Michael Pento: A Coming Credit Crisis Is The Most Likely Trigger For A Market Plunge

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So, what I think is likely to happen is um we're going to have a a credit crisis and you'll have spiking interest rates. I think the market starts to cascade, just plunge. >> Okay? And I think that will be a truncated period of time and then the Fed and Treasury will get together and just try to just dump, you know, another round of tr multiple trillions of dollars in helicopter money. And I think that might work for a while be stagflation, you know, on steroids because it'll work to reflate asset bubbles, but I don't think it does anything but damaging the economy much further. And then you have to figure out will the credit markets behave if if once they ascend to to um interest rate repression infinitely once they ascend to that that task do the shorts and do the sellers overpower the central bank and the treasury? And if the answer to that question is yes, then there's nothing that can stop it. It's going to go it's that chart those charts will will mean revert viciously quick quickly and below that average that that mean. Welcome to thoughtful money. I'm founder and your host Adam Tagert. When today's guest was back on this channel in July, he warned that a triumvirate of three massive asset price bubbles in credit, real estate, and stocks threatened to take down our fragile economy and dash the retirement hopes for millions. Since then, the bubbles have only expanded. So, will they expand further or pop in 2026? To find out, we've got the great good fortune to welcome money manager Michael Pento back to the program. Michael, thanks so much for joining us today. >> Thank you, Adam. It's always a pleasure to be with you. >> Hey, same here, my friend. Um, all right. Well, look, um, there's a lot going on in the world right now, so we've got no shortage of things to talk about, and you prepared some slides for us. So, um, I guess I'll get to those pretty quickly. Um, before we do, let me just kind of ask you at a very high level, um, I mentioned those three bubbles that that you had talked about last time you were on the channel, uh, credit, real estate, and stocks. Um, in your assessment, what's the state of those three bubbles today? >> Well, they're humongous. They're record-breaking, and they're getting bigger. Credit, real estate, and the equity market. And we have some charts to show us how we got here and where we are, unfortunately. Um, but then again, you know, after April 9th, when Donald Trump changed from Liberation Day, April 2nd became, hey, we can work something out in April 9th. Um we've been in what I call sector four of the inflation deflation and economic cycle spectrum which is uh reflation so accelerating growth and accelerating inflation on a second derivative basis which is the best sector to invest in. >> So I I I thank God for the model because if it divorces me from my emotions because my emotions have had me like you know ringing my hands for years now. Um, and sometimes I've been correct. You know, 22 was one of those times. But the, you know, it's not about whether I'm correct or not. Let's just make sure we get this right. This is the biggest bubble in history. Trium of bubbles. They will pop. But as we stand right now, the model says we're in sectors three and four, which is stasis and reflation. Sometime, you know, in between those two sectors. And I just want one caveat, too. So, we got we got to be very idiosyncratic here. We got to be very specific. The last week and a half, we've seen incipient um tremors or fractures. >> Mhm. >> In the credit markets. Now, I don't know if that's just because of uh and five brands, those those first brands. >> Yeah. The first band first brands, those two um auto lenders. And it might just be because Trump uh President Trump threatened 100% increased to 130% so an additional 100% tariffs on China because of the rare earths ban. Um that could be it and they can be um recanted very easily. Um and maybe it is idiosyncratic when it comes to those two uh order lenders. But there is an incipient fracturing of my model which says, "Hey, you need to be on high alert now." Because and I I I kind of regret this wasn't like a week from now because >> if it was a week from now and things kind of, you know, stabilize where you see the the move index contract and you you VIX contract and you see some of the credit spreads kind of return to quiescence. >> Um then it was all for none which is like a little blip. It was just because I was just mentioned about the the tariffs. >> But what if this idiosyncratic and and uh and very limited fracturing of uh auto lenders, subprime auto lenders is not contained and does spread. That's a very big possibility. But then again, Adam, you know what? I I've come to the conclusion that it's it's the it is going to be the credit markets. I've been doing this for 35 years, so it's it's not a flippant conclusion that I've reached it. It's why my model was what was my model was built to identify most deciduously and and track most deciduously. It's the fracturing of the credit markets that going to bring this whole uh artificial edifice to the ground. >> Okay. So, um I do have some questions for you about [clears throat] some of the cracks that we're seeing. you know, you mentioned some of the the names there and and I think one of the things that might be maybe different this time around in the credit markets is that we have private credit playing a much larger role than it had in previous cycles. Um, but I'm going to hold off on those questions because first, Michael, I want to give you a chance to walk through the slides you prepared because I think they're going to provide maybe some foundational insights to to then what we'll discuss. So let's start with this is this is so critical and um this is the reserves of depository institutions and maybe a lot of people haven't seen this before but what I find most remarkable if you look down you know like 1950 60 70 this is just a flatline there's very little reserves in the system but look what happens when you approach the credit crisis and and it goes you know all the way up to here you're you're over three trillion three and a half trillion dollars of reserves. In fact, it was over $4 trillion of reserves in the system. This is this is where all this liquidity and people say, you know, where's the liquidity coming from? It's coming from your federal reserves. It's coming from your central bank who has printed trillions upon trillions of dollars to keep this bubble afloat. And and that is why we're going to see what we see in the in the next few slides. But I, you know, I don't know if your whole audience has seen this chart, but it's I I think it's eye popping to see. And by the way, let me just go in just to make sure everybody understands this is this is bank credit. It's part of high-powered money, bank reserves. It can be converted to cash. And the reasons why it's high powered money is because it's also used to back loans. It's liquidity in the banks. It's used to buy bonds. It's used to convert to cash as I said. So this is this is critical. This is debt monetization to an extreme level, a banana republic level if you want to know the truth. Okay. The next >> we went from basically zero in in 2010 or 2008 to what uh three and a half trillion now. >> Yeah. Yeah. Three and a little a little bit less than three and a half trillion dollars. And that's that's shocking. It should be shocking to people that you can print that much money and and shove it into the banking system and wonder why you financialize the entire US economy. Well, this is the reason they don't ever I I don't think Jerome Powell ever talks about this. In fact, the only time he talks about reserves is like, "Hey, we got to make sure there's ample reserves in the system." We're going to get to that in a second. We might as well talk about it now. So, Jerome Powell, everybody knows he's cut the interest rates, right? He's also stopping quantitative tightening as well. >> I mean, the Fed is panicking >> and and and it's mostly because the reverse repo facility, which was so this is the excess reserves in the banking system, the stuff they didn't need to make loans or or or you know, to buy things with to trade with in the in the re in the repo market. They parked that at the Federal Reserve. It was $2.5 [snorts] trillion in 2022 and now it's effectively zero. So, um, the Fed knows this and instead of continuing quantitative tightening, and I'll get to the might as well just get to the Fed's balance sheet then because I I don't want to. >> All right. >> Go to the Fed's balance sheet. I do have a question for you about this, but I I'll hold off until you finish here. >> So, the Fed's balance sheet was $700 billion just prior to the GFC and it shot up to $9 trillion. And now it's down to about um $6.2 trillion dollars. And the Fed is now, and I looked looked back at the latest data, if you zoom in on this chart, I didn't I didn't I didn't prepare that, but the Fed's balance sheet is actually growing throughout the entire month of October. So, we're now actually adding reserves to the system. >> So, you know, the Fed is panicked about QT. They're panic about the reverse repo facility. They're panicked that they only have $6.2 trillion of of this balance sheet and and over three trillion in uh reserves in the system. They're panicked about that. And that's why I if I could just pull my thoughts together from what I was talking about before, what's going to happen is that the the credit markets are going to become unglued. That is that is what's going to end this fantasy because you remember Mary Mario Draggy said in 2012, whatever it takes. And that that was when the the the euro bond market was fracturing. >> Um and there was a a a very salient crisis in the in the pigs, the peripheral, you know, Portugal, Ireland, India, Greece, Ireland, Italy, Greece. Um, and he said, "I'm gonna, hey, listen, guys. You could short the bond market if you want to, but I'm gonna buy every single sovereign debt issued by the pigs, and you you can short if you want to, but you're going to lose because believe me, it's going to be enough." That's what he said. >> And that actually worked. And the reason why it worked because it wasn't it wasn't just insolveny that was a problem in Europe. Um, it was it wasn't it wasn't inflation and insolveny. It was just insolveny. But I I think we are going to have an inflation and an insolveny crisis in the United States >> which is going to burst the uh sovereign debt bubble and the credit bubble and then that and this is this is when it's game over. Adam, you can't fix an inflation problem by creating more inflation. You could you can you can vow to print all the money you can in order to buy long-term US treasuries. But are you also going to buy mortgage back securities? Are you also going to buy corporate debt? Are you also going to buy municipal bonds? And if you do, what is that going to do to the inflation rate if you're going to create all of that credit? I mean, you'll have a crash in the US dollar. And I think the bond market crashes regardless of that. It's not a guarantee, but it's highly likely, highly probable to occur. And then there's nothing the government can do because I have people tell me all the time, "Well, don't you know, Mr. Pento, the Fed and Treasury has your back. They'll do whatever it takes." Yes, they've done that before. And every time they've done it, it's because we've had a recession or a hiccup in the stock market and we've had deflationary problems. But what if your problem is insolveny and inflation which is which it is very likely to occur. That's where we're headed. >> Okay. >> I just want let me ask a couple questions on here. So the system is a lot more indebted than it was as recently as 2008. >> Right. Right. Correct. Um I I don't think you have a chart here of of um US debt um federal debt but I think and I'm doing this from memory so I could be wrong in the starting point [sighs and gasps] was it maybe like god I want to say 9 >> it was 40 so US you're talking about the US national debt only >> okay that was like 40% of GDP in in the 1980s >> okay >> now it's now it's like 100 now it's 123%. But I have a I don't have a chart for you, but I do have later in the slideshow I have some very important bullet points about the debt that we have which proves we're in a massive credit bubble. You know when Pete that drives me nuts when people come on TV and they say well you know there there isn't any you know bubbles in the system. We don't we're not leveraged like we that is such a li is a lie. It's either ignorant or a or mandacious. I don't know which one. Maybe a little bit of both. I I don't know. But you have to listen. Yeah. I have about six or seven bullet points about how much debt we have in this country. Total non-financial debt, which includes state, local, federal, it includes um private debt, everything but bank debt, total non-financial debt. And it shows you that we're at an all-time record high. And I I don't want to skip there, so I know you have other questions. I'll let you. >> So, Michael, I I got a couple questions here for you. Um the system is much more indebted than it was even as recently as as 2008, right? So, um, we've done a lot of shenanigans and defformationations, many of which you've just talked about here. You know, exploding, uh, bank reserves, things like that. Um, uh, interest rates are higher now than they've been, um, or or than they were for for much of the the QE and and eventual ZERP um, years that we were in following the global financial crisis, right? So essentially we have a lot more debt than we had before and the debt costs a lot more to serve us um because a it's bigger and b the interest rates are are still relatively high. Right. So when I'm looking at this chart and the other one that you showed isn't what really matters to the system here um uh the uh what's it called? the um um this the trajectory uh if you will or the rate of change of what's going on. So here the the the bank reserves while they're still very high at three and a half trillion. They're coming down from where they were in 2020. Same thing as you showed the Fed balance sheet, you know, we're we're we're tapering there. So I guess my question is is you know we were gooseing everything um following the global financial crisis and then that went into overdrive during co But now that it it's actually starting to contract um or the rate of change is is now no longer positive, it's negative. Does that weigh increasingly more on the credit system? Because we have a credit system now that basically needs to continue to be inflated to be happy. Is that correct? >> Well, obviously you're very very intelligent. So you you've hit a nail on the head. It's it's not the actual nominal level of reserves. It's the rate of change. And you just point your attention to the remember the repo crisis that we had in in 18 and 19. This is what you see right here. >> Yep. >> And it wasn't the fact well well who cares. We're you know we're down from where we were here to here and it's still much higher than it was in 2007. No it's the rate of change that counts. That's what's all what's crucial and that's why I believe this number here goes higher. I was shocked when I pull up this morning. I I said, "Let So Fed the Fed was threatening to end quantitative tightening." I said, "Let me see what the the um the Fed's balance sheet is now." And I was shocked to see that it actually has been increasing the entire month of October. So, they're already adding reserves to the system before they stop. >> They're already taking their foot off the break. Yeah. >> Yes. They're all And that's why I think tipping my hat to the some of these people that are always so bullish. Um Yeah. They're going to keep they're going to they're lowering interest rates. They're stopping quantitative tightening. They're going to go back into building the Fed's balance sheet. They'll do whatever it takes. And that will boost asset prices >> and soon the bond market begins to fracture and it will. >> It has to. >> So insolveny and inflation. So key question here timingwise is um does [clears throat] the Fed return to that stuff now and assets go higher and hopefully it keeps the credit markets happy for a good while longer or are we at the point where the credit markets start cracking and the Fed doesn't start aggressively increasing its balance sheet uh refilling the the reverse repo program until there's enough pain that it's got the air cover to do that. >> Well, uh, >> one is an argument that the bubbles are going to keep inflating. When is an argument that, hey, they might get into some some, you know, rough territory soon and and that's going to happen before the Fed rides the rest. >> Yeah. I mean, well, it's, you know, I'm I'm not in charge of that decision. You're not in charge of that decision. It's the it's the Treasury and and and the Fed that's in charge of that. And it's hard to predict what they're going to do except knowing what they're already doing. Um, so we haven't we haven't had 2% inflation rate for like um four and a half years. >> Over four and a half years. And so the Fed is cutting interest rates. I mean they they understand the they're not in the business to protect the middle class. They're not in the business to keep in to to keep prices stable. That I mean that's so obvious. They're in the business to protect banks. They're going to cut interest rates again. They're seeing what happened to uh first brands and color. They see the reverse repo facilities. This is not knowledge that I have and they don't they're they're panicked as I said already. They're panicked. They're going to they're going to pre on my view from what they've shown us already. They're going to try to preempt this. They're going to obiate the need to panic because they're panicking now. They're not going to wait for the credit crisis. They're going to do it now. >> Okay. So, I got to jump in. >> That's what I think is going to happen. >> I got to jump in on this then. Okay. So I I I can I can understand that argument of hey the things haven't fallen apart yet so the Fed is jumping in now because it is pre- panicking to your point. >> There's others who would make the argument that is no the Fed is way behind the curve. The damage is already done. The momentum you know to the downside is is is unstoppable at this point and you know we're going to go into some period of pain. Even if the Fed starts now, it's going to be a while before their their um their actions are going to be able to start reversing things. Do you have a strong opinion one way or the other? I >> I don't I don't I I I'm you know, maybe 6040 that they're gonna be able to paper over this crisis, but I I don't have a strong opinion. I just want to pull up this chart real quick to show you what you're talking about here. This is the the this is the level of the real Fed funds rate. Um and you see this period of time here when they were when they were raising interest rates and they're already going back down. Now just just just to show you the anomaly for most of the period of time between you know 1955 outside of the hype the uh the stagflation of the late 70s. >> Yeah. >> All the way to 2000 we had a real Fed funds rate a positive Fed funds rate. So you take the Fed funds rate the nominal rate minus inflation. It was a territory. And then you see these these 14 years here from 2000 uh from really from 2000 all the way to uh 2022 where we were profoundly negative. Now we just we just peaked our nose above into positive territory and you can see the Fed's panicking already. So it's a race. I mean here here's the thing Adam. I don't have to commit to something. I have a feeling from what from the reaction function of Jerome Powell from his history and especially what he did after COVID and we had a we had a very what it turned out to be a okay you know God bless all the people who died I'm not trying to minimalize the death of um from elderly people and people who were um susceptible to a a pulmonary disease but we didn't lose a lot of GDP um but we still printed $4.5 trillion dollars >> right >> in a very quick period of time. He he Powell has inculcated to the markets that he will overreact to a crisis. >> Yeah, I think that's accurate. I think that is the expectation. >> And and if and if and I'm not saying you're correct. This wasn't your point of view. You didn't state your bias. But if it if there if there is if it is if this period of time of a real Fed funds rate, you see the real Fed funds rate recession, real Fed funds rate recession, real Fed funds rate recession. If this was enough to cause a recession, it's going to be truncated most likely because they're going to come with the, you know, the calvary and the Marines. You know, do you think Donald Trump's going to sit there and and and stand idly by? And you think Scott Bessant is going to stand idly by? They're going to print. They're going to monetize. They're going to helicopter money. As a matter of fact, I think Donald Trump, who I voted for twice, so don't send me any emails about I'm I'm a li I'm not a liberal, I'm a libertarian. Okay? There's a difference. There's a huge difference, a trenching gap between the two. But he is talking about um giving a $2,000 um stimulus in the form of of a cryptocurrency. He's floating it out there in the greatest economy the world has ever seen in in in relatively full appointment full employment. We have we have a very very low unemployment rate. We have quiescence in the initial jobless claims market at least before the data went silent. Um, we have uh three asset bubbles. We have record high stock prices. What is the reason why the Fed would be be doing this other than the fact they're panicked over the repo market? >> They're panicked that the excess reserves are are starting to dwindle. Um, and they want to make sure the bond market doesn't have any problems. So, this is what they're doing now in my opinion. >> Okay, I've got some more questions, but let me let you go through any of your charts before we do. >> So, look at the trajectory. This is the M2 money supply. And you notice it's a nice slow steady incline here. And then you hit 2000 and and the the slope increases. And then you just go vertical here. This is COVID vertical. And I want Yes, it you know the recession did we had a big drop in the money supply postco. But here we're we're increasing again. M2 money supply is very healthy growth rate of M2 money supply. This is I'm just building a case, excuse me, as to why we have such a huge bubble. And here here's the Fed balance sheet that shows it was $700 billion prior to the co uh prior to prior to the g global financial crisis going vertical here. COVID kept on going buying mortgage back securities to send hous. Yeah, I you know I think you probably saw that but I think pal finally said you know we probably bought the mortgage back securities for too long like finally an admission >> did he consult with this 400 PhD economists to reach that conclusion that may maybe the fact that home prices are going up 20% perom for a few years maybe that should have given him a clue when when incomes were stagnant. Um, so, uh, so here's a few example, just a few. I just picked a few. By the way, this is this is not I could have went into student loans. Um, I could have talked about auto loans. I think auto loan I think auto loans now are 1.66 trillion in auto loans. And there was um, $770 billion in 2007. But here's just a few examples. Some good ones, too. So, leverage loans. What's What are leverage loans? These are loans to businesses who can't tap the corporate bond market and they can't really get a loan from the bank. In Q3 of this year, there was a record $400 billion in one freaking quarter, almost a half a trillion dollars in leverage loans. Adam, this bubble that they've created, I I hope I don't sound like a Cassandra. I hope I don't sound hyperbolic because it hasn't really burst yet. But when it bursts, I believe the reason why it's going to burst is because of inflation and insolveny. It's going to be a fracturing of the credit markets. It's going to be unbelievably damaging to the US economy and the global economy. And there's not a darn thing the Treasury or the Fed can do about it when it happens. So, here's some more examples. The private credit market has grown from a hundred billion dollars, so it didn't even really exist. private credit in 2007 to $1.7 trillion dollars today. You know, this is larger than the subprime mortgage market. Just any one of these one things, auto loans, student loans, private credit, you know, go go try to, you know, private credit is wonderful except when you want to get your money out, but when you want to get your money out is when you need it the most. That's when that's when you're going to really have um regrets about putting money here without doing your due diligence. Okay. US margin debt is at an all-time over a trillion dollars, up 33% year-over-year. US margin debt, sorry. Um, now here's one for you. This is this is so key. Total US non-financial debt is now 77.9 trillion or $256% of GDP. So com comparison remember remember you hear from a lot of people on TV that say there's there's no distortions there's no bubble there's no leverage in the system in it was it was 19.3 trillion or 189% of GDP during the NASDAQ bubble 2000 and even compared to the global financial crisis so 33.7 to 77.9 and it was less 230% of GDP This is according to the Z1. This is not something I pulled out of my hat. Look at the Z.1 and pull it up yourself. Total non-financial debt is higher today than it has ever been in history. >> That's that's your debt bubble. >> Um, >> wow. Um, >> those are great stats, Michael. I mean, scary, but great stats. >> Thank you. Um, I'm not too happy about them either, Adam, to be honest with you. So, what did all this printing and debt monetization do? So, here's some from uh this is courtesy of long-term trends.net and they have a different ratio than than some, but it it it's so it shows the same picture essentially. This is home price to the home price to income ratio. It's above seven on on this database and it's higher than it was in the housing bubble. This is the Adam, this is the home price to income ratio. This is not the total cost of owning a home which includes >> Right. Right. This essentially, this is the affordability ratio, which is just housing has never demanded more of a percentage of somebody's income as it does now. And that's why so many people can't buy a house. >> Yep. Um, Wilshire 5,000 to GDP. This is scary, Adam. That's 2000. That's 2007. >> Isn't that just crazy? >> This is where we are today. >> Yeah. And I mean, even just recently, like, we don't learn, right? 2021 it was at an all-time high. What happened? We had a really painful year the next year, but the markets just said, "M, I think that was a one-off." >> That's what all this money printing has done. Now, this compared, this is a great chart, too. This is um I I pulled up all the not only the public value of equities, but the private equity threw the private equity in here, too, to GDP. Look at this astronaut. Look at how much greater it is today. This is also right post postcoid. So it's the same double double top here maybe. I don't know if you can do that with this this metric again 2000 and 2008. >> Yeah, it makes us >> look but look where we are. I mean you talk about the financialization of you know you say if we have a free market economy anymore. Are are we a banana republic? I mean this the the average look at this is the this is the mean of this metric which includes the bubble. We're we're way we're way down here. This is where we have to fall to just to get back to average. Just >> assuming GDP stayed the same, we that would what? That would be a twothirds decline in market value. >> Correct. Correct, Adam. And guess what? GDP never the denominator never stays the same. >> Right? >> So, I don't want to scare people. I'm just show I'm just I'm just speaking facts here. Um and finally um this is the FINRA uh FINRA margin debt to GDP courtes court courtesy of uh guru focus. >> Yeah and just to remind people margin debt is when you are borrowing to buy a financial security. >> Cor correct. So we have what we have here is a failure to communicate. You know what we have here is the most overvalued concentrated uh the MAG7 is now 34% of of the S&P 500 30 they make they that is the record um P share of the entire 500 stocks seven of them are 34% and it's also the most overleveraged overvalued overly concentrated and overleveraged market in history and I'm still long but ma man I'm gonna tell you something I have I run my model every day the daily I have I have daily weekly monthly components to the model that I have the the inflation deflation and economic cycle model I want to know I have to know when we're entering into a deflationary dis disinflationary recession or credit crisis I have to know because the damage could be devastated I mean you won't you will not be able to retire comfortably because every now you know listen the stock I didn't put this up there either but the ownership so they look at the net worth of households highest concentration in equities in history everybody's long but how many people have a model that tells them when to get out or are smart enough to avail themselves to programs like yours to have me or maybe even more intelligent and more ariodite and more um eloquent people explain to you how dangerous this situation is. You better have a model and you better have your finger on the on the sell button because otherwise, you know, you're your retirement is in jeopardy. >> All right, Michael. So, um very [clears throat] sober message by the way. I don't think it's possible to have a smarter, more eloquent person than you doing this just for the record to go on there. >> You're welcome, buddy. Um, okay. So, big question. So, you were talking earlier about Fed panicking now and that it might be able to, you know, kind of foam the runway and and prevent uh the markets from from crashing here. Um, but then in in this, you know, same analysis, you're saying, look, we've got these this triumvirate of bubbles. They're super extended. uh I if if they burst and we have no historical example of a bubble just continuing forever, um the damage is likely to be, you know, extremely painful. Um what are I know you're going to do what your model tells you to do when it tells you to do it, but what are what are you kind of advising folks to prepare for here? either a move from reflation into stagflation because the Fed has foamed everything and the markets don't correct but inflation starts becoming a problem or are you saying hey be careful that you you know the the wheels could really come off this thing the credit market could break these bubbles could pop and you could see a a bigger chunk of your retirement vaporize faster than you can imagine. >> Yeah. So, what I think is likely to happen is um we're going to have a a credit crisis and you'll have spiking interest rates. I think the market starts to cascade, just plunge. >> Okay? And I think that will be a truncated period of time and then the Fed and Treasury will get together and just try to just dump, you know, another round of tr multiple trillions of dollars in helicopter money. And I think that might work for a while be stagflation, you know, on steroids because it'll work to reflate asset bubbles, but I don't think it does anything but damaging the economy much >> further. And then, and I don't have an answer to this yet. It's two, it's two, you know, it's three moves ahead. I'm only good enough to play two chess, two moves ahead. I can't do threedimensional chess like some people like you, Adam. [laughter] >> I'm I'm a one dimensional, >> by the way. I have to com I mean, you you you looking great lately. I said the hairs, the hair, everything. You're [laughter] >> you're so >> you're looking great. Um so uh I I I think then you have to figure out will the credit markets behave if if once they ascent to to um interest rate repression infinitely once they ascend to that that task. Do the shorts and do the sellers overpower the central bank and the treasury? And if the answer to that question is yes, then there's nothing that can stop it. It's going to go it's that chart those charts will will mean revert viciously quick quickly and below that average that that mean not the average the mean. So um but that's that's three steps ahead. I I just want to make sure that me and my clients avoid that big huge draw down with the initial fracture of the credit markets. Um and then hopefully participate in the reflation and then see what happens. I I mean I if I had to guess I would say it would not it would it would not be successful. We're we're ending we're going to end up into a a a debt jubilee where we just cancel debt. We re we actually um have to um get a new currency. I mean we're heading towards the Argentina Zimbabwe right now. >> Okay. So, so you you do think that at some point, and again, I know you're you're now projecting far out into the future. >> Um, uh, but you think a currency reset is is a potentiality. Um, okay. Well, thank you for being so transparent. And again, I I I I know what's what's going to happen is that you are going to do whatever your model tells you to do when it tells you to do it. >> Correct. >> If if and when we get that crack, that breakage in the credit markets that you think we could have, do you expect your model to then tell you to get into deflation? Is is is that the the sector that you would be in, would you be riding that in those four horsemen assets? >> Yeah. And and I'm and um and depending on the liquidity crisis to how long it is, I I might even have to shed my I so I have three I have silver, I have gold, and I have platinum right now. >> We've had them for a while. Um and I think maybe if you had to if you had to answer the question, yes, of course, China's stockpiling, India is stockpiling, um the Fed is about to cut interest rates. to so many reasons. Um, our international creditors no longer want to own treasuries. It's ddollarization. It's all that, but maybe some of that is precaging what we just talked about those charts mean reverting. >> Um, >> I was going to ask you about that. So, you think part of the rise in the precious metals is people >> Yeah. >> sniffing this out? >> Yeah. It's it's ddollization. It's it's no longer parking your savings, Chinese and the rest of the world, Russia into treasuries. Um it's negative real interest rates going back to that regime again. It's also I think it's it's like hey what what's going to happen to the banking system if you know everybody goes the way of >> first uh first brands and triricolor where am I going to park my savings? So I want it in gold and and as the nominal rate comes down towards zero there's you know there's no lost opportunity cost. >> Yeah. Well let me ask you this since you're such a bum guy. Um, I've been really surprised um with with the big brands um Bank of America, Goldman Sachs, uh Morgan Stanley, um uh Jamie Diamond, Jeff Goodlock, um Ray Dia, who've recently come out and said, >> you know, holding gold kind of makes sense now. And um uh you not all those guys certainly most of those people are not gold bugs. Um, and you're starting to see this, you know, I don't know if these are official recommendations or if these just sort of thought balloons, but but them saying, you know, bonds had a great run the past 40 years. They may not have such a great run going forward, especially if they're expecting uh negative interest rates again. Um, so they're basically saying, yeah, traditional 6040 portfolio, maybe you want to take part of that 40 that's in bonds and take a healthy chunk of that and put it into gold. And we're seeing people say like maybe 15% of your portfolio, maybe 20% of your portfolio. >> Yeah, I know. >> I mean, and the bond market's huge compared to the gold market. So, is there anything there to that? I mean, do you think a meaningful amount of capital will will will may move into the gold market because it's just looking at the same things you're looking at and saying, "Man, I think interest rates are going higher and um [snorts] you know, uh inflation's going to still be a problem." And yeah, you know, when I get a great real yield, I'm not interested in gold, but when my yield is negative, >> yeah, gold looks actually pretty good. Uh, I've been doing this for 35 years. So, I remember in decades after decades of being, you know, someone who always espoused owning some gold, at least 5% physical gold, being derided and excoriated by the mainstream financial media. >> Yep. >> Didn't have a place. It, you know, >> it was a radioactive asset. >> It's a it's a doors stop. It's a useless rock. It doesn't produce income. Blah blah blah blah blah. But when you look at those charts that I compiled, you say, "Wait a second. We're going back towards zero. There's no lost opportunity cost." It's a general it's a genuine ballast a genuine offset against the financial system. Not Bitcoin gold plat maybe to a lesser extent platinum and silver but definitely gold is a is a a viable and mandatory part of a diversified portfolio. I don't I I mean I wouldn't go 20 I would never say 20% all the time. Um but you know 5% and how many people have grown up I'm 62. How many people have grown up having no gold at all? I mean, none no exposure. >> 99.99% of America. >> Yeah. So, we I mean, you know, gold gold can easily go to five $6,000 an ounce in the next few years easily, in my opinion. >> Okay. >> And it's not And by the way, that doesn't mean that I think gold is getting more valuable. I It just means a dollar. It's just a It's just an offset to the the purchasing power of the US dollar. >> And you mentioned your concerns about eventually there needing to be a currency reset. And this is this is basically your your safety trade to hang out in against that. >> Okay. Um and and so look, I know that gold is in your four horsemen deflationary uh sector. What sector is deflation? What number do you have for that? >> What? One. That's the first sector. >> Okay. Sector one. But it sounds like you think it's wise to hold some of it now, no matter what sector we're in, whether we're in stasis or reflation or whatever. So, um, if if I'm correct and we do get the long end of the bond market unmed, you could get a correction in the gold market. So, I just be just be a a caveat of that. So, so bond rates soaring on the long end would be competition as long as there is some desire to hold the treasury complex. So, I [clears throat] mean, I have to see I may have to do some technical work on it to see what happens at that time. But yes, it could be something that you always want to have in your portfolio. If if you're not an active trader, I would just take 5% of your net worth, come up with a number, and buy physical gold while it's still, you know, below $5,000 an ounce. >> Okay. Um, for folks that are interested, just because Michael mentioned it, if you're interested in if you've never bought any before, you've got you're new to the gold game and you want to get some direction on where you can buy physical, uh, just go access thoughtful's um, primer on how to buy and store gold and silver. It's totally free. You just go to thoughtfulmoney.com/gold and you can, um, you'll get a good write up of all the available options there. Um, okay, Michael. Um, just because you you you sort of set it as a throwaway line, um, can you briefly, if possible, explain why gold but not Bitcoin? >> Well, you you said briefly, right? That's a >> I did say briefly. If you can't, we'll just move on. >> Well, okay. Okay. So, I just just be there's um gold is not gold is limited because it's exploding star in the earth's crust and it's very hard to pull out of the ground and it's getting harder and harder and it costs more money to do. So there's an unlimited number of blockchains. I love the blockchain technology, but there's an unlimited number of blockchain and hence an unlimited number of coins that can ride along this blockchain in this in this digital ledger. So I don't care if there's 21 million units of Bitcoin. There's an unlimited number of bitcoins that can be created or or or commodities that serve the same function of a digital currency. So, it's not rare. It's not tangible. Uh, it's not virtually indestructible. And it'll never be ever be gold. >> Okay. I'm going to leave it there. I'm sure people will have differing opinions which they will chime in in the comments, but I appreciate you putting your stake in the ground. Okay. Sorry, question. >> I just I just want to say before I get excoriated on the comments. Yes, I understand that I've been wrong and you can make a lot of money in the cryptocurrency sphere. It's just gonna it's not something I need to invest in because I think eventually, you know, why is it over $100,000 a unit is because the government has gotten involved and Wall Street has embraced it wholeheartedly. But it's supposed to be something that's decentralized. So, there's some some antithetical thinking there. >> Okay. I'm trying to work my way to private credit and we're getting tight on time, but now I got to ask another question because you sort of opened the door there to it. What are your thoughts on stable coins and and you know stable coins as a means to potentially soop up a lot of the treasury issuance that the government wants to do over the coming year plus? >> All right, I'm not an expert in stable coins, but here's my visceral reaction to stable coins. You want to buy cryptocurrencies because they're competition for the dollar, a viable alternative to the US dollar, and yet you want to own treasuries with stable coins and you want to own the dollar pegged to the dollar. I that's another thing doesn't doesn't make any sense to me. >> Okay. All right. Again, I'm I'm sorry folks. I'm going to leave it there only because we're tight on time here. Um and I have committed to folks that I am going to do a stable coin deep dive on stable coins and I've actually got somebody lined up for that. We're just trying to nail down a time right now. But but in the next week or two, we'll I'll do a video doing a deep dive on stable coins. Um all right. So, um, you know, I mentioned earlier that one of the things that's different about this credit cycle is that private credit makes up, I think, a substantially larger percent of the outstanding debt than it had in previous cycles. And because it's private credit, because it's not regulated, we don't have good visibility into the loans that have been made. We're all hoping that people have been making smart loans, but I mean, Michael, you know, I mean, every every debt cycle ends because of malinvestment, right? You know, things get too loose and easy. People make loans they shouldn't have. Those loans start going bad. We have the the correction. It's painful. Everybody swears they're they're never going to make bad loans again. And that lasts for a [laughter] little while, right? >> Um so, you know, uh Triricolor and First Brands who we've already mentioned, you know, they were recipients of private credit. And it is raising the question now of oh how many other bad loans are out there in this private credit world and that's not to say too that that that even in the regulated world um you know lending standards maybe weren't as tight as they should have been or we're beginning to realize especially I think on both the corporate and the consumer side hey these borrowers were maybe not as creditw worthy as we thought. >> Yeah. >> Yeah. So um so how how different is it this time because of the private credit larger >> share immensely different and and even um I guess I can liken it to um private credit just as a similly to the um the housing crisis um it wasn't just subprime mortgages that went bad. Home prices dropped by 33%. So even if you had 20% down and you were a decent credit borrower you still had no equity in your house and you and you lost it in many cases. So I think it's the same thing, you know, in a recession the loan even ones that were vetted properly and it was a viable business. It maybe it was maybe it was in this AI space. Um it looks good. It's it it looked viable in a booming market, but when the unemployment rate rose and um corporate budgets dried up and the cash flow dried up, they turned sour. I I think that's going to happen again. even not just to the not just to the the weak lending but even the even the ones that looked >> solid. >> So So that's a great point. I just want to interject and I'll let you continue. But, you know, we we think of subprime and okay, they made the, you know, ninja loans and, you know, all this all these people who shouldn't have been getting debt uh loans were getting loans. True, right? But what happens in a in a credit correction is um you have a lot of collateral damage, right? So, um, stock prices go down, home prices go down, employees lay off, and you essentially take you force a good chunk of the good borrowers into the bad borrower uh, camp because all of a sudden they can't service their loans because they lost their job or whatever, right? So, it's it's not just a story about the guys who shouldn't have gotten the loans. It's you can drag a lot of the the the otherwise good lenders down with them or good borrowers down with them. investment grade debt becomes junk in recessions. It never not it never doesn't happen. So, it'll happen again. And then it my my and my problem is you think you you you you're spending you're consuming based on what you have in your private equity fund because they it's not it's not liquid. They tell you what these assets are worth, >> right? Yeah. It's not marked to market. It's just worth that they tell you it is. Yeah. >> And it's spinning off cash flow and then the cash flow dries up and then you ask them, "What can I sell it?" Well, it's illquid, sir. you can't sell it or ma'am you can't get out but if you do want to get out it's like 30 cents on the dollar and then what do you do and then what happens to your consumption this is what this is all going to unfold in the next recession or credit crisis and it we have not repealed the business cycle things look good today ostensively but you when you pull back the very thin veil it is the most um bulcanized US economy where you see the top the top 20% are doing very very well >> and the bottom four quintiles are suffering because of inflation and because their wages haven't kept up with it. Um, and >> companies aren't hiring. >> Even though even though employment's low, companies aren't hiring. Yeah. >> Correct. Correct. So, it's it's a thin veil that's just hire it it is um covering or u veiling, which is the word I use. I should have just stuck with it. A a very a very tenuous and fracturing economy. >> Okay. Well, um, you know, beyond that, Michael, everything looks fine, huh? Right. [laughter] Well, okay. So, so the ju just for the rubber meets the road here. Um, uh, you know, the magic question is when, right? And, and that's the unknowable question, right? So, you know, somebody can listen to this discussion we've just had, Michael, and say, "Oh my god, I I didn't realize things were so bad. I got to sell everything right now and get out." Right? You're shaking your head right now, right? And and this is sort of one of the unfair things about distorted markets like this is they can continue on for a good long time. And so if you hop off the bus too early, you can lose an awful lot of upside potential and then have challenges getting back into the market, you know, regardless what happens in the future. So to a certain extent like you as a money manager you you have to play the market you have but at the same time you have to you know own your fiduciary duty to your clientele and not put them at undue risk. So you know how are how are you managing capital through this given the fact you have these concerns but the music is still playing. >> Yeah. So, as I said, outside of So, we were we were um we came into 2024 bearish because just just because the valuations so not that we weren't long, we were we were marginally net long. Um and that's why we didn't get hurt at all when the when the April 2nd liberation date came out. We had buffers, we had offsets in the portfolio. Um and then after April 9th, the the portfolio um the the model started to signal to get longer. So the rate rate of change of inflation and growth started accelerating and so we got longer. We've been getting longer throughout the year. Um and we're we're very comfortable where we are now. We have lots of precious metals. We have some uh Indian stocks. Uh we still like I think that uh relationship between the United States and India uh improves in the near future. Um we have we own Australia equities. We own um uh IBM as a as as an individual ticker which is unusual for us. We almost always invest in ETFs. Um we own aerospace and defense. Um we own some inflation protection and uh we have one just one very small uh ETF that um will benefit. It actually buys puts long-term puts on the stock market. So, we're net long, but as I said, I would not >> You're net long with a hedge, it sounds like. Yeah. >> Yeah. A very small hedge. And and and you know what? And the precious metals also have been >> or a hedge to a certain extent. Yeah. >> Yeah. Or a hedge to a certain degree. Uh I I didn't I did al I didn't mention, but I also want to um add that I am also short the long end of the bond market now. I'm not sure. I mean, we're I guess we're up slightly in that position um but not much. Um, but I'm really concerned about a 10-year note that's, you know, near 4%. When you have inflation that's three, and if nominal growth is at say two or three, but they say it's actually, according to Atlanta Fed, it's closer to like four now. So if you add those two numbers up, you know, nom you look at nominal growth um inflation plus the real growth um you're looking at like six, seven, 8% depending on the the metric you're looking using for GDP and you should never have a 10-year note at 4% if that's the case. So either either the economy is going to crash and then I can assure you my gold and my other any other actions I'll take that part of the four horsemen is is shorting the market too. Yeah. So, um, uh, I I don't think there's much upside in the long end of the bond market outside of a very severe recession. So, that's one of our hedges as well. >> Okay. All right. Well, Michael, look, we're at the end of the time here, but thank you for doing your uh usual excellent job and um your incredibly generous uh transparency that you show in terms of exactly how you're you're uh investing or invested right now and how you plan to adapt to, you know, whichever new sector your model tells you to go in from here. Um, for people that have very much valued this discussion and would like to a follow you and your work, but also you manage capital and they might say, "Hey, I might want to talk to Michael about that." Where should they go? >> So, the website is penoportp.com and on that you'll see a uh subscription to the midweek reality check, which is my weekly podcast. That's $50 a year with a four or five week free trial. Um, and that gives you my, you know, 36,000 foot view of what's going on. It's the salient data and my take on it. And if you're a US citizen and you're qualified for a long short portfolio and you have $100,000 to invest, we'll take I'll take you on and put you directly in the inflation deflation economic cycle model which assiduously models and looks at for cracks in the credit markets and financial system so we can get out and short in time because I I not only you see here's the thing 95% of what Wall Street does is they just I call them used carpet salesmen. None of the people on your channel that I know of do that. So, they're all active managers, but most of them just say, "Hey, buy and hold, it always comes back." Buy and hold what? And how long do I have to wait? Do I have to wait like Japan 35 years or China? We're still waiting since 2008 down like 45%. 15 years. And how long, you know, how long and how how long to get back to even, you know, you go down 50%, you have to be up 100%. And I don't have that time. Not not if you're approaching retirement or in retirement. So, um, I'll I'll handle your money directly using the inflation deflation and economic cycle model. >> All right, my friend. Uh, Michael, thanks so much. It's so great to see you again. Got to have you back on a little bit sooner next time. Um, but just thanks for everything. Really appreciate you coming on again. >> Blessings to you and your family. >> All right. Well, now is the time of the program where we bring in the lead partners from New Harbor Financial, one of the endorsed financial advisory firms by Thoughtful Money. I'm joined as usual by Mike Preston and John Lodri. John, it's great to have you back in town here. We'll get to you in just a sec, but Mike, why don't you kick things off? What were some of your key takeaways from the discussion there with Mr. Pento? >> Hello, Adam. Thanks for having us today. We always like Mike Pento. We respect his work. He's in our business and we think he gets it. Uh just like we think we get it, too, in terms of the type of bubble that we're living through and the types of risks that are out there today. Um let me try to do a quick recap of what we, you know, what I heard and what what what I think Mike was saying. There's what's called a triumvirate of bubbles. Mike Pento often talks about credit, real estate, and stocks. And he said that each one of these is larger than when he last came on. I think we'd have to agree. I can't remember actually when Mike was last on, but uh in general, this bubble has been continuing. So, I think it's probably larger than it was even a few months ago. He also said that there's some early alert. This his model is giving him alerts. Our model too is not really red alert right now. There's no huge alarm bells going off, nor will there ever be probably big alarm bells going off signaling a top, but our indicators are pretty mixed and they're they're probably more leaning towards the bear side at the moment than anything. So, we have to agree that we're seeing some things of concern as well. He he says some things that I don't know for sure if uh he'll be right on or I'm not even sure if if if we agree with him, but you know, out of those bubbles he talked about earlier, he thought the credit market would bring the market down or the credit market would eventually bring the stock market down. Maybe. I really don't know. I don't know what the catalyst will be. I just know that the stock market is ridiculously overvalued and has been for most of the last 15 years, frankly. And so I fully admit that it has been a terrible timing indicator, but valuations have been completely off the map. Just a couple tidbits here that he that that he talked about that I wrote down. Bank reserves went from near zero back at the financial crisis of 2008 2009 up to 3.5 trillion. Now the Fed balance sheet hit a high of 9 something trillion. It's 66 something now. Still pretty big. The bank reserves have hitting 3.5 trillion. I've got to agree with him. is a big number that flooded the whole banking system and all that money has basically uh you know multiplied into the economy and so it's been the the largest bubble ever really certainly the largest bubble in our lifetime and Mike talked a lot about how dangerous this is for people that are in their retirement or approaching retirement this time is not like all the other times it's not like a buy and hold strategy is going to work we've got to we've got to agree with them on this that we would want to suggest that tactical management is probably the place to be in the next 10 years. And I know that's relatively self- serving because we're tactical managers, but that's I'm just saying we have to agree with that viewpoint because this is just it's been a such a long time where passive buy and hold has worked because the Federal Reserve has targeted asset price inflation and a rising tide lifts all boats. And we just know by looking back at history that valuations like this are not conducive with positive returns over the next decade. And they're and they're not conducive with a a free launch, you know, forever. So there's going to be a price to all of this. And and he's basically saying that his model has got him on alert. Private credit is greater than it was, nearly double than it was in 2008, up to 1.7 trillion. He threw out some other numbers like uh car loans are double where they were back then. And he says furthermore that the Fed here is panicking that they're prioritizing bank stability over middle class interests. And we've talked about that a long time here in this program too. It's just not fair. It's not fair the the amount of wealth equality that has been propagated out of these policies. And that's almost certainly going to have negative consequences. So just a couple more things as I wrap up. Total total non-financial debt 77.9 trillion more than double that it was 1015 years ago. Home price affordability is terrible. A lot of your guests have talked about that too over the last bunch of years. Home price income ratio, the home price to the the income ratio 7 to1. It was more like three or 4:1 back in the 70s and 80s. And um you know, he's really concerned about a market plunge. You know, I I think that we disagree with him on this point. He's really concerned about the long end of the of the bond curve. In fact, he said that he's he's got a short there. uh we actually we're actually long long-term high quality US Treasury bonds. We think that rates will come down uh particularly if we see a big stock market drop the Fed will drop rates and the you know both secretary uh both both Treasury Secretary Basant and Trump want rates down and they've got all the power in the world to get them down at least in the short term. So our call is that long-term bonds between now and two years from now are probably a good place to be. So we'll see who's right on that one. And lastly, just wrapping up with what he thinks a good strategy is. He's cautiously long. We are too. We're 45% in stocks with some pretty decent hedges. Uh precious metals he thinks are a good uh I think he said 5% is what he's been long recommended. We have we have been too. 5 to 10%. A little later in this program, we'll talk about this crazy action in precious metals lately, but here's a hint. We don't really think the the move is over, nor should you necessarily rush out of them. And um I guess that's about it because my last note talks about active management and physical gold. So uh I would say 90% of what he said uh we agree with and is very much in parallel with what we do here at New Harbor. >> Okay. You know, you can listen to Michael and he's so eloquent about all the the risks that are out there. Um you know, and a lot of people feel like, wow, you know, I mean, should I just get out of the market then if it sounds like this is all really going to come crashing down? And of course the key element here um if Michael is right about um where things will end up obviously is the timing of it all and Michael would be the first to tell you um don't trade emotionally. Um, you can, you know, you can get worried and just move to cash and then you can find yourself sitting in cash for years sometimes as the party continues to rage on, which obviously is why Michael relies so much on his model that he talks about that he's going to do whatever the the stage of the model, whatever whatever stage it's in, uh, tells him to do, right? And right now, it tells him to be in in the game. um even though he's got these concerns and doesn't feel great about it and he obviously is got some of the hedges in place that he talked about. Um so, uh John, we'll come over to you. Feel free to add anything to Mike's recap, but um as Mike said, you know, you guys are still cautiously long here as well. And um it sounds like you guys have um made some some recent um changes in the portfolio. Um, I think if I heard you correctly before we turn to the microphone because some of the the targets you had finally got into the price range you were looking for. >> Yeah, I'll just echo what Mike said. We uh we're kind of kindred spirits with with Michael um Michael um uh Pento and his kind of big picture take on things. The the data kind of speaks for itself. Uh the the execution maybe varies a bit but uh you know we're talking about big picture things that we are highly aligned on and and seeing. Um I I want to just quickly comment I was away. had a good fortune of being on vacation um last week. Uh the ultimate destin destination was the Galapicos, but we had uh planned stopovers in Panama City on the way there and then in Ecuador, mainland Ecuador on the way home. And a couple observations, I can't help but look through the world uh in a financial lens, even when I'm on vacation. And a couple quick things, we had the opportunity to visit the Panama Canal, which is where a tremendous amount of cargo uh you know, goods go through. And it was a fascinating experience. And I'll just tell you what, I have no reference point because it's my first time there. Seeing the backlog of ships waiting to get through that canal. Um, at least from that first glance, that didn't look like there was any kind of economic global slowdown in the works. It was uh pretty pretty fascinating to see these massive ships with 14,000 containers on them going through the canal and backed up in a long queue waiting to get through. It was pretty pretty cool. The other thing I'll notice, the tallest building I believe in Panama City is the Bank of China. And I saw firsthand, we've been talking a lot about like, you know, the the bricks, China and the bricks, you know, emerging markets trying to delink from the US dollar and establish their own kind of global trade uh, you know, alliance, if you will. Well, you can kind of see that playing out in some of these countries. You know, even though many of the brands, the restaurants and stuff are decidedly American, the music they listen to, they use the US dollar, you can see in Living Color, the the global um posturing going on, Bank of China, tallest building in in Panama. Um you know um you know, looking at uh in in in uh Keto Me in Keto, Ecuador, we took an Uber. Um it was a Chinese car. my first time ever riding in a Chinese car and I forget the name of it but it had every look and feel of being an American car or whatever. It seemed like a a great car but it was cool. I was like what's this brand I never heard of it was a Chinese brand. Um but living color you see this global posturing for g you know financial dominance and world dominance playing out when you when you step outside the borders of the US [snorts] US continent um or country I should say. Um the Uber costs were were actually pretty amazing. 20-minute Uber ride, I think, cost me $7, which was, you know, I couldn't believe it. Um, you know, in terms of how cheap things were, even though the US dollar is the currency there, but that's just I just couldn't help but pass along some of those observations through the eyes of a financial person being on vacation somewhere abroad. >> Well, super interesting. And you're just giving me an opportunity here to mention Michael Every's talk at Thoughtful Money's online conference this past weekend. Um, obviously getting into the nitty-gritty of the, you know, increasingly global, uh, competition between sometimes allies, sometimes enemies, certainly trade war adversaries right now between US and China. Um, it really is a grand game that is getting played out in real time. Fascinating that you got to actually see it from the front lines there, John. >> Yeah. So, I was able to unplug mostly. We got a great team here at New Harbor. So, I didn't I could take a vacation and we're we're fortunate to have that situation, but I couldn't help but catch up on some reading. And I just want to pass along some some headlines that jumped out at me. Um first off, um you know, there was talk by Jerome Powell that they they see in the not too distant future a scaling back or shutting off of the the quantitative tightening program that they have been undertaking. Uh Michael Pinto shared some charts showing, you know, these are charts we're we're intimately familiar with as well, but we still have many trillions of dollars of of liabilities on the bank balance sheet, uh the Federal Federal Reserve balance sheet that basically were a construct of quantitative easing and the printing of money to go out and buy bonds. We're still many multiples higher on that metric than we were, for example, prior to the great financial crisis. And I can recall the interview on 60 Minutes with uh Ben Bernani basically saying these measures, they're temporary. We're going to reverse these measures as soon as we possibly can. Here we are 15 years later. Not only are they not reversed, but they're already talking about stopping the reversal of that, right? And um another related headline that jumped out um Jerome Pow Powell has asked about so so one of the dirty secrets that many people aren't aware of is the whole one of the primary ways the Fed has been able to to raise short-term interest rates off the zero lower lower bound for much of the last decade is by essentially paying banks interest on reserves that they park at the Fed. Okay. And this is a a tactic that is actually rather new. I mean it it just got I think approved by Congress in in like 2008 and it or actually 2006 I think it was and it was meant to be put in place in 2011 and in response to the great financial crisis they they accelerated the the the time at which the the Fed could use this tool but it basically it it basically incents banks to instead of lending money out and create credit creation and flooding that all this base money currency into the economy, it incents the banks to park it at the Fed and they get basically a a windfall interest payment that otherwise would be remitted by the Fed to Treasury and and you know benefiting taxpayers. I want to share a chart here um by John Husman who we oftentimes talk about because it's it's really um I think in a chart kind of paints a really interesting picture. This is um the chart he is often referred to. It's called a liquidity preference curve. And basically what it shows here is um the the amount of bank reserves currencies that essentially have been printed out of thin air by the Fed as a as per dollar of nominal G GDP. We're right here now. We're well off of where we were at the extreme of you know quantitative easing and stuff like that. But we're still here. And if if not for the fact that the Fed is paying interest to banks, we would be essentially at zero still on short-term interest rates. It's really a construct of of the mechanism of interest on excess reserves that has has been able to to get the Fed to to get the short-term rates up to where they are now and where they were. And the thing that struck me is someone asked Jerome Powell, why don't you just why are you still doing doing I interest on excess reserves? And his comment was something to the effect of if we if we eliminate interest on excess reserves, we will lose control of interest rates. Meaning like the whole system will kind of like unravel. And that just I think is telling that we can't revert back to a normalized balance sheet in the Fed at a time when stock markets are all-time high, unemployment still really low, growth has been, you know, very uh persistent and and and um and stable. What does this say about where we are in in kind of the state of the the the fragility of financial markets? Now we're starting to see talk about um you know credit stresses in in private credit and some of the you know headline subprime lenders and things like that, car lenders. It really just speaks to I think this this powder keg that we've long talked about that when when this thing kind of hits its first little ripple, it's probably going to be a pretty big event and the market is utterly complacent about that. Uh as we can see with record high valuations. Um, so I >> Yeah, and um I I just want to note too, I mean, we're starting to see kind of, you know, the crazy speculation that we see, we expect to see sort of near market tops, right? Right. Right now, like um uh we're seeing a lot of meme action in Beyond Meat and Crispy Creams. these these companies that uh are in fairly pedestrian, you know, uh sectors and all of a sudden they're they're racing off like their AI stocks. >> Mhm. Yeah. It's crazy. I I saw a headline today the SEC, which is technically under kind of shutdown mode with the government, they they came out and issued a press release. Hey, don't worry. We're still watching the market for I think quote unquote hanky panky was the word that was used. And I think they were talking about some of that stuff, but it it's it's really just kind of eyepopping some of the stuff. I just wanted to elaborate a little bit what Mike said on the long bond. Yeah, we're not we're not so concerned about the the long bond. Uh and we do think the near-term path is likely uh going to be, you know, um conducive to to the long bond, but we have a very small position size. We're about 7 and a half%. You know, there's enough of these big picture things. I will agree with Mike Pento there that we're at this really tricky phase where even though the policy makers will probably do what it takes to save the long bond. We're at a point where the consequences of of that aren't so easy. Um they may very quickly be finding themselves with a intractable inflation issue again. And that, you know, as much as they want to save the long bond, that becomes a near impossible thing to do because the the bond market starts to to vote that they're concerned about inflation and things like that. So, real tricky. We're not we're not heads over heads over tails bullish on the long bond, but we're not scared about scared about the long bond right now either at this short term and juncture. >> Well, good recap, John. Again, let me just go back to what I thought I heard before we turned the camera on here. Sounds like you guys have actually entered into a few energy related stocks. >> Yeah, we did rotate into um a broad basket of energy, equipment, and services companies. These are, you know, companies like it's an ETF form, but it it contains companies like Schlumbumber and Hallebertton and stuff like that. These are, you know, companies that tend to do well in the early um recovery stages of of a what otherwise has been a very sluggish energy market. I mean, oil prices have been in the doldrums. >> These are fossil energies, right? This is not not nuclear type of >> Yeah. >> Yeah. oil and gas type type services companies. And uh fundamentally we think they've been at good valuations but the technicals have been very uh you know non non-supportive until recently. We've seen a you know very notable technical improvement there. So we did add add some exposure there. Um we remain broadly in the strong sectors that have been leaders much of this year. Technology, industrials, utilities, uh financials. You know financials are still strong. You know we're not in the regional banks. I want to be very clear about that. we we're in kind of the more kind of large large financial um traditional finance. Uh but there has been some notable weakness there. It's not of concern yet, but it's something that we're watching because it does speak to possibly um the financial sector starting to to genuinely worry about some of this uh credit stress that we're seeing, >> some of these cockroaches that Jimmy Diamond has been talking about. >> Exactly right. Exactly right. >> All right. All right, Mike. Well, um, just as we start to wrap up here, let's get to you for the big question that's on many viewers minds for the week, which is, hey, this party train and gold seem to uh, come off the rails a bit. Uh, how worried should I be uh, about this? That's I think that's the question that's on a lot of gold investors minds right now. What would your answer be? >> All right, Adam, I'll try to give you a fair and balanced answer. you know, this trade has been really hot and everyone's, not everybody, but many people are emotional about it and uh there's lots of questions. So, we're getting lots of questions and lots of people asking about how to hedge even before the recent drop and afterwards they're wondering if this is the top, if they should do some different things. It's been a pretty breathtaking pullback off the highs last week or late last week. Let me show you a chart of silver, the silver ETF. Anyway, on a weekly basis. So, here is the silver ETF on a weekly basis. We had 11 weeks straight up. We've been talking on this program a long time about this big breakout back here. Um, this is roughly 35 on spot silver. We had this triple top breakout. We added a position to the model right up in here on that breakout and it was a small position. in addition to the precious metals position we already had and then we've had 11 straight up weeks. So nothing goes in a straight line and we've been saying actually for a couple weeks and we've been saying it's the trade is getting a little bit crowded and don't be surprised if you see a pullback. This pullback is a little bit stronger than I expected uh in that we went to if I go back to this monthly chart you'll see we essentially made a new high above the 2011 high and then it reversed. It's not likely that it's that simple that we're going to make a new high at reverse and then that's the top. That's it. See you later. I know a lot of contrarians are out there on Twitter and whatnot saying that um this is probably the top and Jim Kramer even famously had one on Twitter last night saying, you know, sell into the rally here. And a lot of other people came out and said, well, thank you for saying that, you know, because now we'll do the opposite. But it was a big big move in a short period of time. So, let's go back to the weekly. This this thin line is the 21-week moving average. We mentioned the fiveweek moving average before and your your your previous guest Ven Henrik mentioned this one too. Take a look at the five period. We've been saying that we think we could at least come back to tag the five week moving average. We just did. So let's go to the daily chart. This is still the five period moving average. I'll move that back to the 21 just to make it a little clearer. But on a daily chart, this is a big move. We went from 49 on the CTF down to 43. It's a drop of about 15% in just what 2 days. But yet on the daily chart, we just kissed the 21-day moving average, which has been support all along, and we're not even down to the 50. So there's nothing. The bottom line is this. We've been saying that you should be selling a little bit into the rally on the way up because it gives you the mental flexibility to stick with it longer term. So hopefully uh your viewers have been thinking about that and doing some of that. If you haven't done that, that's okay. If you're if you have a position that's not too overweighted, if you've got an appropriate position, if you've got a position of 5 10% silver, something like that and or gold, I think you're okay. If you're really really overweighted and you're feeling the heat, you know, let's say you're 50% plus precious metals and are minors and this is really worrying you, then you probably do want to take a little bounce here to take something off the table. But for the most part, we're not too worried about this this pullback in silver and in gold. Gold did the same thing. Basically, gold went up to almost, I think, 4,400 or something and came back to 4,000, but it too just bounced off the five period moving average. This allowed us to adjust some hedges. Take a look at GDX, a position in our portfolio. It was amazing to us just how every single day it was up. And it certainly felt like a crowded trade, maybe even a blowoff, short-term blowoff. And I can admit that it probably was a short-term blowoff. But see here, we just bounced off the 50-day moving average today on GDX. So yesterday, we actually adjusted hedges. We had some in the money calls. we were able to move those up about three points which gave us uh well three or four points more upside. Um and so we were able to cover those hedges but still keep a really good hedge. The other half of our position has some calls up at 85. So we have lots of upside there. And we're also talking about rebalancing. If we get back up here, we'll probably rebalance back to our target of 10%. But we already did that back here. So, I guess my message here is that this is a process to manage a position properly. You should be rebalancing and or hedging. You should be taking some profits a little bit at a time on the way up so that you don't have to feel panicked when it goes down. In fact, if you sell some on the way up, I'll go back to silver because it's a good example and your position isn't too big, you can even buy some back on these dips to support. It's a much better flexible mental position than feeling like you've got to be allin. So, I don't think I don't think we're near a top. I think some of these silver miners, for instance, that that have doubled off their lows, it might literally double again before things are all said and done. That's what often happens in big bull moves. And so, you know, what would that mean for something like SIL, an ETF that follow that follows silver or something like that? And we went from about 40 to 80. You can see that in just 6 months time. wouldn't be surprising to see over the next year or two this thing base out and actually double again. So that's not a prediction or a promise, but I'm just saying everyone's in unique and individual. We're not making direct recommendations here. To do that, we'd have to talk to each person individually, which we would be happy to do, but I don't think that this is reason to get emotionally unhinged or too worried. this is a this is the time to to frankly it's an opportunity and if you're feeling too heavy it's also an opportunity to rebalance because even at these levels there's there's great gains over the last year 6 months. >> Okay. So, uh keep a cool head and it sounds like you guys at New Harbor are not uh selling out of any of your positions. Um, it also again I mean I I hate to be sort of validated on these things uh because I know people have to experience pain to get to the validation point but this is why you hedge right [laughter] um and again you know you don't lots of different ways to hedge and you don't necessarily have to even sell any of your underlying position your core underlying position but you know knowing that the market had gotten as overstretched as it certainly appeared to be getting this is sort of what we expected. to see here now how far this corrects. Is it over? Is it going to continue going down? Nobody knows for sure. That's why we're going to have Mike and John tracking it for us on a week-by-week basis going forward from here. >> All right. Say one more thing, Adam, if I can. Sorry. I meant to say this and I forgot to. Earning season is here and it would not be surprising to see some big earnings reports. The first big one coming out is Thursday night for Newmont Mining. So, I have no idea how that will come out, but if the earning season is good, like I think it might be with all-in sustained costs below $2,000 an ounce on gold and gold's at 4,000, uh, it really it could reverse. It could reverse quickly. So, watch let's see what happens there. I have heard from from a number of of gold mining analysts that yeah that the the upcoming earnings should be really good for the reasons you mentioned where that you know these will be earnings where we've had gold at at starting at a great point and getting even better over the quarter while costs in general didn't increase nearly as quickly as the gold prices. So you know you're right that that that could be something that gets the uh the biggest worries out of the way. So we'll see again. All right. All right. Well, look folks, um if you enjoyed that conversation with Michael Penta, would like to see Michael come back on the program again when he's got an update to his uh model there, please let us know that by hitting the like button, then clicking on the subscribe button below as well as that little bell icon right next to it. Um we had just an absolutely fantastic, phenomenal uh conference this past weekend. Mike, you and Justin did a great job there. Um you definitely carried the torch well in John's absence. Um but uh thank you so much for being so involved in that conference. Um and and Mike, you know, I don't need to tell you how um fantastic the faculty was during it. Um I also just released a video um the morning we're recording here, guys, kind of giving everybody a quick little highlight snippet from each of the the faculty speakers. Um if you're curious about these conferences and what we talk about, then that's a really good way to get a sense for what was going on. Also, if you do watch it, just note that I probably gave you maybe like 13 minutes uh in those highlights uh from uh what the speakers were saying during the conference. The conference itself was 11 hours. So, if you think there's good material in those that that 13 minutes, just imagine what's in the remaining 10 hours and you know 47 minutes of the conference. Um but anyways, if you are um regretting not having watched the conference live, don't worry. Um you can still actually go by the replay of it. To do that, just go to thoughtfulmoney.com/conference. And don't forget, if you're a premium subscriber to the um thoughtfulmoney substack, use the code I've sent you, you can get an additional $50 off of the price of the replay there. I also want to note too, you know, with inflation going on, um we have not uh raised the price of the conference for a good while now. Um, I don't know if we're going to have to or not in 2026, but I am making uh conference tickets for our spring conference available at a 0% inflation rate. Uh, so if you want to lock in the price of the 2026 conference, uh, for the price of the one we just had, uh, you can do that now by going to thoughtfulmoney.com/206. Um, lastly, if you would like to get some help in navigating uh your portfolio through the road ahead, especially if it looks like the type of future that Michael Pento thinks is going to arrive, um, highly recommend you get that help from a good professional financial advisor and importantly one that takes into account the macro issues that my guests like Michael and I talk about in this program regularly. Uh, if you've got a good one who's doing that for you, great. Don't mess with success. But if you don't or you'd like a second opinion of from one who does meet that criteria, perhaps you'd like to maybe even speak to John and Mike there at New Harbor Financial, then fill out the very short form at thoughtfulmoney.com and schedule a discussion with one of the adviserss that uh Thoughtful Money endorses. These are the firms you see with me on this channel week in and week out. These consultations are totally free. There's no commitment involved. Uh it's just a service they offer to help as many people as possible. John and Mike, guys. Uh, another good week. John, great to have you back in the saddle. Glad to hear you had such a wonderful trip and whatever the markets throw at us. I look forward to making sense of it with you guys next week. >> Thanks, Adam. Been great as always. We'll see you next week. >> Thanks for having us, Adam, and we'll see you soon. >> All right, and everybody else, thanks so much for watching.