Michael Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel For Gold’

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Mike Gleason: It is my privilege now to welcome back Michael Pento, president and founder of Pento Portfolio Strategies. Michael is well known money manager and a terrific market commentator and author of the book The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market. He's been a regular guest right here on the Money Metals Podcast and we always love getting his wonderful insights.

Michael, thanks for the time again today and welcome back.

Michael Pento: Hey, looking forward to be back on with you again Mike.

Mike Gleason: To begin as a primer for our discussion today, I wanted to turn back the clock a bit and revisit some of what we were talking about during our last conversation. Now, when we had you on back at the very end of November, we were in the midst of what was a pretty bearish time and the stock market and that continued up until Christmas. But then Treasury Secretary Steven Mnuchin came out and made some interesting comments and also met with the heads of many of the nation's biggest banks. And sure enough, in the weeks following the equity markets went on a tear.

So, did you watch what transpired there Michael, and come away with some of the same suspicions, that we did that being that the powers that be worked in concert to keep the wheels on the markets and help it rebound from a very rough ending to 2018 or was the market simply due for a bounce back after a late year selloff? Touch on that first if you would before we get into other topics.

Michael Pento: Sure, my pleasure, I believe the market bounced, and by the way, I was short from a September, late September all the way through Christmas Eve. So, I covered my shorts in the portfolio, in the inflation-deflation portfolio. I then went long a little bit too early, obviously in January. So, I'm on the wrong side of that particular part of the trade although that's offset by longs in other stuff like gold and in treasuries and utilities. But the reason why the market in general bounced is because how many times can you hear that the trade deal between Xi Jinping and Trump is going to be fantastic and it's going to happen imminently. So, I firmly believe, Mike, that nobody wants to be under the market or short the market especially in front of the imminent announcement of a trade deal. That's number one.

Number two is of course the move from an extremely hawkish, Jerome Powell, one that was going to raise rates to three and a half percent on the Fed funds rate and was promising that the Quantitative Tightening program was going to remain on autopilot just like the predecessor Janet Yellen assured that it would be like watching paint dry. Of course, none of those things happened and it totally seized up the high yield and junk bond market stock market drops 25 to 30% depending on the index you look at. And of course that through the Fed into fits. So, they came out and moved from being hawkish to being more dovish.

Although I hasten to add, I want to add two things. Why I still by the way, still have a short buffer in the portfolio, is number one is, Mike, the trade deal or the trade tensions have nothing to do, virtually nothing to do with the plunge in global growth in the global economy. Virtually nothing. First of all, I can prove that by claiming the facts. The facts are that Chinese exports to the United States increased by 11% in 2018. And exports from the U.S. to China, we're up by a little bit less than 1%. So, trade actually increased, and it led to huge buildup in inventories, which is a plus the GDP. Because people were front row and front running the tariffs that we're going to go up supposedly in January and then they were supposed to go up again in March of course, that has never happened.

So, the trade conflagration has nothing to do with this collapse in global growth, which we'll get into later. That is not what hurt the global economy. Number two is the Federal Reserve did move incrementally more dovish. However, I hasten to add this, this event is not lowering interest rates at this juncture. That's number one. Number two, the Fed is still in the process of its Quantitative Tightening programs. Still unwinding, burning about $40 billion worth of its assets per month. Now that's going to change, that's going to end probably in October, they'll let us know in the March meeting. The FOMC will let us know when that process is going to end.

But again, the Fed reserve is not dovish, a dovish Federal Reserve is one that has hundreds of basis points on the Fed funds rate that they are in the process of reducing or one that is in the process of buying assets and increasing its balance sheet that is a dovish Fed we do not have that at all. As a matter of fact, if you look overseas or you look abroad, other central banks like Japan, the BOJ and the ECB, the European Central Bank have no room to reduce interest rates. So, if I'm correct and economic cycle has turned and we were heading into a global recession, then I would be very hesitant to go out and buy shares of the S&P 500 at 18 times trailing 12-month earnings, which by the way, these earnings are falling.

Mike Gleason: Michael, you wrote something recently about the extraordinary levels of consumer debt in the U.S. and mounting evidence of a crisis building. You noted there are now more than 7 million car loans, delinquent more than 90 days. And an overall debt levels are higher than just prior to the 2008 financial crisis. Yes, the real estate mortgage market might be healthier now, but the fundamental problem of a nation choking on unpayable levels of debt has certainly not been solved. Share some of your observations about the current state of this slow motion crisis. And what are some of the signs to look for with regards to the wheels finally coming off and this debt cycle shifting away from expansion into contraction?

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