I find myself in a very peculiar position. I'm kind of in defending Jerome Powell, which I never thought I would do in my life, you know, carry for the life of me. I don't understand what the administration, who I support, is thinking when they say they want to fire Powell and cut interest rates to one percent.
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And welcome. You are listening to and watching the Financial Survival Network. I'm your host. Carrie Let's Michael Pento is on vacation, although as long as Michael has a phone, he's never really on vacation. In fact, he manages hundreds of millions of dollars, not with computers but with his iPhone. If you could believe it, that's how easy he's got the job down to.
Right Michael, Yeah, I'm in a beautiful Belmore New Jersey in the upstairs apartment of a close friend, and I forgot we were doing these interview But I'm here, here, my athletic freaky shirt on, and I'm ready to go.
So no, you know what Woody Allen said, ninety percent of life has showing up, right.
Well, I'm going to show up at the pick a ball courts in maybe about a half an hour, so let's see what happens.
All right. I'll say a prayer for you, because everybody that I know, except for one or two people, has sustained fairly significant injuries from a very low impact, low effort sport with jarring lateral movements, studden stops running backwards like I don't know how you do it?
Oh hey yeah, I'm so Just to digress for a second, I had preci gift significant concussion from doing a Frankenstein walk backwards and soup pine on my head, and then I popped a calf muscle and now I'm nursing a broken tendon in my foot as well as of displaced bones. Well, pick a bowl is very safe. I suggest everybody do it.
Just put a hell out. I think it's about as safe as the bright Line train, you know. Just talking a little Florida biz I wrote an article about this, The bright Line is unsafe at any speed. We thought there were only one hundred twenty six deaths bright line related since twenty seventeen, but the Miami Herald just came out with an expose. It's actually one hundred and eighty six deaths. So they've been covering it up. But I'm not so much worried about the carnage on the tracks
in Florida. I'm worried about the carnage and the tracks coming out of Wall and Broad Street, right.
Yeah, and the echoes building at the at the Federal Reserve.
Yeah, So, what's what's going on here with the Federal Reserve. It seems like they got some pretty luxurious digs there. Central banking is good business, isn't it.
I find myself in a very peculiar position. I'm kind of in defending Jerome Powell, which I never thought I would do in my in my life, you know, carry for the life of me. I don't understand what the administration, who I support, is thinking when they say they want to fire Powell and cut interest rates to one percent. Now the curve the funds rate is for four and
a quarter to four and a half, So it's just sowing. Know, we're talking about one percent, which is an over you know, a three hundred and twenty five basis point rate cut immediately.
Yeah, I guess.
I guess inflation that has wiped out the middle class isn't good enough when you have sixty percent of Americans that have a networth of one thousand dollars or less. Sixty big zero? What are we doing here? But do we want to make home prices go up even faster and make them eve expensive? I don't understand it. So on what premise would you cut interest rates? Let's see the unemployment rate is is? I think it's four point one or four point two percent is historically very very
very low. The stock market is at an all time record high valuation, home price to income ratios are an all time high. Credits reds are extremely tight. Financial conditions are extremely loose. We're not in a recession. GDP growth for this quarter is supposed to be about a little bit over two percent, and inflation is inflation carry has been above the Fed's asinine two percent target for fifty months.
Right now.
If I just told you, what if you just heard that, if you came from Mars and said, you know, I understand the federal reserves shorter is to maintain you know, a level prices, you know, stable prices. And I just told you all those things and you and I also said that the Fed has missed its target to the north, it's two percent target to the north for fifty months, and that target is moving further away.
In other words, the.
Inflation rate is moving further away from the target two. What do you think the conversation would be. It wouldn't be when are you going to cut rates? It shouldn't certainly shouldn't be when you're going to lower rates to one percent. It's gonna be when you're going to raise interest rates.
Yeah. Well, and really historically, going back, you know, as far back as you can go, really, the rates are not out of line. They're kind of normalized. Now, if we need zero percent interest to keep this economy going, then we've got a real problem here, don't we. No, we not.
If we have a real problem. We have a tremendous credit bubble.
We have an an unbelievable equity bubble two hundred Well, the total market cap of equities is now two hundred and twelve percent of.
GDP, so it's more than double the size of the entire US economy. Now, the normal relationship there's around ninety to one hundred percent, that's just normal. So that means stock prices could drop fifty percent and still be above valuation historical valuations. That's how that's how crazy. And then you also have you know, the Cape ratio, which is that I think it's at almost twenty seven or thirty seven,
I forgot where it was anyway, it's astronomically high. It's historically speaking, pryces deals ratio is three risk premiums are negative in the risk premium the inverse of the pe ratio, right, Sure, get your earnings yield, and the earnings yield is less than what you can earn in a T bill. This is all highly unusual record low dividend yields. So the stock market's in an epic bubble. Home prices are the most expensive they've ever been in history, even relate in
relation to incomes. And we have a massive credit bubble when there's like, you know, trillions of dollars of things like private credit, which hardly ever existed before, I mean in the previous decades. Now, there's a whole cottage industry of businesses that can't get loans from a bank or float corporate paper, so they get loans from you know,
the shadow banking system. Yeah, that's a huge problem these that's a huge when we have when not the not if, when we have a recession, because the the the business cycle hasn't been repealed. When we have the next versus when we have the next credit crisis or recession, this is when reality is going to hit. So it's not if, it's when I have a timing model that lets me know when to get out. I'm been, I've been you know in a you know, I have a long short strategy,
so mostly long, sometimes short. The past few years mostly went out long, but holding our nose because we know that if you're gonna be one of those people, one of those automatic buy and hold dollar course to averaging funding their four to one k in a target date fund, and you're gonna be down thirty five percent in a few weeks time, not a few weeks from now, but in a few weeks, a truncated period of time, when the when the poop hits the bed, we're gonna be
down thirty percent in a very quick period of time. And then you're gonna panic and call your administrator for your four to one K plant and say move my plan into cash. And that's what market goes down fifty to sixty seventy percent.
But haven't people been programmed to not behave that way?
They have been inculcated through the decades to just buy and hold. But Carrie uh, stock ownership among Americans has never been higher, and the stocked ownership is concentrated mostly in people who are my age or older. So you went around in their fifties, like fifties, early sixties, or in their retirement ages. Not not not in the twenty year old, not in the mean stock people. It's our age, yes,
approaching retirement or in retirement. Kerry. When they're down thirty five percent in their portfolio, I don't know the exact number, but it's probably around. That's my guest to mint. They're gonna exist because they cannot see. Then it becomes what
you just said, it's a it's an existential crisis. I am not gonna be their wife is going to tell them from probably being a little sexist here, but if you're a man, your wife's going to tell you, hey, I'm not canceling my trip to Europe and I'm not selling my my lake house. You can sell. You're gonna sell, and you're gonna sell now and will wait for it to settle down. That is going to happen, and that is gonna be synergistic. It's gonna be a death spiral
in my opinion. It's just it's just a matter of mean reversion. If you believe in nature, heats vacuums, this is a mean Listen, this is one or two things are gonna happen mathematically certain. Either stought pressures are gonna crash, so the ratio that you know they're not the enumerator matches the denominator, or they're going to stay where they are for a decade not could not do anything until the denominator catches up. Now, the latter scenario never happens
in history. It just never has happened before bubbles burst. They don't just stay bubblicious for a decade.
Wow, all right, So uh ah, so you got to think what should you be doing now because this appears, from what you're saying here, Michael, to be inevitable.
Well, you better first of all, if you're you're in one of those buy and hold dollar cost averaging rubrics, you've got to get the hell out of there as fast as possible. You got to put yourself in an active money managuer. It doesn't have to be me. I mean, I'm I mean, let me speak altruistically. Find somebody else besides me. I have plenty of money, and I have plenty of money under management. I don't care. But find yourself a rouste a robust model that is in the
purview of a very honest and experienced money manager. Does not have to be me. But do it for your own retirement sake.
You need to do it all right, sir.
You've worked your entire life to get where you are. Realize where you are. Realize the triumvirate of bubbles that we have unprecedented in history, all three of them. Yeah, and be a historian. See what has happened, not only in the United States but around the world. What happens to asset prices when they get this this elevated and the inculcation the mindset is overwhelming. Where you know, you have to now convince people that there is such thing
is a business cycle. You have to convince people that the FED and the Treasury and the administration can't always bail you out. And you know, in the past, Carrie, what is it. What does the Treasury and particularly the FED have done. They've always solved the problem every hiccup in the stock market or a steed speed by economy.
They just lower interest rates and print money. Carry Do it again, do it one more time, and see what happens to inflation if they actually start cutting, if they ever stop, If they started cutting interest rates now to desert QE helicopters money, I think it would be an absolute disaster. It already is a disaster for this country. When you have, when you have over sixty percent of the population with really no or negative net worth, you
can't have a viable nation. So try try now pursuing a policy that bails out Street and screws Main Street. See what happens.
It ain't gonna be pretty, is it?
No?
So gold silver, It appears certainly for silver we're on the verge of a major breakout and things are not looking good for those silver shorts, are they. No. Now I've I've i have.
So I took a nice position in platinum several months ago, bit more gold for a very long time too. So my proxy for the the bit so the precious metal is proxies that I use are gold and platinum, but silver too is you I'm not going to argue against silver, but you should. You have to get your your hands on some of this. And there's a there's a bull market happening in platinum. You know, for decades and decades on end, platinum was more expensive than gold.
It's a it's.
A rarer, more more rare metal, it's a more precious metal. It has some industrial components to it as well, and that flip that has flipped. So I would not only own gold, I would definitely own some platinum here because there's only one thing that's going to happen. There's only one thing that I could be assured to occur, and that stackflation like we've never before imagined. We're going to have another recession. Business cycle hasn't been repealed. We're going
to have a credit crisis. The playbook is going to be deployed because it's worked all that every time in the past. What's the Pavlovian response from the Fed and Treasury borrow print spend or it was automatic stabilizers that kick in are going to send a deficit not to you know, the deficit was two hundred billion in prior to the global financial crisis. Then it went to you know, the trillion trillion now it's now it's two trillion. In the party times man, in the good times with full
employment and record a stock market, it's two trillion. So when the automatic stabilizers kick in, the unemployment benefits kick in, this deficit is going to go between from from two to four to six trillion per ADAM. So that means when four to six trillion, where's six trillion dollar annual deficit, And and that means the money is going to go
directly to the people. It's not gonna be like it wasn't the global financial crisis where you just bail out Wall Street by taking the banks got their assets bailed out from the Fed. Now this is going to go right into the hands of the pockets of the people through these through the unemployment insurance that they're gonna get right and through the subsidies that they're gonna get from from the Fed, and the helicopter money coming from the Treasury.
So we're gonna have inflation, not the way they measure it. Stop at nine, it's going to go to nineteen. Yeah, and that's you know, if you that's what you have to be prepared for, because if you're saying to yourself, you know, I think I'm gonna I think I'm going to retire, and five percent on a thirty year treasury bond sounds pretty pretty good because the first is only three.
You know, that's wonderful.
Uh, tell me how you feel about earning five percent when inflation is nineteen.
So that's a that's an existential problem in and of itself, right.
Garry inflation core inflation rose to two point nine percent year over year coreation, wrote, I mean, then the morons that speak on mainstream financial media when the when the inflation report came out, they're.
Like better than expected because.
The month over month was a little bit better the core. But here the core rate of inflation increased. At the end of the form reading was two point seven or two point six, it jumped to two point nine core inflation year over year. That's that is that is a
disastrous conversation to have him. Inflation on the core level is spiking, and I want to have a scenario where I'm firing the central bank so I can put a what I would call an obsequious sicko fan, a puppet of the president, to put rates at one percent.
Yeah, what could possibly get wrong here?
What happened to that stuff? What would happened to the housing market? Let me hear here's the scenario. The scenario scenario is this some so April April two thousand or May twenty twenty six comes, Powell is shoved out the door, an obsequious sick ephan, a puppet of the president, comes in. He cuts rates to one percent. And what what happens when the long end of the bond market interest rates
go ballistic? I mean, if that can control the overnight interbank lending rate, and the money markets will will trade in sympathy with that. But let's say, unless they assent to buy every single treasury bond issued, like the Bank of Japan does, we're gonna have a huge problem with the interest rates. And if they do buy everything, we're gonna have a bigger problem with inflation.
M h yeah, it sounds like we got problems on the way here. Huh.
Well, I mean, listen, what when you when you abrogate free markets. When you say, you know, the free market doesn't have to function. We could just nineteen eighty seven, just print some money. Greenspan says, we'll just print some money. We have, we have a tool, we have a technology. We don't need to Why would we Why would we make money peg to something like gold?
Why would we do that?
Well, because mine supply of gold is limited, and you have something real and tangible that's backing your currency. But then they came up with the idea we could just we could just live in faeryland. We could just back our currency with nothing. We'll back it with the taxing authority of the US Treasury and the American military complex. That's what will Yeah, and then the dollars, you know, crashes. You know, go look at what the dollar has done since nineteen thirteen.
It's purchasing power.
And then those people have the nerve to tell you that they're they're they're they're in charge of protecting the purchasing power of the of the currency. That's a comedy routine, Kerry, it's a joke.
Yeah, that is a comedy routine. And you know it's that old uh, that old saying. Will Rogers said, every time Congress makes a joke, it becomes a law, and every time they make a law, it's a joke.
Right Gary, let me just I have I had this written down. I want to make sure when I talk about credit bubbles, total non financial US debt as a percentage of GDP is higher today than at the start of the global financial crisis and the start of the Nasdaq crash in two thousand. So current ratio is two one hundred and fifty seven percent of GDP total non financial debt. In two thousand and seven, before the stocks lost fifty percent of their value, the S and B,
it was two hundred and thirty four percent. And in two thousand that great recession where the NASDAK lost eight percent of its value, it was one hundred and eighty nine percent. And the current ratio is two hundred and fifty seven percent. That's your credit bubble. That's your credit bubble.
Man. So there's no way out of this.
There isn't any easy way out of it. I mean, they're gonna try to hyperinflate their way out of it. But since we haven't adjustable rate mortgage as a as A as our you know, everybody said, hey, Janet Yellen, why don't you know when interest rates were like aero point three on the ten year note, why don't you like float some thirty year dead out there and finance
it or maybe even issue a fifty year bond. I guess the wasn't any appetite for that, But at least they should have really loaded up on that lawn kerry. If they're gonna, if they're gonna, if Wall Street's gonna supply you with a ten year note that's yielding a third of one percent, wouldn't you want to lock in those that that's a pretty good rate, right right? Well, guess what they said, Now we're just gonna do T bills. We're gonna do T bills and chill. Well that's now
you have to roll over those tea bills every single year. Yeah, and that's what you have. So if if if you really want to know the truth as to why President Trump wants that interest rate artificially suppressed even further lower, is because it would really bring down the interest on the debt. Yeah, with no no negative ramifications with housing or real estate or or or the equity market.
So it's that simple, huh, yeah. So it's it's all about rates.
It's all about interest on the debt, which is over a trillion dollars already.
Yeah, gotcha.
Do you see how you see how well doge work?
Right?
The Doge roar into town and they really slashed the government slashed everything down. I mean, we're all we're good now, right. I think they decided to cut one hundred and sixty billion dollars.
Yeah, for I was still cutting in theory. Yeah, I don't know what they cut.
Well, those have been run out of town faster than the shrve has been run out of town. And they should be cutting a trillion dollars per We need to cut a trillion dollars per andum to get to that magical Scott Besson, you know, three percent. But guess what, we decided to cut one hundred and sixty billion, So we're a little bit short. It is about eight hundred and forty billion a year.
Just a little, just a little all right? So what about bitcoin here?
Well here, well, you you know you opened the Pandora's box here when you talk about Hey, bitcoin, I actually liked as as a concept. I hated the I hate I didn't buy any of it. Unfortunately, so I've been wrong about the direction of this thing. But the concept of the bitcoin originally, or cryptocurrencies in general, was, Hey, we have a decentralized currency that nobody knows who you are, and it's outside the purview of government, and it protects
and it protects you against a falling US dollar. So fast forward in a few years, and of course the pimps and the hookers on Wall Street would they say, oh, we fall in love what bitcoin? We can make some money on this, on this horrified barcode, which is what it is. It's just, you know, all bitcoin is your private key is a bunch of letters and numbers. Okay, it's a it's a password that's worth one hundred and seventeen thousand dollars. But okay, let's just let's just talk
about this for a second. So it goes, it goes from basically nothing to one hundred and seventeen thousand dollars per unit. But it got there because it's been bastardized by Wall Street. They've co opted and corrupted it. So now your your decentralized coin that you think you own is completely centralized. It can be taken away from you capriciously by the government because they actually know exactly who you are.
Oh yeah, you know.
It's Wall Street has know your customer rules and anti money laundering rules. You own an asset that's pimped by Wall Street. They know exactly who owns every single one of these bitcoins, so they can take it from you. So it's no longer it's decentralized. And then to pour icing on the cake is or gasoline on the fire, I guess would be a better analogy. They say it's it's an alternative a dollar, but now they want to link it to this the US dollar into treasuries by
stable coins. Right, so the whole concept of this thing has been has been obliterated. And they did this so they can pump up the stop the bitcoin price to one hundred and seventeen thousand dollars in unit. Now, two more things I want to tell you about this. Number one, it is hot gold. There's an unlimited number of cryptocurrencies that can be created. I do like the blockchain technology, Yeah, extremely useful, But to think that the blockchain technology is
the same thing as a coin that relates gold is ridiculous. Yeah, so there's twenty one million bitcoins, but there's an unlimited number of other currencies that could serve the same purpose. So it's just a commodity. Cries are commodity, and there are limitlessons in supply, unlike platinum and unlike gold.
Yeah, this is true. I totally agree with you there. But I think there's something else going on with bitcoin that we're not going to know. I think there's a bitcoin short squeeze coming because you've got a huge synthetic derivatives to market there, and you've only got seven percent of all the bitcoin ever created that actually free trade, which will be substantially less because you've got ETFs. This week,
two point two billion more went into bitcoin. Eat where are they getting all these bitcoin from this when they stopped making it?
Yeah, completely wrong on the price, missed the entire thing. This thing much higher. But when you get an unfriendly administration in place, and you will, and an unfriendly sec and you will in the future, this thing will crash because its intrinsic value is maybe closer to one thousand dollars rather than one hundred and seventeen thousand. So just beware.
I mean, it's just not something at this especially now, at this price level I'm interested in getting involved with, but hey been wrong with both.
Interesting was that I was at the Bitcoin conference and it's amazing guy I know who told me to buy bitcoin at five, who's never sold one bitcoin, he is buying it at a dollar. And let's not forget Michael that if you invested ten cents in coin in twenty ten, it'd be worth one hundred and eighteen hundred nineteen thousand dollars as we're speaking. What he told me is that over half the contributions going to the Republican Party are
coming from crypto bros. So that's I think, of course, say are now, Gary.
You're exactly right, but you know three years from now, I don't know. Yeah, play with it now. The volatility attributes to this product are just astronomically off the charts. So it's just not something i'd like to That's why I prefer platinum to silver. I don't like that high data. Yeah, Like, can you make money in bitcoin? Yeahp hundred percent? Can you still make money? Probably? Did I miss everything?
Yes?
I did, But beware because you when you have something that's supposed to have its value derived from having a decentralized anonymous, immutable transaction, and you're to get the value is now derived from government. M I'm the only person I've ever heard talk about I mean, maybe I just don't have it in my ears out there, but who have you ever heard anybody else say how absolutely absurd?
This is? Oh completely but but bus, that doesn't mean you can't make money on it, right undred percent?
No, I maya kopa here. I'm the last person to ask about the future to make a bitcoin price.
Can do you know?
For me to do that, it'd be it'd be completely inappropriate because I've been so wrong. The picture is interesting though, but but the but caveat emptor here though, they will be hell to pay. And it's coming, and it's one day because because what bitcoin really is now has become it's just a derivative of the stock market. So it's a it's a it's a higher a derivative on equity.
And if liquidity ever drives up again, not if when it happens, yeah, when it's gonna it's it's gonna be a disaster for the entire space.
All right, Well, I think we'll let it go there. We got other things to talk about next time. After you've done traveling things about the worst cycle, what's happening there in Europe, the euro, the dollar, all that good stuff. But you'll find Michael's work excellent work. Sign up pentoport dot com links in the show notes, and if you got a question for Michael myself, shoot me an email k l Atcarrie LUTs dot com. Michael, we'll talk to you in a month or two. Be well.
Always a pleasure, Carrie, Thank you, thanks.
For listening to Carrie Letz's Financial Survival Network, your solution to today's trying times. For the latest, go to Financial Survivalnetwork dot com. Financial service evel network now more than ever,