Michael Pento Says Fed Will Buy Stocks And Real Estate In Its Next Attempt To Create Inflation

Tyler Durden's picture

As part of the Fed's latest QE iteration, it has already been made clear that despite initial disclosures that the Fed would stay in the 2-10 Year bound of Treasurys, Ben Bernanke is now also gobbling up the very long end of the curve. For all those who are, therefore, still confused why bonds continue to surge to record levels, don't be: when there is a guaranteed bidder just below you in the face of the Fed, and who you can turn around and sell to at will, there is no pricing risk. The problem, from a bigger stand point, is what happens when the Fed is actively buying up 30 Year bonds with impunity and the much desired (by the Fed) inflation still does not appear? Well, the Fed then, in Michael Pento's opinion, will begin to purchase stocks and real estate. And as all those who enjoy comparing the US to Japan can attest, outright purchases of securities by the Japanese government is a long-honored tradition in the ongoing fight with deflation in Japan. However, and as the recent BOJ (lack of) intervention demonstrated, Japan never could do anything with the required resolve, and bidding up one stock here and there would never achieve anything. Which is why in this interview with Eric King, Michael Pento makes the case that as opposed to the occasional market intervention via the President's Working Group, Bernanke will soon make stock purchases an outright policy of the Federal Reserve as its last ditch attempt to engender inflation before the hundreds of billions of Commercial Real Estate and other bank debt start maturing in 2011/2012. Bernanke is running out of time and he knows it. And once the Fed becomes the bidder of last resort in stocks, all bets are off, as the Central Bank will become the defacto only market in virtually every risky category. And the only safe vehicle, once the market then begins to price in Fed driven asset-price hyperinflation, will be gold.

Pento also provides some perspectives on the Fed's balance sheet, which he anticipates will expand in a "great fashion", but a much bigger concern to the recent Euro Pacific Capital addition, is the possible surge in M2: "That base money can expand, M2 which is currently running around 8.5 trillion all the way up to nearly 25 to 30 trillion dollars of money supply and that's enough obviously to send prices through the roof." All Bernanke needs to do is light the "alternative asset purchasing" match and all those who wonder what left field hyperinflation could come out of, will get their answer.

Of course, it wouldn't be a Pento interview without a requisite smack-down, in this case of Dennis Gartman, whose call to sell gold denominated in euros at the very bottom of the recent gold correction needs no further commentary: EUR-denom gold has jumped well over 10% since Gartman said to get out. Pento adds the following: "There is so much misinformation out there, Dennis Gartman was out there saying gold has lost its inflation hedging properties: this is just ludicrous and insane. I can tell you that gold will never lose its inflation lure, and that's precisely why I've stepped up my purchases of gold., I see what the monetary base is doing, I can clearly see Bernanke's next step to vastly increase the size of the balance sheet and the monetary base. So for me, it's 100% an inflation hedge."

Pento also goes into explaining why housing is facing a "deflationary depression," and a further collapse in pricing, why inflation benefits only those closest to the money, i.e., the banks and the military complex, why it destroys the middle class (we are sure Buffett ca. 2003 could say something about that too... the current, far more senile and captured Uncle Warren, not so much), the impact on discretionary purchases, on unemployment, real incomes, and all other items which tend to "follow the money."

Lastly, Pento concludes with an analysis of what would have happened had the government allowed the deflationary depression to occur two years ago, without the tens of trillions in bank bailouts. We protracted, and elongated the depression. But instead of having the benefit of falling prices, you have rising prices." And if Pento is right, the price rise has only just begun.

Full King World News interview here.

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CashCowEquity's picture

Gold to a million per oz.

JimDesu's picture

Gaah!  That's the most disturbing thing I've read today.

Thomas's picture

The Fed will probably buy GM stock.

Geoff-UK's picture

And sell it at a loss to GM union workers, under the "Cash for Clunker-manufacturers" program. 

Mad Max's picture

But I am bidding zim$ 1 trillion!  How can there be no offer at 1 trillion zim$????

tictawk's picture

Is the Fed not already buying bonds and stocks via primary dealers by providing them with unlimited credit?  How is it different if the Fed buys directly?  Also the bond market is many times larger than the equity market and it seems probable to me that at some point Japan and China will dump US debt in a race to the exit. 

Nobody is bigger than the market and any attempt by the Fed prop up the market will destroy any credibility that the Fed currently has.   This kind of intervention will blow up their faces and perhaps rightly so.

UncleFester's picture

The Fed currently has credibility...who knew?

QuantumCat's picture

Exactly... their balance sheet, even if doubled from the current $2 trillion would be pissing in the wind of a $500 trillion plus deflation black hole that is gathering steam with each passing day and every default.

hedgeless_horseman's picture
Today's WSJ advert for bigger fools:
Capital Freeze Thaws for Real-Estate Funds
By LINGLING WEI

Real-estate funds saddled with tens of billions of dollars of boom-time properties are beginning to get some relief from Wall Street firms and other investors (The Fed) hoping to capitalize on their need for cash.

 

Opportunistic investors (The Fed) are buying stakes in troubled funds at steep discounts or lending the funds money in deals that give them a steady return and potentially a share in the profit if real-estate markets rebound. At the same time, some funds are succeeding in persuading existing investors to cough up more capital, although this typically is an uphill struggle...

Getagrip's picture

uhh. I think that's why gold is at 1248.00. I could be wrong... 

themosmitsos's picture

Michael Pento and EuroPac FTMFW baby [as always]

For the Mother Fucking WIN

James Altucher's picture


What the govt should do: 

- allow under water homeowners with FNM loans to refinance at current mortgage rates (currently impossible). 

    Benefits: A) less defaults, B) the govt makes money (lend at 4.5%, borrow at 3%)

- buy S&P futures at the open market between 9:15-9:30

- force the states to sell off all universities and hospitals to raise money to fund their debt (why should the state run a college anyway?)

- give a 20% refund back to everyone who paid taxes in 2009. 

DarkAgeAhead's picture

Good ideas, all...except selling colleges/universities.  While I'm against most things bureaucratic and governmental, the state colleges are one of the few remaining places a middle-class kid can go for a good education that doesn't put him/her/their family underwater for decades.

Eliminate that and you're left to the liberal greed and incompetence that permeates and exemplifies most private colleges today. 

bada boom's picture

Some states have a lot of land to sell.

DarkAgeAhead's picture

Same with the federal government.  Like 90% of Nevada.

LostWages's picture

Buyer Benny--Bitchez

midtowng's picture

Fed Policy: When in doubt, double-down

Tarheel's picture

Well we all know the FED has to buy CRE some time in the next 12 months to prevent a repeat of 2008 (or worse?)

Rainman's picture

....2008 was batting practice. We're now in the first inning of a long game. In 9/08 the CRE value turndown wasn't even on anyone's radar. It sure is now.

largowinch's picture

Actually Rainman, some people did short CRE in 2008: :)

 

June 16, 2008: SAAR @ $15,631 

 

May 19, 2009: SAAR $8,022

 

See iTulip.com "Time at last to short the commercial real estate?":

 

http://www.itulip.com/forums/showthread.php/13620-Oh-CRE!-the-TNT-in-GDP.-(3min.)

and

http://www.itulip.com/forums/showthread.php/4307-Time-at-last-to-short-commercial-real-estate?p=38410#poststop

PS: The graphs won't embed and/or display. Oh well. :(

BlackChicken's picture

Could not get picture to load...   Any pointers how to do this?

THE 4th Quadrant's picture

You must be a member of the inner circle to get access to the features.

defender's picture

What he means is that only people who contribute articles can do that

NoVolumeMeltup's picture

Hell, the Fed has said as much.

But Pento is certainly worth listening to, IMO.

CashCowEquity's picture

doesnt matter, there is NO DEMAND for either !!!

Sellers cant sell it, banks cant sell it. You cant fake demand, its either there or its not. Lmfao !!!

Federal Retards.

Yikes's picture

Damn, this can't be true.

midtowng's picture

It's only speculation...so far.

CashCowEquity's picture

People dont need houses or stocks to survive. This only works with food stuffs (see greedy hedge funds)

This is an epic fail...

Careless Whisper's picture

Bernanke will soon make stock purchases an outright policy of the Federal Reserve

he already has.

Boilermaker's picture

Yea, no shit.  If it's direct or by proxy or the buying of futures (indisputable, in my opinion) or directly buying the actual stock or options...this has already been in full force for well over a year.

The only twisty thing (if I'm correct) is that they have to actually declare if they are holding equities or want to buy equities.  Maybe someone else can confirm that.

optimator's picture

Will the FED have to make Cramer's disclaimer, "May have been diseminated prior to their buying" or something like that.  Imagine all the tips they'll be giving their Bankster Buddies.  It'll be a market I'll continue to stay out of.

Boilermaker's picture

Well, they are basically making a $100M per day, every day, even with massive upward and downward swings...so, I think they are already 'tipped off' rather well.  That isn't to say they won't swing it plus or minus 500 points now to raped it even worse...but, they are in firm and powerful control already.

Shylockracy's picture

This has always been the true meaning of the expression "primary dealer".

Gubbmint Cheese's picture

This would explain the 'dumb money' being in bonds. Ugh.. If the fed goes through with this... They are going to hurt a lot (more) people who are just trying to protect themselves...

Disclaimer: I'm long bonds..

digalert's picture

I was with you until you wrote:

"And the only safe vehicle, once the market then begins to price in Fed driven asset-price hyperinflation, will be gold."

Gold is rigged, at least for awhile.

 

DarkAgeAhead's picture

Yes, true.  Including agricultural and water production.

Nevermind the economic bubble.  If and when the ecological one bursts, that's when true pain will be felt.

lemonobrien's picture

I agree; and no one hear is saying that. They're going to take massive profit on gold.

Temporalist's picture

They have tried that and have been rebuked time and again.  Their attempted manipulations are having reduced impacts.

And what do they get in return for selling their gold?  The same worthless fiat they are printing anyway.  They might as well not sell the gold then right?

LePetomane's picture

Well, not the physical.  But by all means sell (loan) ETF paper doo doo that stands 99.99% pure chance of being confiscate at the first sign of trouble

UncleFester's picture

Maybe that was the plan all along.  The curtain pulled back, the Wizard revealed, and all the yellow bricks have disappeared.  In the end they will have the bricks and we will hold but paper.

tmosley's picture

Can't rig physical without puking it all over the place.  And once it's gone, you lose your power.

apberusdisvet's picture

The Chinese are "un" rigging it.  The time to talk seriously about gold is after the Chinese New Year (February)

Getagrip's picture

It's not rigged on Ebay...

RobotTrader's picture

Looks like the PigMen are already front-running....

New Zealand up tonight...

 

Note how the banks failed to make new lows during the afternoon smackdown:

I'm watching Comerica, which seems to be holding the best:

And FCX and the emerging markets seem to be outperforming lately.

There is a limit as to how high bonds can go with all the levered trades.

There is a limit as to how low the EUR/CHF can go.

There is a limit as to how bad the sentiment can get, with AAII bulls now at the same levels as March 2009.

We are due for some type of rally.

Just sayin.....

And don't call me "psycho"..

LOL...

 

Rainman's picture

I'll take the gold crown and leave the fish eyes.

Here's a limit for ya' Robo.......10y UST yield at .90....let's go all in like the land of the rising sun. 

Spalding_Smailes's picture

Hope your right.

Bought Research In Motion

$42.60