I look at the debt of the United States. I look at the asset
bubbles that exist in corporate debt and commercial real estate, and I look at
the app asset bubble in collateralized loan obligations and private credit. I look at
all these bubbles and I say they're unprecedented, and they're concurrent. So we
have you know, through reshtorating, we've had times when there's been a bubble
in the stock market. Right in two thousand, there was no bubble in
debt to GDP, there was no bubble in corporate credit, there was no
bubble in real estate. It was just a Nasdaq bubble. But that bubble
burst with a procession and having a Nasak drop by eighty percent. You were
listening to Carrie Letz's Financial Survival Network, where you get valuable information you just
can't find anywhere else to thrive in today's trying times. You need the Financial
Survival Network now more than ever. Go to Financial Survival Network dot com and
get your free newsletter and gift. Financial Survival Network now more than ever,
and welcome. This is Financial Survival Network. I'm your host, Grriy Lutz.
Michael Pento's with us now Michael, it's been a little while since we
last spoke of things that, well, the stock market's going up, we
should be we should all be taking out the champagne now because our paper wealth
goes up by the day. Right. But yeah, if you're you know,
I gotta tell you the facts are that this is this most scary market.
And I'm in the business thirty three years, Kerrie, this is the
most scary market I've ever been in. And that's why I thank God for
the UH his help and create I think it's his help creating the inflation,
deflation and economic cycle model, because if I didn't have a model that had
me, like had early warning signs of what I need to know, the
are Caine warning signs for when this market's ready to crack and you need to
get out of harm's way, I wouldn't be able to participate in this bubble.
But let's just talk about the bubble here. So this is the most
narrow market I've ever seen in my thirty three years and and throughout historically studying
the history of markets. I mean, usually when you have markets that are
just one sector you think about, you know, dot Com or nifty to
fifty or AI, and that's dangerous. But when you have a market that's
just really one stock, one stock, that's in fact, I was looking
at in Vidio's percentage of the of the GDP of this country. It's ten
percent. It's marketing cap. It is ten percent of the GDP of this
country. And you can find it with Apple and Microsoft, the the big
three. It's like one third of the entire country's output in three stocks.
And then I think, think about the market cap of GDP as a percentage
of market cap of equities as a percentage of GDP. Excuse me, that's
not one hundred and ninety percent now, it's it's only been higher in one
instance, which was a little bit about two hundred percent, right after the
helicopter money was deployed post COVID. So just for a reference, in two
thousand and seven, the total market cap of equities to GDP was a bit
above one hundred. So you know, we're almost two times higher because of
all the money they printed, borrowed and printed. I should add, and
when you have a market this rally, it always ends in disaster. So
just so I can wrap up this thought, you have AI and Nvidia.
That's causing people to believe, oh, the market's doing fantastic. Wow,
everybody's getting you know, wealthy. But if you just look under the surface,
the equal weight S and P five hundred RSP is up four percent this
year. Four percent. It's not horrible, but it isn't Nvidia, I
carry and the Russell two thousand, which is more than one stock, right,
two thousand stocks that's down on the ear. So that's when you pull
people and you say, well, how are you doing in the stock market.
How's the market doing. How are you doing well? People say,
well, it's in a bear market and we're in a recession. Because if
you just look at a very small narrow slize of the market, things look
great. But if you look at in reality, most of the market is
down or at least unchanged on the year, unchanged it down. And if
you call people on the phone and say, hey, do you have a
job, well, no, I don't. But if you if you look
at the headline figure from the non front payer report, things are going great.
Yeah, hey, you know the politicians have saved the market here,
Michael right should be grateful. Well, I mean I had this conversation very
recently with a client perspective client actually, and he asked me a question.
He asked me an interesting question, Kerry. He said, well, you
know, we both agree we're a cord that you know, things are artificially
inflated and it's very dangerous out there. And how can you invest stock market
and any confidence? And he said, Michael, when the next crisis comes,
what if they just print it all away like they always do? And
I said, yeah, that's a good question. But what makes this time
different than every other time since nineteen eighty seven when the FED decided they could
just monetize away the problem after the eighty seven crash. Well, there's two
things different. First, the first one that's different is the US economy,
and more precisely, US Treasury isn'tsolvent's solvent. You have a trillion dollar interest
payments on the debt, on the deficit. You have two trillion dollar deficits.
You have debt outstanding that is seven hundred and twenty five percent higher than
the revenue that you collect every year. You have an in solid nation.
So the idea that you can just start on this massive borrowing spree to combat
a combat or recession, you know, you risk you risk really aggravating the
bond vigilanties, and an interest rates might not go down. And the other
difference this time is this for the first time since eighty seven. The problem,
the salient issue is inflation already to start. Inflation is still way above
the Fed's target. Three point three percent isn't two, it's its rate of
change. Second derivative is down from nine. But if you look at the
University of Michigan's consumer sentiment, it shows that people are very much aware that
their living standards have been destroyed over the last four years. They're not interested.
They're not interested in inflation coming down more slowly. In other words,
just let me rephrase that to me more eg accurate. They're not interested in
having inflation going up more slowly than it was. They want prices to fall,
They need prices to drop, they don't need them to go up more
slowly from an already unaffordable level which is much higher than two percent target.
So that's the problem. It's a big problem here, and it doesn't look
like anybody really cares about it anymore. The candidates, the politicians, nobody
seems to care less about it. Michael, Well, they do care.
I mean they can't. You know they care, You know what, they
care enough to write a letter. Elizabeth Warren wrote a letter to Jerome Powell,
and Jerome Powell is antsy and recklessly looking forward to cutting rates again.
Elizabeth Wore wrote a letter with three other Democratic senators say please please start cutting
interest rates now because it'll make housing more affordable. I mean, what,
carry, These are the people we elected to represent us in Congress. You
want to cut interest rates so housing becomes more affordable? What a moron?
I mean, housing prices went up fifty percent in the last four years because
interest rates went to zero. The ten year surgery was taking a third zero
point three to three percent post COVID, and that caused everybody to buy.
What do you do? What do you do? In interest rates are free?
Carry you borrow a lot of money? Yeah, so, Elizabeth,
Elizabeth, maybe your interest rate might be and we just talked about the fact
that it might not be because of inflation and insolvency issues, credit and inflation
issues. Maybe your interest rate might be lower if you cut short term intrabank
lending rates. Elizabeth, but our whole price is going to go down.
Start cutting into strength. Not a chance no, no, So once again
main Street, mainstream loses and Wall Street wins well, and the Wall Street
crybaby, this kills me to the Wall stream cry babies. We need you
know, you know this. The Barry Stern licks are out there of the
running these real estate Investment trust Please cut rates, please, it's it's so
despicable, it's disgusting when you when are we going to start caring about the
average you know, middle class person who actually does the working in this country.
Yeah, they actually do the producing in this country, not the people
who own assets, not the poor who are collecting welfare, the people who
work for a living. What you know, who's speaking for them? Good
question, Perry, who's a kid? I'm sorry you got me going on
this? You it flame you, it's me, I'm kidding. But who's
a candidate out there who really has a good understanding of economics and can get
up and say we need to abolish this horrific organization known as the Federal Reserve?
And you know, Janet Yellen's out there, she's the head of Treasury
saying that the government debt isn't a good place. Yeah, oh yeah,
what does she smoke? Me? What she's smoking? Huh, I mean,
come on, what place is that? I mean, they so question
for you. The petro dollar appears to be officially dead. Now what does
that mean here for us? Well, I mean it's short short term.
I'm looking for short term. I'm looking for the rate of change of inflation
to drop significantly because I think we're headed for a recession very quickly. I've
been predicting that it's gonna end. I I've been predicting that we were going
to end up in another phase. So twenty twenty two we had a recession.
It was bailed out by the and this is it, this is this
is true. This is a fact. One point seven trillion dollars of qwe
came out of the reverse Repo facility from twenty twenty two till today. It's
still coming out. So that's what that's what truncated the recession. So that's
so the reverse repoacility had two point five trillion dollars in it. Let's now
have just a few hundred billion. That's almost empty. That's that Q.
That Q the offset all the QT and then some from the Federal reserve.
Right, So that's what that's the loquid. That's why you think. That's
why Roaring Kitty and in VideA and the sock market in certain sectors is having
a field day. That's why you know you you give Wall Street one point
seven trillion dollars of gambling money over the course of one freaking year, and
they'll go to town and that's what they've done. That's almost that's almost over.
When that happens, I think you have a liquidity crisis, repro crisis,
money market crisis, and I think everything goes down except for short term
bonds, and the US dollar will have a bid, temporary bid, I
think. But then you're talking about the petro dollar you talk about you talked
about the dollar weakness that's going to come on the other side of this recession
when they start blowing up the balance sheet again. I mean, you think
about the fest balance sheet that was seven hundred billion dollars two thousand and eight,
then then went to nine trillion dollars. This has been out of republic,
my friend. There are hop style numbers. No, you can't deny
that, and no one can, no one, no one should. And
then you say, okay, you you you got it back down down to
seven point two trillion dollars from seven hundred billion, still a lot, right.
In fact, it was four and a half tri the ballance. He
was four and a half trillion prior to COVID, right, which was still
out of hand. Yeah, of hand, money supplied, bowing. That's
what's fueling all this liquidity. It's almost over though, and you think about
the recession that's going to come and on the other side of it, on
the other side of this recession, when Janney Yellen and Jerome Powell or whoever's
in charge, there'll be somebody who's going to be a puppet of the president.
They are going to have an unholy union once again and unleash helicopter money.
It'll destroy the dollar. And I'm not talking about the dollars so much
against you know, the end or the pound. I'm talking about the dollar
against hard assets. Yeah, yeah, yeah, you're going to see excuse
me that people call me even on the day on a federal holiday, as
you see, Uh, you're gonna see. And I think you can see
protract and statuslation the likes of which we've never before witnessed or even dream possible
in this country. Wow. So in the MEANTI have a Banana Republic,
like Argentina, is moving in the right direction, right and interesting how Mille
decided not to dollarize the Argentinian economy and we're heading in it exactly. The
US and the West are heading in completely wrong direction. And we didn't even
talk about China here, Michael, But China is you know, China is
not my favorite country either. I mean, you're talking about, you know,
running from the United States, you're gonna run into what you're gonna run
into, the euro the Renman b where you're gonna where you're gonna go.
I mean, they have they have a real estate crisis there. It's not
going away. Clearly, the problems are not interest rate related. People can't
afford the house, can't The real estate crisis in China is worse than the
crisis of the United States. And we have a massive real estate crisis the
United States. People can't afford their home. People can't afford a home.
And you throw at the fifty percent increase in home prices and then coupled with
the twenty six percent increase in maintenance costs and insurance and taxes associated with owning
a home unaffordable a we have a dysfunctional real estate market here frozen. So
yeah, I'm talking about the dollars destruction against hard assets once, but not
not now. I wouldn't do it now because maybe a dollar can still have
one big move higher. Yet, because that's what happens anytime you unwind Carrie
trades, global carry trades, people run into the dollar. Yeah, well
so I would. I would be a long dollar. Not now, I'm
neutral a dollar. I'm a position, and I would be I would get
it, get ready to get a position and a dollar and then short the
heck out of it. In the aftermath of the Great Recession, I want
I'm gonna I'm not gonna call I think it's I think I've called I've called
this the Greater Depression. Yes, right, that's why I thing it's gonna
happen because and carry Why because I'm some kind of maniac who has no idea
what he's talking about. Uh, or or I'm sometimes some kind of Cassandra
who uses hyperbole. No, I look at the debt of the United States,
I look at the asset bubbles that exist in corporate debt and commercial real
estate, and I look at the app ascid bubble in collateralized loan obligations and
private credit. I look at all these bubbles and I say they're they're unprecedented,
and they're concurrent. So we have we you know, we through reshtory.
We've had times when there's been a bubble in the stock market. Right
in two thousand, there was no bubble in debt to GDP, there was
no bubble in corporate credit, There was no bubble in real estate. It
was just a Nasdaq bubble. But that bubble burst with a procession and having
the Nazak drop by eighty percent eighty three. I think in two thousand and
seven there wasn't really a in equity bubble, but there was a real estate
bubble, and that didn't stop the S and P from dropping by fifty percent.
But now you have a credit bubble, uh, real estate and bull
student loanle auto bubble. Got bubbles as far as the eye can see in
vidiot bubble, I mean the bubbles everywhere you look, and their concurrent,
in other words, existing simultaneously together. What do you think is gonna happen
when they burst and there is no real like this? Gentleman, I was
having a conversation with my perspective client, there is no there is no perfunctory
response. That's a salve that's going to be there's one hundred percent effective that
will remediate the situation. Oh, let's just cut rates to zero, borrow
trullions of dollars and will monetize it all. Try and see what happens.
See if that possibly go wrong. So we're going to have a We're gonna
have to have some type of jubilee here, either voluntary or involuntary. Right,
Well, we're talking about debt jubilee. You're talking about the restructuring and
canceling of debt. Yeah, that's that's I mean, I don't see that
happening volunt terily. It's going to be well, let's just be specific.
I think the I think after we go through stagflation, hyperinflation that we've never
before seen in this country, when that becomes such a problem, that restructuring
and canceling and balance, which are very deflationary, become preferred hyper inflation.
In other words, when everybody has sense to the idea that we know that
we have to change, everybody's on the same page, then they'll then there
will be balance and and dead will be canceled and that will be written off.
But that's a you're talking about people all coming to the common you know,
the zeitgeist will be I prefer I prefer to have a real depression short
term because this hyperinflation is killing us. Are we going to have a referendum?
Do you want hyper inflation or do you want a real depression? And
uh see, I'll think I'll think I'll tink both that both, because you're
gonna have because you have both. I mean, that's this third choice.
Unfortunately, it's not really the choice. You just you look at every country
on the planet who has gone through this. Unfortunately, that's why I call
the United States now it's heading towards banana republic status, where when you have
when you have debt and depths is out of control that have to be monetized
by a central bank, you end up with. This is replete throughout history.
You end up with a yeah, you know, hyperinflationary crash and then
you know, then you have depressions. Now. The only I mean we
I guess the best thing we could ever do is end up like Japan,
which is a chronic case of you know, no growth, a protracted perpetual
recession and by the way, their stock market is down after thirty five years
of their experience. So if that's if that's the best case scenario, I
think people need to call their money manager, their favorite broker up and say,
are we what's our plan here? What's the strategy going forward? If
this is if this is where we're headed, is it just buy a hole
because you know the market always comes back. Well, I'm you know,
I'm approaching retirement and I like to participate in bubbles, but I don't really
want to have my my retirement plans divided by two are multiplied by point five
and and wait fifteen years and I hope they come back to even in nominal
terms. That's not really it's not really a retirement strategy. But do we
have these you know, target date target date portfolios and you know he's order
rebalancing. Everybody's piled into the same thing. And this this is not new
kerry. This is you know, this is a disaster. It's going to
be horrible. Getting the timing as close to possible correct, you know,
possibly correct is the challenge. But it's better than just say, you know,
yeah, I'm long, I'm a long envidio. Just close your eyes.
So hey, your words just reminded me of a quote by Bernard Baruk
who said I got rich, letting the other guy make the last ten percent.
Wow. Very profound and very true. Yeah, we're close. We're
close to that. We're close to the breaking point. There was going to
be an epiphany here soon. And I'm tying that to when the reverse repo
facility runs runs out of its q E so right around. Yeah, I
thought it would be already, but that seemed to plateau. But we're running
out of liquidy probably, you know, I would say definitely before the end
of the year, but should be sometime this summer that you could start seeing
fireworks erupt. You could sooner rather than later. I wrote in an article
six years ago. Yeah, it must have been right before the last election
called the Emperor has no coretex, you know, the cerebral cortex. Yeah,
he's got no cortex. And that goes for any of the presidents.
Wasn't specific, but this one has a particular allure to it. Now.
Well, when you when an independent suppose the independent third party says you're you're
you're not competent enough to stand trial, guilty, you're innocent. You're innocent
for reasons of lack of community, you know, yeah, incapacitated mentally.
But that makes you a great candidate for really I mean, it's Aladdin,
but it's really sad. It's really very sick. Yeah, this is like
pissing me off. I just googled the Emperor has no cortex, and I
see a few people have stolen it from me. Oh well that's you know
what they say, invitation is the greatest form of flattery, sage. Yeah,
I'm flattered. I'm sure. So hey, how does the crypto or
kleptocurrencies fit into this whole scenario? Is that a safe haven or is it
just like anything else for me? They don't because, I mean they've been
corrupted and co opted by Wall Street, and so if their price is predicated
on them shoving ETFs down your face and saying here, by this cryptocurrency,
through our r ETFs, that means when the liquidity crisis hits, people will
be dumping ETFs and their shit coins as fast as possible. So no,
you're not going to get any zero zero ballast in your portfolio from cryptocurrencies.
Okay, so when everything crashes, though, and the digital dollar is basically
turned into vapor. If you're holding a currency, though, that could be
okay for a little while, right it so, so the four horsemen of
the economic apoculas have cash, short term bill, short term treasuries, the
US dollar, and shorts shortening the market. So those are only four things
that will work, the only four, because everything goes to a correlation of
one when you have a liquidity crisis. I'm going to make a little I'm
going to have an artist make up that diagram the four the foro coursecalypse.
Yes, your credit for it, thank you, thank you, so short
term treasuries. But but this is only a fix, a short term fix
right in the it's a place to hide when the when, so what everything
collapses? You need a place to hide. I mean you could just because
you're not going to get any early warning signs from Wall Street. They're not
going to get on the TV and tell you, you know, or Janet
Yellen or Joan Powell. No one will tell you the truth. I don't
think Joe Biden will either. I don't know if he knew it. Yeah,
and he's not going to tell you. Hey, listen, we're I
think we're headed for a recession that couldn't manage, you know, metastasize into
a depression. So I would sell everything you have right now, get in,
get into cash that will never happen. Uh. And you're not going
to hear it from your your your friendly neighborhood money manager either because you know,
you know what he bothered with this. He's off of the golf course.
He or she's off of the golf course trying to raise the next you
know, million dollars for the a U N So uh. You want to
be with someone who's least looking at this. Not not a panic, not
not a herm, a bear, but someone was looking at I noticed.
I noticed financial coechnitions are tightening, and I noticed credits breads starting to widen
out, and I noticed the reverse repos is al he's at it whack.
And I know that the the move index is blowing out because the volatility UH
index for bonds is getting unruly. I think I'm gonna maybe raise some cash
and charting, starting to sell some of these high data UH exposures and just
maybe go into the four horsemen for a while. See what Horstman is gold
and silver. It's if the if there is a fifth horseman, it would
be gold. It wouldn't be silver because silver has that base metal component to
it, so it is it is is tied to it. You know,
silver does best when the global economy is expanding and we have inflation, so
that's a that's its monetary hedges working, and it's hedge to industrial industrial abuse
is moving. But gold has a much better, much lower volatility profile than
silver, So I would head and I would use gold. But even in
a liquidity crisis, physical goal will get hurt. It depends on the intensity
of that liquidity crisis. So I'll you know, measure and map that process
as well. But right now I'm only owned, I'm only long gold.
Yeah, understandable, understandable. So but but they call silver the poor man's
gold, right you know, well I'm not. I'm not a poor man
and I don't and thank god, I'd rather own the real thing. If
I don't, it's not for it's not for man as well. They can
call it what they want, But if you look at the performance of gold
versus silver, especially when it comes to economic crises, you will want to
own the real thing, which is one hundred percent money. And has no
exposure to the rate of change of economic growth. Okay, I'll buy it.
I'll buy it. I see your point. But I think is massive
panic that's going to take place. They'll be buying everything, even opper,
Michael, They're even going to be buying copper. I would would I would
not disagree with that on the but I would say that would be after the
recession takes place. It would be on the ex post the recession, and
and then you know, I would buy I will be buying copper, base
metals, and energy, precious health. That's only after the that these maniacs
in Washington are able to re liquify the financial system. You really feel and
tell us how you really feel about it? Yeah, I mean, well,
well, you know what the you know you have you have an inverted
yield curve that's been inverted for the longest duration in history. Yeah, I
mean, you're killing you're killing the bank. The bank. The banks are
finished, and they're under a lot of pressure from their assets that are eroding,
so their margins are and called it net interest margin NIM is under a
lot of pressure. So you know, we listen, Jerry, I'm not
a nefarious individual. I want the best for this country. The country is
in desperate need of a recession. Doesn't in needs indegation, in need need
that it needs the cathartic cleansing, urging action that comes with resetting all this
debt that's not you know, not supported, cannot be supported. Resetting asset
prices, that's wonderful. It would be nice if people wouldn't be nice if
people could actually buy a house. Wonderful. Right, So let let's go
back to the gold you know, to dow ratio. So, once upon
a time, two hundred ounces bought a house, right, two hundred ounces
or one hundred ounces, I don't remember what the number was exactly, but
basically in a house it was one hundred grand and or fifty and you had,
you know, one hundred ounces of gold, you could buy a house
with it. But not the case anymore. So how prices are you know,
a way out gold? If you look at a home price to income
ratios, they're at the highest point by far in relation to any other time
period, even two thousand and six, which is the previous bubble peak.
So home prices cannot be afforded by the income. And if you look at
all the other factors that are a part of a house. Like I said,
the main has caused the insurance costs, taxes, it's even further out
of reach. So yeah, so I would I would look for that ratio
to come back into some you know, economic symmetry, historic symmetry soon and
it would probably do so by both the home price coming down and gold going
up. Yeah, and the gold to dow ratio. You know, it's
also I mean, even though the doubt isn't really the best to now,
you know, but look at the gold and NASDAC ratio if you want something
that shows how out of whack everything is. So yeah, so all these
ratios are going to reverse reversion to mean eventually, right the reversion. Yeah,
so you want to be you can never prepare for the inevitable, like
we buy life insurance, but that doesn't mean you're ready to die. You
know, you can't really prepare for this tsunami. It's because it hits the
US, then it means it's global. Right, it's every country in the
world except for some countries that are kind of off the grid. Yeah,
right, global. I mean, if you take the problems that are extends
in Europe and the United States, and China and Japan. Those are the
countries you have to be concerned with as far as you know your portfolio,
what most people are concerned. I mean, if you have problems in those
four countries, you're not going to be safe anywhere. Yeah, and it's
one black swan gets set it all off, right. I don't think we
need a black swan. We need read the regular white. So it's every
like we just said, it's not it's not. I don't think we need
some kind of rare exogynous media or hitting the earth. It's it's going to
be the same thing. It's a business cycle. We took on way too
much debt. Interest rates are way interest rates we're near zero present for ten
of the last fourteen years. Following was awful, following following the global financial
prices. I mean, that's that's the problem. And people borrowed too much
money when money was virtually free, and asset prices went to the moon.
And now inflation is coming down and money supplies has has been shrinking, and
the liquidity spigot is about to run dry, and you'll see this correction.
It's just part of the business cycle. We don't need anything crazy to happen.
And when the stock market starts going down, you know, the there's
in the five quintiles of consumers, the bottom three are done because inflation has
wiped them out the top two. It's all. That's all. It's keeping
things afloat. And their their wealth is in real estate and stock speculation,
Gordon Gecko. And and they're about to get a reality check once the liquidity
runs dry, because once when the when when the stock market ins the fall
and the real estate market be into humble guess what all five quintiles will be
Ryan for Uncle Jerome and the and Jedi please it was over. Please cut
injurs rates please, and did the worst time to do it, you know?
And cutting interest rates and we talked about it already again, cutting interest
rates back to zero when you have an inflation problem, and borrowing trillions of
dollars when you're insolvent. Yeah, one hundred and what are we one hundred
and thirty something percent debt to GDP nuts. You know, the stock market
in prosperity in a more in a in a soft landing, we have that
condition. The stock market's kind of mirroring the debt market, right, uh,
you know, stock market's one hundred and ninety percent of GDP and the
how much is debt times GDP? That's kind of like we have a definite
correlation there. Huh, We're getting there. Unfortunately, are not good.
Well, we always appreciate you coming on. Go over to pentoport dot com.
The links in the show notes, questions comments for Michael myself al at
Carrie LUTs dot com. While you're at the site, sign up for your
free newsletter. Michael, we'll talk to you again real soon. Thanks,
appreciate the time, Carrie, 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 Survival Network now more than ever,