piles up debt, raises rates, and then stocks, bonds, real estate, and the economy collapses. “That’s their MO,” Pento said. “They are going to do everything they can to rebuild the asset bubbles,” he said, “but it’s going to take a lot more than lower interest rates. They will have to have helicopter money, but only after a depression.”

 

The recession of 2007-9 was caused by a 1% Fed funds rate for one year and a housing bubble, even when the Fed still had a 5.25% interest rate to lower. There are “far more bubbles today,” Pento said. The debt was $10 trillion, while US national debt today is $20 trillion. Japan has a 250% debt to GDP ratio, an inflation target of 2% and a 0% 10-year note. The same thing is happening in Europe and China. Pento said that China has more debt than anyone since the Great Depression. They have built huge infrastructure projects, but they are not productive, with empty roads, airports and even cities. US stocks are, by almost any measure, “at all-time record highs.” “GDP has been artificially boosted by 100 months of artificially low interest rates,” and, Pento said, the Fed has “fixed absolutely nothing. They made the economy more and more artificial and more and more reliant on free money.”

 

Pento warned that the “deflationary collapse is coming.” He said he is buying utilities, 10% in precious metals, and shorting high yield and small cap stocks. He said, “The market is a bubble and it’s going to fall at least 50% before Yellen starts the helicopter money. You should have at least 20% to 25% that will hedge against intractable inflation or deflation as in 2008, 1987 and 1974, when the market lost a great deal of its value. “Volatility is down to single digits,” Pento said, “because everyone knows what is going to happen. The Fed gives endless free money. That is ending now. They are going to break and break hard.”

 

Pento said, “I believe the bond market collapse happens this year. It’s already started.” Rates are inching toward 3%. “It will invert quickly and hard. More likely it starts in Europe.” He thinks the ECB will see a bond market revolt and an aggressive shorting of bonds. The change will happen suddenly, he said. Pento recommended looking at the chart for the Greek 2-year note in 2012, “to see how things can look calm and then boom.” The Greek note went from the low single digits to 300% in a matter of months. A similar tipping point is looming for the global economy, Pento warned.

Gold to jump $200 by end of the year, Bank of America says

Bank of America says to bank on gold  

Gold may be under pressure in the run-up to the next Federal Reserve rate hike, but prices are expected to rally by around $200 by the end of the year, according to the corporate and investment banking division of Bank of America.

In a research note Thursday, analysts at Bank of America Merrill Lynch highlighted its recent dip but said there were reasons for optimism. “While tighter monetary policy is not bullish, inflation and a range of uncertainties, including European elections and protectionism should support the yellow metal. As such, we see prices at $1,400 (per troy ounce) by year-end”.

The note further explained that following the initial sharp move on November 8 after the election victory of U.S. President Donald Trump, a number of market participants had taken a “wait and see” approach, suppressing volatility across asset classes.

“The decline in volatility across asset classes is particularly notable given some of the massive policy shifts currently under debate in the U.S. and Europe. In our view, the market seems to be ignoring the large and growing risks of U.S. or U.K. policy mistakes and the upcoming electoral cycle in Europe,” the report said.

Gold bars

Akos Stiller | Bloomberg | Getty Images
Gold bars

Gold is down more than 7 percent since the day of the U.S. election but the precious metal has managed to pare some losses and is up nearly 5 percent since the start of the year. Gold is highly sensitive to rising U.S. interest rates because they increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced.

With speculations rife that the Federal Reserve will hike interest rates at its policy meeting next week, gold hit a five-week low on Thursday but remained cautious ahead of Friday’s non-farm payrolls. Analysts expect a strong jobs number could lead to bigger expectations from the Fed for a rate hike.

“Gold remains under pressure as markets await the upcoming FOMC (Federal Open Market Committee) meeting, when the Fed is expected to raise rates,” UBS said in a research note on Wednesday.

“This week, the focus is on employment data. Given recent Fed member comments and current market expectations, the data would need to be significantly weak in order to alter the outlook on Fed policy.”

UBS expects gold investors to stay on the sidelines for now, keeping price action relatively subdued until the next set of catalysts are out of the way.

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What is Fibonacci Telling Us About Silver? SPECIAL REPORT

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In a report today Patrick MontesDeOca, CEO of the Equity Management Academy, forecast silver reaching $19.00.

In a February 10 report, MontesDeOca said, “The magnitude of the rally pretty much fulfilled the profit objective for this leg that started in December.” He predicted that silver would go down to $17.12 to $16.76,” although it could move down to $16.76, which would be a 50% Fibonacci retracement. Below that, he said, “We are looking at a 61% retracement to $16.50.” Turning to the VC Price Momentum Indicator, MontesDeOca said, that it indicates that the market had activated lows of $17.12 to $16.75, with “a high probability of $16.75 being reached over the next several weeks.”

Today, the last is $16.9350 and the recent low was $16.8550. Therefore, MontesDeOca said, “We are coming down into the low end of this target zone of $16.75.”

Looking at the levels of resistance and support, MontesDeOca said, “On the upper end of the chart, we see resistance levels measured from the highs made in August of last year. The market broke through this trend-line resistance activating the second-level, but failed to close above it. It came down precipitously on March 2 and closed below it the first level of support, which activated a short-term correction and brought the price down to the low that we saw today of $16.8550.”

“If you look at the market and measure from the recent low of $15.68 to the recent high of $18.54,” MontesDeOca said, “we can see here basically a correction that leads us right into almost a 61% Fibonacci retracement correction with the golden ratio number of $16.74.” He explained that the level of $16.96 is basically the first target from the high that we saw back in August and the recent December lows. He said the market has come back down to the 23% Fibonacci retracement long term, but short term it has accomplished close to a 61.8% retracement. He said the market is near some “major levels of support.”

“If we add the VC Price Momentum Indicator,” MontesDeOca said, “which are the codes that we use to identify where we are in relation to all the other metrics we use, we are in a major harmonic level where we are joining the daily signals that are telling us to buy at these levels with the weekly levels.” He said, this convergence “Identifies the highest probability for us to go long” to make a profit.

Where are we going from here?

“The market has activated a daily buy signal of $16.89,” MontesDeOca said, “a buy-two level is pending at $16.75. The weekly is recommending that if we close above $17.10, it would activate a weekly buy signal, and a breakout would occur on a close above $17.42. So these levels, particularly closing above $17.42, would activate the upper end of this target zone, pointing us toward $19 for the silver market.”

For more information on the criteria to join the Academy’s select group of investors or to see every trade recommended by the VC Price Momentum Indicator for the past few years and its impressive rate of return, please email support@ema2trade.com or call 805-418-1744.

WHAT IS FIBONACCI TELLING US ABOUT SILVER? PODCAST

 

 

For more information on the criteria to join the Academy’s select group of investors or to see every trade recommended by the VC Price Momentum Indicator for the past few years and its impressive rate of return, please email support@ema2trade.com or call 805-418-1744.

Silver Correction Completed?

 

 

Patrick MontesDeOca, CEO of the Equity Management Academy, today recommended that short traders take profits and get back on the long side of the silver market.

In a February 10 Equity Management Academy report, “Silver Fibonacci Intermediate Targets Completed,” MontesDeOca discussed the more than $2 rally since December. The report said that if the market fell below $17.80 for the week, we would be looking for a correction. He said, “It’s an example of harmonic timing with all the daily and weekly indicators aligning. There’s a high probability that when prices reach these levels, traders should take profits.” He said that there is a “significant potential for a correction,” which, he said, will test the $17.59 level, with $17.47 the lower-level target.

Where are we now?
Today, March 7, the low was $17.4950. MontesDeOca said, “We’ve seen…as expected on February 10 the correction coming down to the $17.59 to $17.47 area.” The market ran up to above the Fibonacci trend line of $18.29. Although the market has given a short-term buy signal, MontesDeOca said, “The market pretty much caved in to that resistance and came down on the second of March to test the lower levels of support where we are today: testing $17.4950.”

Where are we going from here?
“The market appears to have made some kind of a descending wedge right into the Fibonacci trend lines of support,” MontesDeOca said. It is a continuation pattern, just as occurred back in January. He believes that the market is consolidating “before the market continues its upward trend.” Descending wedges are bullish.

“If the market closes above $17.85,” MontesDeOca said, “it will break out of the wedge,” and we will be looking for targets as high as $18.65 all the way up to $19.01. He believes this is the high that will be achieved before the usual seasonal drop in the first or second quarter. “The market is stabbing right into a harmonic level of support at $17.67 down to $17.10. It’s the best time to take profits on shorts and get back on the long side.” He is anticipating a reversion to the mean to take the market back to $18.86 and $19.00.

For more information on the criteria to join the Academy’s select group of investors or to see every trade recommended by the VC Price Momentum Indicator for the past few years, please email support@ema2trade.com or call 805-418-1744.

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