Michael Pento: An Insolvent Nation with Inflation Problems

Tom welcomes back Michael Pento, from Pento Portfolio Strategies. Pento argues that due to a massive debt-to-revenue ratio and persistent deficits, the nation is insolvent. He linked this to the Federal Reserve's negative real interest rates since 2002, which led to a $7 trillion increase in its balance sheet, tightening bank lending standards, and an inverted yield curve for a record length of time. Pento expresses concerns over credit bubbles, particularly private debt, that have reached alarming levels, but credit spreads remain quiescent.

Pento shares his economic framework, consisting of five sectors based on the rate of change and second derivative of inflation. He emphasizes assessing the economy's health or distress, asset prices, debt levels, and the yield curve for each sector. Michael believes that when the yield curve normalizes, stocks should be sold as it signals Fed acknowledgement of economic problems and impending earnings plunge.

Michael expresses concern over the Federal Reserve prioritizing banks and Wall Street over the American people, highlighting its failure to address inflation impacting the middle class. He advocates for holding interest rates steady instead of cutting them and warned of a dollar depreciation against other currencies and hard assets like gold during deflation. He suggests overweighting bonds and bond proxies in disinflationary periods and emphasized the importance of gold as a safe haven.

Michael's model identifies specific sectors as favorable for gold, while suggesting being out of commodities during certain periods. He highlights energy's importance during growth periods. He criticizes passive investing and advocates active management with a clear framework. Lastly he notes, rising long-term rates and increasing costs could impact the housing market and banking system.

Time Stamp References:
0:00 - Introduction
0:31 - An Insolvent Nation
4:39 - Credit Spreads & Outlook
9:34 - Five Sector Model
11:07 - Yield Curve Inversion
15:08 - Equity Crash @ Cuts?
18:10 - Election & Dollar
23:07 - Model & Sectors
25:26 - Energy & GDP
26:42 - Fall Data Outlook
28:45 - Labor Revisions
30:33 - Good Money Managers
33:04 - Wrap Up

Talking Points From This Episode
- Michael Pento believes the U.S. is insolvent due to high debt-to-revenue ratio and persistent deficits, leading to tight lending standards and an inverted yield curve.
- Pento's economic framework includes five sectors based on inflation rate change, emphasizing sector health, asset prices, debt levels, and yield curves.
- Michael criticizes the Fed for prioritizing banks over people, advocates for gold as a safe haven during deflation, and encourages active management.

Guest Links:
Website: http://pentoport.com
E-Mail: [email protected]
Twitter: https://twitter.com/michaelpento

Michael Pento is the President and Founder of Pento Portfolio Strategies with more than 30 years of professional investment experience. He worked on the floor of the NYSE during the mid-90s. Pento served as an economist for both Delta Global and EuroPacific Capital. He was also the portfolio creator and consultant to Delta/Claymore's commodity portfolios, which were distributed through Claymore/Guggenheim's sales network.