Speaker 1This is the Commodity Culture Podcast, where we interview prominent investors, fund managers, analysts, and company CEOs to give you an edge when it comes to investing in the commodity space. Michael Pento, great to have you back on Commodity Culture. I want to start things off with the broad market. You've been on this show several times talking about valuations being overstretched and the fact that we're due for a correction. Since our last conversation, we've hit several new all-time highs in the big indices, all while two major wars are raging in both the Middle East and Ukraine. Have we reached maximum complacency yet, in your view?
Speaker 2Well, let me answer the question this way. The bond market has still given us, particularly the Fed and the Treasury, a little more wiggle room to inflate this bubble. So it might surprise people to know that Kevin Warsh, who took the helm of the Fed on May 22nd, has actually printed $34 billion. So he's actually engaged in a form of QE. And that dovetails nicely with what Jerome Powell did, printing over $200 billion in the five months before he was let out. So we keep printing money. We keep borrowing and printing money. That's keeping this bubble alive. I am not short the market at all in that short capacity. I have a couple of small hedges, 2% of the portfolio. But my model says, hey, let's stay long and strong and enjoy this bull market. I'm spending off a lot of dividends into the portfolio. And I feel comfortable doing so. But there are a lot of – so not only is there a massive credit bubble, a massive, stock bubble, and a massive real estate bubble in record-setting proportions, there are also some cracks developing. And the only thing that's keeping this economy going strong, there's two things keeping the economy going strong. So the top 20% of wage earners, the top quintile, they're doing fine because they're riding asset bubbles higher. They're doing fine. And AI-related spending. So you take – That cohort out of consumption and that spending model out, and then you have GDP is still only 1.5% even with those positive impulses. So it's a very narrow rally. It's a very – although it has been broadening out a little bit, broadening out a little bit. It's a very, very narrowly marginalized consumer that's benefiting, and we're starting to see long end of the bond market revolt. We're starting to see yields rise. And that's a combination of what's going on in Iran with the energy prices, what's going on in Japan, having to sell treasuries to boost their currency. So there are cracks developing, but I don't think it's time to get net short the market, not today. I want
Speaker 1to dive into both the rising yields on U.S. treasuries and the fact that the Trump administration is so focused on the stock. Could we see more intervention in both markets by the government? They've already taken a stake in Intel and some other companies. Do you think they could start taking stakes in NVIDIA, Meta, these large cap stocks holding up the indices to keep it afloat, considering how much weight they put in the stock market as a barometer of economic health? And then we'll get to the bond market after you answer that.
Speaker 2The government doesn't have any money. So let's just assume that – let's just talk factually here. The government can. They can make any investment they want, but it's with borrowed money. They're just adding to the deficit, which is already over $2 trillion. We'll talk about the bond market in a second. So I don't believe a socialist paradigm for investment is the healthy way to run the country or the pathway to prosperity. Government is a great misallocator of capital. So the fact that they might take small equity. Stakes in privately held companies is disgusting. It doesn't help them. It doesn't help the economy. And it certainly isn't going to be a salve or ameliorate anything that's going to happen as far as the great reconciliation of asset prices, which is coming. There is going to be an absolute, unrelenting, unavoidable, massive reconciliation of asset prices. Now, you could – I even – you know what I did today? I AI'd myself as Michael Pinto's track record. What's my track record? Track record is pretty good, okay? Because I have a long, short portfolio, and I've been long the stock market for a long time. I've been net long the stock market since October of 22. But AI says I'm a perennial bear. Well, I'll tell you, Jesse, you know what I'm a perennial bear about? I'm a perennial bear about $40 trillion national debt. I'm a perennial bear on growing the Fed's balance sheet from $800 billion to $9 trillion before it backed off to $7 trillion. Now it's on its way up again. I'm a bear about all of the borrowing, spending, and money printing that is the foundation of our economy. That's what I'm a bear about. I'm a bear about the massive asset bubbles, total market cap of equities to GDP, 200%. Over 230%. Jesse, that's 130 percentage points above average. If you want to look at price to sales, it's 70% above the long-term average. We now have $1.5 trillion in margin debt. That's a record percentage of GDP. It's a record in nominal terms, and it's up 50%, Jesse, year over year in margin debt. So I'm a bear on the bubbles. I'm a bear on the debt. I'm a bear. I'm a bear on the money printing. But I am not now bearish on the investment strategy. Did everybody hear that?
Speaker 1Good. Let's move to the bond market because similar to what I was speaking about, potential intervention in the stock market, do you think we could see a Bank of Japan-style yield curve control coming out of the U.S. administration, the central bank buying large amounts of government bonds to keep the yields down, as they threaten to rise up ahead?
Speaker 2Jesse, that's where eventually we're headed. I think after the next recession, and that's when deficits spike to $6 trillion, according to my calculation. So deficits go up three times in prior recessions. So I don't know why it wouldn't happen again. So when that happens, I don't know what the Fed can do other than a massive money printing. Now, that's $6 trillion. That's $6 trillion deficit that's going to be a result of the next recession. It's just a matter of function of the automatic stabilizers kicking in. So it's reduced tax rate, tax income to the Treasury. It's unemployment insurance. It's SNAP. It's all the other programs that we have, automatic cushions that we have. But that doesn't include if we have another universal basic income launch or a TARP program launch, which I'm sure there will be, checks mailed out to people. So if you're doing that, you're going to have to do a lot of work. If you have a $40 trillion national debt, 123% of GDP, it's 720% of revenue. And that's now, Jesse. So we have a broken balance sheet, a broken sovereign balance sheet. When you say you're going to add trillions of dollars per annum to the $2 trillion of deficit you already have and the $40 trillion that you already have, and you can't make an argument that the Fed can sit on the sidelines. Because our savings rate, Jesse, is 2.7%. That's in the basement of history. So we don't have the savings. And Japan is selling Treasuries to support the yen. You know, I'm looking at a scenario, Jesse, where we saw in Korea, I think it was like four weeks. It was just a handful of weeks, Jesse. The South Korean stock market dropped 45 freaking percent. And the reason is. It's called, it's the L word, and it isn't that I love you. It's leverage. Massive leverage is something that engenders panic selling, forced selling. And that's where we are in the United States here. That's a situation that we have. That's the potential energy in place.
Speaker 1Gold has historically been one of the most reliable stores of wealth. But now there's a way to earn from it. Directly monetary metals operates the gold yield marketplace where holders of physical gold and silver can earn yield on their metal paid in ounces of gold, not dollars through their platform. Clients can earn up to a 4% annual yield on gold paid in gold ounces. That yield derives from leasing physical gold to qualified businesses in the precious metals supply chain, like jewelers and refiners, your gold stays in physical form. And your gold stays in physical form. And you retain title to your metal. The additional yield is paid to you in gold, preserving and growing your exposure to the price of gold. of gold. As inflationary pressures, debt concerns, and macro uncertainty continue to make gold attractive as a hedge, earning a yield on gold adds another strategic layer to your portfolio. Individuals and institutions around the world have already been earning returns through Monetary Metals' leasing program for almost a decade, so go to monetary-metals.com slash commodity to find out how to put your gold to work. The link is in the show notes below. And now, back to the interview. How are you viewing the gold market right now amidst all of this? Because we've seen a fairly significant correction since hitting all-time highs earlier this year, gold along with silver selling off in the aftermath of the Iran war kicking off. But the tailwinds behind gold still seem to be intact. Central banks are still buying. Do you think this is a cyclical downturn in a longer-term bull market? Or is some caution warranted here when it comes to gold?
Speaker 2Yeah, well, the caution was warranted on February 28th, which is when I gave the caution, which is when I sold off a lot of my gold. And I recently went back into the gold in the minors because we have what I believe was a memorandum of understanding. See, my model measures the business cycle and measures the second derivative of inflation and growth, which is normally a function that lasts in duration, say, months and years. But because now we're at the whims of the mood, mood swings of the president and the IRGC, who seem to change their mind, you know, almost on a daily basis to utter annihilation to where, hey, we're about to sign a deal. It's comical, actually. It's become comical. But it's not comical when you're trying to measure the second derivative because inflation, you know, energy goes from 60 to 120, then back to 60, then back to 100, then back to 70. It's just, you're just getting whipsawed. So what I've done is I just kind of like, and we'll talk about it later, how I position the portfolio. I kind of neutralize the portfolio. So I have some reflation. I have some disinflation. I'm not short. I have a couple of hedges in the portfolio, but they're not really short positions, 2% of the portfolio. Trying to ride the bubble higher as safely as possible because we are in a situation where when this changes, and I didn't say it's about to change. I didn't say it's changing. I said, not if, when we have a recession, which will be caused by the bond market, it'll be a problem in the bond market. The credit markets will begin to fracture. That will cause the recession. My model measures that assiduously. Then you're going to see this thing implode and it's going to be rapidly. It's not going to be weeks and months. It's going to be days. So if you want to buy in, I mean, if people want to buy in, I don't know why anyone's going to listen to this program, commodity culture, if they just want to buy the S&P 500 and hold it. If that's what you want to do, do it. Buy the SPY. There's an ETF for that. And maybe if you want to put, depending on your age, a couple of bonds in your portfolio, which by the way, they're destroying the long end of the bond market. You're destroying your portfolio's return. But if you want to do that, do that and just see what happens. And then you look at, oh, wait a second. We've had at least three iterations of lost decades since the Great Depression. Three. And one of them lasted for 20 years where you had for 20 years, you didn't make any money in nominal terms. And from 2000 to 2012, for example, in those 12 years, you lost 0.8% on average in those 12 years. That's recent. That's not ancient history. And then in the late 60s and 70s, you lost in those 15 years, in particular, you lost 0.8% in those 12 years. And then in the late 60s and 70s, you lost 0.6% on average annually. Now, of course, in those timeframes, you lost 50% of the value of the stock market. So if you lose 50, you have to make 100. I don't want to lose 50% of my money. And I don't think you do either. So this kind of scenario has happened before. And the conditions for it to happen again have never been greater. Now, the question you asked was about gold specifically. Let me make sure I answer that question. The gold market loves, it's not really just a pure inflation hedge. People who say gold's a hedge against inflation say that if you want to. It's part of the story, true. But if you're going to manage money and own gold just looking at that, you're going to lose a lot of money because there's another very more important feature, and it's not geopolitical risk and it's not the dollar. It's the level of nominal and real interest rates. Gold loves falling nominal interest rates. In other words, if nominal rates are being brought down as inflation is going higher, what happens to real rates? They plunge and gold skyrockets. So like I said, I went back into the miners here. I'm probably not making money yet. I don't really care. I know it's coming. And I will increase my allocation to both physical gold and the miners when we have a recession begin to manifest. So I'm going to increase my allocation to both physical gold and the miners when we have a recession begin to manifest. It's just not happening yet. Because when it happens, guess what's going to occur? The Fed's going to be cutting interest rates. They're going to increase QE, right? And that's going to bring real rates crashing. And that's when gold does the best.
Speaker 1Can you shed any light on the type of mining companies that you're allocating capital towards? Are these the biggest and the best, the large producers, the royalty streamers? Or are you going out a little bit further on the risk chain into developers and explorers?
Speaker 2Right now, it's funny you ask that. I actually had a dream. I had a dream that I bought a junior miner. And it's skyrocketed in value. I'm talking about a micro cap gold stock. I had a dream about that, which I've never done before. But right now, I'm just in GDX. That's my mind. Because I don't want to get the macro economics correct and then flub up on what I bought. But I do firmly believe that when we enter into that condition of falling real interest rates, especially when we're in a situation where we're in a situation where we're when the recession ends, and they start, I mean, they're able to massively reliquify the banking system, and the money markets are starting to clear again, then I think junior miners are going to soar. Because I predict an era of stagflation. I call it hyper stagflation. I don't know if I coined that term or not. I don't know. I don't really know or care. But I know I coined the triumvirate of bubbles. That's for sure. But who cares about what I get credit for saying? I'm just saying to you that there's going to be hyper stagflation like we've never seen before. The way the economics, I've been doing this for 35 years now. And the math, the economics, and the history behind my conclusion is crystal clear. Hyper stagflation is the only outcome that I see. Because I just don't know. I don't know. I don't know. I don't see. I don't see any other way other than the Fed, the Treasury. Imagine Besant, Warsh, and Trump, or whoever's in charge of the White House at the time, get up and say, okay, listen, ladies and gentlemen, we're going to have a depression like we've never seen before. Because we have to let asset prices crash. The stock market has to go down by at least 50%. And home prices have to go down by at least 30%. And the money markets are going to be frozen for quite some time. So you know, repo markets, you can't, the repo markets frozen, commercial papers frozen. So I don't know how long that's going to last. The unemployment rate is going to go to 20%. And it's probably going to last a few years, hopefully, maybe sooner. But it's going to be very, very painful. Many people will starve to death. But on the other end of this, we'll actually have a fair system, a vibrant economy. We can get low taxes, a stable currency, low inflation, low interest rates, market-based interest rates, money supply that's fettered by the supply of gold, the increased mine supply of gold. And we won't have any bubbles anymore. And guess what, Jesse? We won't have 80% of the country in a state of poverty and 20% partying like it's, you know, 19, like it's, like it's 2026. Wouldn't that be nice? I mean, 50, I read this, it's, it's, I think it's, um, the top 1% of wage earners own 50% of the equities and the bottom 50% of wage earners own 1% of the equity market. That, that never would happen in a free market capitalist country. It, it happens when you have crony capitalism and a very active federal reserve. And you know who that more than anybody? Kevin Warsh. He understands it. Could he do anything about it? Does he have the temerity to get up there and say, Hey, Hey, we're going to have a, we're going to have a depression. Trump is going to try to kill me. But, uh, I, I, you know, figuratively I'm going to get in trouble, but, um, Trump is going to, Trump is going to be really, really angry with me, but I am not going to expand my balance sheet to facilitate all this treasury debt that has to be issued. I'll let the interest rates rise and let's see what happens. Let the market, what net, what a that would be for this country. If we actually had interest rates go to 18, 20% again, like we did under Volcker. Volcker, squish these bubbles. By the way, I know I'm rambling, so I get it. But under Paul Volcker, interest rates go to 20%. Inflation was 15%, 16%. And we had a very horrible economy. But back then, Volcker could do that because I think the national debt was 30% of GDP. I mean, you could really abuse the balance sheet of the government. And the Fed's balance sheet was nothing either at that time. The reserves in the system were very low. Now try to do that. Now try to let interest rates go to 18% when the home price to income ratio is at like 7% and at a record high. And when the total market cap of equities is 230% plus. See what happens to your essence.
Speaker 1I want to talk about your proprietary macroeconomic model. What it's telling you. You alluded to it earlier. You mentioned once again, as you said in our last conversations, that you are still long the broad market at this point in time, despite your view that it's overvalued. You've also mentioned there'd be a time in the cycle where the model would be more bullish gold and other commodities. Where are we when it comes to your macroeconomic model? And how do you expect things to go from here?
Speaker 2So if you ask me today, it's disinflation. If you ask me tomorrow, it'll be reflation. Because like I said, it's a. We've been ping ponged by the mood swings of this war. So what I've done and I learned, I learned this. I learned to do this weeks and weeks ago. It's just it's just stop. Stop. Stop looking at the highly stochastic readings and just look at where we are in a more broadly pullback and just look at a more broadly period of time. And say, OK, we are going to neutralize the portfolio. We're going to go in sector three, which is a stasis of inflation, the second derivative, which is the rate of change of the rate of change. And we are going to own a lot of dividend stocks. We're to own some gold. We have some hedges in the portfolio, but we're just going to dividend the heck out of the portfolio, which is what you would do if you were if you stayed in sector three. But we're not staying in sector three. We're going from disinflation to reflation. Very rapidly. And when you when you hit these periods of reflation. So, for example, this interview is being recorded on Tuesday afternoon. Let's just say and Scott Besson, Treasury Secretary Besson, says there's going to be a peace deal and it's going to happen today or tomorrow, which is what he said. And then it doesn't happen. And it doesn't happen on Wednesday. And oil prices, the war goes kinetic again. Oil prices go to, you know, ninety dollars a barrel and your your your hedges for or your allocation towards dividends isn't going to work so well. But if there is really a a deal where the Strait of Hormuz is open and oil prices retreat back to 60 and stay there in the mid 60s, which I think is about as low as they're going to go, then the disinflation portfolio is going to work fantastically. But then I also have a couple of reflationary hedges, too. So, like I said, I've tried to neutralize the portfolio as much as possible until we have better clarity as to what's going to happen. If you want to know my opinion, and since you had me on your program, I think you do. My opinion is that we're going to go. We're going to keep ping ponging back between disinflation and reflation like drunken monkeys on a seesaw. We'll do that until the midterms. And then whatever the outcome comes in the midterm, positive or negative, then I think Donald Trump does what he really wants to do and what he has to do. Is remove the IRGC from power. I want to dive a little deeper. By the way, just to be clear, that would be a reflationary, stagflationary event.
Speaker 1Right. Let's discuss the war for a moment and these, you know, true social posts coming out and how much they're moving markets, both the broad market, energy markets and otherwise, because the reality on the ground at the moment seems to be it's not slowing down anytime soon. We're getting these on again, off again, peace talks. You know, Iran is refuting what Trump is saying. Some people are saying there's actually multiple factions within Iran and some of them are more moderate and the IRGC is more aggressive and they don't want to make a deal. So there's some internal conflict. It's very difficult to parse through everything due to the fog of war. I wonder what your thoughts are on on how long this thing could drag on for and how it could impact the economy overall. And also, how is these true social posts? How are they moving? So much is this algos is just as tons of algorithmic traders trading off of headlines or market participants really this dumb that they just believe every time a PCO is announced that it's going to go through what's behind that movement in markets.
Speaker 2Just to back up a bit, you know, I don't know who the administration is speaking to in Iran. I really don't. But I do know the people that you have to speak to is the people who control the army, the people who control the military. I don't care if you have a buddy. Maybe maybe there's maybe Trump has a great uncle in Iran who's like, hey, we're having a great talk. I mean, I don't care. Talk to the people. I mean, the people who control the military and the media, the Fars News Agency and people control the military in Iran have no interest in talking to Trump because they don't trust the United States. That's just that's just the way it is. I mean, they're telling you, hey, it's hard. It's hard to say, you know, I'm buying a house and I vote. We're almost we've almost reached an agreement on the price. And then the seller says, I don't even know who this person is. I never we're not in negotiations. I mean, you're not going to you're not going to close the deal on a house unless you have both parties at least trying to make a deal. And that's not the case. So, as I said, I answered the question already. I believe this is going to get ping pong back and forth until between reflation and disinflation until the midterms are resolved in early November. And then when the war goes rapidly kinetic, that's my best guess as to what's going to happen. And it's just a guess at this point. But. That's what we have to do. We have to we have to assimilate all the facts and make a determination as to what how to invest the portfolio. And at best, the best thing I can tell you is I'm a very overweight, equal weight S&P 500 right now. But I don't I'm not flying blind. I have if you want to count gold, I have three hedges in the portfolio just in case. And that just in case is a big just in case because it's a it's not a fat tail. It's it's high. It's high probability that things go wrong.
Speaker 1And any thoughts? As to what's moving these markets in response to Trump's tweets, because some people are saying it's algos. Some people are saying there's market manipulation going on behind the scenes. Yeah, I would love to get your take.
Speaker 2It's it's it's a little bit of everything. It's mostly algos, but it's also insider information because that's that's the basis of, you know, and, you know, Wall Street is an enigmatic force that just knows things. It's the market. No, it's it's insiders who the generals, it's the people who make decisions. It's the heads of heads of state, it's the heads of the major banks, it's the heads of technology who trade on insider information and, you know, you wonder what had the market. No, you know, well, you know, market knows because it's based off, unfortunately, insider information that I do not have, but my model looks to look at the footprints, those arcane footprints of what they're doing so I can make an assessment. Well, no market appears to be more manipulated based
Speaker 1on insider information than energy markets at this point in time, because we're hearing reports that physical barrels of oil are selling for far greater price than what we're seeing on the futures market, you know, by all expectations, a lot of short term traders have been burned. I've seen their lamentations on Twitter that they this was such an obvious setup that, you know, but you know what? They say in poker, if you look around the table, you don't know who the Patsy is, you're the Patsy, right? So when a trade is so obvious, you know, perhaps it's not going to work out for you. Could you speak to what's going on in the energy markets and then what you see happening there?
Speaker 2Like I said, it's just highly, highly contingent upon the social media of the president. So if you I mean, if you want to make if you if you want to be stupid enough to go out there and make big bets either way, short or long energy at this time, I think it's I think it's just a no touch. I think oil. I think oil trades between, you know, 65 and 80 dollars a barrel on WTI until we get until this war goes kinetic. And then I think it goes it spikes higher and then it comes crashing down once we once we win that war. If we can win the war, you know, Reuters reported that we're out of missiles. Sorry, we're out. I don't know. This is a great it's crazy times, Jesse. So let's let's put that scenario. Let me answer your question. I would not take any position. Yeah. In energy at this time.
Speaker 1It's just too it's just too dangerous. Well, let's wrap things up with the scenario in which this becomes another forever war drags on for years and years. And Iran retains control of the Strait of Hormuz, because in my opinion, that's not it. That's not a zero percent possibility in that scenario. How do you see things playing out for markets? And is that a scenario where we could see a higher, more sustained price of energy for the long term?
Speaker 2in the long term. some reason and i do not believe this to be a very big probability but it maybe i got this wrong if donald trump who has more than two years left in his tenure after the midterm says you know what i'll live with iran i'll live with tolls and i'll live i'll live with oil at 100 hours a barrel or 90 hours a barrel wherever it is at the time um and uh i'll i'll admit that i lost the war i'll i'll have a forever war with iran because you can't if you walk here jesse if you walked away now if we just pulled up stakes and went home iran would be so emboldened they'll say okay now we have a chance to develop a nuclear bomb we need one to protect us from the united states and israel we're going to control the straight straight and moves we're going to um not let israel pass through any israeli boats pass through we're not letting american flagships pass through we are going to charge tolls we're going to become enriched the irgc we're going to be more of a brutal evil regime than we already are i mean how does that make sense to anybody how how can he possibly do that but you know it's anything is possible nothing really surprises him anymore but i think i think he i think my belief is that he knows what he's got to do and he's going to do it he doesn't want to do it because he needs he doesn't want two years of investigations coming from the house on everything and every trade he ever did on on on shit coin if i don't if you don't mind me saying now you can you can cut that out no no no need yeah yeah that's that's what he's up against so he's i mean and who wants to be a lame duck for two
Speaker 1years well michael pinto great thoughts very much appreciate your time why don't you tell us about pinto portfolio strategies what you have on offer there
Speaker 2so there's two two levels of service here you could go to my website and subscribe to the midweek reality check i mean it's 50 a year i give you my high level view of my positioning in the portfolio and the takeaways from the salient news of the week um if you don't want to do that and you have a and you're inclined to protect against inflation and deflationary changes and you you want to ride a bull market higher that's what you're attempting that's what we attempt to do stay long when when things are good but the model is built to detect when there's a problem in the credit markets which is which is always the precursor of a more broader calamity in the economy in the markets it far precedes recessions recessions bring the market down fifty percent we don't want any part we want to be out and short at that time so if you have a hundred thousand dollars to invest and you want to invest in a long short portfolio and you are a u.s u.s citizen i will manage your money directly in that strategy inflation deflation and economic cycle cycle strategy great well
Speaker 1all of that is available at pinto port.com i'm going to put that in the description below michael as always thank you so much for coming on the show
Speaker 2always a pleasure to be with you jesse
Speaker 1you thank you for joining us today on commodity culture earn up to a four percent annual yield on your physical gold paid in gold ounces through monetary metals go to monetary-metals.com slash commodity to find out how to put your gold to work for you link is in the show notes below
PodcastTranscript AI