Follow on:

With interest rates higher than they’ve been in over 20 years, many analysts and economists have expected the economy – and then the markets – to buckle under the higher cost of debt. After all, we have 6x the total public debt as we did that last time interest rates were this high.

But whether that will eventually prove true, the markets are priced as if it won’t.

Right now, they’re priced for no recession, no adverse lag effects from the historically aggressive hiking & tightening campaign pursued over the past year and a half by the Federal Reserve and most of the other major world central banks.

So when will this higher cost of debt matter? Will it matter?

For answers, we turn to the highly popular and always informed money manager and macro analyst Michael Pento.


Michael Pento 0:00
I want to talk about all the reasons why the recession is still coming. It has not been canceled. It’s just being held in abeyance, but not for much longer.

Adam Taggart 0:14
Welcome to Wealthion and Wealthion founder Adam Taggart. With interest rates higher than they’ve been in over 20 years, many analysts and economists have expected the economy and then the financial markets to buckle under the higher cost of debt. After all, we have six times the total public debt as we did the last time interest rates were this high. But whether that will eventually prove true, the markets are priced as if it won’t. Right now, they’re priced for no recession, no adverse lag effects from the historically aggressive hiking and tightening campaign pursued over the past year and a half by the Federal Reserve, and most of the other major world central banks. So when will this higher cost of debt matter? will it matter? For answers, we turn to the highly popular and always informed money manager and macro analyst Michael pento. Michael, my friend, thank you so much for joining us today.

Michael Pento 1:13
Hey, you know, it’s always a pleasure to be on with you, Adam.

Adam Taggart 1:17
Mutual Association, brother, you’re one of my absolute favorite people to interview. And you’re definitely without a doubt one of the most requested guests by the wealth and audience. So know that you’re here among friends, Michael. So lots to talk about with you. If we can, let’s just start with the general question. I’d like to ask you at the start of all our discussions. What’s your current assessment of the global economy and financial markets?

Michael Pento 1:43
Well, I think it’s very clear to me through the facts that I look at every day that the recession has been delayed. It’s been held in abeyance, but it’s absolutely not been canceled. The soft landing narrative is a complete myth. And let’s just go through some of the reasons why I believe the recession was delayed some of the most popular ones, and then I’ll get to the, to the real one, or the most salient reason why I think the recession is the late 2023. We had massive deficit spending. Now, a lot of people just end the conversation with well, you know, you can deficit spend and that stimulus to the economy. Well, we had massive deficits in 2000 2001 2002 2008, massive deficits caused by the automatic stabilizers, stabilizers kicking in when you have a recession. So that’s not really what I would call stimulative. And please don’t forget that these massive deficits cannot continue forever, to the pace and quantity that we are now experiencing, both in nominal terms and as a percentage of GDP. Because what happens when you run massive deficits, Adam, you destroy your economy, you get higher taxes, higher interest rates, higher inflation, and you destroy productivity. So let’s just put that one aside. So that’s, that’s one reason why it’s delayed. But that can’t continue. And in the long run, it really stinks. Okay, number two, consumers and businesses locked up a tremendous amount of low interest rates, a tremendous amount of debt and a tremendous amount of low interest rates. That is true, but there’s a day of reckoning coming in 2024 and 2005 2025. And I’ll talk about that in a little bit. Of course, we also hear that the consumer has a lot of excess savings. Well, that was true in 2022, just as true as it was in 2023. So what do I think is the real reason why I think the last time you had an eon was around the time on Wealthion, I think was around the late spring, when I was on when we had these four banks fail. And I had predicted in 2022, that was going to be 2021. That 22 would be a bad year, and that 2023 We would have a recession. So why did it happen? I think if you want to put the nucleus out there and split that atom, it’s because No, no pun intended, by the way is because we had the bank term funding program, which was a bailout of the entire US financial system. That is what turned the market around. Remember the economy and the market. Were turning into a ditch going off the rails in March. Stock markets are the plunge you had spreads wide now, high yield was blowing out financial conditions were tightening and then the Fed came in and monetized and this is key. They printed $400 billion of base money supply. What is the base money supply is high powered money. It’s called that for a reason. Because it’s it’s physical cash and fed credit, which can be used to buy bonds and make loans and can in itself be turned into cash. They printed $400 billion was in two freakin weeks Adam. And that was 50% of the entire Fed’s balance sheet from 1913, all the way through the end of 2008. That is why we have recession delayed and I want to spend. If I had my druthers sure Show, I want to talk about all the reasons why the recession is still coming. It has not been canceled. It’s just being held in abeyance, but not for much longer.

Adam Taggart 5:26
All right, you’ve got a blindingly green light to do exactly. Just that, my friend. We can jump right in there, if you want to, you know, I talked at the beginning about the high cost of debt that we have right now. So we have a lot more debt right now. Right? You just mentioned, you know, this 400 billion that was pumped out in two weeks via the B FTP. I think people kind of forget now we know with the Fed balance sheet up at what it is right now, at around 8 trillion or so.

Michael Pento 5:59
It’s a little over 8 point, I think it’s 8.3 trillion. Right? Yeah, so

Adam Taggart 6:02
8.3 trillion. So that was only 800 billion at the start of the global financial crisis in 2008. Right? I mean, it has gone up more than 10 times in, you know, what is that? Right, like 15 years or so. And it’s just, it’s mind boggling to those of us who think of it. But I think to the average, you know, casual observer, that’s sort of a man, whatever, you know, half the trip, not even half a trillion. How could it be that bad? Well, I mean, that, as you said, was half the Fed’s balance sheet just 15 years ago. And so as I said, I think the last time interest rates were in this territory. It was right at the turn of the millennium, right, where we had 1/6, the amount of public debt, total public debt that we have out there right now. Now, the system following the great financial crisis got very habituated, many would say addicted, desert, you know, zero or extremely low interest rates. And now we’ve had this massively aggressive hiking campaign and tightening campaign tightening maybe hasn’t been as aggressive as the hiking, but the Feds not done yet. And people like you and me, I think, who respect math and economic history have said, look, there’s there’s a lag effect to all this, that will definitely be felt in B felt harder than in periods past because the debt is so much bigger now. But the markets don’t seem to care. And a lot of people aren’t that worried about I think they’re kind of adopting a sort of like, well, I mean, it hasn’t happened. So you know, maybe it’s just not gonna happen. Maybe we’re gonna have a site where maybe we’re gonna have a no landing scenario, right? So why should we maybe start there or just sort of a cost of debt?

Michael Pento 7:48
Yeah, let’s talk about so we should know that monetary tightening works with about about a year lag, maybe 16 months about a year lag. But if you go back a year from today, what was the Fed funds rate a year, one year from today, one year ago today

Adam Taggart 8:08
3% and a half percent. So

Michael Pento 8:11
so, you know, right now we’re at five and a quarter, five and a half. But a year ago, it was only two and a half percent. So we have a long way to go before we start to see the real teeth. And the bite from these monetary hikes, we have a lot of wood to chop here before we start laughing. Right? Few months, at least several months have to go by before we start laughing that 5% And above Fed funds rate two and a half is historically nothing. But here’s here’s something else I want to touch on. And this is this is very crucial to what I think you were talking about, about why the recessions held in advance. And why the higher cost of money is that it means something, especially to corporations. Of course, it means lots of the government’s who but we’ll get to that later. So corporate there’s what I see is a corporate debt, I call it a maturity wall going to hit in 2024 and 2025. There’s $1.8 trillion worth of corporate debt that needs to be refinanced between now and the end of 2025. And the rates on that debt atom are going to be between four and 5.5%. Higher than they were when they locked it into several years ago.

Adam Taggart 9:26
Yeah. And just to be clear, you don’t mean 4.5% increase? You mean? You’re tacking on an additional four to 500 basis points, meaning it’s like over a doubling of what they were before.

Michael Pento 9:38
Yes. So that’s what about the duck gonna be borrowing at four and a half percent? It’s gonna be four and a half percent higher than what they borrowed in 2000 22,021. Okay, got it.

Adam Taggart 9:49
Got it. Got it. And sorry, just to be super clear on this for folks, when you borrow you tend to Borrow. Borrow from a bank at the prime rate plus something. And the crime rate has basically more than doubled in the time period that that Michael is talking about here. So when you’re old debt that you’ve been sitting on and happy to pay low interest rates on comes up from maturity, if interest rates stay in the same ballpark they are right now, literally, the cost of your debt is going to be at least 2x. Probably more than that.

Michael Pento 10:23
Exactly. And you see it already happening now. So the interest, we have something called an interest coverage ratio, which is basically your edits areas where interest in taxes over your interest expense is already falling precipitously. And that’s before this great debt reset happens in 2024, and 2025. Now, you say, well, maybe we don’t have to worry about that until 2025. I think that’s going to start getting priced into the market very soon as in like, q4, of this year, and early in 24. Because everybody knows about this maturity. This is not, you know, Goldman Sachs put out a report about this debt maturity wall coming. So it’s coming. It’s reality. And when you have 10% of companies out there zombies, in other words, they can’t even pay, they have to borrow money to pay interest on debt. That’s what that’s the definition of a zombie. They don’t have the cash flow from operations to pay interest on debt. What do you think’s gonna happen to those companies? And they and there’s about 11 million people employed in the United States of America 11 million people employed in these junk rated high yield corporate debt businesses. Wow, I didn’t. We’ll shocked

Adam Taggart 11:39
Yeah, I did not know that stat. So we’ve obviously talked about the risk of zombie companies on this program before. And I guess I just sort of thought I should have thought to try to dig up that data point. But yeah, we start having, you know, contagion amongst the zombie fleet as they are forced to to go out and refinances their existing loans come up from maturity, they’re, you know, in many cases, going to die or on the process of dying are going to have to shed costs meaning cut jobs, right, either one of those examples is putting those 11 million jobs in jeopardy. So you know, this historically low unemployment rate that’s super resilient, and everybody points to is keeping us out of, you know, out of recession, that could jump pretty high pretty fast. Once those those loans for the zombie companies start rewriting

Michael Pento 12:29
that only zombies. It’s like I said, high yield and junk, different. But the high yield companies, junk rated companies, they’re not really debt, by definition, have to be zombie companies. You’re right. You’re right. So so think about that. So let’s continue on if you don’t, if you don’t mind.

Adam Taggart 12:43
Yeah. And actually, sir, before we do, but I just want to toss this out there because when you’re talking to reminded me of this, you remember leading up to the global finance, great leading up to the bursting of the housing bubble. I remember seeing these charts, published by Cs. First Boston, Credit Suisse First Boston, and it was projecting out the amount of arm mortgages that were going to have to come up for rewriting. Right, right. And you just saw this massive tsunami coming in the future. And guys like you, and I would look at this and say, Oh, my gosh, there’s gonna be a massive reckoning in the housing market. But nobody cared.

Michael Pento 13:25
Because they’ve been packaged into these pooled mortgages, which, you know, housing prices have never gone down in the United States ever, in the history of ever. So what can go wrong? Because you take a real crappy mortgage and put it in a pool of other Okay, mortgages, and you know, hey, the lowest tier tranche might go bad, but that doesn’t mean anything else is gonna go bad. But we saw the domino effect what happens, you know, this is, this is a story is played out over and over again, what gets you in trouble is over leveraged economies. United States is a very over leveraged economy. And there’s a much much higher interest rate on that leverage coming very, very soon.

Adam Taggart 14:07
Very, very. Okay, great. So super underscore to my point, which is sort of like we’ve seen this movie before. We can see these these, these maturity, this maturity wall coming. I’ll put up a chart right here, while we’re talking, Michael, that has surfaced on this channel a couple of times of late, but it shows the amount of corporate debt that is coming up from maturity in the next couple of years. And I’m doing it from memory, but folks who can see the chart on the screen can see the actual numbers, but I think it was like 600 something billion this year. It goes up into the higher you know, getting kind of close to a trillion next year 2025. It’s over a trillion. So it is a big wave coming, but it seems like you know, history repeats and rhymes Right? Like we have this overleveraged system, but it seems like we still have this hubris right now that for somehow it’s just is not going to matter. But obviously you’re saying it will.

Michael Pento 15:04
And just to tie up a little bit of a loose end here, too, you know, I knew I said that these banks wouldn’t be in trouble in 2023. And how did I know that? Well, everybody was saying that was the modifying effect this time around was that, hey, corporations locked in very low rates forever. mortgages have been locked in at 3% 30 year fixed forever. Not a problem, right? No problem at all. But you learn in you know, everything has an equal and opposite reaction. For every action. There’s an E isn’t one of the laws of thermodynamics, you know. So was, but who owns all this, that is what I asked myself, who owns all of his debt, who owns the mortgage backed securities and commercial mortgage backed securities, the junk debt that’s yielding nothing. Well, it’s banks. It’s the shadow banking system. It’s the Silicon Valley Banks and the first republics of the world. These are the banks that are loaded with this with this garbage. And then their prices tanked and yields skyrocketed for this debt. And they ended up sending to the fed through the bank term funding program, all of that debt at par for a year within now they have March, the middle of March the Ides of March 24. Let’s talk about this, too, we have so much to talk about. What’s Powell going to do. Now. Now, the bank term funding program is like a hybrid of the discount window. Normally, a discount window is open for about three months, you give your distressed debt, mostly treasuries, that was intended in 1913. That’s the only thing that was allowed to buy, you give your underwater treasuries, your assets to the discount window, the Federal Reserve, they give you a loan with a haircut for three months. The BTF B is a loan for a year at par value. But what happens at the point, when we get to the middle of March 2024. Palace to make a very big decision? Am I going to permanently monetize this debt and take it off the bank’s balance sheets like QE would do, because you’re gonna have, you’re gonna have a bank, or a shadow bank, their treasuries and mortgage backed securities that are a fraction of the cost, even what they were when they took them off their hands. And then the banks Oh, the Fed, poor value, full value for these assets. Let’s say that’s gonna be that’s gonna be a huge problem. So, you know, again, I’m sure I’ll mentioned this in the in this interview, you can’t just sit there and pontificate on what you’re going to do in March of 2024. A lot of this depends because the entire economy and market is artificial. The free market is dead. So we have to we have to be on, you know, bated breath. We are waiting on bated breath for Powell to decide what he’s going to do with the bank term funding problem. Is he going to roll it over allow them to roll over this debt endlessly? And then then it becomes QE. Right. And I would submit to you that my my trading decisions will change greatly based upon what he does. That’s a big decision. And I don’t hear anybody. You know, he didn’t talk about a Jackson Hole when he went out there for his post to look for mooses. And why didn’t anybody asked him? Mr. Powell? What are you going to do with the bank term funding program that’s keeping all these banks afloat and alive? Anyway, I just got, ya know,

Adam Taggart 18:41
these are great points. And actually, I’ll try to find a chart and if I can’t, I’ll put it up here. But the last charts that I’ve or the most recent charts I’ve seen on the the BF TP balance, is that it’s at all time highs. So it’s not trailing off like, oh, the banks are getting more stability. It’s, hey, more and more people are turning to this thing. Right, which, which is an emergency measure. Right. So that’s that’s one sign that all is not well, in the banking system.

Michael Pento 19:10
It’s not that it’s not well, it’s getting worse as the Fed continues to dither with its rate hikes, continuing higher. Banks have assets that are yielding them 3%. And the depositors are saying, I want five and a half, because that’s what I can get in a zero to three month treasury, five and change. And the bank saying I’m sorry, Mr. depositor, I can’t give you that because my bank would be upside down. And the depositors are taking those deposits out of the bank and going into money market funds and buying treasuries. So the bank liquidity problem is getting worse, not better. And we haven’t seen the values we have, again, mortgage backed securities, there’s excuse me commercial mortgage backed securities that are way underwater in the shadow banking system and in the in the primary dealers. What are they going to do there? They haven’t really Eyes these losses yet.

Adam Taggart 20:01
Right And sorry to interrupt, but I gotta ask you to do this just for the average viewer here who might not know exactly what the shadow bank system is. Can you just very quickly, name a few shadow bank players?

Michael Pento 20:13
Any any hedge fund big hedge fund out there? big insurance companies pension funds are US companies pension funds? Yes, yeah. So they’re they’re institutions that take deposits and make loans, sort of, but they’re not backed at all by any government facility. No FDIC insurance, nothing like that don’t have access to the primary window, the primary dealer window. So

Adam Taggart 20:37
into your point, I mean, yes, they’re very important to talk about these guys. But just there’s a ton of venture institutions out there, from pensions, to college endowments, to hedge funds to, you know, massive investing institutions that buy these package. Mortgages, right. I mean, they were You were joking about how Oh, all these mortgages are secured, securitized, and all these tranches. Like these are the players that are buying all that stuff. And just like the banks, you know, they borrow that mortgage debt, when mortgage rates were bad 3% Or even less than certain cases, and now we’re over seven and a half percent. Now we’re in that ballpark now, right? So they’re sitting on massive like, that is a lot of instability in the system. It’s amazing that some of these players haven’t really blown up already. Of course, part of what’s keeping them alive is some of these emergency measures, like we’re talking about. So, so let’s get to Paul’s decision on this then. Right? Okay. So pal, is still it’s interesting, he has been very resolute in his public speech, about how I’m, I’m gonna keep doing what I’m doing, until inflation is brought under control by brought under control. I mean, 2%, you know, under 2%. I’m not going to raise our inflation target to 3%. Like some people have been saying the Fed maybe will. So if he is that resolute, the pain could continue a lot longer than a lot of these players, you know, would like it to and maybe longer than they can stand. Now. It’s interesting on the day that we’re talking, I think a trial balloon came out yesterday, Nick timorous in the Wall Street Journal, wrote a piece saying that like, you know, actually, the Feds taking a second look now at its interest rate strategy, and it’s now beginning to think like maybe it’s done enough, like maybe maybe it’s actually been a little bit more successful than it’s thought prior to this date. And so they’re trying it sounds like they’re trying to prepare us for, you know, the Fed declaring Mission Accomplished soon.

Michael Pento 22:41
Well, that’s one of the reasons why the long end of the Treasury curve is having problems because they’re declaring victory before the wars even close to being over, in my opinion. So an early victory and an early exit off the battlefield could be could be extremely pernicious for the middle class of this country. Yeah, I know what you to your point just made before nobody on CMBS, or any of the mainstream financial media talks about, they talk with alacrity about all how great it is that the higher rates aren’t affecting the economy. They’re not affecting businesses, they’re not affecting consumers. They are affecting the US government, okay, in a big way, look at the size of our deficits, the way they’re exploding. And it’s a lot of that is interest expense, you know, by 2040 interest expense, and entitlements will be 100% of all government revenue. So, you know, we’re, we have a big problem here, but they don’t just a finish that thought, yeah, you don’t hear about this pension plan, or that insurance company or that hedge fund is huge hedge fund that’s loaded up with leverage on commercial mortgage backed securities, who’s the rates have gone through the roof? The prices are way down on these on these bonds. And, and the vacancy rates have soared. And who’s, you know, are they still getting the same income stream from these from these mortgages? I don’t think so. That’s a 2024 story that has yet to be told.

Adam Taggart 24:14
Right? And they’re they’re likely not because you know, our I live in the San Francisco Bay Area you know, we’ve had a number of you know, big commercial real estate customers do jingle mail right with if said, You know what, I’m done bank here you go. You take the keys to this hotel or this high rise, right, these massive buildings, right. But even you know, even for the the tenants that are still paying, you know, there’s some percentage of landlords out there that have either you know, variable rate mortgages or that their their debts just coming up for from maturity and they’re having to borrow at a higher amount. So their profitability Is suffering even if the income is staying the same? So okay, so you’ve you’ve basically corroborated, you know, my concerns in the intro that the weight, the gravitational force of these higher interest rates are. It’s just inevitable math that at some point, as long as they stay at these levels, they’re going to be some pretty big breakages in the system. Now, we’ve been really kind of focused on the financial system and the banking system so far, you give a quick nod to the government, but But I will say one of the reasons why deficit spending is so high this year, is because the cost of service and the national debt, you know, goes up in lockstep with these interest rates, right. So that is kind of eating away at what we’re able to do as a as a government as a society, because there’s just less and less leftover to do real stuff with to actually run a country when you’re sending a greater and greater percentage to your creditors. Right. So we have that I’d love any any thoughts you want to add to the government side of things. And then maybe we can talk for a little bit too about the consumer household because it’s higher interest rates matter for consumers to

Michael Pento 26:13
the I just wanted to you made me laugh, and you said jingle mail because not too long ago, several weeks ago, the chief economist for Zillow came out. And he said that he has this wonderful new invention called a 1%. Mortgage. So I imagined that one I mean, it’s not quite as bad as the ninja loans that we had in the arts, but but it’s close 1% and and here’s the piece of resistance. PCA is the reason I’m not French. Alright. The credit score to qualify for a 1% mortgage was 626 20. Which by the way makes them a what? A subprime borrower, Adam. So it’s good to know that we learned from our mistakes.

Adam Taggart 26:59
Well, I mean, that’s where I was going earlier, Michael, it just, you know, clearly are not now, you know, maybe these and I think these are like, these are signs of desperation, right? Where you’re just trying to do whatever you can to keep the ship moving forward and above water, and I do not envy. You know, some of these players in the real estate space that I think are looking around and, you know, just experiencing in real time what we’re talking about, they’re just trying to do whatever they can write. But when that article came out, I can’t remember who I was interviewing that day in his channel, but I said, alright, well, let’s set our watches. I think it was definitely palm boy. I was like, I give it at most a year. Before we see the headline that says, you know, zero shutters, you know, ill conceived 1% mortgage program. I think the smart money is on the under on the extreme Iran that prediction.

Michael Pento 27:48
Absolutely. Yeah. We it’s amazing how we don’t learn anything, not on a personal level, business level. And especially, you know, the government leads by example. Can I Can I just touch base on a couple of things. I want to make sure I talk about banks and what’s happening what I started, Michael,

Adam Taggart 28:06
we’re here to touch on everything you want to touch on. So you drive my friend.

Michael Pento 28:10
So I I started the show this time saying is recession in abeyance, held in abeyance and not and not canceled? The yield curve has been inverted for 14 months. And it’s been upside down. Now. I think the last time I looked was like 70 basis points. It was as high as 100 basis points inverted. But I want to just explain it, this is a sign it’s not just a coincident indicator. Well, you know, every time the yield curve inverts, we have a recession or 99% of the time since 1945. It helps cause a recession because it puts banks under a lot of pressure, because their assets aren’t earning what it takes for them to get their income, which is you know, their deposits, where they get their income from. So, the net percentage of banks tightening lending standards is now 50.8%. That is an 82.3% Change percentage points change from the Navier where it was in March of 2021. Till today, wow. That is a that is that is a net percentage change of banks tightening lending standards like we have never seen before. The I’ll add one more to that the real Fed funds rate has gone from minus 8% to positive 2% and is heading higher. That is also one of the biggest trench it moves higher in interest borrowing costs, the overnight interbank lending rate we’ve ever seen before in the history of the Federal Reserve. So the pressure on the banking system is enormous. That’s why we see end to money supply, contracting from its very high level now to contraction. His growth was phenomenal like 40% in In the period of time between 20 and 22, when we saw the Fed monetize $4.5 trillion of the $6 trillion worth of helicopter money deployed by the government, these are these this is say like, what have we learned? We have learned to do exactly this wrong, stupid thing. But in exponential terms.

Adam Taggart 30:28
So we have unlearned that a faster and faster rate. Let me let me say, Michael, to just give you kudos, I had Lacey hunt on the program, about a month ago or so. And he really drew a bead on exactly what you’re talking about there too, in terms of the banks tightening and really almost sort of an unprecedented scale, in terms of the speed of it. And he the title of the interview with him was credit crunch is now underway, where, you know, the banks are just, they’re not lending out nearly as much as they were. And it’s gonna get worse for all the reasons that you’re intimating here. But your to be in the same company as Lacey hunt, I always think is a really safe, and you can do that amendable place to be. Absolutely. All right. So. So I do want to get to the consumer real quick, anything else to mention just on the government side of things about, you know, the the impact, the lag effect, if you will, of these higher rates?

Michael Pento 31:27
I think I think I said it all, when I said by 2040, we’re going to have no money left over to run the government, Social Security, Medicare, Medicaid and interest expense. I mean, that’s, I want to I want to I want to parenthetically say before I forget, that assumes that there is no recession between now and 40.

Adam Taggart 31:47
Okay, what interest rate, does it assume?

Michael Pento 31:50
I think it’s four and a half.

Adam Taggart 31:54
Okay, so lower than what we have right now. Right? So good, because obviously, and we’re gonna get here in a little bit, and the discussion rates are highly likely not going to stay at this level, they’re probably going to come down, certainly, they’ll come down. It’s probably many times between now and 2044. If no other reason, just massive intervention on behalf of the Federal Reserve, its rescue our efforts or whatnot. But we’ll see how successful those are. I do want to ask you, at some point, do you see more secularly high interest rates going forward than we’ve enjoyed for the past couple of decades? But I do think and maybe maybe we jumped to this briefly at least, do you see lower interest rates at some point in the relatively near future. And by that I mean, six months to two years as the Fed is forced to intervene if something truly breaks under these things.

Michael Pento 32:46
So for every action, there’s an equal and opposite reaction. And I believe the Fed will panic with reticence back to towards ZIRP and QE again. But the other side of that equation is why the Federal Reserve panics back to reserve in an environment where he’s 50%. He’s off of his 2%. Right inflation target. And that’s because the economy’s and banking system is in meltdown mode. And that that to me would mean well, maybe your average interest rate a maybe. And I want to touch I want to touch on this in a second is a perfect segue to what I want to go to next. But maybe the yield curve, the entirely entire yield curve comes down. Maybe I had my doubts on the long end, and I’m gonna get to that in a second. But it’s because the deficits explode into the multiple trillions due to that recession.

Adam Taggart 33:44
Okay, well, let’s let’s go there, then. Because this touches on a prediction that’s been made on this channel a couple of times by Bill Fleckenstein. And I’ve had some people say I should get Bill in the program again, soon. I’m going to folks, we’re bill, Bill’s big concern is that the Fed will be forced to pivot before it gets inflation fully under control, pretty much exactly what you’re saying. And the bond market is going to say, You know what fed, I don’t have any faith in you anymore, that you’re ever going to be able to contain inflation. And you’re probably going to have to resort to these measures that caused us to have these massive deficits as far as the eye can see. And therefore, I want higher yields on the longer end of the curve to compensate me for that increased risk. Is that pretty much what you’re saying?

Michael Pento 34:35
Well, I’ve written extensively about exactly, there you go, okay. I mean, I’ve written and put it in writing many, many times, many times in the past, as exactly why I wrote a book about it in 2000, as well, that you’re going to inculcate to the market that you have no control of your currency or your debt. And that’s when the long end of the yield curve just goes bonkers. And look what’s happening now there’s there’s several reasons why I believe the long end of the yield curve is going to be a buy in the future. Talking about long duration treasury bonds, you know, you think about the ETFs TLT, zero z zero coupon bonds, the longest duration of bonds. And there’s I think there’s four or five reasons why there are no touch for me right now, though. Number one, you saw inflation come from 9%, officially down to 3% headline CPI. So that’s disinflation, which I call for happen in 2020, through 2023. So deflate disinflation would occur. But that’s now turned into more of a stagflation or perhaps even what I predict. We’re gonna get a CPI print in a couple of days from this recording, which is being done on Tuesday, September 11, which is a very solemn day. We didn’t mention that, but it’s Yeah. Our thoughts and prayers go up everyone affected by that tragedy. So now, the next few months, I predict inflation headline inflation is going to drift towards 4%.

Adam Taggart 36:02
So sort of a reflation here near term,

Michael Pento 36:06
so disinflation is temporarily over. So that is putting pressure upward on the yield curve, because what is the yield curve? Who controls what part of it the Fed controls the short end of it? Because that competes with Fed Funds. Short term treasuries compete with the money, money markets, long term Treasuries are more a reflection of the inflation expectations and growth expectations of the US economy. So inflation is no longer disinflation. Now. It’s kind of a reflation as you so well put. That’s number one. Now, amazingly, Adam, the Atlanta Fed has GDP growth for q3 Close percent. Now I laugh, you’re laughing. It’s actually humorous. I don’t know how you get there in an environment where productivity is floundering. And the population growth is the labor force growth is 0.5%. It’s a half percentage point, you just, you just can’t get there. Gross domestic income is negative. There’s an earnings recession out there. I mean,

Adam Taggart 37:07
it’s actually starting to move up. Its tax tax receipts are

Michael Pento 37:12
down. So there’s a lot of reasons why you should not believe 6% or anything close to that. But that’s the narrative from the highly accurate, Atlanta Fed. So you see, inflation is stopped falling. You see growth is now accelerating. China is selling off of there, China and Japan are the biggest holders. Their reserves are parked in treasuries. Their currencies are floundering the Chinese renminbi and the Japanese Yuan yen, sorry. They are selling off their holdings of treasuries to support their currencies.

Adam Taggart 37:50
Okay. So just to be clear for folks, when you hear about yield curve control, this is part of what’s going on there.

Michael Pento 37:57
Correct. That was my next point. So Japan is so so Japan and China are selling treasuries to support their currencies. Also, Japan is selling treasuries. Because they’re relaxing yield curve control. They don’t they no longer want to have that 10 year JGB. Now, it’s spiked to 70 basis points. In fact, there was you waited, their central banker was talking today about completely relaxing, the yield curve control in Japan, if they did that Japan would implode. And that’s, I think, the fourth largest economy on the planet. So that’ll never happen. They can’t just say, hey, you know, we’re the only buyer of Japanese government, government bonds. Japanese government debt is I think, 1.4 quadrillion yen in debt. So they are in worse condition than the United States. And their inflation rate. If you look at the food inflation, it’s 8%. So why in the world would anybody locked up a Japanese government bond JGB going out 10 years, any any private free market entity issues them like the plague. So the only buyer is the BOJ bank, government? Yeah. And if they step away, you will see those rates go towards 10%, not 1%. So that’s another and there’s one more reason and for to to not buy long duration bonds right now, even though I’m getting ready to do so I’m waiting for some things we’ll talk about to become manifest is the explosion in debt and deficits and the Fed’s QE program, so the Fed engages in quantitative tightening, what are they doing? They are pretty much it’s the same process of selling that instead of rolling over their treasuries, they allow them to expire and they say, Okay, we have a bond do. Treasury says we have a bond coming to the Fed says, I have no money, I’m sorry. The Treasury says I have no money. So they go out to private market, and they sell a bond and then it gets that money and they pay back the Fed. The Fed destroys that money. That’s quantitative tightening their normal longer a buyer. So you have five reasons why you should be very cautious about buying duration bonds until the recession becomes manifest. And that’s going to mean you’re gonna, you’re gonna need to see initial claims spike, you’re gonna need to see non farm payrolls approach zero. We’re not seeing that yet. So it’s, it’s right now, it’s a no touch for me, I’m not shorting them yet. I will in the future, I can guarantee you that after the next recession, if the Fed liquid re liquefies the banking system, right now I’m just no touch.

Adam Taggart 40:30
Okay, I’m got so many great things that you’ve just said there. I want to dial into the Qt and deficit spending for a second. So Janet Yellen just recently announced that the Treasury is going to be issuing something like 1.9 trillion worth of US Treasury bonds over the remaining part of this year is really not that many months, right? So I imagine that’s gonna play into your math too, right? Where you have an increase in supply, that isn’t there to just mop it all up, because it’s doing QT. So they’re gonna have to go out into this market of international buyer, or well, all buyers, but a lot of the big buyers, besides the Fed, are in sell mode right now, like you said, right? So presumably, yields have been going up on those.

Michael Pento 41:18
And I did, according to the Treasury’s intentions, a lot of those Treasuries are gonna be sold on the long end of the yield curve, because it’s lower interest rates. So they’re locking in lower rates forever, you know?

Adam Taggart 41:30
Okay, so I do, I do want to get to your, your arc of how you plan to hold these things, because my my guess is, is you’re holding them at arm’s length right now. But you will be ready to pivot when the Fed pivots for less, or when you see some other triggers. And then you’ll go along these guys for some period of time. Before we get to that, though, I do just want to round out the recession risk, part of the discussion. So we’ve talked about the financial system, the banking system, the government, let’s talk about consumers for a moment. They are well, you know, housing buyers, or anybody with an adjustable rate mortgage, or anybody who wants to sell and then buy another house, you know, they are struggling with much more expensive mortgages than most people, you know, remember dealing with sure those people who bought houses back in the 80s, you know, can maybe still remember high mortgage rates, but different world back then. Then, you know, we have a lot of factors, you’ve mentioned several of them, but that are giving increasing headwinds to consumers ability to get ahead, of course, the bottom 90% of consumers are the ones who have taken, you know, the full brunt of the increase in cost of living that we’ve seen, you know, resulting from all these pandemic stimulus campaigns that you’ve been railing about. And then we have a couple of things coming up ahead, one of which just started a few days ago, which is student loans going back into repayment, right. So those loans are now officially the clock is ticking, they now are actually accruing interest against the first payments are going to have to be made in about three weeks from now. How big of a deal do you think that’s going to be?

Michael Pento 43:23
I, listen, don’t accuse me of being a Pollyanna. But I think I think it’s going to be less that is probably less of a big deal. Then many people talk about because of Biden’s on ramp program where he basically told people, Hey, listen, you don’t have to pay your student loan, don’t don’t pay it. For a year, you don’t have to pay it. Because it’ll be no harm to your credit rating whatsoever. You’ll get no coal from a collections agency, your credit score will not be affected. I mean, what so well, if I would, if I had a student loan, and I’m thinking but for three years, I haven’t paid anything. And now I mean, maybe Biden wins again, and he finds a way to cancel this debt. I probably, I my guess is 40% of the people with student loan debt, don’t pay it. So 60% have

Adam Taggart 44:12
started that kind of that kind of measures with recent surveys were 45% to one survey response I saw I said, Well, I’m going to go into LinkedIn if I have to repay because I can’t repay it.

Michael Pento 44:24
And there’s no Well, you can’t repay it. And there’s no there’s no repercussions. Like no one’s gonna come after you. It’s not gonna hurt my credit rating, my credit score stays the same. I’m not gonna go into collections, so why would I pay it? If I hear so I’m not gonna I’m not gonna take out some credit card debt. Listen, delinquencies on credit cards, consumer loans, and auto loans are already at a decade hot decade high. So this is before anybody pays their student loan, but on a rate of change basis, some people some proportionality of the population that Oh, student loan debt is going to start repaying their loans. So that is a net negative snap positive, right?

Adam Taggart 45:02
And speaking of those other loans that they they own, you know, the ones that are revolving meaning they have, you know, floating rates, credit cards, for example, anyone taking out a new car loan except right like these are the the interest rates are either at for credit cards for sure or near record highs, auto loans, in terms of interest rates, they’re being charged, right. So not only do we have a record, total outstanding balance of consumer revolving credit, but it is at the highest interest that it has ever been at. It’s the worst of both worlds.

Michael Pento 45:38
That’s why you see a lot of pressure on especially the, the lower three quintiles of, of consumers. The real estate mortgage is is frozen reifies work, you know that practice back in the aughts when they you know, hey, my, my heart, my house went up so much in price, and I’m going to refinance my mortgage and take money out and my payments gonna stay the same. And that because the rates were going down, I mean, that’s over 30%. And mortgage Apple purchase applications are down 28% year over year. That’s that’s a depression in housing activity. That’s another reason why I’m like 6% Atlanta Fed 6%. Are you sure about that? Because I mean, you have how much income is generated from the transactions of real estate from lawyers and brokers, selling a house and then wrote

Adam Taggart 46:29
in my carpenter carpenters and contractors, and I mean, just it’s a massive contributor to the economy.

Michael Pento 46:36
Massive and and we’re also seeing more you want to talk a little more about the consumer pressure. There’s a there’s a research firm called challenger gray and Christmas. Yeah, layoffs this year are up 2% 20%? No, they’re up to 110%. Planned layoff announcements are up 210% from this period of time, compared to a year ago. So you take the first eight months of 23, compared to the first eight months of 2022. Those are playing layoffs that haven’t happened yet. So that’s why I said it’s recession delayed. It’s held in abeyance, it’s not canceled.

Adam Taggart 47:15
Okay. So you know, I keep using this term, because it makes sense to me, which is just like this increased gravitational force, right as cost of, of capital goes up, cost of debt goes up. And cost of living goes up. It’s like someone is dialing up the force of gravity. And it just gets harder and harder to move forward. And I think more and more consumers can relate to that. And maybe we go into this territory a little while, Michael, I think we are finally beginning to really see. I think the buckling of the consumer household, the majority of that is still ahead of us. But I think we’re really beginning to see people begin to get fed up enough that they’re, they’re starting to sort of find their voice around this. And I don’t know if you saw that that song that became a number one hit out of nowhere, Richmond, North Richmond, I did a video on it. But to me, that’s sort of a sign sort of a fourth turning sign as a nod to Neil Howe, that you know, enough of the populace is is sharing what Peter Atwater calls this shared hopelessness, this despair of shared hopelessness, where something like that can go incredibly viral in a heartbeat because it puts its finger on a wound, it actually finally gives voice to this emotional pain that people have been feeling. And once they have words, and they can coalesce around a message or an anthem or whatever, you know, then they can take action based off that we’ve seen that happen in many other tumultuous times in history. So anyways, my point is, is I think we’re just beginning to see some real social fracture lines begin to occur, you know, because of this struggle, increasing struggle that folks are going through. Alright, so we’ve

Michael Pento 49:09
already kind of done that real quick. Yeah. jumping, jumping. So, you know, I think we can put to bed the myth that the Fed is there to protect the lower and middle classes in this country. And that’s why it’s so good to have programs like yours on because people like me can expound about the fact that they are destroying this country. You can’t have a viable nation without a vibrant middle class. It just doesn’t work, Adam, and we had, according to official figures, we had a 9% inflation rate not too long ago, a little over a year ago. And that means that the purchasing power of the US dollar gets destroyed in half every eight years.

Adam Taggart 49:50
And those are official figures which are much rosier than the reality. Listen.

Michael Pento 49:56
We know for a fact that hold prices went up 43% In the last two years, that’s from private sources. Case Shiller home price index. So we know rents have gone up commensurate with that. So, in reality, you’re talking about 40%. And that means you’re the purchasing power of the dollar gets cut in half, about every two years, according to rule of 72. So this is the room, this is why you’re such a great channel, I can get a get on a soapbox here and and expound on the fact that the Federal Reserve is destroying the very people they purport to care most about, which is the lower middle classes. I mean, why do you continually tell us how you know the unemployment rate of this class and that class and that ethnic group, you don’t care about that you care about keeping banks in business? And if you doubt what I just said, Just look what they did in the middle of March of this year? Who did that really help the most? And why did they do it? Because they’re in business to bail out banks, not the American people, they are destroying this country. They destroyed productivity, and they’re destroying the destroying the purchase power, purchasing power of our currency of our

Adam Taggart 51:15
currency. Yeah. And deliberate or not. And I think we can make, you know, a lot of arguments that it very well may be delivered but but deliberate or not, their their job is to support the banking system. Right, and no huge surprise because the Fed is a confederation of banks, right? I mean, it’s taken care of its own to a certain extent. But it is, it is, you know, in the business of rescuing and enriching them. And all of the individuals who benefit from the output of the banking system, which is a relatively small cadre of people, and their wealth, has just gargantuan ly increased over the past couple of decades, at the expense of the bottom 99%. Right. So to your point, they really can make a very strong argument, that they are just sacrificing the future prosperity of everybody. But this top echelon.

Michael Pento 52:13
America is supposed to be a meritocracy. And failure is part of that process. Some people fail, leverage people leverage entities, leveraged institutions, leveraged individuals, they have to be allowed to fail for the system to work. But this this system of government that we have now does not believe in a meritocracy. It’s becoming more and more of a socialist construct, unfortunately. And one that resembles a banana republic more and more. And I say that, with someone who loves this country, is becoming a banana republic, just look what’s happening in the political world. We haven’t even talked about the election of 24. Which could could, which would yank this country closer and closer to a, what I believe could be a partial Civil War, and I don’t I don’t, I don’t want it. I don’t espouse it. I would hate for it to happen. But look at countries that have a habit of arresting and putting to jail, the previous administration. That doesn’t happen in America, and never has, and it never should.

Adam Taggart 53:24
Yeah, and if you go to, you know, a Banana Republic, and I’ve been to a number of them, you know, what, what describes it right, you know, it’s basically a very small ruling elite, that live exceptionally well. And they live in all these gated communities, because the rest of the country is impoverished. And, and they’re afraid of, you know, hey, if I go out in the real world, these people are going to, you know, attack me, right. And but it’s this, it’s this oligarchy, basically, and to your point, with our corporate cartels and everything, we seem to be getting further and further along that direction. And I was just jumping in earlier because you’re railing about what’s going on here. And I just want to underscore to try to head off some of the potential criticism is, you’re not making a partisan comment here. Right. Yeah. This is something that has persisted under administrations on the left on the right. It is just part of the power structure that we have right now.

Michael Pento 54:23
Look, I mean, I’m a libertarian. Donald Trump increased the debt of this nation far above where it needed to be to bail us out from COVID. And then Joe Biden took the baton and and sprinted from there. So this is, you can criticize me if you want to say, I’m a Trump or file or, you know, anti Biden, I’m a libertarian. I care about this country and I’ll just, I’ll just call him as I see him. I think Trump made a lot of mistakes, that a lot of things right. He made some very big mistakes. One of the big mistakes he made was constantly pestering Jerome Powell, listen, I, we want negative nominal interest rates, he actually, you know, push the Fed to try to go that route like key because Europe has gotten negative nominal rates I want those to he’s

Adam Taggart 55:14
interrupt but when he was campaigning, he was out there saying the Fed is blowing a bubble by keeping interest rates too low. And then of course, when he’s in the presidency it it’s okay went lower interest rates so just wanted to point out the differential and his positions.

Michael Pento 55:28
Well, I know it’s a shock of the reveal in this program first that there is hypocrisy in in politics.

Adam Taggart 55:34
Yeah, okay. Yeah. So anyways, I just wanted to make it clear, because sometimes people will cherry pick a point and say, Oh, Michael was on one side of the political spectrum. I’ve known you to be very, I mean, libertarian minded. But also, I think to be, you know, very nonpartisan, very pragmatic, and very equal to cast aspersions on both sides when you see ill behavior. And sadly, I think you see a lot of ill behavior everywhere. You look at the see

Michael Pento 56:04
your point, we’re creating an aristocracy in this country. And it’s because of the Treasury and because of the Federal Reserve, and the politicians.

Adam Taggart 56:13
Okay, as much as we could spend the rest of our time on this, I gotta, I gotta rest it back, because we still have to get to your model, and how you plan to navigate where we are right now versus what you think is coming ahead. Last point on the recession side of the story. You I think you’ve largely said this with with your points here, but we talked about the financial system, the banking system, government, consumers, as consumer spending obviously gets increasingly compromised, we’re still a 70% GDP, consumer spending driven economy. That is, correct me, if you disagree, that is likely to then eventually manifest this corporate earnings recession that we thought was going to happen earlier this year, that is going to then cause corporations to start laying off people as part of their cost cutting measures, that is probably likely going to accelerate, you know, create for some period of time a vicious cycle of consumer diminished consumer spending. That may cause the breakage in the system, the breakage in the system might happen before it may come somewhere else like it started in the banking system, right. But at some point, we’re going to enter a recession, we’re going to have these vicious cycles, something’s going to break. And then we get to a decision point for the Fed. Do you agree with everything I just lined up there? And if not clarify for us?

Michael Pento 57:43
I certainly do us fantastically say congratulations. I mean the pandemic related savings is scheduled by many, many sources to run out in q4 of this year. And then you have you add to that the fact that the banks have stopped lending and the real estate markets in a depression as far as transactions are concerned, I didn’t say depression prices yet. I said transactions that should lead to a fall in asset prices in general, it should lead to a fall and consumption it should lead to a fall in the stock market is your lead it lead to a fall in home prices. Don’t forget, you know you have people say well, you have better underwriting standards. And I definitely agree with that the exception of Zillow. But you have when you have 20 to 25% of homes, single family homes in this country owned by investors and Wall Street. I put myself in the mindset of Blackstone, and I say, Okay, so the zombie companies start laying off people and when the when the corporate debt gets reset and 24. And people are paying much more higher interest rate, corporations start laying off people on an employment rate rises, my income stream from these rentals starts to dry up, home prices start to roll over a little bit. And I’m sitting on a 43% gain in my home. That vestment speculative property that I purchased a few years ago. I’m going to sell it I’m going to put there’s I think there’s a huge shadow inventory that can come and hit the market. Once we start to seeing the dynamic I just laid out play out.

Adam Taggart 59:20
And I’ve been talking I’ve been talking about this a lot. So I’m so glad to hear you say this.

Michael Pento 59:23
So So you have someone coming on your your your conference. I think his name is girly. Yeah. Nick Gerli Gerli. I think Nick is fantastic. I hope he has a lot to say about what I just said.

Adam Taggart 59:36
Thanks. Oh, he certainly will. So having talked to Nick, having talked to other folks like Amy Nixon and Melody Wright, who are also tracking a lot of what’s going on in housing inventory side. They all think that inventory is going to increase at a much faster rate than the market currently expects. And this this topic, which I don’t have the time to go didn’t do it the way I’d like to with you, Michael. Because I really have a strong aversion to the dramatic increase in institutional ownership of single family homes in this country. I just don’t think there is any real society good, that comes societal good that comes out of institutional ownership of homes that otherwise a resident a citizen of this country should be buying to live in. Right. And there’s a whole bunch of reasons we get into around that, but but one is exactly what you put your finger on trying to raise this warning flag for folks, which is, these corporations live in zero these house houses, right. And these corporations, it’s to them, it’s just business. And if you get into, you know, a position where you’re starting to lose cashflow, you can say alright, you know what, we’re gonna shatter that division, or we’re gonna get out of that market, right and bang, you know, hundreds of units, maybe 1000s of units in certain metropolitan areas could suddenly flood the market. Right, it just creates this much greater market instability than I think any of the regulator’s national or local who have been happy to get all the transaction revenue from this have thought of?

Michael Pento 1:01:21
Well, I You probably didn’t show me when you were saying that, because I almost don’t that much I in fact, they blew a kiss. I don’t know if I use it is a beautifully said, Adam, that you know, and people will blame unbridled capitalism, you know, that, that has nothing to do with it. It’s it all lit lands at the feet of the Fed. Blackstone wouldn’t be taking out all of these mortgages, and buying tracts of single family homes across the southern tier of this country. 25% I mean, just think about that that’s in, it’s unprecedented and unbelievable. They wouldn’t be able to do it, they wouldn’t be incentivized to do it. if money wasn’t free, right. And the fact that therefore, that’s powerful, right?

Adam Taggart 1:02:09
It’s we’re providing what I call, we all hear about malinvestment. Right. I think that in many in many, many cases over the past couple of decades in many different areas. But certainly in this one, there’s we’ve provided a mal incentive, right, we have provided a perverse incentive for this behavior to happen, right, we’re just recreating the incentive for it to happen. But it doesn’t serve our national benefit. Right. So anyways, we’re gonna learn the story about our lesson on this one the hard way it sounds like but anyway, so it does sound Michael, that for this reason, and perhaps many others, you think this sort of frozen condition we have in the US residential housing market, will more likely than not resolve in lower prices ahead.

Michael Pento 1:02:56
Yeah, it’ll unfreeze but you’re not gonna like the process is going to be a, you’re gonna get frostbite as it unfreezes because you’re gonna see a lot of homes come on the market, Blackstone is gonna be unloading their, their hoard of more of single family homes, when home prices stop going up, and it’s no longer making any sense for their balance sheet to hold them. Okay. That’s all I’m not gonna blame just Blackstone, but at all.

Adam Taggart 1:03:21
Yeah, and I folks, I’m gonna make the transition in just a second to Okay, so what do we do about all this, because I know that that’s what’s on everybody’s mind. And Michael was a fantastic guy to really dig deep into that with just a point I want to make on this before we leave, which is you know, it right now, it is the most unaffordable time to buy a home in the US, right? You’ve got the combination of, of high prices that haven’t corrected materially yet. And high mortgages, right? It’s just the worst time ever, for somebody to go out and buy a house, which is why, you know, we’re beginning to see so many fewer transactions, because so many buyers just can’t do it, even if they want to, they can’t qualify. But another thing is, is, you know, we’ve had over the past couple of years, decade or so, we’ve had this explosion in you know, all cash buyers, right, who come in and just say, okay, you know, I don’t need contingencies. And it’s just here, it’s all cash. And a lot of that’s been the corporate buyer and one of the really unfair parts about this institutional ownership. Why I think in many ways, it’s kind of immoral is because it’s not a level playing field. Right? These guys have much deeper pockets to begin with, but they can borrow at much cheaper rates than the average consumer can. Right. So it’s just not a fair fight. And these guys just come in with their, you know, their ability to borrow at ridiculously low rates relative to consumers and their big, you know, investor deep pockets and say, Great, I’ll just take that thing in cash right so that the consumer the asked, aspiring resident always gets the short end of the stick. One last point and this is I was talking to a realtor this weekend. It was at an event the realtor was checking their phone because they had a transaction going through it. And they specialize in like, you know, three to 5 million plus dollar value homes in San Francisco. And this was a no contingency all cash offer and I was asking like who is still making these these decisions right now and it’s actually not so much the institutions anymore a lot of them stopped buying in this market because to your point, they’re now beginning to realize that maybe they’re getting getting into trouble here right? But he said at this point, it’s just old money and there’s nothing wrong with that but it back to your point about it kind of being like an oligarchy or whatnot right now. It just it seems like you know, unless you have a massive unfair advantage your institution or you have the backing of generational family wealth, you know, it’s harder and harder to get by even with the basics of like just buying a place to have a roof over your head with

Michael Pento 1:05:54
you know, she’s made so many good points there. I don’t want to take much time they’re just a politics interest rate to zero creates a bubble in AI stocks and you sell those stocks and you buy a bunch of houses and Blackstone taps the corporate credit market at the lowest rates the spreads are can’t pancake to zero because of politics way Oh, risk, and they go out and buy a bunch of properties. And they say, I’m doing humanity, you know, mankind humankind a great service, because I’m putting homes that are available to rent to people who would otherwise not be able to rent. That’s that was the that was the line that you heard from Blackstone. nevermind the fact that these rents are going through the roof because home prices are flying. And even in July. So late the latest Reon Case Shiller was July, home prices started to pick up again a little bit, a little slight hiccup, so got a lot of work to do on the on that front before we unfreeze the housing market. It’s coming. But like I said, you’re gonna get frostbite,

Adam Taggart 1:06:53
we’re in luck. I mean, I, you know, we can only hope whatever happens, it’s going to be painful. So it’s just, that’s gonna be the hard truth. If indeed what you think, you know, it happens, it’s going to be painful. We can only hope it becomes at least a little bit more equitable. Who knows, but But to your point there about, you know, the policy that then creates the ability of the deep pocketed to then buy the homes and then rent them out. I mean, you remember the old company stores of a century ago, right? Where people, you know, lived in a town that was basically owned by a company and they were basically perpetual serfs, right to the person that they work for. Because they owned everything, and you basically had to kind of rent everything in the town. Right? We are becoming a company nation. If this trend continues, and sadly, there’s been a recently a bill that’s been proposed in Congress to sort of raise this issue. I, to my knowledge, it hasn’t gone very far yet. And probably won’t in this initial, you know, incarnation of it. But beyond that, there’s just not a dialogue, a lot of dialogue going on about this yet. And so obviously, you can’t fix a problem if you haven’t admitted it yet. But hopefully, maybe we’re in the early innings. I don’t know. We’ll see. All right. But now, main event, Michael, we’ve talked about all the challenges here, you’re primary thesis, you’ve laid it on the table, the recession has been delayed, but it hasn’t been repealed, it is coming, it’s highly likely to come for all the reasons you’ve you’ve highlighted here, you have got your proprietary model, if you wouldn’t mind giving just 30 seconds refresher for folks on kind of how it’s constructed. And then talk about how your position now free, the breakage happening and the policy reverse and all that stuff, and then how you plan to react to the breakage.

Michael Pento 1:08:55
Okay, so I have created something called the inflation deflation economic cycle models, a 20 point model is a diffusion index, and it’s based on the second derivative with the rate of change of the rate of change of inflation and growth 20 components. So and I thank God for this model.

Adam Taggart 1:09:11
Our interview with Michael will continue over in part two, which will be released on this channel tomorrow as soon as we’re finished editing it. To be notified when it comes out. Subscribe to this channel, if you haven’t already, by clicking on the subscribe button below, as well as that little bell icon right next to it. And be sure to hit the like button to while you’re down there. Also, don’t forget that tickets for the Wealthion fall conference are still on sale at an early bird price discount of nearly 30% off the standard price. And alumni of our previous conferences get an additional 15% discount on top of that, to lock in these low prices while they last go to and if the challenge is Michael is detailed in this interview, have you feeling a little vulnerable about the prospects for your well And then consider scheduling a free, no strings attached portfolio review by a financial advisor who can help manage your wealth, keeping in mind the trends, risks and opportunities that Michaels mentioned here. Just go to and we’ll help set one up for you. Okay, I’ll see you next over in part two of our interview with Michael Pento.


The information, opinions, and insights expressed by our guests do not necessarily reflect the views of Wealthion. They are intended to provide a diverse perspective on the economy, investing, and other relevant topics to enrich your understanding of these complex fields.

While we value and appreciate the insights shared by our esteemed guests, they are to be viewed as personal opinions and not as official investment advice or recommendations from Wealthion. These opinions should not replace your own due diligence or the advice of a professional financial advisor.

We strongly encourage all of our audience members to seek out the guidance of a financial advisor who can provide advice based on your individual circumstances and financial goals. Wealthion has a distinguished network of advisors who are available to guide you on your financial journey. However, should you choose to seek guidance elsewhere, we respect and support your decision to do so.

The world of finance and investment is intricate and diverse. It’s our mission at Wealthion to provide you with a variety of insights and perspectives to help you navigate it more effectively. We thank you for your understanding and your trust.

Put these insights into action.

This is why we created Wealthion. To bring you the insights of some of the world’s experienced wealth advisors and then connect you with like-minded, independent financial professionals who will create and manage an investment plan custom-tailored to you. We only recommend products or services that we believe will add value to our audience.  Some links on our website are affiliate links. This means that if you click on them and use the affiliate’s services, we may receive a payment from the vendor at no additional cost to you. 

Schedule a free portfolio evaluation now.