US stocks are at their most expensive levels in over two decades, mirroring the dot-com boom, followed by a 50% S&P 500 crash. The Federal Reserve's firm stance on higher interest rates and bond-market turbulence has made the equities market cautious, leading to a dip in the S&P 500's year-to-date gains. Michael Pento, President of Pento Portfolio Strategies, warns that the stock market is significantly overpriced, citing high price-to-sales and total market capitalization to GDP ratios. One of the critical issues he highlights is the overly optimistic earnings projection for 2024, which anticipates a 12% growth in earnings. Even if inflation remains at low single digits, achieving a 12% earnings growth appears increasingly unrealistic.
Adding to the concerns, Michael highlights issues related to the reverse repo facility and the presence of stressed bank assets. There are over a hundred billion dollars in stressed bank assets, which he describes as "festering." These assets were provided to banks at par value despite trading at a fraction of their actual worth. The Federal Reserve's plan to return these assets to the banks is anticipated to bring significant financial stress to the banking sector.
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Credit: Liberty & Finance
"There Is No Pain-Free Escape" | Michael Pento
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