Greg Weldon Makes Greatest Name of 2018, Michael Pento Makes 2019 Predictions
Welcome to this week’s Market Wrap Podcast, I am Mike Gleason.
Arising Michael Pento of Pento Portfolio Methods joins me for an encore interview. Michael weighs in on how he sees Fed coverage selections enjoying out and why he believes it can have damaging long-term results on the financial system. Plus, study why he is been blackballed by CNBC and others within the mainstream monetary media. So, be sure to stick round for a replay of our explosive dialog with Michael Pento, arising after this week’s market replace.
On this ultimate Market Wrap Podcast of 2018, we’ll look again on the yr that was in valuable metals markets… and look forward to how issues may form up for 2019. We’re definitely seeing some encouraging indicators for valuable metals buyers in these remaining few buying and selling days of December.
Fairness markets received hit by some wild gyrations round Christmas, with the Dow Jones Industrials lastly gaining some footing on Wednesday and surging by 1,000 factors. It seems the Plunge Safety Workforce is out in full pressure following final weekend’s pressing calls to prime bankers by Treasury Secretary Steven Mnuchin.
This week’s restoration in shares might have simply despatched gold and silver costs retreating. As an alternative, the valuable metals continued to maneuver larger.
Gold closed Thursday at a 6-month excessive. As of this Friday recording, the yellow metallic trades at $1,279 an oz, up 1.eight% for the Christmas week.
And fittingly sufficient, silver bells rung in an enormous week for the white metallic. The day after Christmas, silver costs lastly cleared the $15.00 degree. A weekly shut above that cussed resistance would bode properly for silver’s near-term prospects. It might get off to a scorching begin in 2019, because it has in every of the previous few years.
Silver costs at present are available at $15.34 per ounce and are posting a weekly advance of four.6%. Regardless of some year-end bullish momentum constructing, the silver market will nonetheless end 2018 down by near 10% for the yr. Gold will shut out 2018 with a yearly lack of solely about 2%.
This yr’s standout valuable metallic is palladium. It’s placing in a yr thus far achieve of about 20%! Extra importantly, palladium broke out to a brand new all-time report excessive and achieved the uncommon feats of exceeding the costs of each gold in addition to its sister metallic, platinum.
The palladium market is displaying no indicators of hitting the skids simply but. Costs for the automotive metallic are up four.1% this week to $1,277 an oz.
Turning to platinum, costs are little modified for the week at $793 per ounce. For the yr, platinum is headed for a lack of near 15%, it simply can not seem to catch a break, whilst the opposite metals have carried out properly right here over these previous couple of weeks.
Contrarian-minded buyers could also be interested in platinum as a potential comeback story for 2019. Nevertheless, they could additionally have to train endurance. It might take a number of extra months earlier than industrial customers of platinum group metals start switching in an enormous means from pricier palladium to cheaper platinum to be used in catalytic converters in cars.
As for what may catalyze gold and silver costs in 2019, the most important catalyst – no shock – might be the Federal Reserve reversing course on financial coverage. At its December assembly, the Fed pointed towards two extra hikes in 2019.
Nevertheless, the market’s sharply unfavorable response heading into Christmas is more likely to foreshorten the central financial institution’s price mountaineering marketing campaign. Rate of interest futures at the moment are pricing in a great probability that the Fed is already completed.
Only a couple months in the past, analysts have been saying the Fed had room to hike three or 4 occasions in 2019. Hardly anybody anticipated an enormous inventory market plunge earlier than the top of the yr. One of many solely analysts we all know of who precisely referred to as the inventory market selloff that started in October and obtained worse in December was our pal Greg Weldon.
He appeared on this very podcast in late October to warn buyers of extra volatility forward.
Greg Weldon (Oct 26, 2018): We stated on the finish of August if the Fed strikes in September you’d see a selloff in October. That is precisely what’s occurred, and I feel it is simply starting. I feel you’ve rather more volatility. That is nothing. The on-balance quantity indicators, every little thing. You have not had any liquidation and that is a harmful accident ready to occur, when when you go to promote any person’s excessive priced shares which have big possession and a diminished turnover in shares as a result of the worth is so excessive, you might have a possible vacuum of consumers underneath this market. So I do not assume you’ve got seen the worst of it by any stretch of creativeness.
Congratulations to Greg Weldon for the most effective calls of 2018. He will not essentially get the popularity he deserves from CNBC or the Wall Road Journal. However we’re proud to function visitor specialists like him who’re ignored – and even blacklisted – within the managed New York monetary media.
In the present day’s visitor Michael Pento – a person who has been banned outright from networks like CNBC – will shed some mild on why he believes contrarian voices are shut out later in as we speak’s podcast.
We consider buyers who expose themselves to various opinions are higher positioned to make well-informed selections. Those that rely solely on the identical typical sources as everybody else will not ever achieve an edge on the markets.
Properly, with market volatility elevated, the yield curve near inverting, and the federal government partially shutdown, Fed Chair Jerome Powell might not need to danger triggering further tumult in January. If the Fed folds on charges, that might invite promoting within the U.S. Greenback Index – which in flip would assist gasoline a robust 2019 in metals. We’ll quickly learn how issues will play out in what’s more likely to be a really fascinating yr within the markets.
Properly now, with out additional delay, let’s get to our current interview with certainly one of our very favourite visitor specialists.
Mike Gleason: It’s my privilege now to welcome in Michael Pento, President and Founding father of Pento Portfolio Methods and writer of the ebook The Coming Bond Market Collapse: Methods to Survive the Demise of the U.S. Debt Market. Michael’s a well-known cash supervisor and a terrific market commentator and it is all the time nice to have him on with us right here on the Cash Metals Podcast. Michael, thanks for coming again once more, and welcome.
Michael Pento: Hey, thanks for having me again on Mike.
Mike Gleason: Properly Michael, the Dow rallied 600 factors this week when Fed Chair Jerome Powell hinted that we’re approaching the top of a tightening cycle. To many people, the potential for a coverage change comes as no shock, particularly given the current carnage within the shares. We reside in a world hooked on low cost cash, and admittedly, we have been stunned to see the FOMC get away with as many hikes because it has. What did you make of Powell’s feedback? Did the consensus round three to 4 fee hikes in 2019 get blown up? Is the December fee hike nonetheless on the best way? What are your ideas?
Michael Pento: Nicely, I might take your complete interview and expound on what you simply stated. Let me offer you my take. To start with, and I say this with all respect, Jerome Powell appears to me to be a bit extra feckless and a lackey of the Trump administration and of the inventory market, after yesterday. He did transfer somewhat bit extra dovish, however not as dovish as Wall Road would hope for and is praying for, and what they took his language to be.
Let me simply say that on October third, Jerome Powell stated that the Fed could be very distant, very distant from impartial. And that the Fed must go maybe a half of a proportion level above impartial. So, they assume impartial, proper now the efficient Fed funds fee is 2.2%. The vary is 2 to 2 and 1 / 4. Let’s simply say that impartial for the Fed is round three. Jerome Powell stated that not solely are we very distant from three, clearly, 75 foundation factors or three hikes, or 100 foundation factors away, 4 price hikes, within the 25 foundation level vary.
But in addition that they must go 50 foundation factors above that vary. Now, he comes out yesterday in entrance of the Financial Membership of New York and stated this. “We are close to the range where the FOMC thinks that rates would be neutral.” Now, let me simply inform you, there isn’t any such factor as a impartial Fed funds fee that is neither stimulative to progress or depressive to progress. That simply does not exist. Let’s simply begin there.
However let’s additionally admit that saying that you simply’re near a variety, which has a backside to a variety, a midpoint to a variety, and an finish level to a variety, to say that you simply’re near a variety doesn’t imply – as Wall Road took it to imply – that the Fed is now on maintain. The Fed shouldn’t be on maintain, by any means. I feel they will go on maintain by June of 2019, however they don’t seem to be, repeat not maintain now.
The Fed is elevating rates of interest, one time in December, for my part, they’ll go once more in December. And they may go once more in all probability in March, and the June hike I feel would be the final one. That is when it’s going to be apparent that the financial system is falling off the desk. Take a look at auto gross sales, and residential gross sales. We had a studying yesterday of latest house gross sales, they fell 12% yr on yr. The rates of interest sectors of the financial system are falling off a cliff.
And that is not recognized to The Fed, as a result of they take a look at lagging financial knowledge, and apply it to fashions which have by no means labored. So, the Fed did flip a bit of bit extra dovish, however not anyplace close to as what Wall Road thinks they’ve turned.
Mike Gleason: You have not been too optimistic about company earnings progress in 2019. You wrote a bit a few weeks in the past which laid out why the current tax cuts drove earnings this yr, however the outlook for the approaching yr is just not almost nearly as good. GDP progress might have peaked. There’s proof of slowing around the globe. Rising wages and different prices that would begin pinching income, however as mentioned, the Fed could also be altering course now.
The valuable metals markets have suffered within the face of relentless optimism surrounding inventory costs and weak demand for safe- haven belongings. Now, if 2019 winds up perhaps being stronger for earnings and equities, you would need to assume that it might be persevering with headwinds for metals. What are your ideas about the place company income are headed? Has something modified with regard to your outlook for earnings in 2019, Michael?
Michael Pento: Nicely, pay attention, the worldwide financial system isn’t doing too properly. China is slowing their progress fee very quickly. You will not hear this on CNBC more than likely fairly often, however I’ll inform you that, did guys know that the third quarter in Japan was truly in contraction? Did you guys know that Germany, Q3, was in contraction? And you won’t know that, as a result of in case your viewers, which is by much more knowledgeable than the typical viewers that watches CNBC, however thank God that you’ve individuals come in your program who’re unbiased and never carnival barkers beholden to Wall Road, who can inform you that the worldwide financial system, the expansion fee of the worldwide financial system is bending right down to the South in a short time.
In the event you take a look at a stronger greenback, in the event you take a look at the truth that there’s elevated wage pressures on firms, in case you take a look at the truth that margins have peaked and are rolling over, in case you take a look at the truth that international financial system is rolling over in a short time, and you have had eight price hikes from the Federal Reserve, they will do the ninth one in December, and the Fed is draining nonetheless, you did not hear boo about this from Mr. Powell at his speech yesterday.
The Fed continues to be burning, destroying $50 billion of credit score and money from the banking system each month, Mike. So, to assume that earnings in 2018, earnings per share, on the S&P 500, the trailing 12-month earnings, goes to return in at round $162. And Wall Road has by some means positioned a quantity on 2019 within the progress price space of near double digits. You are speaking about $175, $178, their ranges are round that space.
That is simply not going to occur. So, what I feel, for my part, you will be fortunate to get progress fee in any respect in earnings per share, and why on the planet would you slap something greater than a 15 a number of upon that? I am wanting on the S&P 500 method overvalued right here, in a best-case state of affairs. That can also be seeding to this proven fact that we do not have an escalation within the commerce conflict, and that Jerome Powell does not render the financial system in the USA right into a recession in 2019.
Each these issues aren’t assured. So, the S&P 500 is overvalued proper now, and that is the most effective case state of affairs. Let me simply shortly add this for you and your listeners. Simply taking a look at earnings per share is a large mistake, in case you’re wanting on the P/E ratio. So, the worth to the earnings ratio, in case you’re simply taking a look at that ratio, you are grossly underestimating the valuation of the inventory market.
In case you take a look at complete market cap to GDP, worth to gross sales, worth to guide, these clearly present that the inventory market is means, method overvalued. You can’t take a look at simply the P/E ratio as a result of earnings per share has been boosted by an enormous and report quantity of share buybacks which takes down the rely of shares and boosts earnings per share.
Mike Gleason: The rationale you do not hear about these things on CNBC, Michael, is as a result of they’ve blackballed individuals such as you it appears. Is there one thing to that? I imply, it looks like that they need to suppress the individuals like your self on the market which might be making an attempt to talk fact into these markets. Is that a part of their narrative to maintain the entire thing going, simply having nothing however optimistic viewpoints?
Michael Pento: Pay attention, I’ve requested myself that query so much Michael. I attempt to ask myself why am I blackballed from … I imply, I am persona non grata from not solely CNBC, however Bloomberg as nicely. And I ask myself, “Why would that be the case?” I truthfully requested myself that query, as a result of there are different individuals on the market who’re bearish, and by the best way, I am not bearish on a regular basis. I used to be wildly bullish in January of 2009, after being bearish for a number of years earlier than, heading into the housing disaster. I used to be on CNBC twice every week.
And I’ve come to the conclusion, that is the conclusion I’ve reached, true or not, that is how I truthfully really feel. I feel CNBC and Bloomberg et al see me as a harmful particular person. The rationale why they assume I am a harmful particular person, not solely as a result of I’ve a ton of information in my head once I come on CNBC and are available on these mainstream monetary media retailers, and simply bury individuals who have a opposite view.
I come out with details, I base my opinion on details, after which I categorical my opinion. I haven’t got an agenda. However the actual cause why they assume I am harmful is as a result of I confront the Federal Reserve for what they’re, and I’ve referred to as them legalized counterfeiters, okay? If you name a central financial institution a counterfeiter, I feel that they banish you right into a wasteland. So, I am persona non grata, throughout the monetary media, for that very purpose. As a result of I name out the Federal Reserve for what they’re doing.
You consider this, Mike. Did you, me, and any of your viewers ever give a vote or permission or sanction for the Federal Reserve to buy bonds, long run bonds, to the tune of $three.eight trillion value of mortgage backed securities and Treasuries? Did anyone ever vote for that? Did anyone ever sanction that? No. The reply is not any, we didn’t.
See, cash needs to be actual for financial progress to be actual, and when cash’s actual, you speak about what makes cash actual … there is a cause why, I consider, the USA and the remainder of the world throughout numerous occasions in our histories, went on a gold commonplace. As a result of the mine provide of gold is restricted, it tends to rise commensurate with the rise within the labor pressure progress, plus productiveness.
And in that regard, retaining that base cash provide feathered, restricted to that progress fee, you remove the potential of asset bubbles and inflation. However right here you’ve gotten a central financial institution, ordained by no one, it was Congress gave them authorization in 1913, however no one gave them authorization to counterfeit, let me say it once more, as a result of that is what they do, credit score, trillions of dollars’ value of credit score from nothing, ex nihilo.
Who gave them that authority? I come out and assault The Fed for what they’re, and by the best way, the Fed just isn’t alone. The Financial institution of Japan is far worse, the European Central Financial institution is far worse, and the Individuals’s Financial institution of China is far worse than The Federal Reserve, however collectively these central banks printed $14 trillion within the final decade.
They did that for a few causes, to take rates of interest to zero and under, to allow them to re-inflate asset costs, so individuals cannot afford a home anymore. There is no freedom left on this financial system, and that is what makes me harmful. I level to the truth that central banks have distorted the so-called danger free price of return on authorities backed paper, and the whole lot is priced off of that danger free price of return.
The whole lot on the market that you simply see, the worth of junk bonds, the worth of municipal bonds, the worth of equities, the worth of houses, are all massively distorted due to what the central banks have carried out. They do not actually like listening to that, however I feel you and your viewers need to know the reality.
Mike Gleason: Yeah, nicely their loss is our achieve so far as I am involved, and glad you proceed to share your insights with us right here.
Nicely, as we start to wrap up right here, I need to get your outlook on the metals as we begin to flip the calendar and switch our focus to 2019. How do you see issues enjoying out for gold and silver within the brief to medium time period?
Michael Pento: Nicely, as you understand Mike, I run an actively managed fund. I’ve a technique referred to as the inflation/deflation financial cycle mannequin. We have now been very a lot underweight, valuable metals, you possibly can pull up all of our previous interviews because the years I have been on with you. I’ve stated since just about 2013, that we ought to be underweight with metals, perhaps about 5% of your portfolio, and that features mining shares.
I lately, on the wake-up Powell’s speech, he did hedge a bit of bit, lean somewhat bit extra in the direction of being dovish, so I did buy a number of extra proportion factors of valuable metals within the portfolio. We’re about 7% now, allotted in the direction of that sector. However I need to inform you this, make this very clear, I consider that for the 13th time, 13 out of 14th time, since World Conflict II ended, the Federal Reserve goes to push the financial system over a cliff.
And you are going to have a recession/melancholy, in all probability within the latter half of 2019, that is when it may begin. In case you take a look at issues like LIBOR, the London Inter-Financial institution Provided Fee, that fee has gone from zero.three% to 2.73% right now. And the Federal Reserve continues, as I say, to destroy in fiscal 2019, which began in October, they are going to burn $600 billion value of money and credit score from the system.
When you might have asset bubbles to the extent that we’ve now, that sit atop report ranges of debt, one factor you can’t have is rising rates of interest. However that is precisely what’s occurring. So, we will have a crash within the inventory market, a crash within the financial system, globally talking, like we have by no means seen earlier than, for my part, and it will be at that juncture, in arrears, ex-post, the Federal Reserve, Jerome Powell will say, “Oh, wow, I think we went too far. I think we have to reverse course.”
In fact it’s going to be too late, however once they say that, that is when the greenback will begin to roll over. That’s when actual rates of interest will begin to fall, and gold and silver and platinum and the entire valuable metals sector, particularly the minors, which have been crushed down for 5 years, it has been a crap present for buyers, that’s once they, I feel, are going to tear greater like we have now by no means seen earlier than.
Not till then, nevertheless it’s occurring, and my guess once more, might be June of 2019. Proper round that time frame. So, get ready, I simply need to say. Do not leap in proper now, however once you see the financial knowledge begin to roll over very exhausting, and I feel that is an early 2019 occasion, and Mr Powell already performed his hand. He is in enterprise to guard Wall Road. He will cease elevating rates of interest, then he will decrease rates of interest, after which he is going to return to QE. That is all a second half 2019 occasion, and you need to prepare now. And in the event you see some gold coming in, you might have a superb alternative to purchase some, or if you do not have some already, begin dipping your toe into the water, as a result of it isn’t years away anymore. It is a couple of quarters away at most.
Mike Gleason: We’ll depart it there. Very properly put. We recognize it as all the time, Michael. Thanks in your fantastic insights and being so beneficiant together with your time as all the time. Now, earlier than we allow you to go, please inform individuals about Pento Portfolio Methods after which additionally how they will comply with you extra intently in the event that they’d like to try this.
Michael Pento: You’ll be able to go onto my web site, model new web site, simply up to date, so it is PentoPort.com.
Mike Gleason: Nicely, thanks once more Michael. I hope you’ve gotten an ideal vacation and an exquisite Christmas season, and we’ll sit up for catching up with you once more someday through the first a part of the New Yr. Take care.
Michael Pento: God bless and Merry Christmas to you.
Mike Gleason: Properly, that may wrap it up for this week, thanks once more to Michael Pento of Pento Portfolio Methods.