Michael Pento: You Need to Protect Yourself from the Fed’s Reckless Policy
Michael says the “Fed has no idea what they are doing.” Last year they said they would be quietly conducting quantitative tightening to lower their balance sheet and would be raising rates. Then a year later, having never reached 3.5%, they are now sending rates much lower. Their quantitative tightening program blew up the junk bond market, and now they are back to monetizing the debt just like any other banana republic would do. However, this time, they don’t want to call it QE because they have different “reasons” for doing it.
According to Trump, this is the greatest economy the world has ever seen, and equity markets are at record highs and valuations. The total market cap of equities compared to the economy shows that equities are now one and half times the size of the economy. Usually, this is around 0.8x, not 1.5x the economy.
The economy is very fragile, and the Fed’s purpose isn’t to protect you; their purpose is to protect Wall Street and Wall Street Banks. The Fed is now growing its balance sheet while lowering rates and pumping up even larger asset bubbles.
Both the Fed and Trump want a lower US Dollar and higher inflation. Inevitably when GDP growth declines, they will lower interest rates to match other countries, which are all close to zero.
Central banks are running out of ammo with which to recover their economies. The question is, “How much longer can they continue this money printing mirage without generating runaway inflation, and how much faith remains in the financial system?” The charade will end whenever we have a recession that blows up the junk bond market, or at some point when inflation will become intractable. When that happens, watch out below because it’s all over.
Time Stamp References:
0:55 – What is the Fed doing?
3:20 – Record market conditions.
7:20 – What happens when bonds are negative.
12:10 – Protecting your savings.
Talking Points From This Week’s Episode
• The “Fed” has no idea what it is doing.
• Equity markets are now 1.5x the economy.
• Both Trump and the Fed want a lower dollar.
• Runaway inflation or a major recession are significant risks.
• Michael discusses models for reducing risk.
Michael Pento is the President and Founder of Pento Portfolio Strategies with more than 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.” You can find out more at his website: http://pentoport.com