This page has been archived and commenting is disabled.

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.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 08/31/2010 - 22:19 | 556755 kathy.chamberli...
kathy.chamberlin@gmail.com's picture

U guyz are B I G losers

no kiddin'

money for nothin' and chicks fore free.

you all are losers.   L L LLLLLLLLLLLosers

Tue, 08/31/2010 - 22:25 | 556766 traderjoe
traderjoe's picture

Who is this directed at? The denizens of ZH, the Feds, or Pento?

Wed, 09/01/2010 - 07:02 | 557149 kathy.chamberli...
kathy.chamberlin@gmail.com's picture

H E Y     j o e

Wed, 09/01/2010 - 07:04 | 557150 kathy.chamberli...
kathy.chamberlin@gmail.com's picture
pento

The word you've entered isn't in the dictionary. Click on a spelling suggestion below or try again using the search bar above.

Tue, 08/31/2010 - 22:32 | 556780 firstdivision
firstdivision's picture

Holy fuck, anyone watching AUDJPY tonight.  Sweet Jesus is it getting the pump.  This is ridiculous.  Did BOJ just do some currency intervention or did some schmuck at FRBNY forget to shut down their comp before they left.

http://www.forexpros.com/currencies/aud-jpy-advanced-chart

Wed, 09/01/2010 - 01:19 | 557010 Number 156
Number 156's picture

WOW!

Tue, 08/31/2010 - 22:39 | 556800 King_of_simpletons
King_of_simpletons's picture

Stocks bitchez !

Bonds will be drained, Gold will be drained to fund the stock market. LOL!

 

Tue, 08/31/2010 - 22:46 | 556807 JR
JR's picture

Buffett is not my uncle.

He was at Hillary Clinton’s campaign, he was at Barack Obama’s campaign, he was named by Gov. Arnold Schwarzenegger as an advisor (advising him in 2003 that property taxes in California were too low and suggesting that Prop. 13 ought to be undone).

He’s a buddy with the boys at Goldman Sachs, a helping hand at Wells Fargo, he made an historic gift of more than $31 billion to the Bill and Melinda Gates Foundation to join in the efforts of the Susan Thompson Buffett Foundation, named after his wife, in giving tens of millions of dollars to various groups that perform abortions, and proselytize for abortion at home and abroad…  And he palled around with The Washington Post’s Katherine Meyer Graham almost all his adult life and was her economic advisor.

Graham's father, Eugene Meyer, bought The Washington Post in 1933 at a bankruptcy auction after having just served as chairman of the Board of Governors of the Federal Reserve System, whose international banking house of Eugene Meyer (Lazard Freres) just happened to be among the original bank shareholders of the Federal Reserve Bank of New York—which controlled and still controls the entire system.

His father Howard Homan Buffett was a four-term Republican United States Representatives, deciding not to run for a fifth term so as to return to his investment business Buffett-Falk & Co. in Omaha.

In short, Buffett’s hardly “Ragged Dick” of  Horatio Alger fame. 

I’ve listened to Buffett and his advice, and you can’t invest on it.  He plays his hand close to his chest.  And he’s very good at explaining the art of the deal--after he’s pulled it off.

Tue, 08/31/2010 - 23:22 | 556862 THE 4th Quadrant
THE 4th Quadrant's picture

Now who's standing dripping wet?

Wed, 09/01/2010 - 05:38 | 556890 sbenard
sbenard's picture

Thanks for the interesting info. Here's some more, just in the spirit of sharing.

When Schwarzenegger announced his gubernatorial race, Buffett picked him up and flew him to England. They stayed at Ascott House for an entire week. I read the story on the website of the local British newspaper. Needless to say, they weren't there just for lunch. So why did they stay there for a week?

I have personally met, face to face, with the grandson of the occupant of that abode (through his first wife, who was murdered in Italy after their divorce). He has told me that Buffett took Scharzenegger there for a week to be inducted into the same religion that he himself was inducted into by his grandfather. His grandpa is the world-wide "prophet" of their religion. What was that religion? Luciferianism! I kid you not. I had an experience about ten years ago with another member of this religion. He was also among America's uber rich. He boasted of his faith, which he called, "the old time religion".

Is it any wonder that Buffett has, for decades, been a major supporter of abortion clinics and supports the idea of coerced population control.

By the way -- Soros and David Rockefeller are also faithful "members".

Wed, 09/01/2010 - 13:40 | 557941 DarkAgeAhead
DarkAgeAhead's picture

Proof would be nice.

Tue, 08/31/2010 - 22:44 | 556810 kathy.chamberli...
kathy.chamberlin@gmail.com's picture

JR your solid, fore sure.

Tue, 08/31/2010 - 22:54 | 556820 tony bonn
tony bonn's picture

for god's sake the fed or some other element of the ppt is already buying stocks and has been in the business for decades...

Tue, 08/31/2010 - 23:12 | 556836 Anarchist
Anarchist's picture

The goal for the last 25 years has been to burn the house down and transfer all the remaining wealth to the top 5%. 

The funny thing is the elite like to telegraph their moves way ahead of time. Google "starve the beast" or defund the government. This has been planned for many years. Once nukes were developed the elite knew colonialism was dead.

The other odd thing is that they like everything to be "legal". Witness the 60 year attempt to get a Palestinian leader to sell out their people by signing away all claim to Palestine for past and future generations.

All you bitchez are going to be on your knees once the new order comes to pass. 2% of the population will own 95% of the wealth. Everyone else will be fighting over the remaining 5%. Get used to it. You have no one to blame but yourselves.

Tue, 08/31/2010 - 23:27 | 556865 rawsienna
rawsienna's picture

It was not the goal but was the end result of the massive leverage that was driven by a Fed that for years misunderstood or were ignorant of the leverage/credit generated by the shadow banking system.  They were too stupid to realize that they were making America more and more dependent on cheap money as globalization exported jobs. The financial heroin made us feel better but as the song Needle and Spoon warns us -"If you are married you can divorce your wife but when you are married to H you are married for life". Going to take years my bitches

Wed, 09/01/2010 - 00:38 | 556966 Anarchist
Anarchist's picture

It was the goal once the western elite knew the status quo was not sustainable. The US is 5% of the worlds population burning up more than 25% of the resources. Add in Europe's resource burn and you have an untenable situation. The elite know it will lose in a resource war against China, India, Brazil ..etc. The elite are throwing the concept of a middle class nto the dust heap of history.

Tue, 08/31/2010 - 23:15 | 556849 rawsienna
rawsienna's picture

The bar for future QE is VERY high.  People just do not get that the Fed says what it means and means what it says. Like em or not - and I do not - if you listen carefully they basically do as they say.  Growth will be below their forecasts -no doubt about that - but without a sever market/liquidity driven dislocation the risks of balances sheet expansion is not worth the benefit. Spreads are very tight in most markets and not out of touch with fundementals. The only way out is time and fiscal/regulatory/tax policy that is PREDICTABLE nand a commitment to fully enforce the law. No rewriting the rules after the fact. Everthing else is just plain academic bullshit - Sadly, we have an administration that has no business experience and a Congress that is completely corrupt. THERE IS NO WAY the Fed buys stocks, CMBS or any other non-government guaranteed asset. THere is NO reason for it. THe gold bitches -and I am one of em (long) dream of it but it will not happen. 

Wed, 09/01/2010 - 15:36 | 558241 Assetman
Assetman's picture

I agree with most of what you are saying... but the Fed is doing ongoing QE as we speak.

What they are NOT doing is expanding the balance sheet by any great degree.

I HOPE they do not go further down that road.  Much will be predicated on fiscal policy, i.e., stimulus that is actually targeted and productive.

And we are reliant upon a corrputed congress to ignore the lobbying group they serve-- and make the right decisions for Joe 6 Pack.

Methinks the Fed will be expanding that balance sheet again.  Later than expected.  Reluctantly.  But they'll be back with some creative schemes.

Tue, 08/31/2010 - 23:27 | 556866 sbenard
sbenard's picture

Isn't it time we made degradation of the currency what the Founder said it should be -- a capital offense!?

Tue, 08/31/2010 - 23:37 | 556883 trav7777
trav7777's picture

this is exactly what I argued the Fed would do, on inflation/deflation arguments with Douchinger.  They are going to print money and try to dictate asset prices.  They will cause inflation by ANY MEANS NECESSARY.

How many times do I have to fucking say that the MATH of a debt money system makes implosion inevitable once credit stops growing, before people GET IT?

The Fed has no fucking choice...either they engineer inflation or the dollar collapses into a black hole.  This was the pressing question, what happens to equities in such a case and I've been asking that for years now, having seen what was coming in the mid 2000s.  I see continued yield compression, stock market support, and the Fed printing the unborrowed interest needed to maintain support on the monetary base.

Wed, 09/01/2010 - 02:12 | 557034 hound dog vigilante
hound dog vigilante's picture

I agree with you completely, Trav.

But there's a problem... the US (economy) does not exist in a vacuum.  Other (sovereign) economies will simply reject the $USD. Hyperinflation overnight. Game over.

It looks like a never-ending deflationary ponzi scheme until it fails, which is inevitable. How much longer will China finance continued US economic hegemony... over China?  China is already pulling it's stake out of the ponzi pyramid... which means it is already "game over" for the US economy/middle class. Done. Kaput. It's over. We are simply hanging in mid-air like Wiley Coyote (wondering when deflation will end)... there's ZERO chance of getting back to the cliff's edge, and the plummet/splat phase will commence ANY MINUTE NOW.

All it takes is one significant player to reject the $USD, and the US economy + FRNs will snap out of their state of suspended animation and plummet to earth at 9.8m/s.

 

This inevitable conclusion/dynamic explains every tactic and manuver that we are now witnessing from TPTB. Folks that don't "get it" by now are already serfs/dead. Folks who do "get it" and have prepared themselves have a slim but important chance of survival, depending upon how the big cookie crumbles...

 

Wed, 09/01/2010 - 09:26 | 557349 megatoxic
megatoxic's picture

Any significant player who tries this will face the full military wrath of the US war machine.  In other words, WWIII.

Thu, 09/02/2010 - 00:36 | 559030 honestann
honestann's picture

The Fed has no fucking choice...either they engineer inflation or the dollar collapses into a black hole.

While you're largely correct, I think you're wrong about cause and effect.  It is inflation that means the same thing as "a currency collapsing into a black hole [gradually]", and hyperinflation that means the same thing as "a currency collapsing into a black hole quickly".

What many folks misunderstand is --- the intimate connection between inflation and currency-value (with "value" in quotes, since all fiat currency is worthless) is not the only dynamic, not the only causal relationship.

When a sufficient number of small players "give up" on a currency (or "planned economy" or "fiction economy"), the currency collapses into a black hole INDEPENDENT of the rate of money-printing.  The collapse becomes as much or more "forward-looking" as a simple relationship between money-supply and nominal value.

The fact is, the current western economies are almost 100% pure, unadulterated FICTION.  A rather astonishing number of small players have exited the fictional "markets", but the big players can create infinite utterly bogus digital-non-currency via various multi-level fractional-reserve scams.  Currently that is keeping the "markets" afloat.

But as soon as one medium to large soverign entity decides to "exit stage left", the wiley coyote will find himself spinning legs 3000 feet above the black hole you refer to.  Then the end you envision happens real fast.... much faster than proportional to [digital] "money printing".

Wed, 09/01/2010 - 00:31 | 556914 cranky-old-geezer
cranky-old-geezer's picture

The only bubble we really have is the financial sector bubble. Fed keeps the financial sector pumped up at all cost.  Stocks, bonds of all kinds, any paper "asset" you can think of, including the dollar itself.

The financial sector is totally disconnected from the real economy and real asset values, both of which are heading steadily downward from decreasing demand.

How long can this go on? As long as people want those paper "asset" values to stay high, and accounting fraud is allowed. 

And that could be quite a long time.

Financial sector doesn't want physical assets all these paper "assets" point to.   They wouldn't know what to do with them.

They just wana buy and sell paper all day long.  That's what they do.  Buy and sell paper.

Wed, 09/01/2010 - 00:25 | 556949 sbenard
sbenard's picture

This story and these comments make me shudder. It can not end well!

Wed, 09/01/2010 - 00:41 | 556964 Temporalist
Temporalist's picture
JP Morgan to Shutter Proprietary Trading Unit

"JP Morgan Chase & Co. (JPM) will shut down its proprietary commodities trading division in an effort to comply with recent federal regulations related to investment banking, Bloomberg News reported, citing a person familiar with the process that it didn't identify.

The company will also close down its fixed income and equities proprietary trading operations at a later date, the wire service said, citing the same anonymous source. JPMorgan's proprietary commodities unit is based in London."

http://www.dailyfinance.com/story/investing/jp-morgan-to-shutter-proprie...

 

Bloomberg report:

http://www.bloomberg.com/news/2010-08-31/jpmorgan-is-said-to-shut-propri...

Tue, 09/07/2010 - 16:32 | 567861 Geoff-UK
Geoff-UK's picture

A rose by any other name...

Don't believe this bullshit about JPM shutting down prop--they'll use something with another name.

Wed, 09/01/2010 - 06:34 | 557136 wiskeyrunner
wiskeyrunner's picture

The FRBNY all ready does this thru SP500 index futures, and various bank stocks. They also buy stocks like Estee Lauder, just pretend a Federal Reserve Board member is not married to JaneLauder wink wink!

 

http://www.politicalfriendster.com/rateConnection.php?id1=6541&id2=6433 

Wed, 09/01/2010 - 07:01 | 557144 anvILL
anvILL's picture

Comments by Yves Smith on this topic to balance the views.

http://www.nakedcapitalism.com/2010/09/so-400-billion-of-qe-buys-17-basis-points-of-rate-reduction.html

The BoJ has very different reasons for wanting to goose stocks that don’t apply to the US. Japanese banks are permitted to count 50% of the market value of their cross holdings (which admittedly are lower than they used to be) as capital under international agreements. So when the Nikkei falls far enough, the banks start looking to be in trouble.

The Fed is not permitted to buy equities save under its “unusual and exigent circumstances” clause. The people I’ve spoken to think the Fed would buy equities only in a crash, not as part of QE. Moreover, the equity markets were very much a Greenspan obsession, not share in the Fed at the board or staff level

Wed, 09/01/2010 - 07:57 | 557164 bada boom
bada boom's picture

Redundant comment.

Wed, 09/29/2010 - 06:50 | 612110 Herry12
Herry12's picture

 

Article is very interesting,thanks for your sharing.I will visit this site.welcome to my site!.... cheap site hosting
windows web hosting
windows vps hosting

Do NOT follow this link or you will be banned from the site!