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Michael Pento: “Central Banks Have Jumped The Shark,” May Even Buy Stocks

Date: Friday, June 5, 2020 3:14 PM EDT



By Mike Gleason, Money Metals Exchange


Mike Gleason: It is my privilege now to welcome back Michael Pento president and founder of Pento Portfolio Services. Michael is a well-known money manager, 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 with us over the years, and it's always a pleasure to have him on with us.

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

Michael Pento: Thank you so much for having me back on Mike.

Mike Gleason: Well, Michael, it's been a few months since we've had you on last and just a little bit has been going on in the world. COVID-19 has hit the states to say the least and caused major disruptions in the economy. Governors have instituted stay-home orders. Tens of millions of people have filed for unemployment. Now we're seeing major rioting and social unrest in many cities throughout the country over the police killing of a black man in Minnesota last week.

And in the face of all that, the markets are seemingly doing just fine. Stocks are still rallying and it doesn't seem like Wall Street is all that concerned about any of this. So, let's get your take on what's going on there, Michael, because it's pretty hard to connect the dots between Wall Street and Main Street these days. Help us out there.

Michael Pento: Yeah. So nothing is going on that much this year at all, right? It's been pretty boring. The divide between the rich and the poor, which was already humongous coming into this year has grown exponentially. And you have to ask yourself the question, gee, if GDP, according to the Atlanta Fed is going to drop in the second quarter by over 52%, that is a seasonally adjusted annual rate, Mike. GDP is going to be cut in more than half during the second quarter of 2020, how in God's name could it be possible that stocks are close to all-time record highs? And by evaluation metric at all-time record highs. There are about over 150% of GDP.

Well, here's a statistic for you. It took seven years for the Fed's balance sheet to grow by $3.7 trillion. So that was from January 2008 or December 2007… the very start of when the NBER decided that we had the beginning of the great recession through January 2015. That was the great expansion in the Fed's balance sheet, seven years, 3.7 trillion.

In the last 10 months alone, it is up by $3.4 trillion. So, what's happened in seven years has happened in the last 10 months, pretty much. And when you think about that, you don't have to wonder as to why stocks are going up. This is replete all over the world. Central banks have gone crazy and they were already crazy going into this Wuhan virus crisis, this pandemic, but they have completely jumped the shark. They are printing money like Zimbabwe. They would make Zimbabwe and maybe Hungary or Weimar, Germany blush.

And no one seems to care about the depreciation in the purchasing power of fiat currencies, because they're all doing things in tandem. I mean, if there was just one country doing it, you would see a currency collapse, but every country is doing it. And by the way, Mike… I want to make this very clear… the Fed's balance sheet is now over $7 trillion. It's rising. It's going to go to nine, $10 trillion in the next few months and nobody cares. How much longer will people have faith in the purchasing power of paper money? I have no idea, but truly that is eroding quickly.

Mike Gleason: Leads me right into my next question here. In terms of the government response to all of this, so we've obviously seen some incredible stimulus already and much more is being proposed. Where do you envision that all going and what is it going to mean for the dollar? Because for the most part, we're still seeing it hold up quite well in the currency markets. Obviously it's because as you just said, every country in the world is doing this, but help us make sense of that disconnect and where you go from there with the devaluation of all paper money.

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