Michael Pento continues:

“U.S. second quarter GDP was revised significantly downward last week, from the previously reported 1.7%, to just 1.3%.  The paltry 1.3% reading on GDP followed a first quarter print that was already an anemic 2%.  Also reported last week was the worsening state of consumer’s income. 

Their take home pay (after taxes) dropped 0.3% in August, as their savings rate fell to just 3.7%, from 4.1% during the prior month.  Another worrisome report showed that in the month of September, manufacturing activity in the Chicago region contracted for the first time in three years according to the MNI Chicago Report (released on Friday).

But that weak and worsening economic data didn’t stop investors from sending stocks higher.  The Dow Jones Industrial Average climbed 4.3% and the S&P advanced 5.7% in the third quarter....

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“However, any economic growth to support those moves was seriously lacking.  Over the last quarter, the simple reason behind the ebullient stock market was the Fed’s persistent threat to launch a massive amount of debt monetization.  Mr. Bernanke followed through on that threat by announcing an open-ended counterfeiting scheme on September 13th.

Turning to Europe, the situation is much the same.  Spanish unemployment has reached 25%, and the bank of Spain warned last week that the country is in a ‘deep recession’, which will be its second in the last three years.  Also, an audit of Spanish banks indicated that $76.3 billion of capital will be needed for their banks to ride out the next recession, and that paved the way for the troubled nation to ask for an international bailout.

However, that negative and deteriorating news didn’t stop Spain’s IBEX 35 from climbing nearly 30% in the last two months!  That’s because on July 26th Mr. Draghi promised to do ‘whatever it takes’ to save the Euro, which coincided perfectly with the turnaround in Spanish stocks, and the drop in their 10-year note yield from 7.6%, to 5.9%.

Joining the Fed and the ECB’s recent efforts to push stock prices higher was the People’s Bank of China.  The PBOC injected a net $57.9 billion into money markets last week, which was the largest in their history.  The market’s reaction was swift and profound, sending the Shanghai Composite up nearly 5% in just three trading days.  The move higher was achieved despite the fact that manufacturing activity in China during the month of September remained in contractionary territory for the 11th consecutive month, and their GDP continues to falter.

The U.S. is headed over the fiscal cliff and into another recession, but who cares?  Investors can’t sit in cash while the Fed is destroying the purchasing power of the dollar.  Europe is in recession and its Southern nations are flirting with a depression; but it just doesn’t seem to matter.  You can’t hold bonds when the ECB is rapidly inflating the Euro and pushing real bond yields further into negative territory.

China’s growth rate is plunging, and a substantial portion of their economy has been in recession for almost a year.  However, it isn’t enough to stop shares from turning higher.  You can’t hoard renminbi if the PBOC is flooding the banking system with new money at a record pace.

Of course, this investing is being done out of desperation, in an effort to keep ahead of inflation; and in no way represents the hope that real growth will resume anytime soon.  In fact, these counterfeiting efforts will ultimately do serious damage to the economy.

But investors should never fight a central bank that has pledged to do everything in their power to prop up asset prices.  A firm commitment from those that control the currency to systematically destroy its value, renders investors with no choice but to plow money into precious metals, energy and agriculture.”

To learn more about Michael Pento’s financial management services CLICK HERE. 

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with Michael Pento, Don Coxe, Pierre Lassonde, Rick Rule, and Nigel Farage are available now.  Also, be sure to listen to last week’s line-up of other KWN interviews which included, Ben Davies, Dr. Keith Barron, Jean-Marie Eveillard, Bill Fleckenstein, Egon von Greyerz, and Felix Zulauf by CLICKING HERE.

Eric King

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© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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