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The Clock is Ticking!

By: Michael Pento

As I said yesterday, if you borrow trillions of dollars over the course of a couple of years—most of which are printed—and you make money free for more than two years; you will get a little bit of growth but whole ton of inflation. Gold and oil are rising yet again this morning and the consumer is getting pinched by a surging cost of living that isn’t susceptible to core rate mollifications.

The Non-Farm payroll report for February showed that the U.S. gained 192k net new employees. Average hourly earnings rose to $22.87 from $22.86 in the prior month, today’s report showed. The average work week for all workers held at 34.2 hours. And the unemployment rate ticked down to 8.9%.

That is the good news and it is mostly in the rear view mirror. Now we have the following facts to deal with: companies are operating at peak margin levels, the S&P dividend yield is very close to the lowest in its history (1.71% vs. the average 4.35%), inflation rates that are rising and interest rates that are sharply rising off their all-time lows.

Most investors and main stream pundits are cheering the success and validation of Keynesian borrowing and spending economics. But I see things quite differently. What lies ahead now is the need for a massive contraction in private and public spending and at the same time a surge in borrowing costs as the Fed unwinds its balance sheet. Of course the above has to happen very soon before oil gets back to $147 per barrel, the dollar collapses, the bond vigilantes wake up and inflation destroys the economy.

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