Michael Pento: "These Are The Most Dangerous Markets I've Ever Witnessed"

Tyler Durden's picture

Submittted by Adam Taggart via PeakProsperity.com,

In this week's podcast, Michael Pento, fund manager and author of The Coming Bond Bubble Collapse, explains how the United States is fast approaching the end stage of the biggest asset bubble in history. He describes how the bursting of this bubble will cause a massive interest rate shock that will send the US consumer economy and the US government—pumped up by massive Treasury debt—into bankruptcy, an event that will send shockwaves throughout the global economy:

These are the most dangerous markets I have ever witnessed in my entire life, and I’ve been investing for over 25 years. Let’s go over some numbers to let you know exactly how tenuous this bubble is. Its membrane has been stretched so wide and so tight that it’s about to burst, and any semblance of even maybe a little sharp object, something even a hemophiliac wouldn’t be afraid of, sends the market careening downward.

 

Global central bank balance sheets are up from $6 trillion in 2007 to $21 trillion today and they are still being expanded at the pace of $200 billion each and every month. What’s happening is that the robotraders, the algorithms, the frontrunners on Wall Street and around the world are just gaming the system, looking for the next increase in central bank credit to take their collateral to the ECB or to the Bank of Japan or to the Fed and buy more stocks and bonds.

 

That’s the game we’re playing. Even a hint that it might someday end sends the entire investment community scampering for the door; and that door is very, very narrow and can only fit a few people through it. So let’s go through a couple of more data points to emphasize just how big this bond bubble is and why it’s so important.

 

So the European Central Bank is buying corporate bonds. I hope everybody knows that. So much that there's now 30% of investment-grade debt in Europe trading with a negative yield. This is not sovereign debt (as asinine as it is to ever be able as a sovereign nation to issue debt and get paid to do so). Investment grade bonds in Europe now trade with a negative yield.

 

The Bank of Japan owns 50% of all Japanese government bonds, JGBs.

 

About 25 percent (and this number vacillates between days where the German tenure goes north or south of the flat line) of global sovereign debt trades with a negative yield.

 

So what happened on September 8th? Last Thursday, Mario Draghi came out and gave a press conference after leaving rates unchanged in the European Union. The audience was asking questions like: Did you discuss helicopter money? No, we really didn’t discuss it. Did you discuss extending the QE program beyond March of 2017? No, we didn’t discuss extending the 80 billion purchases of assets beyond March. There was a stirring in the audience, the reporters were beside themselves. They couldn’t believe that Mario Draghi, even though he didn’t even hint about stopping QE, he didn’t extend its duration or its quantity. That sent markets cratering. The Dow fell 400 points. The U.S. 10-year yield jumped from 1.52% to 1.68% in one day.

 

Now, the market had a bounce back the next day, then was down again more than 200 points on the Dow. So you can tell, anybody with any objective, critical, independent mind can tell this is an unsustainable, very ephemeral rally in stocks that has occurred since 2009. And when the bond market breaks, when that bubble bursts, it will wipe out every asset -- everything will collapse together -- because everything is geared off of that so-called 'risk free' rate of return.

 

If your risk free rate of return has been warped down to 0% for 96 months, then everything -- and I mean diamonds, sports cars, mutual funds, municipal bonds, fixed income, REITs, collateralized loan obligations, stocks, bonds, everything, even commodities -- will collapse in tandem along with the bond bubble burst.

Click the play button below to listen to Chris' interview with Michael Pento (27m:46s).

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Truther's picture

Fuck the Fed and the Goons that rule it.

RafterManFMJ's picture

TL/DR: Keep some dry powder on hand to buy the final dip in gold and silver, then buckle up campers!

Folkvar's picture

The global economy hasn't collapsed yet but I'm already suffering from economic collapse exhaustion. 

techpriest's picture


Get Cash and Gold for the world's biggest 99% off sale
Buy Stocks and catch some helicopter money

oops's picture

The coming Financial CATACLYSM will be Ugly, Bloody, and Messy.
http://bit.ly/1KogtGi

Restorative_Ally's picture

I feel your pain, but in the end, we will be better off for our vigilance.

effing idiot's picture

Only been trading 25 years? Too bad. He doesn't know shit. Any trading experience before 2009 is worthless. Completely worthless. Well, accept maybe how to push the mouse button to execute a trade.

Silver Bug's picture

The markets are poised for a monumental collapse of epic proportions. The next "big one" is going to make 2008 look like childsplay.

 

http://marcfabersblog.blogspot.com/2016/09/why-marc-faber-is-calling-for...

negatratoron's picture

Soon enough, knowledge of the infinite will free us from government, as well as from other diseases.  Insight is the most powerful force, once in motion it cannot be stopped.

Creative_Destruct's picture

C'mon Infinite! U Can Do it Baby! If it's a government anti-body, I'm all for it. :)

negatratoron's picture

What i mean by the infinite here is not "massive beyond measure", but simply "not expressible in finite language".  Today we have these centralized governments that basically do nothing but generate heat; it's because people don't realize that the problems are formally intractable.

Creative_Destruct's picture

Just let me know how one comes by this knowledge of the infinite. I'm all for not simply generating entropy and for solutions.

I try to keep my mind open, but not vacant. This, however, sounds implausible. :)

negatratoron's picture

Well, personally I came by it by studying mathematics and computer science.  There's not even a complete theory of arithmetic, you know.

Creative_Destruct's picture

TINA BTFD always works until it doesn't. The only question is when does the dip become the plunge?

I like Pento, but like all the reasonable Austrian-oriented analysts, he always seems to be  calling for the props to blow out immanently. The fucking money pumpers can keep the props intact and this irrationality going for much longer than anyone ever thinks.

Still, it's not a matter of "if" it's only a matter of "when" the dip will blow through it's bottom and become a potentially terminal velocity dive. Sometime after the first Tuesday in November probably.

BigCumulusClouds's picture

Pento says the bond collapse will take commodities with it.  But not gold and silver.  Because when the bonds go south so too does government revenue.  You'll see deficits go from $600B to $1.6T.  Since taxes can't be raised further, you'll see major money printing happening at the very same time as manufacturing collapsing.  More money, less goods equals major inflation, which means skyrocketing prices.

Creative_Destruct's picture

That could very well be the case, in the slightly longer term. In this situation a rise in rates would not be simply disinflationary, it could start to create a government funding crisis. But if that were to EVEN be slightly be hinted at by the data , the CBs would reverse like mad men and ease in an emergency rush. THAT would in turn, be extremely bullish for Gold.

On the other hand, if the FED feels they cannot raise rates, that's more immediately Bullish for Gold.

So I think its either:

1) a dip for Gold followed by a potential break-away rally slightly further down the road if rates ARE raised or

2) a more immediate break-away rally if rates ARE NOT raised.

But then, who the hell really knows anything fo' sho' :)

RogerMud's picture

if the central banks double their balance sheets, it will stave off the inevitable for another year. what do you *think* they are going to do?

Creative_Destruct's picture

Double- Bubble Baby. Or double your pleasure/bubble double your fun. No doubt the MBAs (Masters of Bubble Administration) will do a Draghi "Whatever it takes" if their bubble regression models tell them to do it, which they always do to "err on the side of caution." Easing is virtually a religious conviction. To do otherwise is blasphemy.

And it even goes beyond an emotional conviction: having addicted the world to easy money, like having addicted an addict to a drug from which a withdrawl can be fatal, the pusher/ CBanker has no choice but to keep supplying the drug/money to the addict/globe, if he/theglobal economy is to stay alive.

yogibear's picture

The Central Banksters will just keep doubling the debt in unison.

They'll just buy everything with their Ben Bernanke printing press.

 

Son of Captain Nemo's picture

These are the most dangerous markets I have ever witnessed in my entire life, and I’ve been investing for over 25 years.

And "why" we'll be seeing more activity from F-15s and A-10s indiscriminately dropping their ordnance in places like Syria and Ukraine because the George Soros' of the "1%" know and understand that their time and moar importantly USDs is very short!!!

F22's picture

The time is very near when his predictions will come to fruition.  However, not every asset will collapse........PAPER gold will collapse, but PHYSICAL gold will explode.

The paper gold market will break, and those with paper claims will be out of luck.  Those wise enough to have 

been holding physical will find that it revalues >50X.

Hedge accordingly.

Son of Captain Nemo's picture

The paper gold market will break, and those with paper claims will be out of luck.  Those wise enough to have 

been holding physical will find that it revalues >50X.

F22...

You better damn well hope you live long enough to see that day come to "fruition" with the U.S. military continuing to do what it's been doing going on 15 years.  The last 2 years by the U.S. military alone being a guarantee that says you won't see it!!!

F22's picture

Captain Nemo's son,

Perhaps I'm just dense, but I don't see how the US military has anything to do with it(?)  Exponential debt and failure of critical banks and indeed central banks and nations will trigger it.  I'm not saying that it won't be messy, but it will come regardless of any past or present action by the US military.  Just MHO...

 

dark pools of soros's picture

he's saying every damn fool gonna die soon

 

Atomizer's picture

NAFTA and Glass-Steagall. TPP will be NAFTA on steroids. Who passed these laws? It must of been Trump. Kidding, it was the Clintons. 

This cunt should of been behind bars. Think about Bernie Madoff. 

Never about London Wales. Yet Basel is going to rig VIX. Nonstop fucking comedy. 

Do you really think we are stupid? How about a United States banking run on all accounts. Will your arrogance still promote on TV? Or will you need to borrow a Hillary diaper?   

Squid-puppets a-go-go's picture

they can pass whatever they want, countries arent playing anymore. These $15 billion fines will be tit for tat until it pushes countries into a new style of protectinism - and then you will have the commercial version of the Ice9 that nearly froze the financial sector in 2008

Atomizer's picture

Skeptical, dumb ass Gordon Brown sold off gold in UK. I believe we don't have much gold to sell as leverage in United States due to derivatives. Correct me if wrong. 

Why Gordon Brown Sold half of Britain's Gold too ...

Squid-puppets a-go-go's picture

well, lets audit fort knox before we come to that conclusion

Triple A's picture

I like Pento, he is a straight shooter.

Grandad Grumps's picture

There are no markets. The banks control price absolutely. If the price goes down then it is because the bank computer programs took the price down ... nothing more. Is this dangerous? Hell yeah! But, but not because the markets might fall because of some rason other than the banks program in a lower price.

JustPrintMoreDuh's picture
“We can ignore reality, but we cannot ignore the consequences of ignoring reality.” - AR
Kefeer's picture

20 He who heeds the word wisely will find good, And whoever trusts in the Lord, happy is he.

21 The wise in heart will be called prudent, And sweetness of the lips increases learning.

22 Understanding is a wellspring of life to him who has it. But the correction of fools is folly.

23 The heart of the wise teaches his mouth, And adds learning to his lips.

24 Pleasant words are like a honeycomb, Sweetness to the soul and health to the bones.

25 There is a way that seems right to a man, But its end is the way of death.

26 The person who labors, labors for himself, For his hungry mouth drives him on.

27 An ungodly man digs up evil, And it is on his lips like a burning fire.

28 A perverse man sows strife, And a whisperer separates the best of friends.

29 A violent man entices his neighbor, And leads him in a way that is not good.

30 He winks his eye to devise perverse things; He purses his lips and brings about evil.

Ace006's picture

Some humdingers in there.

venturen's picture

The central banks must DIE!

ClownBaby's picture

Water, food, and ammunition

Restorative_Ally's picture

And porno mags, since the nets will be down.

quasi_verbatim's picture

And a revolver on a silver tray, brought by the butler.

truthalwayswinsout's picture

I agree everything is toast but the what will happen after it breaks down is absolutely wrong.

It is already breaking down and the dollar will soar in value. There will be massive deflation. Most of those who are paper billionaries today will be broke. Interest rates will go negative in an unforeseen way. Gold will be lucky to stay above $300 and oil will be lucky to stay above $10. But many bonds will soar in value and the dollar will lead the way.

DEFLATION IS HERE AND YOU NEED TO LEARN TO LIVE IN A DEFLATIOANARY PERIOD.

CHoward's picture

So......everything really is awesome then.  Right?  Right?!  Hello?

DirkDiggler11's picture

Michael Pemto ? For a quick minute I thought I was reading King World News... Explains the sensational headline though doesn't it ?
Michael is a good egg, but his timing for past 6 years or so has been more than an opportunity.

Chuckster's picture

Debt jubilee or massive printing by the FED.  The world would have to accept the printing.  They may or may not.  If not it's game over.  Oct. 1 is right around the corner.  Maybe the decision for everyone will be made then by natural selection processes. 

Assuming this shit show makes it until Donald takes office...he has said he will do away with the FED.  Can he do this without congress?  Who knows...Grant made the Bank of England our national bank and they both financially raped the country.  It's easier to ask forgiveness that it is to ask permission.

Clara Tardis's picture

An interesting take from Dex, a trader who shows through charts that the "collapse" already happened--2001, during the days after 9.11 when wall street was moved to Jersey to the computer farms of HFT.  Everything was reset and is now under algos control...Certainly explains why nothing that should have happened after 08 has happened...

https://youtu.be/JxekWEb15Dk?list=PLE_Jj0nK8EFnZLDluuQlYPg-s3Z5BJFj1

pulsescan72

TVR [#50] THERE IS NO COLLAPSE OF THE FINANCIAL SYSTEM (it already happened)

 

fbazzrea's picture

fwiw, i look for GM's talks with the Canadian union to break down and a strike to follow. this way the union pays the workers instead of GM when announcing a staged layoff or slowdown due to national dealer network awash in unsold inventory and nowhere to store new 2017 models. good timing for GM. not so much for labor. i suppose they need to start getting used to it. peak autos? peak credit?

who can afford new pickups starting around $40k?