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Michael Pento: Fed will have to Crash the Housing Market to get Inflation Under Control

Tom welcomes back Michael Pento, President and Founder of Pento Portfolio Strategies, to the program.

Pento discusses the impact Russia will have on inflation. We’re going to see more bottlenecks and supply chain disruptions as a result of the war in Ukraine. If it wasn’t for Russia, oil prices would likely have declined. Economies and earnings are slowing.

There is an increasing risk of the credit markets seizing up. This could shut down the junk bond markets, commercial paper markets, and the banking system. The Fed claims that it will stop purchases shortly and begin raising rates. They plan to sell 80 to 100 billion a month of mortgage-backed securities. This will surge the cost of homeownership and mortgages will rise. The Fed realizes that people can’t afford their rents. They will have to crush inflation and to do that they will have to crush rents.

We run the risk of seeing the long end of the bond market soar. You can’t have one to three percent treasury returns in an environment of high inflation. The stock market is going to go down regardless due to stagflation. The most vulnerable in society are reaching the point of not being able to afford anything.

If China throws its weight behind Putin, that may embolden Russia. Russia could use China as a conduit to sell all its goods.

Russia has already de-dollarized and put all its money into gold. They can settle with many other countries with metals. This limits the United States’ ability to hurt Russia with sanctions.

His model predicts dis-inflation followed by deflation later in the year. The dollar always strengthens during deflation and this hurts emerging markets. He has steadily been increasing his gold position since gold is driven by falling real interest rates.

Never before has the Fed been dovish when rates were near zero or when inflation was high. If you are not careful, you could lose fifty percent of your portfolio.

The authoritarian rhetoric we are hearing is dangerous, particularly as we progress farther and farther away from our founders. This nation was founded by those that were self-reliant and had a healthy distrust for government. This is no longer the case. We’re seeing a lot of stirred-up division in this country when we should operate as one. The U.S. can be great again, but we can’t give up our freedoms.

Time Stamp References:
0:00 – Introduction
1:02 – Russia & Inflation
4:28 – Deflation Crash
9:55 – Easy Way Out?
14:05 – Russia & China
19:14 – Media & Markets
21:43 – Michael’s Model
26:55 – Lessening Effects
30:58 – Model & Gold
32:07 – Political Reality
35:46 – Wrap Up

Talking Points From This Episode:

  • Impact of current political events on inflation.
  • The Fed taper and the risk of credit markets seizing up.
  • Market predictions for later this year.
  • The dangerous rise of authoritarian rhetoric and division.

Guest Links:

Michael Pento is the President and Founder of Pento Portfolio Strategies with over 27 years of investment experience. He was the portfolio creator and consultant to Delta/Claymore’s commodity portfolios that raised over $3 billion, distributed through Claymore/Guggenheim’s sales network. He is the author of the book “The Coming Bond Market Collapse” and has a weekly podcast called “The Mid-week Reality Check.”

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