Michael Pento: Three Gargantuan Bubbles & Why The Fed Can't Save Us This Time (Net Long For Now)
Summary
Macro Outlook: The guest warns of concurrent bubbles in equities, credit, and real estate, with risks of a prolonged crisis driven by inflation and insolvency leading to stagflation.
Bond Market Dynamics: A spike in long-term yields could freeze credit, crush housing affordability, and extend any downturn, as many loans price off the long end.
Positioning Strategy: Proposed portfolio includes 25–30% shorts, ~50% in T-bills, and the balance in USD and gold, avoiding traditional 60/40 due to correlated drawdowns.
Gold: Bullish view driven by central bank buying, fiscal deficits, and declining competition from cash yields as the Fed eases; acknowledges volatility but expects a durable uptrend.
Short-Term Treasuries: Preference for T-bills and very short duration as beneficiaries of Fed cuts in a downturn, while avoiding long-duration bonds.
Short Long Bonds: Currently short the long end given mispricing versus nominal GDP and the potential for stagflationary pressures to keep long rates elevated.
Housing Risks: Highlights record-low affordability, institutional SFR ownership, potential renter stress, and vulnerability to higher mortgage rates catalyzing a broad housing downturn.
Financial System Risks: Flags the rapid growth and illiquidity of private credit/shadow banking as a major fragility; no specific tickers were endorsed.
Transcript
The fact that we have three massive, gargantuan, record asset bubbles existing concurrently for the first time in history is not my interpretation. It is a fact. Credit, equities, and real estate. The fact that they're growing and continue to grow, I mean, that's great for me and my clients. We're participating in the bubble, but be aware that if you're not with an active manager and you're just going to buy and hold 6040, you can cancel your retirement. Michael Pinto, president and founder of Pinto Portfolio Strategies. It is so wonderful to welcome you back to the show and great to see you as always, Michael. Really appreciate you taking the time. >> Greetings from Gnome, Alaska. It's >> No. [laughter] Okay. It looks beautiful there wherever you are because I I think like now we're getting like our first freeze. It was 47 degrees here in North Carolina. Now it's our producers in New York. I'm sure it's freezing up there, but >> it's very chilly here. It's 75. It's terrible. >> Okay. Well, time for the UGG boots in Florida. >> Yeah, I know. People here are walking around windreers coffee. Yeah. >> Yeah. >> Anyway, >> good to see you as always, Julia. Thanks for having me back. >> Always great to see you, Michael. I have to say you are a fan favorite on this show. Every time I have you on, the comments are always so positive and so nice and um yeah, you're one of our favorites. So, thrilled to have you back for the fourth quarter here. Um let's start, let's get that update. Let's start where we always start. big picture, macro view, where we are today, where you see things headed, what is on your radar right now? What are you paying attention to as it relates to the economy and the markets? And as you know, Michael, you could take all the time you need to set the table. >> Well, that's a you know, I could spend an hour talking about it. Well, I try to audience would love it. >> I I try to give a reader's digest version. Okay. Well, um, first of all, you know, I manage money for a living and and please, um, take these comments in the context context of I am net long the stock market up handsomely in the portfolio this year. Um, so I'm not a perma bear. However, the foundation of this giant gigantic enormous record setting bubble, it it's just unprecedented and so ska so scary. So, I I can give you some facts on that and I I'm I'm definitely going to get to it. But the fact is that I look at the second derivative of inflation and growth. We had some inflation numbers finally out this morning that showed even though Wall Street's celebrating um year-over-year in August inflation CPI was up 2.9% and in September was up 3%. So, and my way of looking at things is the rate of change or the rate of change second derivative is that inflation is accelerating. It's up to 3% year-over-year, not 2.9%. And so the rate of change of rate of change is accelerating not only just the the the the first change. And it's been above the Fed's target for 4 and a half years. And yet the Fed is so panicked about keeping this bubble growing, which by the way, I'm participating in. My model is built to participate in these bubbles, but to recognize when the bubble ends. And they're hellbent on panicking now. They're cutting interest rates as you know. They'll do it again next week. Um they are ending quantitative tightening. In fact, quantitative easing has started. The Fed's balance sheet has actually increased in October. So, we're no longer shedding assets at the Fed. We're actually increasing the Fed's balance sheet. Um and they're just panicked again about keeping this bubble going because the reverse repo facility which is the excess uh reserves in the banking system which was in July of 22 $2.5 trillion it's now at zero. So that excess liquidity that was just flooding into the stock market through the you know first you buy bonds and then that money's leaves theow um balance sheet of the Fed and goes into the economy that number is now zero. So the Fed is proactively panicking trying to get the interest rate lower and ending quantitative tightening to keep the bubble going and we're participating in it. But it's such an an enormous uh gargantuan bubble. The economy is the most bifrocated as well. It's as everybody has been saying that it's a K-sh K-shaped economy. I like to say that the the bottom four quintiles have been eviscerated by inflation and it's just the top 20% that's actually still be able to spending and consuming and living off the fumes of the housing bubble and what's ever left in this bull market. But the size and scope of these three asset bubbles which is stocks, bonds and credit is earthshattering. So if you look at total market cap of equities to GDP, which is my favorite metric, it's also Warren Buffett's favorite metric. It's now 220% of GDP. >> The mean ratio there should be around 80%. >> Um, in the Y2K bubble, it was 140% and in the global financial crisis, it was 107%. just prior to those bubbles popping. If you look at the massive housing bubble in 2006 when gendered the global financial crisis, um the the um home price to income ratio was around five and today it's over five. So, it's at a record and that's just the home price to income ratio and that's not factoring in insurance or maintenance. Um so or or mortgage or um taxes which are all through the roof. So there's a record low affordability metric on housing. And then you have things like the um the credit bubble. There was $400 billion of leverage loans issued in Q3 of this year alone. So it's a record amount of of leverage loans. The private credit market was hundred billion uh just prior to the global financial crisis. It's now $1.7 trillion today. US margin debt is at a record high. One is 1.06 trillion. It's it's up 33% year-over-year. Household equity ownership is at a record high as a percentage of their assets. And total non-financial debt is now 77.9 trillion. That's 256% of GDP. much higher than it was prior to the global financial crisis and much much higher than it was just before the NASDAQ bubble burst. So it's it you know you can call me a Cassandra. You can say that I'm using you're being hyperbolic and you and that would be that would be a misinterpretation of what I'm saying. The fact that we have three massive, gargantuan, record asset bubbles existing concurrently for the first time in history is not my interpretation. It is a fact. Credit, equities, and real estate. The fact that they're growing and continue to grow, wonderful. I mean, that's great for me and my clients. We're participating in the bubble. Be aware that if you're not with an active manager and you don't have a model that measures and maps that second derivative of inflation and and growth that that monitors recessions and financial crisis and a freezing up of the credit markets, if you don't have that and you're just going to buy and hold 6040, you can cancel your retirement. >> Yeah. In other words, that that is the risk is so many people that is how they have their retirement set up. And um yeah. Okay. As you point out, Michael, three gargantuan bubbles you just laid out there. Um but you also point out, you're not a perma bear. You are still net long the equity markets right now. It does make me wonder like um does are you like nervous when you get long? Does it make you nervous being long? I don't know. Like, [laughter] >> you know, Julia, it's a great question. If I didn't have this inflation deflation economic cycle model that I took decades to develop, I I wouldn't be able to sleep at night because that that's how dangerous this is. I mean, how do I know that today the market's not going to melt down? Because the model that I created looks at arcane components that let me know when the the people in the know when the people that run the biggest banks, the shadow banks and the um primary dealers, people that run this planet, the oligarchy that runs this planet, when they get nervous, they take action. when they know the assets on the on the on their balance sheets are about to crumble and erode. That's that's in the vanguard before CNBC talks about the market meltdown that day. When they start taking action and I will see that in my financial conditions and credit spreads that that I that I monitor, I will know when I have to react ahead of time. It it won't be the exact top of the market, but it'll be around the top of the market. So I don't have to suffer the third suffer the 30 40 50 80% draw downs that are coming because you know Julia when this next meltdown occurs and we've had meltdowns before that were all the result of a recession or a credit crisis and the Fed came in and the Treasury came in and they monetized it all away. I think there's a salient risk that this next crisis will be will be born out of um spiking bond yields. In other words, it'll be a credit crisis that's caused by inflation and insolveny, not just insolveny. You know, when assets minus liabilities are negative. >> Um, and then there's nothing they really can do about it because if the bond market is in full revoke because inflation is run intractable, we have some kind of protracted stagflation. I don't think you can solve that problem by creating more inflation. So, you can have inexraably rising long-term bond yields. In other words, I think the crisis might not be truncated, might not be abbreviated like the 2008 crisis was where, you know, from say u December, I think the market peaked in the summer of 2007 and then it stopped going down in March of 2009. >> Yep. >> Right. It might be much longer than that because of the intractability of the of the bond market. >> Okay. Let's explore that point because as you point out there's that risk of the spiking bond yields and the bond market being in full revolt. It's s like understand the bond market is incredibly important to this. So can you kind of flesh out the implications because I know like so many different things are like priced off of the long bond. So just like unpack it for us a bit further. >> So not only you beautiful, you're very intelligent. That's why I love coming on your show. >> Thanks Michael. You have the best vocabulary I got to say. [laughter] Well, I'm not beautiful or intelligent, so I have to I have to be I have to be arerodite and loquacious. So, um so what's pric priced off the long end? Um the benchmark lending of the treasury is um mortgages, corporate bonds, auto loans, student loan debt, all priced off the long end. So, if you have a a spike in long-term bond yields, I know the Fed controls short the short term, but they do not control the long term unless they actually engage in something called, you know, interest rate repression, which I don't I have no doubt they'll they'll engage in that when they have to. Let's just say the 10ear goes to 6%. And and Powell pulls like a Mario Draggy in 2012 and says, "We'll do whatever it takes. We'll buy every single Treasury issued just like Japan has done, too." But the problem is that even in like with Japan did that when um Shinszo AB did that um and Kota did that in Japan and when Mario Dra did it in Europe in 2012 the problem was insolveny but it was not inflation it was deflation. What if the problem is both and then they start doing this interest rate repression? I don't think it works. And then you have spiking long-term bond rates. And what do you think spiking mortgage rates would do to the housing bubble at this point? It would create It's already cra it's already down. We're already down 15% here in parts. I'm in Naples, Florida. We're already down about 15%. Um and I think if interest rates went to, you know, on the on the mortgage end 8%, you'd see 20 30% again easily. Um and it would be ubiquitous. wouldn't just be um idiosyncratic idiosyncratic in Florida. >> Mhm. >> Or Texas or you know >> Yeah. >> parts of Nevada. >> Also just makes me think of like the demographics too of like those who own the homes right now as well and yeah. >> Well, you know what else I you know people say and they're correct that the underwriting standards are better this time around. They certainly are. I mean, okay. So, instead of putting nothing down like they did with the ninja loans, the no doc loans, now now FHA is doing loans for three and a half%. >> Oh, I was typing in this morning because I saw a house and I was like, what would an FHA loan be on it? >> Yeah. Well, yeah. Three and a half% down. So, three and a half% when housing mark the housing market's down 20%. You're still way underwater on your house. And then it's when you mail, you know, jingle mail, you mail the keys back to the mortgage. you just rent because you're not gonna pay [clears throat] you're not going to pay a mortgage when you're down 20% on the house. You're not gonna pay a mortgage a full price mortgage like that. You're not just that's what happens. You just walk away from the house. >> Mhm. How about all the houses that are now owned by like financial institutions? It seems like a new development the last I don't know since the financial crisis. >> Well, that's [clears throat] another point. I'm glad you mentioned that. I was going to say that before you reminded me, but institutional investors now own 25% of all single family homes. That's a new phenomenon. So, yes, the underwriting is better, but the calculation is so I I'm up 100% on my portfolio of homes and I have a renter. I'm I'm so happy, but then the the calculation switches from, oh, this home price is now dropping. I have a huge profit and my renter is now out of a job and he's no longer giving me that in income stream. All I have to do is call my real estate agent and say, sell this house. I don't have to worry about changing my address and and moving all packing up and moving. It's such an easy calculation just to sell your portfolio of homes and you know one quarter of all single family homes fit that category. That's why the sunb belt is in such such a bad shape >> because everybody moved here from COVID and said you know maybe if I don't even move here I'll just or even if I did move here I'm going to buy my house and three others. So many people that did that Julia. >> Yeah. Yeah. And a lot of people have investment properties too or they have like they're trying to Airbnb things or Yeah. >> Yeah. Of course. And when your renters when the when the rental income dries up and now you're you're sitting there paying, wow, I don't have a renter or even if you do, but in many cases when the unemployment rate does spike and we do have this crisis, you're going to lose your income stream. Let's stop paying. They'll move in with their, you know, families move in together. And then your calculation is wait, I'm paying this massive maintenance on this property. Insurance has gone through the roof. taxes have gone through the roof and and my home price is now dropping. It's such an easy decision. Sell the house and lock in the profit. But everybody does at the same time and home prices just plunge because the supply just surges. >> Listen, it's just a fact. The home price to income ratio is at a record high, >> higher than it was. Yeah, >> it's crazy. And people can't afford homes. That's why the transaction transaction market is mostly frozen. And then you add to that the credit bubble and you add on top of that the the the equity bubble and you could see the situation developing is so fragile and tenuous. I I'm not saying it's I'm not saying this to scare you. I'm not saying that you need to exit now. Again, I will I will be out of the stock market for the most part. I will be short the market. I'll be in short-term treasuries. I will most likely be in the dollar and long gold um when this occurs. >> Mhm. That'll be my portfolio for the most part. I'll have to do some technical analysis the way gold's behaving at the at the at the time at the time this occurs, but it'll be a riskoff event which could exactly, you know, en encapsulate gold as well. I'm not sure, but we'll see. Um, but you'll need to change your 6040 allocation because just like in 22 if you're in the 6040 allocation and your and your and your salesman/broker says, "Well, the 40% sleeve of bonds will offset the 60%." Well, no, that didn't happen because both bond prices and stock prices went down in 22 cuz both were in a bubble. I think the same thing is going to happen again. This episode is brought to you by VANX rare earth and strategic metals ETF, ticker symbol REMX. Rareears are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind [music] turbines. Van recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security, as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly. From mining to advanced manufacturing, investors can gain access to this powerful trend through REMX. Visit vanck.com/remx Juliia to learn more. Okay, speaking of that allocation, like what does that new structure look like? I've heard various folks say, you know, you want like X percentage in like hard assets like gold being one of them, but how what do you think what would the new 6040 look like? Well, it would probably be something like 25 30% shorts um 50% uh T bills and then some combination of the dollar and and precious metals gold in the vanguard there much more than silver and platinum because they both have industrial components. >> Mhm. So that's what the portfolio would >> somewhere around there would look like. And then and then in that case, Julia, >> when the stock market and bond market melt down, you know, obviously short-term bonds will do well because the Fed controls the Fed funds rate and the and the money markets compete with each other. So this, you know, if you look at two year two years or shorter duration than Treasury bills, they'll sore in value as the Fed cuts rates to zero again. You'll make money in that part. Cash will cash will do fine, too. You can't get hurt holding cash. shorts will explode higher. Um, >> but what about with inflation though? Like would that take away the purchasing power of the cash that you hold? >> Yeah. I mean, yeah, but you won't lose money in nominal terms. Long term nominal terms and and and you'll be and you and depending on what's happening with inflation and the long end, you might be short like I am short to long end of the bond market right now. And the reason is simply not because I'm expecting the credit crisis to emerge right away. I'm preparing for it already. But just simply because you know a 3.8% 8% 10year Treasury note makes no sense to me when your inflation's at 3%. And nominal uh I'm sorry and real GDP growth is around three. That's six. When I went to school, I had got my degree a long time ago, but three and three used to be six. >> That's six. Yeah. >> And six a six% nominal GDP is right about where the 10-year note should be trading. Not 3.8. So the 3.8 is already precaging a meltdown in the economy. So we're not getting that right now. So I don't know what upsides left on the long end of the bond market. I think the the only upside is if we have a meltdown in in in uh GDP, which is not obviously not occurring yet. It could, but in that case, you know, I as I said, I would buy the short-term treasuries. Um but what what if the what if the meltdown in GDP occurs at the same time that stagflation and and interest rates are rising? It's not going to help you to be long the Treasury note. Like I said, mortg mortgages freeze up, home prices crash, people default on their student loans, auto loans, you know, you had three subprime auto loan dealer dealers just go out uh under. I I know that's idiosyncratic right now and we're not supposed to worry about it. >> Are you also referencing the first brand thing? >> So first brandsolor and there was another one that just went under too. >> I wanted to ask you about that. Is that kind of prime prime lenders or something like that? something like that >> which specializes prima lending specialized in um the riskiest of auto loans. I wanted to ask you about that because is that kind of signaling or foreshadowing what's to come because when we're talking about the kind credit bubble too the private credit side of things too >> do you think we're seeing like early >> tremors the private the private so if you look at um total non-financial debt and then you add private equity in there we're at 317% of GDP so the private credit market has exploded and I don't think under people understand the danger involved in that I mean private credit is basically I'm a I'm a corporation. Um I I I can't get a a loan from the bank and the primary dealer and I can't float the the corporate bond market. I can't float my debt there. So I go to the shadow banking market which is get which gets its loans from the primary dealers [laughter] and I and I get a loan out and then I just since it's private there's no market for it. And so I just tell these people what I think this loan is worth, this income stream is worth. And then when the income stream dries up in a recession, as it always does, and then people call their their shadow bank lender and say, "I need to get out." There's no market. >> So it's, you know, 30 cent 30 cents on the dollar. >> And there's probably a reason they couldn't get it in the first place like the normal way >> because the reason is they're very small and they're usually have very poor balance sheets. So, it's the riskiest profile of loans in many cases. >> So, it's a disaster waiting to happen. $1.7 trillion. >> Wow. Of um of private of private. >> And you said it was 150 billion before 2008. >> It it's uh and 1.7 trillion now. >> Wow. Okay. Um big bubble there. All right. I wanted to ask you too, Michael. Um it's a totally different topic, but gold uh the move that we've seen in gold in like the recent recent weeks and months. I know we we had the other day I recorded an episode where gold was up 164 bucks. The next day it like sold off. Um >> yeah, >> now I'm looking at it's uh 4149. We're recording on Friday, October 24th in the afternoon. So just what do you make of like the runup that we've seen in gold? >> Well, there's so many factors going on with the gold market. First and foremost is um we see central bank buying China, Russia. So foreign our foreign creditors no longer want to park their savings in treasuries and dollars because of sanctions and confiscations. Um they they want access to their savings without having to go to the United States government. So they're they're shoeing treasuries and dollars and taking their surplus and just buying gold. That's that's number one. [clears throat] That's a big function. The other the other issue is of course we have the insolveny of the United States the $2 trillion in in in debt in deficits. So yeah peranom we just passed $ 38 trillion in national debt. 38 trillion. I think the start of this year the debt was 36 trillion. >> It definitely was. I because I bring it up on a lot of episodes. Yeah. So I'm sure when you and I spoke earlier this year it was probably 36 trillion and ticking. >> 36 trillion. Yeah. So, I mean, it's just so so the and and the Fed is now lowering the competition for gold by lowering the money markets. So, if I can stick my money in a T bill and get 4 and a half% when inflation's at three, it might make sense. If inflation is going higher, and it is, and my T bill rate is going below three, and it will, especially when President Trump puts his his man in there or woman in May of 26 as the head of the Fed, then it makes sense the competition for gold's going away. So, people are scared of owning dollars and they're they're running it even domestically into the precious metal. [clears throat] And then you have the new phenomenon of the individual investor is now realizing that bonds are not a real ballast and Bitcoin is not cryptos in general are not a real ballast against liquidity crisis and to some extent gold isn't that easy either but it's much more of a balance and offset to your portfolio than cryptocurrencies or um bonds. So in that in that regard we have individ individual investors now saying you know what maybe owning you know 5 10% of my portfolio even higher into into precious metals holding them and investing in them makes a lot of sense. So those three factors which have caused gold to go up and so you know when gold gets a lot of momentum and the and the the chart goes vertical well it's susceptible like anything else to sharp draw downs but you have to ask yourself which which one of those phenomenons has has changed is are central banks now dumping gold or stopping buying go buying gold no they haven't is the Fed now raising interest rates no they're not they're >> lowering interest rates um and I think that phenomenon of individual investors is buying gold is just getting started. So, so yeah, it's sus susceptible to, you know, three, four, 5% moves in in one day, but it's also susceptible to long-term bull markets. You know, where rises, you know, I think we're up like the non the the gold price is up, I think, 45 50% this year. >> I'm checking. Yeah, I'm sure. I know it's outperformed um equities, which probably unusual. I don't know. I think it's probably it's been it's been that way since the year 2000, Julia. So, it's not it's not that >> I think it's up about 40 or 50% this year off my memory. >> Yeah, check it. >> Yeah, I'm looking right now. I don't know. My computer's super slow at the moment, but I totally believe you. Um I I everybody knows this who watches this show, but um I bought gold in August of 2011. Um I won some money in college and I put it all in gold and that wasn't like the best time, but I didn't do anything with it and I just haven't messed with it. And now when I get my statement, it looks pretty good. So, I just didn't mess with it. Um, and I have no plans of doing anything with it. Um, >> good for you. Um, >> yeah, maybe that makes being a lazy investor here. >> Um, >> yeah, it's never good to be lazy investors. >> Not lazy, but I just I just didn't I didn't I just wrote it out. >> So, year to date is 56% on gold. One one year one year is 50% year, you know, year-over-year it's 50%. >> Not too shabby. not too shabby. And um gold is like definitely been a really popular topic on this channel. And it's kind of funny because a lot of folks have been talking about this debasement trade before it like went mainstream. You know, like last couple of weeks it felt like, okay, now everybody's talking about it. But >> I've been talking about it for decades. >> I know. I know you're one of our guests. >> I mean, I said this, the dollar is not gonna I didn't say the dollar was going to go away. I didn't even say the dollar is going to lose its status uh in a bull market against the yen or the yuan or rend or whatever uh or the realale. I didn't say that. But I said it's losing its status as a world's reserve currency and it's definitely going to lose its value against hard assets. You know, gold never goes up or down the value of it. That's what makes it so beautiful. It's a perfect store of wealth. Um, but I mean you look at a put a chart of what a dollar would buy in in 1913 and what it will buy you today. It's just like, you know, I I now go to the store and like I don't take change anymore. I don't even deal with change anymore. Like do you And pennies used to be like, you know, nickels used to mean something. >> Oh, yeah. Now it's just a nuisance. It's a nuisance. >> It's a nuisance. It's probably kind of dirty, too. And um yeah, it's totally diluted. Uh which we've seen how that plays out. from, you know, previous empires that deleted their >> Yeah. 97 98% of the purchasing power of the dollar is gone and it's going to, you know, it can't go to zero, but it'll be some fraction of, you know, just a fraction of what it once was. >> Quarters used to be silver. >> Yeah. Well, it's called that's where debase the word debasement you you you infuse base metals into >> uh the dinari which used to be, you know, silver. >> So, um that's exactly what's occurring. we're debasing the currency. Um, and uh, you know, all you have to do look at what it, you know, gold, that's why everybody in Wall Street hates gold because gold is the revealer of what's happening because it's what the dollar is doing against the against real and honest money and it's not too good. >> It kind of calls it out then. Maybe it's calling out everything. >> Yeah, it's, you know, it calls it out. It says, "Look, this is what you're doing." not against I mean if if if Japan is is debasing its currency and it's like you know a race to the bottom you might not it's not it's not ev is not as evident as you look what's happening with gold you know here you know this is the dollar and this is gold keeps setting new all-time highs but price appreciation isn't the only way to profit from owning gold monetary metals is redefining the future of precious metals investing [music] instead of paying to store gold imagine getting paid to own it with monetary metals you can earn up to 4% % on your gold paid in physical gold. That's right, your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every [music] single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoying potential price appreciation [music] at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% [music] on your gold paid in gold. I like that. It's the revealer. Hm. >> Yeah. The the great revealer. >> The great revealer. Um Okay. One of the other things you said earlier um about these concurrent bubbles that are growing is that the Fed is going to be so panicked about keeping the bubble growing. Um what do you think they're going to ultimately do? Like I guess they'll cut rates, but that will that just further fuel the bubble? kind of walk me through how you're thinking about the Fed and the role in I guess expanding these bubbles. >> So the Fed is panicking. They're trying to pre- panic. They're not slashing interest rates in panic mode, but they're trying to like obviate the need to cut rates by 50, you know, 50 basis points 100 like they did in 2007 and 2008 where there's like, you know, in the summer of of 08, Bernani just said, "Hey, we're just going to zero. We're just going to just cut them down. 100 100 basis points. Boom. Let's just get there. They're trying to preclude that from happening. I don't know if they're going to be able to to avoid it, but they're trying to avoid it. I don't know. I mean, that's the answer is I don't I'm not sure what's going to happen. I I guess if I had to guess, it' probably be a little a little too little too late. Um but for a while it'll work and then it'll be too little too late. They're going to have to panic and that means going back to zerp zero interest rate policies and back into QE and then some form of helicopter money too because do you think Donald Trump is going to sit idly by and watch the stock market crumble because Powell too late Powell was too late. He's like he's going to say something like I predicted this would happen. We need to we need what we do now need now is Bessant to get in there and send stimulus checks out to people and have the Fed monetize them all. Trillions and in fact trillions of dollars. In fact, he already said he wanted to send, you know, hey, why don't we send a $2,000 stimulus uh check out to people in the form of some kind of cryptocurrency, >> America coin, maybe he'll call it. >> So, this is also assuming this would happen before May 2026 to before I guess what was last time an obsequious sick event will be the next a cichlopant. That was >> secretly a sick. This you should watch the show if you want SAT words too. I'm sorry. [laughter] >> So someone who's very e, you know, someone who does the bidding of someone else and is very eager, very eager to please, obsequious, overly eager to please. I think that's the exact definition. But um but that's it. Yeah. So that's what that's what we're going to have at the Fed who says, you know what, I I want to get ahead of ahead of any problem and I'll just cut rates to like, you know, 2% from where they are now, 4%. >> Okay. But won't that also we have the two mandates and will we see an reaceleration of inflation when they do that too? >> They don't have they don't have a dual mandate. They they really it they have by law a dual mandate, but in essence they have one mandate. I'll tell you you know what the mandate is. >> I'm gonna Can I guess? >> Yeah. Go ahead, please. >> The stock market. >> Yeah. You're such a That's why That's why I love you. The stock market is their mandate. Their mandate is I need to protect banks assets and the stock market. >> That is my mandate. And that's why, you know, if you looked at any other reality, I mean, the unemployment rates, what is it? It's historically was very, very low. It's like four and a four and a quarter or something like that. >> Something like that. I know it's really low. I want to say four. >> It's very low historically. The average is in the fives. So, it's very low historically. We have quiescence in the initial claims at least when we had them before the government shut down. Um you have record tight near record tight credit spreads. Financial conditions are easy um at the moment. Um housing bubble unaffordable stock bubble, credit bubble. What is the re in inflation's been above the Fed's asinine target for four and a half years. They should be tightening interest rates. They're cutting interest rates because they know, like I said, they're pre- panicking over the reverse repo facility. They don't want the freezing up of the credit markets like we had in 2019. And that's when the repo market rate shot up. And that's long-term rates shooting up, too. The whole the whole bond market begins to melt down. And that would cause a they they want to they want to make sure that the market stays as phony as as possible. But what they're end what they're going to end up doing is because they already got the insolveny down pat that we already have that a $ 38 trillion national debt. Um the whole debt if you look at the um national debt as a percentage of income it's 770%. So you so you understand how how bad the the debt is to income, not G. You can't tax GDP, >> right? >> You have to we're talking about income. The income is pretty much static. If you raise taxes too much, you don't get any more income. If you lower taxes, you don't get much more income. So the income is the you don't you can't tax GDP. At 100%, your income would be zero. No one would go to work. So it's it's debt as a percentage of income, not debt to GDP that I look at. And it's it already shows that we're we're we're you know. >> And are you talking about GDI like gross domestic income or >> No, like income like >> debt as a percentage of revenue. >> Oh, revenue. Federal Oh, sorry. Yeah. Revenue. Okay. >> 770%. >> That's that's insanity. >> That is >> that's terrible. Go to the bank and ask them for a loan. If I went to a bank and I said, you know, I'm adding 40% to my to my debt that's outstanding. I'm add I'm not paying down my debt. I'm adding to it every year. because two trillion is 40% of uh the revenue which is about5 trillion and oh by the way the debt is 770% of my income can you give me a you want to give me a loan and they're like they'd laugh for you laugh at you they wouldn't even give you a lolly who wouldn't even give you a lollipop on the way >> you're total zombie at that point yeah >> they totally thank you that's what we are >> I stole that from James Lavish I can't take credit but we are zombie zombie uh >> zombie e zombie economy It's only working for the top 20%. The the the asset bubble known as the stock market is only working for se you know seven companies make up 34% of the entire S&P 500. The leverage in the system is at a record. The concentration in the system is at a record. The value of the system is at a record. Um and say having said all that you might say Mr. Pento why are you why are you long the stock market? Because it's going higher. Well, you know how to ride it. Yeah. >> Yeah. I mean, but you have to ride it safely. I do have some balance in the portfolio. I have a small short. I have the the right kind of shorts in the in the in the credit markets. So, um even on a down day, I wouldn't get killed. I have precious metals. Um but my model will tell me when I need to actually genuinely get worried about this stock market. So, the stock market goes down one day or two days or three days and my model will say, "Is this is this just a normal hiccup? Is this just like a normal pothole or is it emblematic of the incipient erosion of the credit markets and I need to at least pay attention short term? >> Will you let us know when you get actually like super worried what to do? Especially >> I mean I have >> I'll let my I'll take action for my clients first and then I'll re and then I'll reach out to you. >> Yeah, you have to telegraph that one. Um Oh, on the Fed too. Okay. So, they should be tightening then >> like what should they do? >> Julia, Julia, if you have a m let's just say you have a dual mandate and it's full employment and it's stable prices that is their dual mandate. And I said to you, okay, so how you doing on the uh you know full employment? and you say, "Well, the unemployment rate is well below its historical mean." Okay, good. Um, all right. Let's look at your other mandate. So, how are you doing on stable prices? Well, we haven't defined stable prices as zero anymore. We decide defined them as 2%. Why did you do that? That's not stable. That's 2%. Okay, but that's what we did because we were worried about the assets in the bank eroding. Okay, so we redefined it as 2%. Well, how you doing on that front? Well, it's 3%. Well, you're 50% above your target. So, if you have your unemployment below average and you have your inflation way above average, well, what would you do? Well, of course, you'd be raising interest rates, >> right? Wouldn't you do that? A smart an honest person would say, I have to do that. And then you add on top of that the fact that the middle class has been eviscerated and the dollar is plunging because what you have done Mr. Powell mostly Mr. Powell but by the way if you want to know why I'm not invited on the mainstream financial media anymore you don't have to guess because you could just listen to this interview. They don't want this out. They don't want the truth out there. >> But the truth the truth the truth will set you free as they say and the truth is very scary. They're destroy They have destroyed already the middle class and they're going to do it even they're going to step up. >> And that's why we've seen the rise of independent media too. >> Yes. Independent media. I have my business took well I was thrown off CNBC, Bloomberg, Fox. I I was thrown off every media outlet >> uh in 2000 pretty much in 2012 and then my business started booming [laughter] because I went on shows like yours. >> Okay. So, I'll tell you, I used to be into financial media and I always wanted >> which what channel? >> I was on Yahoo Finance was the last place I was at and I always wanted to like host a show and I never got a show. I even I pitched a podcast and that's okay. It didn't happen. Yes. But I'll tell you, I used to get like these big interviews like big guests like Jeffrey Gunlock. I had Paul Tudtor Jones and others. And the problem that I found was uh the conversations were so limited to sound bites. And so what happened was they started putting my content on YouTube. Uh because I would say, "Well, I have 25 minutes with Paul Trader Jones. Like he's not going to be a 5minute hit. Sorry, that's crazy in my opinion." Or like Jeffrey Gunlock of we'd air the full 45 minutes on YouTube. And then people would come in the comment section and say how much they loved it and like they were learning. Oh, thank you for not interrupting your guest. And then that's where I was like, "Oh, people on YouTube want to come and learn and they want to listen. They don't want to get a sound bite. They don't want to see the guest cut off, you know? So, >> you know, Julia, you know, when you think about why God put you on this earth and everybody has a purpose, um, you know, you're doing the Lord's work here. You really are. Because if if people will just understand and and and and grasp what we're talking about about the enormous enormity of the three bubbles and the need to protect themselves. I mean, you don't have to I'm not saying become my client. You don't have to become I mean, I manage money for a living. Become my client. There are other people out there that are wonderful at have a robust model, but at least get away from the this what I call the deep state of Wall Street. These are mostly salespeople who are just going to tell you, and it's not my opinion, it's what they do. I used to work on the Florida stock exchange in the 90s. So, and I have many many friends in the industry have 35 years experience doing this. They I call them, you know, glorified used carpet salesmen. They're just taking your money and just look asking your age and your risk tolerance and then plugging into some 6040 kind of rubric model. And then they'll tell you when you call the phone and say and say, "I'm down. We're down 20% this year." And they're going to say, "Don't worry. Hold on. The market always comes back." That's what's going to happen. But sometimes it takes 15 years for the market to come back. And if you look at other markets outside of the US, sometimes they never come back or 35 year decades like it did in Japan. And we're still waiting. I think the Shanghai is down like 40 50% since 2008. Um sometimes it takes decades to come back. If you're near retirement, you don't have that kind of time. And I I liken this era to 1989 in Japan. That's what we're looking at. That kind of multi-deade uh lossade loss decades in nominal terms and in real terms you get wiped out. I mean if if the market goes down a 50%. And then 100 and then um and then say in 20 years it goes back to even where you were. So it gains 100% to get back to even. Well, if you're there the whole time, you're even after 20 years. But what has your inflation rate been in those 20 years? What is your real purchasing power of that money? It's been it's been wiped out. So, if we can avoid that downturn, participate in the in the um downturn by shorting it and then buying close to the nadier of the uh of the B, you know, close to the bottom. Isn't that Isn't that much better than just trying to be a salesperson? >> You can do better. You can do better. And I think I think you need to >> when you look at how we got to where we are here when you look at the three bubbles, >> what do you think ultimately drove it? Was it Fed policy? Like what do you think it was that drove it? And what would kind of be the fix? Is it just letting things kind of like wash out of the system? Like maybe it's having, you know, >> recessions. They're probably a healthy thing to have too versus like blowing up the ultimate mother of all bubbles. >> Well, there's no doubt how we got here. I mean, there's no doubt if in fact I put a presentation out if you email me directly um through one of my assistants will send it to you. It's um just a PowerPoint presentation of the Fed's balance sheet um the the the level of the real interest rate. You can lay all this at the feet of the Federal Reserve and the Treasury. Um the debt outstanding that we have. So it's just like hey when you take interest rates for zero to zero for almost 14 years um then people borrow money and they buy stuff with it. They you know they mar they mar they leverage up their margin account they buy houses and corporate America goes bonkers leveraging up businesses leverage up and that's what causes this bubble that's you know that's engendered this massive bubble there's no doubt about it um you can email it's mpento pentoport.com or you actually go if you go to the website and contact us and it'll someone will send you that powerpoint presentation. >> Yeah. >> Um for free. You get it for free. >> That's really kind of you. Um okay, so you mentioned K-shaped recovery or sorry, K-shaped economy earlier. Um I know you were on Adam Tagert's show, Wealth. I want to give him a shout out because I thought this was an interesting way of describing it. He calls it, this is what my viewers said, a lowercase I economy where you have like everybody at the top, like the top percentage owning like all the assets and then everybody else at the bottom, like a lowercase I. I thought that was an interesting letter to use. >> Well, I really now I'm jealous because I I love Adam Tiger, you know, I'm on the show with him all the time and whoever came up with that is a genius because >> my viewers said it was Adam, so I don't know. I want to say it was Adam. Yeah. >> Okay. It wasn't me cuz that's way better. >> It wasn't me. I know. I was like that is like one is down and one's up. No, it's a little tiny >> cuz I I I said it less eloquently. I said it's a you know >> the top quintile is doing well. It's the top 20%. And the bottom 80. But that that I lowercase I that's the 80 and the dot is the is the you know it's the Julia Lar Roas of the world. >> Yeah. Oh, no. I don't know about that. No, it's like I think it's supposed to be the the dot is like the top like everyone up top. >> Yeah. The top 20%. >> Oh yeah. I don't know about that. That's you. That's you. No, >> that's you and me. It's you and me, kid. >> Oh, I I don't own I don't own a house. So, there's [laughter] that. >> I'm one of those millennials is like I'm waiting for those housing prices to come way down. Um and there are two that sold last year that I just saw that are listed back on the market this year. >> Yeah. >> North Carolina is one of those places that people escaped. That's one of the recipients of the co. >> Okay. Well, let me tell you what's going to happen in New York City. I don't you feel like people are going to come back? So, I have I have another house that that I have in Naples that I'm that's for sale. Um I I think what's going to happen in the the the biggest city in America, you're going to get a communist socialist communist as a mayor, Mandami, >> and I think that's going to get a lot of people to >> I think so, too. Yeah. >> You go to North Carolina and drive up your home price even further. >> I know. That's what I was thinking too. And um also when you go to the Rangers games down here, it's great because the tickets are cheap to go watch the Hurricanes, but you kind of feel like you're watching like with all the New Yorkers down here, the Rangers games. So that's kind of fun. >> Um but I don't know. You are you Jersey Devil fan or something? >> No, I hate them. We don't like them either. >> I I like I like the Rangers and the Knicks >> except for they got rid of my favorite player on the Rangers, so I'm kind of upset about it. So who's >> Chris Krider? I've been a Crider fan forever. >> Oh, no, I know. I know. He's he's >> Anyway, I digress here. All right, before I let you go, um, Michael, um, >> what's something that's keeping you up at night? I know you sleep well, but that's on your mind. And what's something that is making you optimistic about the future? >> Well, you know what makes me optimistic is um, the Lord is in charge, and he's he's blessed you with this wonderful show and and we got a lot of people that listen to it. You see, Julia, if the if the distortions were on the margins right now, I say we could have a healthy cathartic purging recession and, you know, home prices would fall a little and the debt can be rebalanced and um would be okay. It the distortions have grown so gigantic in such gigantic proportions that any kind of real healing or mean reversion would would entail a depression. So if you look at the the total market cap of equities to GDP at 220 it and the average is 80 um you know you're talking about a more than 50% decline assuming the denominator doesn't fall and the denominator always falls. So what do you think this economy would do at a 50% decline in the stock market? That's why they're so hellbent on keeping the bubble afloat. the bubble will eventually break because they're going to print borrow and print monetize so much debt you're going to have intractable inflation and that's what's going to cause the long end to break until then we could be you know you know flowing along comfortably but that's what keeps me up yes the on the negative side uh the positive side is shows like yours so we can rescue as many people as possible on the negative side um is that any kind of reconciliation or I call that the great reconciliation of asset prices and debt is going to be devastating for the economy and for most people. And that's what keeps me up at night. What's going to happen to the average person who who doesn't know how to protect themselves, you know, home uh like I mentioned before, ownership of equities among households is the highest it's ever been in proportion to their assets. So, everybody's long the stock market. And if you're an idiot and you own bonds and you like or precious metals or any kind of hedges, well, you that's what you are. You're an idiot. you, you know, you're you're under underperforming the S&P 500 by, you know, a few percentage points. I'd rather underperform by a few percentage points and have a robust model that makes me protect and profit from that great reconciliation than just constantly chase it and just, you know, >> get left holding the bag. When people do sell, they'll panic at the bottom >> and and just drive it through the dirt. >> Yeah. Well, I am grateful for wonderful guests like yourself and you are certainly a fan favorite on this show and always welcome and we always love our conversations. Um, Michael, again, let folks know where they can find your work. What was your website again for them? >> So, it's pentoport por.com and on that you'll see a contact page you uh to contact my firm. Um, if you have about about a h 100,000 to invest and you're and you're suitable for the portfolio and are you you are a US citizen, uh, I will manage your money personally in the IDEX strategy. And if you don't and you just want to access yourself to the midweek reality check, it's $50 a year and it's my weekly podcast where I talk about the salient issues and the data when there was data. There's no really data anymore because the government's closed. >> Yeah. >> But maybe it'll open up. >> Just a CPI report this morning. That's it. >> Yeah, that was it. Just it >> and the and the market liked it because >> it was less than less than feared but still going in the wrong direction. >> So, I'll give you the real interpretation of that uh every week. >> Michael Pinto, founder and president of Pinto Portfolio Strategies. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping all of us learn and get better. I really, really appreciate you and I look forward to our next conversation. We'll have to get one on the books at the start of 2026. Thanks again, Michael.
Michael Pento: Three Gargantuan Bubbles & Why The Fed Can't Save Us This Time (Net Long For Now)
Summary
Transcript
The fact that we have three massive, gargantuan, record asset bubbles existing concurrently for the first time in history is not my interpretation. It is a fact. Credit, equities, and real estate. The fact that they're growing and continue to grow, I mean, that's great for me and my clients. We're participating in the bubble, but be aware that if you're not with an active manager and you're just going to buy and hold 6040, you can cancel your retirement. Michael Pinto, president and founder of Pinto Portfolio Strategies. It is so wonderful to welcome you back to the show and great to see you as always, Michael. Really appreciate you taking the time. >> Greetings from Gnome, Alaska. It's >> No. [laughter] Okay. It looks beautiful there wherever you are because I I think like now we're getting like our first freeze. It was 47 degrees here in North Carolina. Now it's our producers in New York. I'm sure it's freezing up there, but >> it's very chilly here. It's 75. It's terrible. >> Okay. Well, time for the UGG boots in Florida. >> Yeah, I know. People here are walking around windreers coffee. Yeah. >> Yeah. >> Anyway, >> good to see you as always, Julia. Thanks for having me back. >> Always great to see you, Michael. I have to say you are a fan favorite on this show. Every time I have you on, the comments are always so positive and so nice and um yeah, you're one of our favorites. So, thrilled to have you back for the fourth quarter here. Um let's start, let's get that update. Let's start where we always start. big picture, macro view, where we are today, where you see things headed, what is on your radar right now? What are you paying attention to as it relates to the economy and the markets? And as you know, Michael, you could take all the time you need to set the table. >> Well, that's a you know, I could spend an hour talking about it. Well, I try to audience would love it. >> I I try to give a reader's digest version. Okay. Well, um, first of all, you know, I manage money for a living and and please, um, take these comments in the context context of I am net long the stock market up handsomely in the portfolio this year. Um, so I'm not a perma bear. However, the foundation of this giant gigantic enormous record setting bubble, it it's just unprecedented and so ska so scary. So, I I can give you some facts on that and I I'm I'm definitely going to get to it. But the fact is that I look at the second derivative of inflation and growth. We had some inflation numbers finally out this morning that showed even though Wall Street's celebrating um year-over-year in August inflation CPI was up 2.9% and in September was up 3%. So, and my way of looking at things is the rate of change or the rate of change second derivative is that inflation is accelerating. It's up to 3% year-over-year, not 2.9%. And so the rate of change of rate of change is accelerating not only just the the the the first change. And it's been above the Fed's target for 4 and a half years. And yet the Fed is so panicked about keeping this bubble growing, which by the way, I'm participating in. My model is built to participate in these bubbles, but to recognize when the bubble ends. And they're hellbent on panicking now. They're cutting interest rates as you know. They'll do it again next week. Um they are ending quantitative tightening. In fact, quantitative easing has started. The Fed's balance sheet has actually increased in October. So, we're no longer shedding assets at the Fed. We're actually increasing the Fed's balance sheet. Um and they're just panicked again about keeping this bubble going because the reverse repo facility which is the excess uh reserves in the banking system which was in July of 22 $2.5 trillion it's now at zero. So that excess liquidity that was just flooding into the stock market through the you know first you buy bonds and then that money's leaves theow um balance sheet of the Fed and goes into the economy that number is now zero. So the Fed is proactively panicking trying to get the interest rate lower and ending quantitative tightening to keep the bubble going and we're participating in it. But it's such an an enormous uh gargantuan bubble. The economy is the most bifrocated as well. It's as everybody has been saying that it's a K-sh K-shaped economy. I like to say that the the bottom four quintiles have been eviscerated by inflation and it's just the top 20% that's actually still be able to spending and consuming and living off the fumes of the housing bubble and what's ever left in this bull market. But the size and scope of these three asset bubbles which is stocks, bonds and credit is earthshattering. So if you look at total market cap of equities to GDP, which is my favorite metric, it's also Warren Buffett's favorite metric. It's now 220% of GDP. >> The mean ratio there should be around 80%. >> Um, in the Y2K bubble, it was 140% and in the global financial crisis, it was 107%. just prior to those bubbles popping. If you look at the massive housing bubble in 2006 when gendered the global financial crisis, um the the um home price to income ratio was around five and today it's over five. So, it's at a record and that's just the home price to income ratio and that's not factoring in insurance or maintenance. Um so or or mortgage or um taxes which are all through the roof. So there's a record low affordability metric on housing. And then you have things like the um the credit bubble. There was $400 billion of leverage loans issued in Q3 of this year alone. So it's a record amount of of leverage loans. The private credit market was hundred billion uh just prior to the global financial crisis. It's now $1.7 trillion today. US margin debt is at a record high. One is 1.06 trillion. It's it's up 33% year-over-year. Household equity ownership is at a record high as a percentage of their assets. And total non-financial debt is now 77.9 trillion. That's 256% of GDP. much higher than it was prior to the global financial crisis and much much higher than it was just before the NASDAQ bubble burst. So it's it you know you can call me a Cassandra. You can say that I'm using you're being hyperbolic and you and that would be that would be a misinterpretation of what I'm saying. The fact that we have three massive, gargantuan, record asset bubbles existing concurrently for the first time in history is not my interpretation. It is a fact. Credit, equities, and real estate. The fact that they're growing and continue to grow, wonderful. I mean, that's great for me and my clients. We're participating in the bubble. Be aware that if you're not with an active manager and you don't have a model that measures and maps that second derivative of inflation and and growth that that monitors recessions and financial crisis and a freezing up of the credit markets, if you don't have that and you're just going to buy and hold 6040, you can cancel your retirement. >> Yeah. In other words, that that is the risk is so many people that is how they have their retirement set up. And um yeah. Okay. As you point out, Michael, three gargantuan bubbles you just laid out there. Um but you also point out, you're not a perma bear. You are still net long the equity markets right now. It does make me wonder like um does are you like nervous when you get long? Does it make you nervous being long? I don't know. Like, [laughter] >> you know, Julia, it's a great question. If I didn't have this inflation deflation economic cycle model that I took decades to develop, I I wouldn't be able to sleep at night because that that's how dangerous this is. I mean, how do I know that today the market's not going to melt down? Because the model that I created looks at arcane components that let me know when the the people in the know when the people that run the biggest banks, the shadow banks and the um primary dealers, people that run this planet, the oligarchy that runs this planet, when they get nervous, they take action. when they know the assets on the on the on their balance sheets are about to crumble and erode. That's that's in the vanguard before CNBC talks about the market meltdown that day. When they start taking action and I will see that in my financial conditions and credit spreads that that I that I monitor, I will know when I have to react ahead of time. It it won't be the exact top of the market, but it'll be around the top of the market. So I don't have to suffer the third suffer the 30 40 50 80% draw downs that are coming because you know Julia when this next meltdown occurs and we've had meltdowns before that were all the result of a recession or a credit crisis and the Fed came in and the Treasury came in and they monetized it all away. I think there's a salient risk that this next crisis will be will be born out of um spiking bond yields. In other words, it'll be a credit crisis that's caused by inflation and insolveny, not just insolveny. You know, when assets minus liabilities are negative. >> Um, and then there's nothing they really can do about it because if the bond market is in full revoke because inflation is run intractable, we have some kind of protracted stagflation. I don't think you can solve that problem by creating more inflation. So, you can have inexraably rising long-term bond yields. In other words, I think the crisis might not be truncated, might not be abbreviated like the 2008 crisis was where, you know, from say u December, I think the market peaked in the summer of 2007 and then it stopped going down in March of 2009. >> Yep. >> Right. It might be much longer than that because of the intractability of the of the bond market. >> Okay. Let's explore that point because as you point out there's that risk of the spiking bond yields and the bond market being in full revolt. It's s like understand the bond market is incredibly important to this. So can you kind of flesh out the implications because I know like so many different things are like priced off of the long bond. So just like unpack it for us a bit further. >> So not only you beautiful, you're very intelligent. That's why I love coming on your show. >> Thanks Michael. You have the best vocabulary I got to say. [laughter] Well, I'm not beautiful or intelligent, so I have to I have to be I have to be arerodite and loquacious. So, um so what's pric priced off the long end? Um the benchmark lending of the treasury is um mortgages, corporate bonds, auto loans, student loan debt, all priced off the long end. So, if you have a a spike in long-term bond yields, I know the Fed controls short the short term, but they do not control the long term unless they actually engage in something called, you know, interest rate repression, which I don't I have no doubt they'll they'll engage in that when they have to. Let's just say the 10ear goes to 6%. And and Powell pulls like a Mario Draggy in 2012 and says, "We'll do whatever it takes. We'll buy every single Treasury issued just like Japan has done, too." But the problem is that even in like with Japan did that when um Shinszo AB did that um and Kota did that in Japan and when Mario Dra did it in Europe in 2012 the problem was insolveny but it was not inflation it was deflation. What if the problem is both and then they start doing this interest rate repression? I don't think it works. And then you have spiking long-term bond rates. And what do you think spiking mortgage rates would do to the housing bubble at this point? It would create It's already cra it's already down. We're already down 15% here in parts. I'm in Naples, Florida. We're already down about 15%. Um and I think if interest rates went to, you know, on the on the mortgage end 8%, you'd see 20 30% again easily. Um and it would be ubiquitous. wouldn't just be um idiosyncratic idiosyncratic in Florida. >> Mhm. >> Or Texas or you know >> Yeah. >> parts of Nevada. >> Also just makes me think of like the demographics too of like those who own the homes right now as well and yeah. >> Well, you know what else I you know people say and they're correct that the underwriting standards are better this time around. They certainly are. I mean, okay. So, instead of putting nothing down like they did with the ninja loans, the no doc loans, now now FHA is doing loans for three and a half%. >> Oh, I was typing in this morning because I saw a house and I was like, what would an FHA loan be on it? >> Yeah. Well, yeah. Three and a half% down. So, three and a half% when housing mark the housing market's down 20%. You're still way underwater on your house. And then it's when you mail, you know, jingle mail, you mail the keys back to the mortgage. you just rent because you're not gonna pay [clears throat] you're not going to pay a mortgage when you're down 20% on the house. You're not gonna pay a mortgage a full price mortgage like that. You're not just that's what happens. You just walk away from the house. >> Mhm. How about all the houses that are now owned by like financial institutions? It seems like a new development the last I don't know since the financial crisis. >> Well, that's [clears throat] another point. I'm glad you mentioned that. I was going to say that before you reminded me, but institutional investors now own 25% of all single family homes. That's a new phenomenon. So, yes, the underwriting is better, but the calculation is so I I'm up 100% on my portfolio of homes and I have a renter. I'm I'm so happy, but then the the calculation switches from, oh, this home price is now dropping. I have a huge profit and my renter is now out of a job and he's no longer giving me that in income stream. All I have to do is call my real estate agent and say, sell this house. I don't have to worry about changing my address and and moving all packing up and moving. It's such an easy calculation just to sell your portfolio of homes and you know one quarter of all single family homes fit that category. That's why the sunb belt is in such such a bad shape >> because everybody moved here from COVID and said you know maybe if I don't even move here I'll just or even if I did move here I'm going to buy my house and three others. So many people that did that Julia. >> Yeah. Yeah. And a lot of people have investment properties too or they have like they're trying to Airbnb things or Yeah. >> Yeah. Of course. And when your renters when the when the rental income dries up and now you're you're sitting there paying, wow, I don't have a renter or even if you do, but in many cases when the unemployment rate does spike and we do have this crisis, you're going to lose your income stream. Let's stop paying. They'll move in with their, you know, families move in together. And then your calculation is wait, I'm paying this massive maintenance on this property. Insurance has gone through the roof. taxes have gone through the roof and and my home price is now dropping. It's such an easy decision. Sell the house and lock in the profit. But everybody does at the same time and home prices just plunge because the supply just surges. >> Listen, it's just a fact. The home price to income ratio is at a record high, >> higher than it was. Yeah, >> it's crazy. And people can't afford homes. That's why the transaction transaction market is mostly frozen. And then you add to that the credit bubble and you add on top of that the the the equity bubble and you could see the situation developing is so fragile and tenuous. I I'm not saying it's I'm not saying this to scare you. I'm not saying that you need to exit now. Again, I will I will be out of the stock market for the most part. I will be short the market. I'll be in short-term treasuries. I will most likely be in the dollar and long gold um when this occurs. >> Mhm. That'll be my portfolio for the most part. I'll have to do some technical analysis the way gold's behaving at the at the at the time at the time this occurs, but it'll be a riskoff event which could exactly, you know, en encapsulate gold as well. I'm not sure, but we'll see. Um, but you'll need to change your 6040 allocation because just like in 22 if you're in the 6040 allocation and your and your and your salesman/broker says, "Well, the 40% sleeve of bonds will offset the 60%." Well, no, that didn't happen because both bond prices and stock prices went down in 22 cuz both were in a bubble. I think the same thing is going to happen again. This episode is brought to you by VANX rare earth and strategic metals ETF, ticker symbol REMX. Rareears are the hidden backbone of modern technology and defense, powering everything from smartphones and electric vehicles to fighter jets and wind [music] turbines. Van recognized this early, launching the rare earth and strategic metals ETF, ticker symbol REMX, 15 years ago, well before supply chain security became a global priority. Today, China dominates the production and refining capacity of rare earths, creating real challenges for global supply chain security, as these materials are essential for technological innovation, clean energy, and national security. That's why countries all around the world are racing to build their own supply chains and reduce reliance on China. As this global shift continues, investment in the rare earth ecosystem is growing rapidly. From mining to advanced manufacturing, investors can gain access to this powerful trend through REMX. Visit vanck.com/remx Juliia to learn more. Okay, speaking of that allocation, like what does that new structure look like? I've heard various folks say, you know, you want like X percentage in like hard assets like gold being one of them, but how what do you think what would the new 6040 look like? Well, it would probably be something like 25 30% shorts um 50% uh T bills and then some combination of the dollar and and precious metals gold in the vanguard there much more than silver and platinum because they both have industrial components. >> Mhm. So that's what the portfolio would >> somewhere around there would look like. And then and then in that case, Julia, >> when the stock market and bond market melt down, you know, obviously short-term bonds will do well because the Fed controls the Fed funds rate and the and the money markets compete with each other. So this, you know, if you look at two year two years or shorter duration than Treasury bills, they'll sore in value as the Fed cuts rates to zero again. You'll make money in that part. Cash will cash will do fine, too. You can't get hurt holding cash. shorts will explode higher. Um, >> but what about with inflation though? Like would that take away the purchasing power of the cash that you hold? >> Yeah. I mean, yeah, but you won't lose money in nominal terms. Long term nominal terms and and and you'll be and you and depending on what's happening with inflation and the long end, you might be short like I am short to long end of the bond market right now. And the reason is simply not because I'm expecting the credit crisis to emerge right away. I'm preparing for it already. But just simply because you know a 3.8% 8% 10year Treasury note makes no sense to me when your inflation's at 3%. And nominal uh I'm sorry and real GDP growth is around three. That's six. When I went to school, I had got my degree a long time ago, but three and three used to be six. >> That's six. Yeah. >> And six a six% nominal GDP is right about where the 10-year note should be trading. Not 3.8. So the 3.8 is already precaging a meltdown in the economy. So we're not getting that right now. So I don't know what upsides left on the long end of the bond market. I think the the only upside is if we have a meltdown in in in uh GDP, which is not obviously not occurring yet. It could, but in that case, you know, I as I said, I would buy the short-term treasuries. Um but what what if the what if the meltdown in GDP occurs at the same time that stagflation and and interest rates are rising? It's not going to help you to be long the Treasury note. Like I said, mortg mortgages freeze up, home prices crash, people default on their student loans, auto loans, you know, you had three subprime auto loan dealer dealers just go out uh under. I I know that's idiosyncratic right now and we're not supposed to worry about it. >> Are you also referencing the first brand thing? >> So first brandsolor and there was another one that just went under too. >> I wanted to ask you about that. Is that kind of prime prime lenders or something like that? something like that >> which specializes prima lending specialized in um the riskiest of auto loans. I wanted to ask you about that because is that kind of signaling or foreshadowing what's to come because when we're talking about the kind credit bubble too the private credit side of things too >> do you think we're seeing like early >> tremors the private the private so if you look at um total non-financial debt and then you add private equity in there we're at 317% of GDP so the private credit market has exploded and I don't think under people understand the danger involved in that I mean private credit is basically I'm a I'm a corporation. Um I I I can't get a a loan from the bank and the primary dealer and I can't float the the corporate bond market. I can't float my debt there. So I go to the shadow banking market which is get which gets its loans from the primary dealers [laughter] and I and I get a loan out and then I just since it's private there's no market for it. And so I just tell these people what I think this loan is worth, this income stream is worth. And then when the income stream dries up in a recession, as it always does, and then people call their their shadow bank lender and say, "I need to get out." There's no market. >> So it's, you know, 30 cent 30 cents on the dollar. >> And there's probably a reason they couldn't get it in the first place like the normal way >> because the reason is they're very small and they're usually have very poor balance sheets. So, it's the riskiest profile of loans in many cases. >> So, it's a disaster waiting to happen. $1.7 trillion. >> Wow. Of um of private of private. >> And you said it was 150 billion before 2008. >> It it's uh and 1.7 trillion now. >> Wow. Okay. Um big bubble there. All right. I wanted to ask you too, Michael. Um it's a totally different topic, but gold uh the move that we've seen in gold in like the recent recent weeks and months. I know we we had the other day I recorded an episode where gold was up 164 bucks. The next day it like sold off. Um >> yeah, >> now I'm looking at it's uh 4149. We're recording on Friday, October 24th in the afternoon. So just what do you make of like the runup that we've seen in gold? >> Well, there's so many factors going on with the gold market. First and foremost is um we see central bank buying China, Russia. So foreign our foreign creditors no longer want to park their savings in treasuries and dollars because of sanctions and confiscations. Um they they want access to their savings without having to go to the United States government. So they're they're shoeing treasuries and dollars and taking their surplus and just buying gold. That's that's number one. [clears throat] That's a big function. The other the other issue is of course we have the insolveny of the United States the $2 trillion in in in debt in deficits. So yeah peranom we just passed $ 38 trillion in national debt. 38 trillion. I think the start of this year the debt was 36 trillion. >> It definitely was. I because I bring it up on a lot of episodes. Yeah. So I'm sure when you and I spoke earlier this year it was probably 36 trillion and ticking. >> 36 trillion. Yeah. So, I mean, it's just so so the and and the Fed is now lowering the competition for gold by lowering the money markets. So, if I can stick my money in a T bill and get 4 and a half% when inflation's at three, it might make sense. If inflation is going higher, and it is, and my T bill rate is going below three, and it will, especially when President Trump puts his his man in there or woman in May of 26 as the head of the Fed, then it makes sense the competition for gold's going away. So, people are scared of owning dollars and they're they're running it even domestically into the precious metal. [clears throat] And then you have the new phenomenon of the individual investor is now realizing that bonds are not a real ballast and Bitcoin is not cryptos in general are not a real ballast against liquidity crisis and to some extent gold isn't that easy either but it's much more of a balance and offset to your portfolio than cryptocurrencies or um bonds. So in that in that regard we have individ individual investors now saying you know what maybe owning you know 5 10% of my portfolio even higher into into precious metals holding them and investing in them makes a lot of sense. So those three factors which have caused gold to go up and so you know when gold gets a lot of momentum and the and the the chart goes vertical well it's susceptible like anything else to sharp draw downs but you have to ask yourself which which one of those phenomenons has has changed is are central banks now dumping gold or stopping buying go buying gold no they haven't is the Fed now raising interest rates no they're not they're >> lowering interest rates um and I think that phenomenon of individual investors is buying gold is just getting started. So, so yeah, it's sus susceptible to, you know, three, four, 5% moves in in one day, but it's also susceptible to long-term bull markets. You know, where rises, you know, I think we're up like the non the the gold price is up, I think, 45 50% this year. >> I'm checking. Yeah, I'm sure. I know it's outperformed um equities, which probably unusual. I don't know. I think it's probably it's been it's been that way since the year 2000, Julia. So, it's not it's not that >> I think it's up about 40 or 50% this year off my memory. >> Yeah, check it. >> Yeah, I'm looking right now. I don't know. My computer's super slow at the moment, but I totally believe you. Um I I everybody knows this who watches this show, but um I bought gold in August of 2011. Um I won some money in college and I put it all in gold and that wasn't like the best time, but I didn't do anything with it and I just haven't messed with it. And now when I get my statement, it looks pretty good. So, I just didn't mess with it. Um, and I have no plans of doing anything with it. Um, >> good for you. Um, >> yeah, maybe that makes being a lazy investor here. >> Um, >> yeah, it's never good to be lazy investors. >> Not lazy, but I just I just didn't I didn't I just wrote it out. >> So, year to date is 56% on gold. One one year one year is 50% year, you know, year-over-year it's 50%. >> Not too shabby. not too shabby. And um gold is like definitely been a really popular topic on this channel. And it's kind of funny because a lot of folks have been talking about this debasement trade before it like went mainstream. You know, like last couple of weeks it felt like, okay, now everybody's talking about it. But >> I've been talking about it for decades. >> I know. I know you're one of our guests. >> I mean, I said this, the dollar is not gonna I didn't say the dollar was going to go away. I didn't even say the dollar is going to lose its status uh in a bull market against the yen or the yuan or rend or whatever uh or the realale. I didn't say that. But I said it's losing its status as a world's reserve currency and it's definitely going to lose its value against hard assets. You know, gold never goes up or down the value of it. That's what makes it so beautiful. It's a perfect store of wealth. Um, but I mean you look at a put a chart of what a dollar would buy in in 1913 and what it will buy you today. It's just like, you know, I I now go to the store and like I don't take change anymore. I don't even deal with change anymore. Like do you And pennies used to be like, you know, nickels used to mean something. >> Oh, yeah. Now it's just a nuisance. It's a nuisance. >> It's a nuisance. It's probably kind of dirty, too. And um yeah, it's totally diluted. Uh which we've seen how that plays out. from, you know, previous empires that deleted their >> Yeah. 97 98% of the purchasing power of the dollar is gone and it's going to, you know, it can't go to zero, but it'll be some fraction of, you know, just a fraction of what it once was. >> Quarters used to be silver. >> Yeah. Well, it's called that's where debase the word debasement you you you infuse base metals into >> uh the dinari which used to be, you know, silver. >> So, um that's exactly what's occurring. we're debasing the currency. Um, and uh, you know, all you have to do look at what it, you know, gold, that's why everybody in Wall Street hates gold because gold is the revealer of what's happening because it's what the dollar is doing against the against real and honest money and it's not too good. >> It kind of calls it out then. Maybe it's calling out everything. >> Yeah, it's, you know, it calls it out. It says, "Look, this is what you're doing." not against I mean if if if Japan is is debasing its currency and it's like you know a race to the bottom you might not it's not it's not ev is not as evident as you look what's happening with gold you know here you know this is the dollar and this is gold keeps setting new all-time highs but price appreciation isn't the only way to profit from owning gold monetary metals is redefining the future of precious metals investing [music] instead of paying to store gold imagine getting paid to own it with monetary metals you can earn up to 4% % on your gold paid in physical gold. That's right, your ounces grow each month, not just your paper balance. A yield on gold paid in gold means you're stacking more ounces every [music] single month. And you still benefit if gold's prices rise. You're earning more gold every month and enjoying potential price appreciation [music] at the same time. Go to monetary-medals.com/jullia to learn more and see how you can start earning 4% [music] on your gold paid in gold. I like that. It's the revealer. Hm. >> Yeah. The the great revealer. >> The great revealer. Um Okay. One of the other things you said earlier um about these concurrent bubbles that are growing is that the Fed is going to be so panicked about keeping the bubble growing. Um what do you think they're going to ultimately do? Like I guess they'll cut rates, but that will that just further fuel the bubble? kind of walk me through how you're thinking about the Fed and the role in I guess expanding these bubbles. >> So the Fed is panicking. They're trying to pre- panic. They're not slashing interest rates in panic mode, but they're trying to like obviate the need to cut rates by 50, you know, 50 basis points 100 like they did in 2007 and 2008 where there's like, you know, in the summer of of 08, Bernani just said, "Hey, we're just going to zero. We're just going to just cut them down. 100 100 basis points. Boom. Let's just get there. They're trying to preclude that from happening. I don't know if they're going to be able to to avoid it, but they're trying to avoid it. I don't know. I mean, that's the answer is I don't I'm not sure what's going to happen. I I guess if I had to guess, it' probably be a little a little too little too late. Um but for a while it'll work and then it'll be too little too late. They're going to have to panic and that means going back to zerp zero interest rate policies and back into QE and then some form of helicopter money too because do you think Donald Trump is going to sit idly by and watch the stock market crumble because Powell too late Powell was too late. He's like he's going to say something like I predicted this would happen. We need to we need what we do now need now is Bessant to get in there and send stimulus checks out to people and have the Fed monetize them all. Trillions and in fact trillions of dollars. In fact, he already said he wanted to send, you know, hey, why don't we send a $2,000 stimulus uh check out to people in the form of some kind of cryptocurrency, >> America coin, maybe he'll call it. >> So, this is also assuming this would happen before May 2026 to before I guess what was last time an obsequious sick event will be the next a cichlopant. That was >> secretly a sick. This you should watch the show if you want SAT words too. I'm sorry. [laughter] >> So someone who's very e, you know, someone who does the bidding of someone else and is very eager, very eager to please, obsequious, overly eager to please. I think that's the exact definition. But um but that's it. Yeah. So that's what that's what we're going to have at the Fed who says, you know what, I I want to get ahead of ahead of any problem and I'll just cut rates to like, you know, 2% from where they are now, 4%. >> Okay. But won't that also we have the two mandates and will we see an reaceleration of inflation when they do that too? >> They don't have they don't have a dual mandate. They they really it they have by law a dual mandate, but in essence they have one mandate. I'll tell you you know what the mandate is. >> I'm gonna Can I guess? >> Yeah. Go ahead, please. >> The stock market. >> Yeah. You're such a That's why That's why I love you. The stock market is their mandate. Their mandate is I need to protect banks assets and the stock market. >> That is my mandate. And that's why, you know, if you looked at any other reality, I mean, the unemployment rates, what is it? It's historically was very, very low. It's like four and a four and a quarter or something like that. >> Something like that. I know it's really low. I want to say four. >> It's very low historically. The average is in the fives. So, it's very low historically. We have quiescence in the initial claims at least when we had them before the government shut down. Um you have record tight near record tight credit spreads. Financial conditions are easy um at the moment. Um housing bubble unaffordable stock bubble, credit bubble. What is the re in inflation's been above the Fed's asinine target for four and a half years. They should be tightening interest rates. They're cutting interest rates because they know, like I said, they're pre- panicking over the reverse repo facility. They don't want the freezing up of the credit markets like we had in 2019. And that's when the repo market rate shot up. And that's long-term rates shooting up, too. The whole the whole bond market begins to melt down. And that would cause a they they want to they want to make sure that the market stays as phony as as possible. But what they're end what they're going to end up doing is because they already got the insolveny down pat that we already have that a $ 38 trillion national debt. Um the whole debt if you look at the um national debt as a percentage of income it's 770%. So you so you understand how how bad the the debt is to income, not G. You can't tax GDP, >> right? >> You have to we're talking about income. The income is pretty much static. If you raise taxes too much, you don't get any more income. If you lower taxes, you don't get much more income. So the income is the you don't you can't tax GDP. At 100%, your income would be zero. No one would go to work. So it's it's debt as a percentage of income, not debt to GDP that I look at. And it's it already shows that we're we're we're you know. >> And are you talking about GDI like gross domestic income or >> No, like income like >> debt as a percentage of revenue. >> Oh, revenue. Federal Oh, sorry. Yeah. Revenue. Okay. >> 770%. >> That's that's insanity. >> That is >> that's terrible. Go to the bank and ask them for a loan. If I went to a bank and I said, you know, I'm adding 40% to my to my debt that's outstanding. I'm add I'm not paying down my debt. I'm adding to it every year. because two trillion is 40% of uh the revenue which is about5 trillion and oh by the way the debt is 770% of my income can you give me a you want to give me a loan and they're like they'd laugh for you laugh at you they wouldn't even give you a lolly who wouldn't even give you a lollipop on the way >> you're total zombie at that point yeah >> they totally thank you that's what we are >> I stole that from James Lavish I can't take credit but we are zombie zombie uh >> zombie e zombie economy It's only working for the top 20%. The the the asset bubble known as the stock market is only working for se you know seven companies make up 34% of the entire S&P 500. The leverage in the system is at a record. The concentration in the system is at a record. The value of the system is at a record. Um and say having said all that you might say Mr. Pento why are you why are you long the stock market? Because it's going higher. Well, you know how to ride it. Yeah. >> Yeah. I mean, but you have to ride it safely. I do have some balance in the portfolio. I have a small short. I have the the right kind of shorts in the in the in the credit markets. So, um even on a down day, I wouldn't get killed. I have precious metals. Um but my model will tell me when I need to actually genuinely get worried about this stock market. So, the stock market goes down one day or two days or three days and my model will say, "Is this is this just a normal hiccup? Is this just like a normal pothole or is it emblematic of the incipient erosion of the credit markets and I need to at least pay attention short term? >> Will you let us know when you get actually like super worried what to do? Especially >> I mean I have >> I'll let my I'll take action for my clients first and then I'll re and then I'll reach out to you. >> Yeah, you have to telegraph that one. Um Oh, on the Fed too. Okay. So, they should be tightening then >> like what should they do? >> Julia, Julia, if you have a m let's just say you have a dual mandate and it's full employment and it's stable prices that is their dual mandate. And I said to you, okay, so how you doing on the uh you know full employment? and you say, "Well, the unemployment rate is well below its historical mean." Okay, good. Um, all right. Let's look at your other mandate. So, how are you doing on stable prices? Well, we haven't defined stable prices as zero anymore. We decide defined them as 2%. Why did you do that? That's not stable. That's 2%. Okay, but that's what we did because we were worried about the assets in the bank eroding. Okay, so we redefined it as 2%. Well, how you doing on that front? Well, it's 3%. Well, you're 50% above your target. So, if you have your unemployment below average and you have your inflation way above average, well, what would you do? Well, of course, you'd be raising interest rates, >> right? Wouldn't you do that? A smart an honest person would say, I have to do that. And then you add on top of that the fact that the middle class has been eviscerated and the dollar is plunging because what you have done Mr. Powell mostly Mr. Powell but by the way if you want to know why I'm not invited on the mainstream financial media anymore you don't have to guess because you could just listen to this interview. They don't want this out. They don't want the truth out there. >> But the truth the truth the truth will set you free as they say and the truth is very scary. They're destroy They have destroyed already the middle class and they're going to do it even they're going to step up. >> And that's why we've seen the rise of independent media too. >> Yes. Independent media. I have my business took well I was thrown off CNBC, Bloomberg, Fox. I I was thrown off every media outlet >> uh in 2000 pretty much in 2012 and then my business started booming [laughter] because I went on shows like yours. >> Okay. So, I'll tell you, I used to be into financial media and I always wanted >> which what channel? >> I was on Yahoo Finance was the last place I was at and I always wanted to like host a show and I never got a show. I even I pitched a podcast and that's okay. It didn't happen. Yes. But I'll tell you, I used to get like these big interviews like big guests like Jeffrey Gunlock. I had Paul Tudtor Jones and others. And the problem that I found was uh the conversations were so limited to sound bites. And so what happened was they started putting my content on YouTube. Uh because I would say, "Well, I have 25 minutes with Paul Trader Jones. Like he's not going to be a 5minute hit. Sorry, that's crazy in my opinion." Or like Jeffrey Gunlock of we'd air the full 45 minutes on YouTube. And then people would come in the comment section and say how much they loved it and like they were learning. Oh, thank you for not interrupting your guest. And then that's where I was like, "Oh, people on YouTube want to come and learn and they want to listen. They don't want to get a sound bite. They don't want to see the guest cut off, you know? So, >> you know, Julia, you know, when you think about why God put you on this earth and everybody has a purpose, um, you know, you're doing the Lord's work here. You really are. Because if if people will just understand and and and and grasp what we're talking about about the enormous enormity of the three bubbles and the need to protect themselves. I mean, you don't have to I'm not saying become my client. You don't have to become I mean, I manage money for a living. Become my client. There are other people out there that are wonderful at have a robust model, but at least get away from the this what I call the deep state of Wall Street. These are mostly salespeople who are just going to tell you, and it's not my opinion, it's what they do. I used to work on the Florida stock exchange in the 90s. So, and I have many many friends in the industry have 35 years experience doing this. They I call them, you know, glorified used carpet salesmen. They're just taking your money and just look asking your age and your risk tolerance and then plugging into some 6040 kind of rubric model. And then they'll tell you when you call the phone and say and say, "I'm down. We're down 20% this year." And they're going to say, "Don't worry. Hold on. The market always comes back." That's what's going to happen. But sometimes it takes 15 years for the market to come back. And if you look at other markets outside of the US, sometimes they never come back or 35 year decades like it did in Japan. And we're still waiting. I think the Shanghai is down like 40 50% since 2008. Um sometimes it takes decades to come back. If you're near retirement, you don't have that kind of time. And I I liken this era to 1989 in Japan. That's what we're looking at. That kind of multi-deade uh lossade loss decades in nominal terms and in real terms you get wiped out. I mean if if the market goes down a 50%. And then 100 and then um and then say in 20 years it goes back to even where you were. So it gains 100% to get back to even. Well, if you're there the whole time, you're even after 20 years. But what has your inflation rate been in those 20 years? What is your real purchasing power of that money? It's been it's been wiped out. So, if we can avoid that downturn, participate in the in the um downturn by shorting it and then buying close to the nadier of the uh of the B, you know, close to the bottom. Isn't that Isn't that much better than just trying to be a salesperson? >> You can do better. You can do better. And I think I think you need to >> when you look at how we got to where we are here when you look at the three bubbles, >> what do you think ultimately drove it? Was it Fed policy? Like what do you think it was that drove it? And what would kind of be the fix? Is it just letting things kind of like wash out of the system? Like maybe it's having, you know, >> recessions. They're probably a healthy thing to have too versus like blowing up the ultimate mother of all bubbles. >> Well, there's no doubt how we got here. I mean, there's no doubt if in fact I put a presentation out if you email me directly um through one of my assistants will send it to you. It's um just a PowerPoint presentation of the Fed's balance sheet um the the the level of the real interest rate. You can lay all this at the feet of the Federal Reserve and the Treasury. Um the debt outstanding that we have. So it's just like hey when you take interest rates for zero to zero for almost 14 years um then people borrow money and they buy stuff with it. They you know they mar they mar they leverage up their margin account they buy houses and corporate America goes bonkers leveraging up businesses leverage up and that's what causes this bubble that's you know that's engendered this massive bubble there's no doubt about it um you can email it's mpento pentoport.com or you actually go if you go to the website and contact us and it'll someone will send you that powerpoint presentation. >> Yeah. >> Um for free. You get it for free. >> That's really kind of you. Um okay, so you mentioned K-shaped recovery or sorry, K-shaped economy earlier. Um I know you were on Adam Tagert's show, Wealth. I want to give him a shout out because I thought this was an interesting way of describing it. He calls it, this is what my viewers said, a lowercase I economy where you have like everybody at the top, like the top percentage owning like all the assets and then everybody else at the bottom, like a lowercase I. I thought that was an interesting letter to use. >> Well, I really now I'm jealous because I I love Adam Tiger, you know, I'm on the show with him all the time and whoever came up with that is a genius because >> my viewers said it was Adam, so I don't know. I want to say it was Adam. Yeah. >> Okay. It wasn't me cuz that's way better. >> It wasn't me. I know. I was like that is like one is down and one's up. No, it's a little tiny >> cuz I I I said it less eloquently. I said it's a you know >> the top quintile is doing well. It's the top 20%. And the bottom 80. But that that I lowercase I that's the 80 and the dot is the is the you know it's the Julia Lar Roas of the world. >> Yeah. Oh, no. I don't know about that. No, it's like I think it's supposed to be the the dot is like the top like everyone up top. >> Yeah. The top 20%. >> Oh yeah. I don't know about that. That's you. That's you. No, >> that's you and me. It's you and me, kid. >> Oh, I I don't own I don't own a house. So, there's [laughter] that. >> I'm one of those millennials is like I'm waiting for those housing prices to come way down. Um and there are two that sold last year that I just saw that are listed back on the market this year. >> Yeah. >> North Carolina is one of those places that people escaped. That's one of the recipients of the co. >> Okay. Well, let me tell you what's going to happen in New York City. I don't you feel like people are going to come back? So, I have I have another house that that I have in Naples that I'm that's for sale. Um I I think what's going to happen in the the the biggest city in America, you're going to get a communist socialist communist as a mayor, Mandami, >> and I think that's going to get a lot of people to >> I think so, too. Yeah. >> You go to North Carolina and drive up your home price even further. >> I know. That's what I was thinking too. And um also when you go to the Rangers games down here, it's great because the tickets are cheap to go watch the Hurricanes, but you kind of feel like you're watching like with all the New Yorkers down here, the Rangers games. So that's kind of fun. >> Um but I don't know. You are you Jersey Devil fan or something? >> No, I hate them. We don't like them either. >> I I like I like the Rangers and the Knicks >> except for they got rid of my favorite player on the Rangers, so I'm kind of upset about it. So who's >> Chris Krider? I've been a Crider fan forever. >> Oh, no, I know. I know. He's he's >> Anyway, I digress here. All right, before I let you go, um, Michael, um, >> what's something that's keeping you up at night? I know you sleep well, but that's on your mind. And what's something that is making you optimistic about the future? >> Well, you know what makes me optimistic is um, the Lord is in charge, and he's he's blessed you with this wonderful show and and we got a lot of people that listen to it. You see, Julia, if the if the distortions were on the margins right now, I say we could have a healthy cathartic purging recession and, you know, home prices would fall a little and the debt can be rebalanced and um would be okay. It the distortions have grown so gigantic in such gigantic proportions that any kind of real healing or mean reversion would would entail a depression. So if you look at the the total market cap of equities to GDP at 220 it and the average is 80 um you know you're talking about a more than 50% decline assuming the denominator doesn't fall and the denominator always falls. So what do you think this economy would do at a 50% decline in the stock market? That's why they're so hellbent on keeping the bubble afloat. the bubble will eventually break because they're going to print borrow and print monetize so much debt you're going to have intractable inflation and that's what's going to cause the long end to break until then we could be you know you know flowing along comfortably but that's what keeps me up yes the on the negative side uh the positive side is shows like yours so we can rescue as many people as possible on the negative side um is that any kind of reconciliation or I call that the great reconciliation of asset prices and debt is going to be devastating for the economy and for most people. And that's what keeps me up at night. What's going to happen to the average person who who doesn't know how to protect themselves, you know, home uh like I mentioned before, ownership of equities among households is the highest it's ever been in proportion to their assets. So, everybody's long the stock market. And if you're an idiot and you own bonds and you like or precious metals or any kind of hedges, well, you that's what you are. You're an idiot. you, you know, you're you're under underperforming the S&P 500 by, you know, a few percentage points. I'd rather underperform by a few percentage points and have a robust model that makes me protect and profit from that great reconciliation than just constantly chase it and just, you know, >> get left holding the bag. When people do sell, they'll panic at the bottom >> and and just drive it through the dirt. >> Yeah. Well, I am grateful for wonderful guests like yourself and you are certainly a fan favorite on this show and always welcome and we always love our conversations. Um, Michael, again, let folks know where they can find your work. What was your website again for them? >> So, it's pentoport por.com and on that you'll see a contact page you uh to contact my firm. Um, if you have about about a h 100,000 to invest and you're and you're suitable for the portfolio and are you you are a US citizen, uh, I will manage your money personally in the IDEX strategy. And if you don't and you just want to access yourself to the midweek reality check, it's $50 a year and it's my weekly podcast where I talk about the salient issues and the data when there was data. There's no really data anymore because the government's closed. >> Yeah. >> But maybe it'll open up. >> Just a CPI report this morning. That's it. >> Yeah, that was it. Just it >> and the and the market liked it because >> it was less than less than feared but still going in the wrong direction. >> So, I'll give you the real interpretation of that uh every week. >> Michael Pinto, founder and president of Pinto Portfolio Strategies. Thank you so much for being so generous with your time, all of your knowledge, your wisdom, helping all of us learn and get better. I really, really appreciate you and I look forward to our next conversation. We'll have to get one on the books at the start of 2026. Thanks again, Michael.