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Monday, May 13, 2013

Pento On Bond Markets


Pento to Moneynews: Governments May Fall in Coming Bond Market Collapse

Sunday, 12 May 2013 10:42 AM
By David Nelson and Dan Weil
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The bond market is headed for a meltdown, and that collapse may bring down the governments of Japan, Europe and the United States, says Michael Pento, president of Pento Portfolio Strategies.

The U.S. government was about to collapse in 2008 until the financial system was bailed out, he tells Newsmax TV. "We took on $7 trillion of new debt and took interest rates to zero percent," says Pento, author of "The Coming Bond Market Collapse."


"What's the next trick? When the bond market bubble bursts, what will the government do?" The housing market already has been bailed out by the state," he says.

"Now, when the state gets in trouble and the state becomes insolvent, what do they do?" asks Pento. "Take on more debt? Does the United States call the IMF, of whom we are the primary contributor? It can't happen."

Looking at Europe, austerity is the only answer to its debt crisis, Pento says. "And austerity is what we need here in the United States before we reach the point, the epiphany, the watershed moment of Greece," says Pento.

"So now is the time that we, as a nation, have to balance our budgets. ... We have to strengthen our currency as soon as possible. We have to unwind this blatant and fallow inflation that's sitting at the Federal Reserve."

The banking system will have $4 trillion of excess reserves by year-end, Pento says. "We already have inflation in the bond market. We're re-creating bubbles in the real estate market and in the equity market. And the biggest bubble of all is the bond market. Let's stop that now."

So what will make the bond bubble burst? "It could be Fed-induced or market-based," Pento says. "The Federal Reserve has an inflation target of 2 percent. If they achieve their inflation target, they're going to not only achieve it but exceed it. They can't nail an inflation target of 2 percent.



At that point, the Fed can decide to either continue or abandon its massive easing program.

If it opts to continue the easing, "that would be an inflationary collapse of the bond market," Pento says.

"In that case, you want to own precious metals, base metals, energy, agriculture, and you want to short bonds, of course, because high yield, sovereign debt, municipal bonds would all collapse."

If the Fed decides to halt its easing when inflation hits 2 percent, "that would be the right move to take, but in the short run would you buy a bond knowing that the Fed stopped QE?" Pento says.

"In that case, you'd still short bonds, but it would be a deflationary collapse of the bond market, [so] you want to short precious metals, you want to short industrial [stocks]."


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4 comments:

  1. Krugman answers...

    http://krugman.blogs.nytimes.com/2013/05/11/inflation-madness/?smid=tw-NytimesKrugman&seid=auto

    Great Britain and other European countries that have tried extreme austerity during recession choked their economies and sent themselves back into recession. I'm with Krugman and the other Keynesians of this issue.

    --David

    ReplyDelete
    Replies
    1. That's the point of true austerity. Reduce values to their true market prices. The economy will find a sustainable point to rebuild on. Us in the pro-Austerity camp want true Austerity and recession/depression WILL happen. The liars claim that we think an immediate economic benefit results from lower spending. Not True!

      Europe has not enacted true austerity. Spending has barely dropped in some of the countries, and in others the rate of growth only slowed. Taxes have skyrocketed, amongst many other anti-free market policies.

      Blame the crony capitalism, welfare and central bank manipulation, NOT the very modest difference in spending.

      How much credibility does Krugman really have? Forget the fact that he is Keynesian, and his views are almost always opposing Austrian economists. Forget that. Krugman promoted in dozens of statements that the US should replace the Nasdaq bubble with a housing bubble. Greenspan did exactly this. The US should have had a steep recession in the early 2000's. This was delayed until 2008..... again we have done pro-Keynesian policies and again the true (inevitable) market adjustment was delayed. The levels of government spending needed per growth in GDP are accelerating. Our economy is phony and this phony economy, like a drug addict, requires ever more to sustain the same high. Economists fabricated "studies" to push the stimulus plan through based on Keynes' multiplier effect. Wealth was predicted per dollar spent, however wealth was actually destroyed per dollar spent.

      Krugman can only paint himself as being correct if he erects strawmen.

      Delete
  2. Interesting article on Bernanke and the hedge fund managers who will lose betting against him...

    http://delong.typepad.com/sdj/2013/05/the-washington-super-whale-hedge-fundies-the-federal-reserve-and-bernanke-hatred.html#more

    --David

    ReplyDelete
  3. Who says the House of Representatives isn't getting any legislation passed?

    http://news.firedoglake.com/2013/05/07/house-moves-to-gut-derivatives-regulations-again/

    --David (OWS)

    ReplyDelete

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