Latest / Financial Survival Network / Bond Market Collapsing Now -- Says Michael Pento #5914

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Bond Market Collapsing Now -- Says Michael Pento #5914 · Financial Survival Network

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But when interest rates were falsified for so long, near zero percent for most
0:06
of the last fourteen years, borrowing courts were free, and debt levels ballooned
0:10
and asset prices went to the moon. When you try to return to a
0:14
normal market, chaos breaks out. You saw that in March when the FED
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had the rescue of the entire US banking system, and you're seeing it today
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as bond market fractures and implodes and Joe Biden's walk in the picket line.
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You're listening to Carrie Letz's Financial Survival Network where you get valuable information you just
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can't find anywhere else to thrive in today's trying times. You need the Financial
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Survival Network now more than ever. Go to Financial Survivalnetwork dot com and get
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your free newsletter and gift. Financial Survival Network now more than ever, and
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welcome. This is Financial Survival Network. Come your host, Carrie Letz.
0:58
We're coming to you on the third day of October. In twenty twenty three,
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Will AI save us? It's going to take an AI based miracle.
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According to my next guest, Michael Pento, you find him at pentoport dot
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com. If you got a question for Michael myself kl Atkarrie LUTs dot com.
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Please and if you're on YouTube, please like, share, subscribe,
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all that good stuff. Leave your comments below, Michael. So we're approaching
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an existential moment here, aren't we? Good to be on with you as
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always? Kerry. You know I'm going to say this on my podcast,
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I'll say it here first. You know, Nero fiddle while Rome burns,
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and he've been to ride in throughout history for doing that, as well as
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many other things. We am a president here who went to a picket line
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while the US bond market was creating. And that's where I think the rubber
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meets the road here. I think the most salient thing you have to think
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about now as an investor is what's happening with US bond yields. We have
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a condition now where the faith in the world's reserve currency end our sovereign debt.
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It is fracturing, eroding, eroding, and cratering right before our eyes.
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All right, So give us examples of what's taking place, the carnage
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in the bond market, and what do you do about it? Well,
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I'm I'm well, I will short the bond market when I have to.
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I what I did first of all, is on August first, I sold
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all of my long duration bond exposure. We have no long duration bond exposure
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at all. We're rolling tea bills here, pentupport and very very short term
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US government debt. That's the first thing you should have done. And let
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me explain to you what the process is, what the problem is that we're
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saying here. So first of all, this inflation which I called for to
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occur in twenty twenty three, which we did indeed have where inflation went from
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nine percent CPI inflation went from nine percent to three percent, is now coming
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to something called reflation, so three percent to three point seven percent on the
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headline figure. So we no longer have a condition where inflation is the second
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derivative is falling. We just have a rate of change. Increase in inflation
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and increase you at a faster rate. So that's number one. Number two.
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If you listen to the Atlanta Fed, sometimes they do sometimes I don't.
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I mean they pull them this five percent four point nine percent to be
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exact headline figure for Q three GDP. That's an acceleration in GDP. So
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you no longer have falling GDP. You no longer have disinflation. Those were
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things that would make you want to buy the long end of the bond market.
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Get gets a lot worse carried. China has been a seller of our
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treasuries. Their reserves are parked in US dollars, and those dollars are parked
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in US treasuries. When you want to get out of US treasuries because you
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might be wanting to invade Taiwan, Okay, you sell your treasuries. You
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don't only want to be a victim of US dollar hedge of money. Sell
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treasury lip and all that good stuff, right exactly, Sell dollars, buy
4:11
back your currency, get out of the US dollar grip, the grip of
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the US dollar and the US government. It's worse in Japan. They have
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two things that they're doing. One is they're selling US treasuries for the very
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same reasons, not Taiwan, but they just don't want to have be exposed
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to US dollar hedgemoney. But they have to sell their recurrency, currency reserves
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because their in is craishing. It took one hundred and fifty en to buy
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one dollar this morning. I mean their currency is absolutely crashing because they have
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this acidine yield curve control. You know, Governor Yuado over there in Japan
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saying, uh, you know, inflation is not just sustainably at our target
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level. It's been above their target for months on end, way above their
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or. But he just lies and he says, we know, I don't
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believe it'll be able to stay there, So we're going to cap yields at
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point seven percent. It was capped at a quarter percent, and now they're
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point seven percent point seven percent for a ten year Jerry. The inflation rate
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in Japan is eight percent. If you look at their food prices, booing,
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God's good Earth is going to buy a Japanese yen, a Japanese government
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bond other than the thanks your paying. Yeah, so they're buying all,
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They're buying everything to keep those yields. But those yields are rising. They
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have to rise because the end is getting destroyed. So they have to have
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some kind of comparison, you know, definitely sort of a little more amends
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for it with ten year at four point seven percent here in the United States.
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Otherwise their courrency is going to collapse. So they have an inflation problem.
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We've got a currency problem. They're sellers, I don't let me.
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Can I just finish this through the very points. Yeah, it's really very
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important port Info. Oh you got so. Now you have those those conditions
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of higher inflation, you have GDP of five percent, Corney Alanta Fed,
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You've got Japan selling, You've got China selling for Japan selling for two reasons.
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Then you have this massive issuance in supply. We are running two trillion
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dollar annual deficits in peace time and when growth is accelerating. This is incredible
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to me. The amount of supply that the US is dumping on the market
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is rising very quickly. Who's going to buy it? Who's going to buy
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it? Who's going to buy Well, here's the thing you just said it.
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Who's going to buy it? The Federal Reserve was buying eighty five billion
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dollars a month of US debt QE and they falsify the entire treasury market.
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I mean they monetize four trillion dollars of debt. Since COVID broke out,
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we had no MORTGT for treasuries. Now the FED is selling their balance sheet,
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adding to the supply from China and Japan. People ever, you know,
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boycotted and US debt and they're selling eighty five billion a month in US
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debt. So this is what is we're now discovered. This is called price
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discovery. Oh, let's have a real market's let's fight inflation. Well great,
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I lawned you. Compliments to you for trying to go down that road.
7:25
But when interest rates were falsified for so long near zero percent for most
7:30
of the last fourteen years, borrowing courses were free, and debt levels ballooned
7:34
and acid prices went to the moon. When you try to return to a
7:39
normal market, chaos breaks out. You saw that in March when the FED
7:43
had to rescue the entire US banking system, and you're seeing it today as
7:46
bond market fractures and implodes. And Joe Biden's walk in the picket line,
7:49
Well, it's probably the best use of his time at this point, right,
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Michael, Well, we share politic say it, listen. I am
7:58
I'm not a rebut Atletico this is I hate both parties, but I mean,
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if any can do anything to help, I mean, what is he
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doing to bring down the price of energy? You know, he's he's walking
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the picket line in support of the United Order Workers Union to to fight for
8:18
higher wages because of the inflation that he helped bring about, and it is
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the cause of of a great deal of the inflation that we have today.
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Of course, Donald Trump borrow a lot of money too, But the two
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of them, Biden, what was his reason for, you know, his
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his money spending fiscal madness. He borrowed money like a drunken monkey. What
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for there's no reason for it to fight it. He borrowed money and increase
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the debt to fight inflation. Give me a break. Yeah, unbelievable.
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Huh So, so you've sold out your positions in the debt. Is this
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debt inferno gonna spread to corporate bonds as well? Uh? When does it
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end? I guess that's the question. Oh, come on, I mean
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if if US debt. So, we were at zero point five percent in
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the in the immediate week of COVID, Now we're four point seven percent.
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I'm talking about the benchmark US ten year note. But the spread between treasuries
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and junk bonds has written. It's kind of around four point one percent as
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we record this video, very very tight. Gary. When when when when
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the when the market loses faith in the purchasing power of the currency and the
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sovereign bond market. There isn't any way in God's good earth that you're gonna
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tell me that high yield it isn't gonna absolutely blow up. Listen, it's
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true that consumers and businesses have turned out their debt. That that's true.
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I'm not gonna. I'm not gonna. I'm not going to say that they
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have not done that. But the fact is that there is a one point
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eight trillion dollar refinancing wall coming very soon in the corporate bond market in twenty
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twenty four, twenty twenty five. We have to start rolling over this debt,
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okay, and it's going to be rolled over at much higher interest rates.
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So here's the other side of that. There's three sides to that coin.
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So there is a maturity wall coming. So you say to me,
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the parables say, well, you know, the consumer has turned out its
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debt. It borrowed money to buy a house at three percent, and they're
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good, good, And then I say to you, I say, well,
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what you were saying to me is that nobody has to buy a house.
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No one has to move because they don't want to change their mortgage from
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a three percent loan to an eight percent loan. We're almost an eight percent
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now in mortgage rate. And then I'm gonna say to you that this does
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that mean ipso fatso that the archie bunker you used to say it that,
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by the way, that the real estate market is frozen. Oh, yes,
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the real estate arch ist frozen, mister Pentel. There's no you know,
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no one selling the existing home sales, standing homesales. Third depression,
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Well, does that mean that the economy really stinks? If no one could
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afford to buy a house, and no one could afford a new car loan,
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no one could afford their their credit card debt, which is at a
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record, as you know, defaultsecies, So how could you? You can't
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have it always. And here's the other thing, the third parts of that
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turn the consumer and businesses have turned out their debt. Well, who the
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hell owns this debt? It's financial entities. There are many financial entities carry
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that own commercial mortgage backed securities and mortgage backed securities and corporate debt that's yielding
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three percent, four percent, And if they had to sell it, it's
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really worth eight percent. That means the price is down, the yields up.
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It at eight which means you're way underwater on your on your assets right,
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specially borrowed, especially if you're borrowed to buy them right like banks.
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Still I'm on level. Leverage is always the is the is the is the
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killer here. So, as you pointed out, but you have many financial
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institutions that are insolvent in reality if they recognize the actual price of their commercial
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mortgage backed security, which plunged because the yield is up, they have to
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compete with the yields where they are today, there's zombies. Yeah, and
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I don't know, did have you been reading my mind? Because my next
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my next sentence was if you are well, and then then the probables will
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tell me. Well, I'm a financial institution and I sent all of my
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money, all of my assets to the said at par value. So I'm
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good for a year through the bank term fund program. Okay, wonderful,
13:03
But I know that this is not QEI. It's a loan at a very
13:09
high interest rate. And calm March. The FED is supposedly gonna tell me,
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uh, okay, bank, I have your corporate bonds, and I've
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got you your mortgage backed securities. I gave you par for them. You're
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gonna give me par back right hand to the dollar, and you're gonna take
13:28
your fifty cents on the dollar asset. The banks know this, and you
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said it. These are z We have created zombie banks that you know.
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The net percentage of banks that are tightening lending standards is close to fifty one
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percent. Now. It's ource session territory and it's getting tighter and tighter every
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day because they understand that they have to take these assets back and their assets
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are underwater. So we've borrowed some time, but we have not solved the
13:58
problem. The problem is that race went to the moon very quickly to combat
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nine percent inflation, which was really seventeen seventeen percent inflation, and the FED
14:09
had no choice but to do that, but they ended up bankrupt, bankrupting
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the financial industry once again. So what if they start cutting tomorrow, Well,
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they could start cutting to here's the thing, another great question. If
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they start cutting tomorrow, wonderful because that's what they've done since nineteen eighty seven,
14:26
since the crash of eighty seven. What was the Fed's playbook. I'll
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tell you you know, you can go to eighty seven long term capital.
14:33
You can go to a two thousand, Naza collapse, two thousand and eight,
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twenty eighteen, Rebolt crisis, nineteen Rebroke crisis, and you go to
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twenty twenty the COVID crisis twenty twenty two. What the what didn't they all
14:48
have in common? Well, the FED said, well, you know what,
14:50
inflation is not where we needed to be anyway, and the market is
14:54
blowing up and the economy is blowing up, so we'll just go back to
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good We'll just cut rates and buy some bonds from the best. If the
15:03
Fed did that now they would lose well, they wouldn't lose any credibility with
15:07
me. I already I get. I get that they have zero credibility.
15:13
Their models think and they're there's there's no there's no information there for me to
15:18
gain from the Fed. But if anybody else on Wall Street believes that they
15:24
have the ability to put interest rates up to a level that's higher than inflation,
15:31
so to provide a real interest rate for investors, that anybody would would
15:35
still believe that it would be dead. They would now understand, they would
15:37
be inculcated to everybody that this is this, this entity, this institution can
15:46
never provide investors with a real interest rate, and inflation would take off like
15:50
a rocket ship. Which I was in New York City. I think they're
15:52
in the midst of hyper inflation there. Everything is shooting through the roof.
15:58
I mean, a camera that a few years ago was ten bucks is now
16:03
thirty bucks. Michael. I mean, it's it's unbelievable. And I you
16:08
know, my one of my friends ordered a sushi from a restaurant for me
16:14
to pick up, and you know, it was for basically three of us.
16:18
It was one hundred and seventy five dollars. I picked up a bag
16:22
that it was like a court ziplog bag. There was nothing in that bag.
16:27
Michael. It was unbelievable. And it's all going to pay debt.
16:33
Well speaking of well, exactly correct. And that's why the Fed. The
16:37
FED has now jumped the shark with inflation. So it's impossible for them.
16:41
We're virtually impossible for Chairman Powell to now just suddenly say, you know what,
16:48
we're now going to NQT and lower interest rates. He'll do that,
16:55
I think, And that's what I where I was sort of the show with
16:57
I think this quanti tightening program that they're having right now. It's a quantity.
17:03
It's tantamount to selling treasuries. They used to be a big buyer of
17:06
treasury Now they're unloading them. Because you know, if if a Treasury bill
17:11
comes due and the FED doesn't roll them over anymore, somebody has to buy
17:15
that debt, right and that means the public, the market has to buy
17:19
that debt. They send it to the Treasury and surgery sends it to the
17:22
FED, and the Fed destroys the money. That's what you need. That's
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what quantitative tightening really is. Infuation. No, it's it's it's it's the
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market accepting or determining what the price of this bond should be from the government.
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And it's a lot lower. It yields a lot higher than what it
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was. But so they can't go back to zero, and they can't go
17:47
back to QB very quickly. But the interest on our debt we have a
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thirty three trillion dollar national debt now, the interest on our debt is now
17:56
seven hundred billion dollars a year semilar billion dollars. That's seventeen percent of the
18:02
total income to the Fed. Now that is going to go much higher.
18:07
It's going to be thirty five percent because the debt rolls over at much higher
18:11
rate. So in a few years a lot of that debt's short term too,
18:17
but they're rolling it over at what used to be almost nothing at five
18:22
percent, So you're going to see the interest payments go doubling in the next
18:30
few years, thirty five percent of all income. And that means that by
18:34
two thousand and forty, if we don't have a recession, which is I
18:38
will say, if let's just do let's put on your put on your blinders
18:44
and your rose color and glasses, and imagine a world where the US economy
18:49
does not have a recession till two thousand and forty. Last time I checked,
18:56
we're in twenty twenty three, okay, sventeen three years, seventeen more
19:00
years of no recessions. Never never happened, but we will. If that
19:04
happens, it'll be two thousand and forty where we spend one hundred percent of
19:10
our entire income on entitlements and interest payments. It's in reality it'll be much
19:18
sooner than that. We'll have no money for anything else, but in titlments
19:23
an interest on the debt. That's how this is a bond market is rebelling
19:27
against the global market for our bonds is imploding. And we have I'm not
19:34
blaming just the president, but we have a president who's fiddling on a picket
19:41
line try to get wages higher. These people don't need higher wages if they
19:48
didn't have to battle twenty percent inflation, seventeen to twenty percent, if they
19:52
could, if they were able to afford a house. And that all lies
19:56
at the feet of what they did. You know, you know when COVID
20:00
broke out, we send people more check. We actually gave them more income,
20:06
more and then they have the chore what they had before three COVID.
20:11
Why what was the point of that? We're so afraid of a downtick in
20:15
the stock market. You know, it's something called creative, creative destruction Joseph
20:19
Schumpeter, Right, so happened. We don't have price discovery, we don't
20:23
have freedom, but we have is manipulated markets across the planet. So true
20:29
that and they are starting to break right now. And the lynch pin to
20:33
the grenade. They know the gray pin was inflation. They finally did it.
20:37
Remember for many many years they said, we can't where's inflation. We
20:42
know what we do inflation. If we don't get two percent. If inflation
20:45
is one point seven percent, it's a disaster. It has to be two.
20:51
They finally got two, and they made two twenty that we're paying with
20:55
the consequences for the album. That's the truth here. Hey, what about
20:59
the connection beach between the two year treasury and the Fed funds rate? Because
21:03
the Fed funds rate has to stay ahead of that two year treasury, right,
21:07
Uh, yeah, that's that's that's what I was just talking about,
21:11
having a real Fed fund Guess what, when you have a real Fed funds
21:17
rate, the pressure on the economy is immense, and especially that is the
21:22
case when you have record amount of debt. Now I'm talking about nominal terms
21:26
and as a percentage of GDP. We have record corporate debt not only in
21:32
nominal terms but as a percentage of GDP. And that's why all these zombie
21:37
companies are going to go Many of them are going under because they have to.
21:40
They have to flow new debt just to pay interest on existing debt.
21:45
And that new debt is eight percent ten percent, not four. Yeah,
21:49
you're gonna see this. So it's all about time, man, I mean,
21:52
where's the rubber meat the road. What did I do on August first?
21:56
I sold all of my long duration bonds. We are seventy percent of
22:00
our portfolio is short term treasuries, and we have very little exposure to equities
22:07
with hedges. With hedges we are we are actually long the dollar, long
22:11
the dollar against really we've been. We've been loan the dollar for about two
22:17
years with a huge profit in the portfolio. Why because I love the US
22:22
dollar. No US dollar is doomed, it will go down significantly, But
22:30
when it's all about timing, I'm loan the US dollar against the Euro and
22:34
the yet not against hard assets. I actually have a five ers I have
22:40
a five percent now position in physical goal. No, I haven't had any
22:44
minors. I actually sold some of my physical goal a little bit ago because
22:49
I one thing goal, the one thing goal market does not like. Yeah,
22:53
the one is rising nominal rates and rising real rates, and we have
22:59
that right now. So but that's going to change quickly because we just talked
23:04
about that maturity. Will I don't know the exact date, but I will
23:07
know when real interest rates start the fall. You could just back up the
23:12
truck on physical goal and the minors, but not uxil back. You got
23:15
to get that's why, you know, philosophical investing and stole clock investing doesn't
23:21
really work for me or my investors, right right? Got that you want
23:26
to own? You want to own the sixty to forty portfolio, you know,
23:29
Kerry, this year will mark the third year that US debt US treasury
23:34
bonds have been in a bear market that has never happened before. Do you
23:40
know if you will if you said to yourself, you know, I'm close
23:45
to retirement. I want to have a sixty forty portfolio, but I want
23:48
to have sixty percent bonds and forty percent equities, not just sixty percent forty
23:55
percent bonds. I want to overweight bond. Even those bonds are down fifty
23:59
percent, fifty percent in the last two years. It lost half of your
24:03
money in the world's safest asset, supposedly half of your bunny. Now,
24:08
you could hold that thirty year bonds so maturity, and you'll break even.
24:15
You're holding your thirty year bond that's yielding one percent thirty years. Well you
24:19
could do that and get your principle back, but you're gonna get wiped out
24:22
because like inflation. It will not be if Kerrie inflation will not be one
24:26
percent for thirty years. So that I'm just trying to tell you the this
24:33
way shows like yours are so popular, and active money managers who have a
24:37
brain are becoming popular too, because you just can't sit here and say,
24:42
you know it's you know, nineteen sixty or you know it's sixty to forty.
24:47
Portfolio is wonderful. Everything always comes back, blah blah. You're going
24:51
to have volatility, you've you've had and are going to have with increased intensity,
24:56
volatility in the bond market and in the stock market. So what sectors
25:03
do you want to own the stock market? Where do you want to invest
25:04
along the yield curve? Do you want to own high yield or do you
25:07
want to own T bills? You have to know the right answer otherwise you're
25:11
going to get wiped out. Yeah, all right, Well it looks very
25:17
bleak. Is there any bright spot on the horizon at all? But you
25:22
know the bright spot on the horizon is perhaps you know this AI thing is
25:29
going to be spectacularly good for productivity. I know it's a possibility, and
25:34
you want to you want to hope for that. But on the other side
25:38
of that short term, if let's just say that's true, it couldn't be
25:41
true. You know, AI is going to boost the productivity of America.
25:47
Let's just say that's true. Yeah, on the road to that, there's
25:49
an awful lot of people they would be on the unemployment line. Yeah,
25:53
it's going to replace a lot of people. And that's so that's the thing,
25:56
you know, I keep I hate to be like, I'm not a
25:59
conspiracy theories, but yeah, we kind of broke the model. We said
26:03
to investors and to consumers, go to your mailbox, there'll be a check
26:07
from the government for you, and it'll be you know, a universal basic
26:11
income, and maybe we'll get rid of physical currency and coins so you can't
26:17
take your money out of the bank. We'll just you know, we'll send
26:18
you your money, we'll tell you what your interest rate is, and you
26:21
go out and spend it, and you won't have a job because AI replaced
26:26
it and we'll take care of you. That's reassuring. How's that for some
26:33
good news? Uh? Well, yeah, and like you were saying,
26:38
pre cal we might have Skynet as a result. Yeah, I said,
26:44
bring it on. I think Skynet would be able to replace our species with
26:47
something better. You know, maybe the cockproaches the metal in the United then
26:51
be human nature is odious, to say the least, with the neurolinks and
26:56
all that good stuff right to single larity. We're approaching that moment. Yeah,
27:03
well that's why we need. We need a renaissance, a rebirth.
27:07
Uh. In religion, in this company, in this country. Faith in
27:11
God and prayer can help us too. But the current course we're on is
27:19
a disaster. It's unsustainable by all the pounts here, right, I mean,
27:25
and it's and the one who gets hurt the ones who are going to
27:29
get hurt the most are the people in the middle to lower classes, though
27:33
those ones we know that they always do right. Yeah, it's the oligarchy
27:37
and the elites, the one percenters who have their multiple houses and they're you
27:42
know, listen, even be out of the picture. I don't want talk
27:48
aboutes. I'm just saying, if you care about people, you got to
27:52
care about what's happening. And the idea from the Federal Reserve and the Treasury
27:56
and from government, the upris to believe that they're better than the market.
28:03
They know what the interest rate is they can because we have a new technology,
28:07
it's called the printing press. We don't have to let money to gold
28:11
any longer. Why would we do something so stupid? We want that,
28:15
But I mean, I hear I hear some people who who actually proclaim I
28:22
want I want to mention names. They're saying, well, why do we
28:26
need to fund the deficit? Yeah, money to do ourselves correct money.
28:30
Well, if you do this is like insane. What well Krugman is a
28:34
guy, an economist. Nobel rises when the econos said, why would you
28:37
start a war with Martians and just fire fake missiles at them? You know,
28:42
whole digging and filling is wonderful, but it leads to stagflation. It
28:48
destroys your currency. It leads to a bond market collapse and the destruction of
28:52
your country. This is not something that's never been tried before. It's tried
28:56
over and over again. If you cannot sub supply the market with the faith
29:03
that your debt will be repaid and that your currency that you're paying that debt
29:07
is sound, your nation will be that that might be not someday is in
29:15
the danger of it will be destroyed, and it's never not happened before.
29:21
So we do have to fund our deficits. We do have to have a
29:23
currency that means something. Maybe someday we'll get back to that at but but
29:29
I don't know. We can only hope and pray. Michael, it's definitely
29:33
a bleak picture. Do you think we've ever been in as bad a situation
29:40
as we are now? I'm gonna my reflex response is no. And people
29:47
say, well, well, you know, the banking system is much better,
29:49
blah blah blah blah. You know, we have never had this level
29:53
we have. We have had a triumvirate of ascid bubbles. We have never
29:57
been a situation. We have a massive bubble in bonds. Seventeen trillion of
30:03
negative yielding debt around the world. That's a bubble in bonds. When you
30:10
get paid to borrow money, that's a bubble. And that bubble and bonds
30:15
existed concurrently with a record level in home prices. This is pretty much globally
30:22
to carry a whole price to income ridge has never been higher. And the
30:26
stock market, so the stock market has outside of twenty twenty, if you'll
30:30
get price to sales, if you look at total market captain GDP ratios if
30:37
you look at earning yields as compared to treasury so that risk premium it never
30:42
been worse. Yeah, So you have that trevert of bubbles that's bursting on
30:48
top of a record amount of debt. It's hard to imagine a time worse
30:52
than this coming unfortunately. All right, Well we will leave it at that.
30:57
If you got a question for Mike or myself, shoot me an email
31:00
kl at Carrie LUTs dot com. Find Michael's website at pentoport dot com and
31:10
there's a link in the show notes to this interview on Financial Survival Network dot
31:14
com. Make sure you sign up for your free newsletter. Michael, I
31:18
know we'll be talking to you again soon and let's see what they're up to
31:22
next. All right, Kerry, good to be with you. Take care,
31:25
Thanks for listening to Carrie Letz's Financial Survival Network, your solution to today's
31:30
trying times. For the latest, go to Financial Survivalnetwork dot com. Financial
31:37
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