Money manager Michael Pento wrote a book a few years ago warning of “The Coming Bond Market Collapse.” All the signs say this calamity is very close. Pento explains, “Global central bank balance sheets have risen from $6 trillion in 2007 to $21 trillion today. That’s the increase in the size of central bank balance sheets. . . . I can prove to you when this bubble breaks, it’s going to be disastrous. . . . Just that they (European Central Bank-ECB) didn’t hint at expanding QE and look at what it has rendered us. That’s proof positive that everything that has happened since the 2008 collapse, that it’s just been artificial and ephemeral in nature. Once central banks even hint at pulling back from their QE programs and ZIRP and NERP go away, bonds will crash, and when those sovereign bonds crash on a global basis, it’s going to take everything else down with it concurrently.”
What happens if the Fed raises interest rates, and what happens if it doesn’t? Pento contends, “If the Fed actually raises rates in this September meeting, I think what you saw last week and what you are experiencing this week is just the warm-up act. You are going to have a wipeout in bonds. Everybody is going to be rushing for the door at the same time, and there is no room but for one out of a thousand to get through. So, it’s going to be catastrophic.”
How fast could interest rates rise, and how high could they go? Pento calculates, “What’s going to happen eventually is exponentially worse than what you saw last week and this week because eventually, they (central banks) are going to have to change their monetary policies. They (central banks) are going to have to, once their 2% inflation target is achieved, they are going to have to start unwinding their balance sheets. Otherwise, there is going to be no way to drain the money supply. They’re going to have to sell assets. Front runners that are front running the bids from central banks are going to have to get out. . . . So, yields are going to absolutely spike to at least where inflation is plus a percent or two. I am saying you can go from negative rates such as -.1% to 2% or 3% or to 4% in a matter of days. . . . When I say 2%, 3% or 4%, I am being generous. I think rates could spike dramatically, and the bond market is global in nature . . . . That’s going to spike all yields concurrently and in unison, and everything, Ferrari’s, diamonds, commodities, real estate investment trusts, municipal bonds, collateralized loan obligations, and I mean everything is priced off of that risk free rate of return. . . . If they are going to stop their repression of interest rates, everything is going to collapse concurrently.”
And, if the Fed does not raise rates at its September meeting as it has been warning? Pento says, “The Fed is going to lose all their credibility on September 21st. Half of the Fed, and this includes Fed Head Janet Yellen, has been telling you that the economy has healed and they are ready to resume interest rate hikes. If they raise rates, and I don’t think they do, they are not going to be ‘data dependent.’ They are just freaking out about having promised to save the world with four rate hikes in 2016 and garner some credibility before the end of the year. If they don’t raise rates, they are going to lose all their credibility anyway because they have been threatening to do so. If they do raise rates, they are going to lose credibility because (the economy is sinking) and they are not ‘data dependent.’ The data here in the United States is screaming recession. . . . If they raise rates, they are going to absolutely crater the stock market and the bond market. . . .”
If the Fed admits it can’t raise rates, Pento predicts, “Gold is going to become completely unglued from its moorings and will shoot up very close to record highs very quickly. It’s not going to happen until the Fed admits that it cannot raise interest rates.”
Michael Pento is a prolific writer, and you can follow his work on PentoPort.com. If you want to buy a copy of his book “The Coming Bond Market Collapse,” you can easily find it on the home page of PentoPort.com.
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.