Has the "V" Arrived?

By Michael Pento | August 26, 2009 | 1:37 PM | 10 Comments

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It looks like the "V" shaped recovery has now arrived. We have new and existing home sales on the rise as autos are flying off the lots. Oil is back to over $70 a barrel and copper is up over 80% in just eight months. The dollar is down 13% in just 5 months as well. Things are starting to look great, just like they were prior to the collapse of the last bubble.

 Consumers have once again eschewed savings and started to increase their debt. And they now have an auto payment instead of owning a fully paid off clunker. The government is running up record levels of debt in order to recapture the good old days. They have even been creative enough to think of paying people to buy cars and houses.

The Fed also has earned much praise for these accomplishments. Their plan is simply brilliant. Since a 1% Fed Funds rate engendered a worldwide credit bubble back in the early part of this decade, just think what they can create with a zero % interest rate"”especially since it will be in effect for a longer time span!

As long as our portfolios go up and our homes stop falling we will all feel great for now. Let's worry about the fact that the national debt will double in just 10 years at some other time. We can worry about inflation and the dollar down the road as well. The important thing is that our government gets us consuming again. The only thing more important than that is to have those in power maintain their position while they destroy the country's future.

Michael you have been bullseye, deadcenter, here of late. Most folks don't seem to understand but you do.

Keep spreading the word

thank you sir!

Good to see you posting more frequently Mike, I always enjoy reading your material.

Thanks Bulleri for your long term support.

All the time! What's there not to love?

EEJS

The govt has thrown so much money at the problem that it has temporarily stabilized the economy. But this comes with a lot of consequences, and the current expansion of the money supply is not sustainable because it will kill the value of the dollar and create a big inflation problem in a few years. That is why I feel gold is one of the best asset classes to invest in currently given its safe haven status and that it is denominated in dollars. Here is a further discussion on these issues and its potential effects on the gold price

The government has fixed our debt and inflation additction with a massive dose of same. For me, I'll own real money who's value can't be stolen by government.

Mr. Pento,

First I would like to say that it is a welcome comfort to see more knowledgeable people become more vocal; the civil involvement of private citizens has always been the strength of any nation, and human creativity will always prove to be a better mechanism than governmental institutions. Also, I can attest from person observation that sound reasoned advice that individuals like you are giving are informing and helping other Americans as they take steps to protect themselves"”and once again, America will have to prove that can become a world power not because of politicians, but in spite of them.

Your personality and attitude are also a welcomed sight in that I think many people who argue along similar lines have been too accommodating to the other side, which would not be in itself a bad thing, only that the green-shooters present nothing more than empty hope that lack any argumentation, or they retort with the bland unimaginative, "what else could the government have done?"

If the Western World takes such pride in tracing its origins to the ancient Greeks, then perhaps we should begin to share their same intolerances"”the two things considered utterly intolerable to these Ancients was poor reasoning and bad poetry. Again, these "experts" should be scorned and tossed out when they engage in the practice of ignorant argumentation, declaring war upon reason, and making common sense the first casualty.

Not only has the government and the Fed done all the wrong things, but anything they do at this point is probably and utterly pointless because most Americans that can even still participate in the markets have no more trust in them. Not only are Americans not going to buy houses on a significant scale, but they're doing just the opposite: Americans that can afford their mortgages have stopped paying them. I live in a fairly affluent upper middle class area and I know many people that have just stopped paying their mortgages, not for financial reasons, but because they know the banks can't and won't foreclose"”and they've been doing this for a year or more. Certainly the Fitch release concerning prime mortgage cure rates is a disturbing percentage (~6.6%).

As word gets around, more and more people will be doing this. However, if we listen closely to their reasons and make a psychological evaluation, these people haven't stopped paying to take financial advantage or to try to cheat the system, after all, they've led responsible lives for most of their time: they're doing it because they're tired of the Wall Street bailouts and Crony Capitalism"”which any free market Capitalist finds utter deplorable; whereas socialism is viewed more as unsound. And these people are certainly not going to return to the stock market which is skyrocketing based on, well, no reason at all"”which only feeds the notion that it's all becoming rigged and manipulated. Just give it a few more months of people paying higher credit card rates.

There is no economy to be built if the very fabric that holds a healthy economy together is undermined: trust and rule of law. The danger that is beginning is that people independently and on a very increasing scale are quitting the economic system, and then where does it go from there? And then we have to hear from Mr. Bernanke about how he had to hold his nose when he bailed them out, and implies that the economy is in too fragile of a state for a mass investigation of fraud and corruption. Then people unconsciously or silently think to themselves: what kind of society are we in when we become too fragile for justice and rule of law? Where when the rules can be changed arbitrarily when circumstances are deemed exceptional, thus, giving birth to level 3 asset book keeping.

And as the Cronies talk about recovery, people will think: have we recovered anything when we've been chained to debt by Wall Street Financials? If the actions of Judge Rakoff are only the beginning, then we have one hell of a storm brewing; and if Judge Rakoff is somehow neutralize then we have an even bigger storm coming"”politicians will once again discover the disastrous consequences of losing legitimacy in the eyes of the public.

Again, it is refreshing to see more people like you become vocal and make a stand that I think is quickly going beyond just economic principles"”and once again, if America is to save itself it will be because of its citizens in spite of its politicians. Once again, we will hopefully rebuild an America where hard honest work actually pays off, and not because you can get free money out of the Federal Reserve's Discount Window, and banker welfare from Capital Hill.

You sound well informed and intelligent. I only hope there's enough people like us who care more for the country than their personal accumulation of wealth and power. i have my doubts though.

Youre correct Michael:

A V shaped recovery is a long term disaster for the economy. We actually need a slow U. A long slow U will mean we are dealing with the economic imbalances that caused the recession. A V means we are printing money, borrowing and going further into debt. A V recovery will last no longer than 3-4 years at which point we'll have a collapse brought about by another asset bubble popping or high inflation. A U recovery can go on for 8-10 years. The policy makers have chosen short term sugar high in exchange for an even worse recession in the 2011-2014 period

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