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Michael Pento: Treasury Market is Unsustainable

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

Michael carefully monitors for changes in fiscal policy, and he expects a looming fiscal and monetary cliff. The Fed will transition from trillions in debt monetization to zero, and the stock markets are likely to take this badly. They depend on 120 billion a month to stay afloat, and many companies are skeletons on life support. Next year we will find out which of those have a sustainable business model.

China’s stock market popped back in 2007, and there isn’t a government with more control of its economy. Japan is another example of a market that peaked in 1989 and remains stagnant. If you want real inflation, you have to distribute money directly to consumers. This leads to shortages, labor issues, and runaway inflation. We’ve already had multiple iterations of helicopter money, which is coming to an end. He expects a period of disinflation, followed by deflation, and then massive government intervention.

It took one hundred and seven years for the Federal Reserve’s balance sheet to reach 4.1 trillion and only five quarters to add 4.1 trillion. Today, we have more distortions, more bubbles, and ballooning debt while productivity is falling.

Wages in real terms are falling, and the middle class is being eviscerated. As a result, credit and bond markets will become concerned when the US adopts some form of basic income.

For investors, only these four things have been proven to work when in a deflationary depression. Those are cash, short-term treasuries, US dollars, and shorting of the markets. As a result, he believes there will be a limited period of opportunity to take such a position against the market.

Everyone should have 5% of their assets in gold to reduce risk. There are times when investors should hold more gold and carefully adjust their gold weighting depending on the macro environment.

Lastly, Michael questions, “Where should bond yields be at during periods of sustained high inflation? What will that do to the stock markets?”

Time Stamp References:
0:00 – Introduction
0:34 – Flotation Pivot
3:19 – Dynamic Strategy
8:44 – Debt Death
11:29 – Deflationary Depression
13:29 – Gold Thesis & Weighting
17:47 – Coming Bond Crisis
22:22 – Bonds Vs. Stocks
25:56 – Wrap Up

Talking Points From This Episode:

  • Monitoring Fiscal policy and the looming cliff.
  • Comparing China’s and Japan’s markets.
  • Debt and stimulus and unsustainability.
  • Balancing your portfolio according to risk.

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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