Silver is Going to have a Sudden, Massive Move to $50 that will Suprise Everyone / Commodities / Gold & Silver 2020
Mike Gleason: It is my privilege now to welcomeback Michael Pento president and founder of Pento Portfolio Services. Michaelis a well-known money manager, market commentator, and author of thebook, The Coming Bond Market Collapse: How to Survive the Demise of theU.S. Debt Market. He's been a regular guest with us over the years, andit's always a pleasure to have him on with us.
Michael, thanks for the time again today and welcome back.
Michael Pento: Thank you so much for having me backon Mike.
Mike Gleason: Well, Michael, it's been a few monthssince we've had you on last and just a little bit has been going on in theworld. COVID-19 has hit the states to say the least and caused majordisruptions in the economy. Governors have instituted stay-home orders. Tens ofmillions of people have filed for unemployment. Now we're seeing major riotingand social unrest in many cities throughout the country over the police killingof a black man in Minnesota last week.
And in the face of all that, the markets are seemingly doingjust fine. Stocks are still rallying and it doesn't seem like Wall Street isall that concerned about any of this. So, let's get your take on what's goingon there, Michael, because it's pretty hard to connect the dots between WallStreet and Main Street these days. Help us out there.
Michael Pento: Yeah. So nothing is going on thatmuch this year at all, right? It's been pretty boring. The divide between therich and the poor, which was already humongous coming into this year has grownexponentially. And you have to ask yourself the question, gee, if GDP,according to the Atlanta Fed is going to drop in the second quarter by over52%, that is a seasonally adjusted annual rate, Mike. GDP is going to be cut inmore than half during the second quarter of 2020, how in God's name could it bepossible that stocks are close to all-time record highs? And by evaluationmetric at all-time record highs. There are about over 150% of GDP.
Well, here's a statistic for you. It took seven years for theFed's balance sheet to grow by $3.7 trillion. So that was from January 2008 orDecember 2007… the very start of when the NBER decided that we had thebeginning of the great recession through January 2015. That was the greatexpansion in the Fed's balance sheet, seven years, 3.7 trillion.
In the last 10 months alone, it is up by $3.4 trillion. So,what's happened in seven years has happened in the last 10 months, pretty much.And when you think about that, you don't have to wonder as to why stocks aregoing up. This is replete all over the world. Central banks have gone crazy andthey were already crazy going into this Wuhan virus crisis, this pandemic, butthey have completely jumped the shark. They are printing money like Zimbabwe.They would make Zimbabwe and maybe Hungary or Weimar, Germany blush.
And no one seems to care about the depreciation in thepurchasing power of fiat currencies, because they're all doing things intandem. I mean, if there was just one country doing it, you would see acurrency collapse, but every country is doing it. And by the way, Mike… I wantto make this very clear… the Fed's balance sheet is now over $7 trillion. It'srising. It's going to go to nine, $10 trillion in the next few months andnobody cares. How much longer will people have faith in the purchasing power ofpaper money? I have no idea, but truly that is eroding quickly.
Mike Gleason: Leads me right into my next questionhere. In terms of the government response to all of this, so we've obviouslyseen some incredible stimulus already and much more is being proposed. Where doyou envision that all going and what is it going to mean for the dollar?Because for the most part, we're still seeing it hold up quite well in thecurrency markets. Obviously it's because as you just said, every country in theworld is doing this, but help us make sense of that disconnect and where you gofrom there with the devaluation of all paper money.
Michael Pento: Yeah. There're some people who are onrecord saying, "the dollar is going to collapse, the dollar is going tocollapse." Well, collapse against what? That's the question you have toask. I mean, it's a currency, you measure a currency's value against something,right? What is it buying? What is the purchasing power of the dollar? Well, Idon't think it's going to lose a lot of value against the euro or the pound orthe renminbi or the yen. It's just not going to happen. It's going to lose itsvalue against hard assets, against energy, against gold, against platinum, against farm land.
That's where the dollar is going to lose most of its value, notagainst other flawed fiat currencies. But here's the truth, Mike, we haveinsolvent nations replete around the world. This was the case going into thevirus. It's just gotten a lot worse. Let me give you an example. If you justgive me a minute or two here, this is important. We now have a $26 trillionnational debt in the United States that is up against, supported by about threetrillion in annual revenue.
So, that means our existing debt is 850% of our revenue. And bythe way, that revenue still leaves you with about a $4 trillion annual deficitred ink this year alone. So let me boil it down to like a household. So, let'ssay your household has $100,000 in income and that household has outstandingdebt over $850,000. But here's the real problem, that $100,000 of income isn'tenough to match your annual expenses. You're spending $130,000 per year morethan your income if the household was the United States.
And making matters much worse is that this government isaggressively pursuing inflation, which will make the cost of servicing thatdebt go much higher. What am I saying? This is just the United States. We are anation that is insolvent. We're going to have an insolvency and inflationarycollapse of our bond market. That is where this is all headed.
And I've gotten on some things wrong in my life, Mike. I'vegotten a lot of things right in my life, too… especially when it comes to investing. I have been predicting the collapse of the sovereign debtmarket for many, many years. I never thought that central banks would print,globally, $26 trillion worth of fiat paper to try to push and repress interestrates down to zero and below. That's what they've done.
But when that backfires… so, we already have the insolvencyportion of the equation. That's done. All we need is for these central bankersto become successful and achieve inflation. That is when you're going to havethe big catastrophe in the bond markets. That is when you're going to have thestock markets around the globe implode. And that is when you'll have the realgreater depression begin.
And by the way, if I could just say one thing, Mike? I want tojust add that if you're an active manager, you have a chance to survive. If youare a passive investor, you are going to get slaughtered with variousiterations of minus 30, minus 50% of your portfolio that happen regularlybecause of the dynamics put in place. Because of the fact that free markets nolonger are viable. Markets are now controlled by sovereign nations and centralbanks.
Mike Gleason: Yeah, well said. Crystallized it verywell there and yeah, I think the buy and hold days of investing are behind usfor sure, and people need to come to grips with that.
Well, one of the Fed economists came out this week in favor ofnegative interest rates here in the U.S. Now Chairman Powell has voicedsomewhat of a negative opinion on negative rates in the past, but it's probablynot out of the realm that we could see it here in the States at some point.Talk about what that might mean and then handicap how likely you think it mightbe.
Michael Pento: Well, they haven't worked in Europe,Mike. They've demonstrated very clearly that negative rates don't really helpthe economy and they destroy the institutions. So I mean, the Fed is in place,it has its existence because of the fact that it's there to protect banks. So Idon't really think we're headed for negative interest rates in the nominalsense of the word. So, if you're asking me if we have a condition wherenegative interest rates will be in real terms? I mean, that's a 100% guarantee.They're here already. Negative rates in a real sense, after adjusted forinflation, they'll be here now. They're coming now. And they will be here for avery long time in the future and they will be growing more and more negative.That's a fact.
But here's the thing that you should think about. Janet Yellen,former Federal Reserve Chair said that she wants to change the rules on whatthe Fed can buy now. So it's not enough that the Fed is buying junk bonds andmaking primary loans to businesses. That's not enough for the Fed. Ms. Yellenwants the Fed to have congressional approval to buy stocks. And she wants thatapproval cleared away now because I believe she knows that what I said is goingto pass.
What I said is coming to pass, that we are going to have aninflationary and insolvency implosion of the bond market, which is going tocause stocks to crater 80% on their own volition. And that is why I think shewants to clear the path right now, so it's smooth and clean so they can buystocks when that happens.
Mike Gleason: The end of free markets as we know itif that happens, if we don't already have it. Goodness gracious. Well, turningto gold here. Talking about negative real interest rates, hard asset thatperforms very well in that type of environment. We've seen it consolidate nowfor the better part of the last month or two following the big sell off inmid-March as all assets classes were selling off hard in the midst of the firstmajor effects of the coronavirus being felt in the U.S.
Anything surprising you when it comes to gold here, Michael andwhat do you think all these market and economic headwinds are going to mean forthe yellow metal throughout the rest of the year?
Michael Pento: Well, starting in the beginning ofthis year, I increased my allocation from 10% to 20% in gold. I recently pairedit back to 10% and I'll tell you why briefly. If you're an active trader likemyself, you want to maximize the return in the portfolio and here's what'shappening right now. We have a lot of optimism about economies opening upacross the globe. And you have the Federal Reserve who has stopped buyingTreasuries for the most part. They were buying $75 billion worth of treasuriesto try to push down interest rates.
The interest rates exploded in March, went from like 0.3% to1.2% in March. The Fed was buying $75 billion worth of these treasuries a day.Now they're only $4 billion of these treasuries per diem. And so if you haveoptimism about the economy, some better economic data coming out, and the Fedstepping away from buying Treasuries, you might see a rise in nominal rates andit might spike in the next few months.
So, the next two, two and a half months is what I'm predicting.That's what I think the gold market by the way is anticipating. The goldmarket's rise was capped temporarily because they're worried about thatsituation that I just mentioned. However, on the other side of that, I see theFed coming out with the announcement that they're going to actively put a capon long-term treasury yields. That is what I predict in the fall to occur.
Because they just can't step away from the market becausethey're stepping away from a market that's insolvent, which I just provedearlier on this podcast. So, if they come back in the fall, when we have aresurgence in the virus and the data gets worse and the Fed has to come back inand put a cap on rates, that's when I think gold has the opportunity to go toall-time record highs.
Mike Gleason: Well, finally, as we begin to closehere, Michael, one of the reasons we have great guests like yourself on thepodcast is because we both really respect what you have to say a great deal.And then also, because it's good to get the perspective of such a sharp andstudied mind like yourself on how to navigate what is becoming an incrediblyconcerning time in history.
So with that said, what advice do you have for people out thereright now? And feel free to take that any direction you wish, whether it's howto manage one's money, how to emotionally deal with the tumultuous nature ofthe world. Wherever you want to go with that.
Michael Pento: Okay. Well, first of all, I think youshould start every day with a prayer that you do God's will. That's a great wayto start the day. You try to do become the best person that God has enabled youto be. And that goes a long way to relieve any kind of depression that youmight have. So, stay in faith. And then as far as the investing is concerned,you have to be an active manager. This is not the world of your grandfather's.
I'm not talking about a world where markets function freely andyou could just buy and hold a diverse bunch of assets and say, "You knowwhat? If the market goes down, my bonds will make up for the decline instocks." Well, when the 10-year note yields 0.7%, Mike, even if it goes tozero, you're not going to make much money. You might make 7% on your bondallocation. But I can assure you that if the 10-year note goes to zero, thenyour 60% allocation to equities is going to go down 40%.
That would be the scenario that would cause the bond yields tofall to zero. So, your 7% in your 40% diversified portfolio is not going tosave you from the 40% wipe out in the 60% portion of your portfolio. What I'msaying is you have to be an active manager. You cannot sit back and let WallStreet destroy your purchasing power and your standard of living over and overagain.
Mike Gleason: Yeah, well put. Underscores theimportance of a time like this to have good people by your side. You could beone of those for folks if they are inclined. So before we let you go today,tell people more about Pento Portfolio Strategies, how they can reach you, howthey can follow you more closely. Do all that, please.
Michael Pento: So, the website is a PentoPort.com. My email addressis mpento@PentoPort.com. The number here for the office is732-772-9500. If you have around a $100,000 to invest, I'd be glad to take youon as a client and put you in the inflation/deflation and economic cycle model.Help you navigate through these tumultuous waters that are going to get much morerough.
And if you want access to the podcast, which is a weekly podcastof my thoughts on I guess a 36,000 foot level, (I) don't give specificrecommendations, but let you know where the economy is going and markets aregoing in a general sense. It's called the Midweek Reality Check andyou get a free trial. And that only costs you $50 a year.
Mike Gleason: Yeah. Well, good stuff. Hope peopledo that. Thanks again, Michael. All the best to you. Stay safe, healthy, andthanks again. Have a great weekend, my friend.
Michael Pento: Thank you again, Mike.
Mike Gleason: Well, that will wrap it up for thisweek. Thanks again to Michael Pento of Pento Portfolio Strategies. For moreinfo please visit PentoPort.com. You can sign up for his free email list,get a free trial of his weekly podcast, and get his fantastic marketcommentaries on a regular basis. Again, just go to PentoPort.com.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2020 Mike Gleason - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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