财经观察 2192: Next Leg Down be painful

Next Leg Down Will Be "More Painful Than The Last," Pento Says

Posted Sep 16, 2009 08:00am EDT by Peter Gorenstein in

Puzzled by the strength and duration of the stock market rally? Michael Pento, chief economist at Delta Global Advisors, says it all makes perfect sense. "If the Federal Reserve is going to pay you less than 1% to deposit your savings... what are you going to do with that money?" Hence, the rally off the March lows.

Unfortunately for investors, Pento argues the rally is meaningless because our "purchasing power… is eroding everyday" as the U.S. dollar continues to lose value. "You can't sit back and say since the S&P (500) is up over 50% that happy days are here again," he protests.  "You have to look at it in real terms."

To put it in perspective:  Pento claims, "if you bought the S&P 500 on December 31, 1999 you're down 50%, in terms of U.S. dollars." And next to gold, the comparison is even worse, "you're down 79% in the last 10 years. It's no wonder why investor feel they're under the weather," he says.

So what's an investor to do?

He recommends buying hard assets like gold as a hedge on inflation. (A topic we discuss in detail in a forthcoming segment.)

And, if you own stocks, stay long, until the Federal Reserve starts raising rates "aggressively," Pento suggests. "When they do raise interest rates, since the debt of the nation is growing at a 4.1% annual rate, the next time down is going to be much more painful than the last."

Let's hope either he's wrong about the market's fate or the Fed's ability to manage its exit strategy.