Tariff Rebate Checks, Dead Pennies, and a $3,200 Missed Chance -

Welcome to this week’s market wrap podcast, I’m Mike Gleason
Coming up in a moment, we have an exclusive interview with Michael Pento of Pento Portfolio Strategies and author of the book The Coming Bond Market Collapse. Michael weighs in on the growing global de-dollarization movement as foreign countries around the world are actively working to reduce their holdings of U.S. Treasuries and how they are simultaneously increasing their gold reserves in the process.
Mr. Pento also talks about how recent action in the bond market is signaling a very real concern over the government’s insolvency and inability to control inflation, which is being reflected in rising yields despite the Fed cutting rates, and how these developments could be very detrimental for the economy due to higher borrowing costs.
Michael discusses that, and how gold is the absolute and ideal store of wealth in this environment with Mike Maharrey in another wonderful Money Metals exclusive interview, coming up after this week’s market update. And as a reminder please download, like, rate and subscribe to this podcast wherever you consume this content.
Well, it’s been a wild ride this week in the metals markets. Gold has been all over the place in a highly volatile week but is currently up about $100 since last Friday’s close to check in at $4,115 an ounce, good for a 2.5% weekly advance.
Silver has seen even more wild swings. The white metal was white hot mid-week, having gained nearly $6 an ounce since last week’s close and pushing briefly back above the $54 level before retreating. Silver currently comes in $51.39, well off its highs from a couple of days ago but still good for a 5.8% gain since last Friday’s close.
Platinum is up a slight 0.5% on the week to trade at $1,563, while palladium is up 2.6% to come in at $1,435 as of this Friday late midday recording.
Well, there has been a lot of talk about tariff $2,000 rebate checks this week. If they materialize, you should consider using them to buy gold or silver.
It appears the Trump administration is serious about this proposal, although there are plenty of question marks. On Wednesday, White House press secretary Karoline Leavitt said the administration is “committed to making it happen.”
“We are currently exploring all legal options to get that done,” she said, reiterating that “the President made it clear that he wants to make it happen.”
The rebate would likely be subject to an income cap. Treasury Secretary Scott Bessent floated sending checks to families with incomes below $100,000 per year.
The rebate would likely require congressional approval.
The tariffs aren’t generating enough revenue to pay for the rebate. The Committee for a Responsible Federal Budget estimates that if the rebate is structured similarly to the pandemic stimulus, it would cost around $600 billion. That is close to double the projected annual tariff revenue. However, that doesn’t mean the government won’t send out the checks. It would be a politically popular move, and the federal government has shown no hesitation in borrowing more money when it wants to do something.
So, if the checks come through, what should you do with the money?
One thing is certain – you don’t want to hold onto those dollars for very long because they will lose purchasing power every day!
Of course, a lot of people will probably need it to cover bills and pay off debt. However, if you have the option of saving your windfall, you might want to consider putting it in gold or silver.
Just think about where you would be today if you had bought gold or silver with your COVID stimulus.
There were three rounds of pandemic stimulus totaling $3,200 for an individual. You got more if you had kids, but we’ll just stick with the simple number.
The average gold price in 2021 was $1,800 an ounce. At that gold price, you could have bought 1.7 ounces of gold with your stimulus money.
And how much would that 1.7 ounces of gold be worth today, with gold now at $4,115 per ounce? Well, it would be worth $6,995. That represents a 129% gain in just four years.
The average silver price in 2021 was $25 an ounce. At that price, your COVID stimulus money would have bought 128 ounces of silver. At today’s price of $51.39, your silver would be worth $6,578, a 106 percent gain.
Now you understand why I’m suggesting gold and silver might not be a bad way to invest your tariff rebate, should it come to pass.
Of course, gold and silver may not go up that much in the next four years, but odds are it will go up because inflation is rampant, and it appears the Federal Reserve is intent on cranking up the inflation machine.
Meanwhile, on Wednesday, the Philadelphia Mint produced the final five circulating pennies.
Now the Treasury stopped mass-producing pennies months ago after President Trump passed a death sentence, ordering an end to the venerable 1-cent piece earlier this year. However, an unspecified number of pennies were struck with an Omega symbol to signify that they are the last of their kind. The final five pennies produced in Philly were part of that batch, and they will be auctioned off next month.
Trump passed a death sentence on the penny in an announcement in February, citing the rising cost of manufacturing the 1-cent coin.
“For far too long, the United States has minted pennies which literally cost us more than 2 cents. This is so wasteful!”
Trump went on to say he is going to rip the waste out of the U.S. budget “even if it’s a penny at a time.”
According to the U.S. Mint, it actually costs 3.69 cents to mint and distribute one penny.
In 2024, the mint produced 3.2 billion pennies and lost about $85.3 million in the process.
So, what happened to the penny?
Well, one cent has become virtually irrelevant in today’s financial system. The greenback has devalued so much that the value of 1/100th of a dollar is approaching zero. It’s worth about as much as the lint in your pocket.
And how did this happen? Well, as stated earlier, it’s because the government is destroying your money.
Simply put, the government and its enablers at the Federal Reserve have printed the dollar into oblivion. The more dollars they create, the less each dollar is worth.
And they have printed a lot of dollars.
Since 2008, the Fed has created over $8 trillion through quantitative easing alone.
The results were predictable.
Based on the CPI, prices have increased by over 713 percent since 1970. And keep in mind that the CPI doesn’t even tell the entire story of inflation. The government revised the CPI formula back in the 1990s so that it understated the actual rise in prices. Based on the formula used in the 1970s, CPI is closer to double the official numbers.
On the other side of the coin (pun intended), production costs have gone up due to this same inflationary pressure. Put into perspective, it’s no wonder it costs so much more to produce a penny than it's worth.
The bottom line is, every time you pick up a penny, it’s a reminder of Uncle Sam’s monetary malfeasance. Instead of actually solving the problem (i.e., end the borrowing, spending, and money printing), your drunk uncle just shot the messenger and sent the penny to its grave.
This isn’t the first time the government has taken steps to obscure its monetary destruction.
In 1982, the mint removed most of the copper from the penny. Before that year, pennies were composed of 95 percent copper and 5 percent zinc (as an aside we actually sell these 95% copper pennies by the <a href="https://www.moneymetals.com/pre-1983-95-percent-copper-pennies/4">34 pound bags</a> here at Money Metals). Due to rising copper costs (a result of inflation), the mint changed the composition to 97.5 percent zinc with 2.5 percent copper plating.
The government devalued silver coins nearly two decades earlier.
Under the Coinage Act of 1965, signed by President Lyndon Johnson, the U.S. Treasury removed all the silver from dimes, quarters, and half-dollars. Instead, the government mints coins from “composites, with faces of the same alloy used in our 5-cent piece that is bonded to a core of pure copper.”
Today, you will sometimes hear coins minted before 1965 referred to as “<a href="https://www.moneymetals.com/buy/silver/junk-silver">junk silver</a>."
In reality, we should call modern American coins junk.
The demise of the penny is another example of the same phenomenon.
When Johnson signed the Coinage Act, he insisted that removing silver would have no impact on the value of U.S. coinage.
“[The] Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin,” he said.
Just a few years later, President Richard Nixon made a similar claim when he cut the final tie to the gold standard. He said, “Let me lay to rest the bugaboo of what is called devaluation,” and promised, “Your dollar will be worth just as much as it is today.”
Both men were lying.
When you disconnect money from anything of tangible value, it is going to quickly depreciate. It’s as certain as death and taxes.
And that’s exactly what happened.
This currency debasement is ongoing. They killed the penny. What goes before the firing squad next? The nickel?
The way things are going, it's only a matter of time.
This is why you want to have real money – gold and silver. It will not be devalued by government action and can hold the value of your wealth over time.
Well now, without further delay, and for much more on the markets and the economy, let’s get right to this week’s exclusive interview with one of our very favorite guests.
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Mike Maharrey: Greetings. I'm Mike Maharrey and I'm joined today by Michael Pinto at Pinto Portfolio Strategies. Always happy to have you on the show. Michael, how are you today?
Michael Pento: Better than terrific.
Mike Maharrey: Oh wow. That's a high bar. I don't know that I can meet that today, but I'm going to do my best.
Michael Pento: I'm trying to be as optimistic as possible as I see the middle class being flushed down the toilet, and as I see the buy-and-hold bag holders getting flushed down the toilet. So it's kind of like, you know, and I see another round of helicopter money being proposed.
Mike Maharrey: Oh, I know. Isn't that crazy?
Michael Pento: It's hard to stay cheery, but I'm trying. I'm faking it.
Mike Maharrey: Well, there are things that we can control and there are things that we can't control, and I guess we are best off try to control what we can.
Well, let's talk a little bit about the gold and silver market to kick things off. We had a pretty healthy correction, and I don't think that was a surprise to anybody. We were kind of in that time period when you would expect a correction, but it's bounced back pretty quickly. And I'm wondering if the speed of the recovery that we've seen in both gold and silver over the last few days has surprised you.
Michael Pento: Not particularly. It's a very nuanced kind of question. Almost like a day traders kind of question. And I'm not a day trader in the precious metals market. So, I'm looking at (Fed) Governor Miran who wants to cut by a series of 50 basis points to destroy the dollar faster. I'm looking at the president of the United States who wants to put in an obsequious pawn, as I’m fond of saying, when Powell is terminated, his tenure expires, not terminated, his tenure expires in, I believe May of ‘26. And I look at our debt and deficit situation. We're going to give a dividend. I mean, usually when a company gives a dividend, it's from excess cashflow, right? And we have 38 trillion national debt and we have a deficit of $1.8 trillion. So where in the hell is this dividend coming from? Can I tell you where it's going to coming? It is going to be more borrowed money.
Mike Maharrey: Yeah, absolutely.
Michael Pento: So, it is a fiscal and monetary nightmare. Now, gold, silver and platinum went vertical. They've corrected. They consolidated at a lower price, and then they're on the march higher. They are extremely susceptible to liquidity crises. So, if we have a crack up in the bond market, I fully expect the correlation to go to one. That includes AI, that includes energy, that includes gold and platinum and silver and palladium and soybeans. Everything goes to a correlation of one, and they all get flushed down the toilet. The only thing that works are short-term Treasuries. Sometimes the US dollar, sometimes, sometimes for a short period of time. And shorts. So cash, Treasuries, sometimes US dollar and shorts. Those are the only four things that ever work. And I want to reiterate, sometimes the US dollar, it doesn't look like it's going to work this time. So, you basically have a three legged stool if you're not shorting the market.
And if you don't have cash, and if you don't have bonds, everything goes to a correlation of one, you're going to be wiped out in a liquidity crisis. Now, I'm not saying that's where we're going right now. My model was pretty quiescent up until today. I after run it, after hours again. But we'll see. I mean, if the market starts to crap out, and I predicted this, so you have to understand, I'm not doing this ex post. This is Ab Initio stuff. I said the market is going to crap out because long term bond yields are going to start to rise in tractably. And if this is the beginnings of it, and again, I'm not saying it is, it could be, but I'm not saying it is, there's not a damn thing that our government's going to be able to do about it, do about it to stop it.
What are they going to do? Are they going to come out and say, I'm going to print a bunch of money to help with the inflation problem. Are they going to send more helicopter money? Are they going to borrow more trillions of dollars? Are they going to lower interest rates? What are they going to do? The only thing I think they're going to try haven't got here yet. They're not even close yet, but they might just say, we are now going to follow the Bank of Japan's, and it didn't even work there, but we're going to do some kind of cap in the benchmark. We say the benchmark 10 year treasury note will not trade above 6%. I hear thou decree that I will print unlimited amount of money and it's a big enough bazooka like Mario Draggy said, and go ahead try me. And then the bond market might say, okay, we're going to try you.
Because they don't just have to buy Treasuries. They have to buy municipal bonds too, right? Because if inflation's right, let's just say inflation's running 15%. Let's do a thought experiment. Inflation's running 15%, but the government's buying 6% bonds. Well, they'll be the only one buying bonds. Everybody else is going to be selling everything to them, and they're going to be shorting unlimited amount of bonds to the government. But who's going to buy municipal bonds at 6%? If inflation's double digit? Who is going to buy a corporate debt at 6% when inflation is double digits? Nobody. So I guess government's going to buy all that too. Buy everything and then we'll just buy everything and then we'll be Zimbabwe. I mean, it is not like this has never been tried before. It has and it's always failed miserably. And I expect the same thing to happen again because lost Michael. We've lost our freaking minds.
Mike Maharrey: There's a couple of things in there that I kind of wanted to touch on. Let's start with the Fed. You mentioned the likelihood, well, not the likelihood we will have a new Fed governor come next year. And we've got some folks on the board right now that are talking about 50 basis point cut as you mentioned. I want you to try to help me make sense of this.
Michael Pento: I can can, if you're going to ask me to try to justify a series of 50 basis point rate hikes when inflation's been above 2% for four and a half years, I can't, but we'll see where you go.
Mike Maharrey: No, that's exactly where I was going. And I'm asking it really more as a rhetorical question because it doesn't make any sense. We have what is obviously still elevated inflation, and we're in an aggressive, I would call it an aggressive cutting cycle at this point. And they're talking about ending balance sheet reduction, and I think they're going to go back to QE pretty soon,
Michael Pento: Michael, they already are. So QE is going to end officially in December,
Mike Maharrey: December,
Michael Pento: But the balance sheet is now growing. It's no longer shrinking. That is, by the way, how you get see interest rates. The Central Bank of the United States doesn't say, I decree that the Fed funds rate shall now drop by 50 basis points. Well, they don't do that. They print money credit, they flood the money markets and the interbank lending rate goes down because the flooded with reserves. That's how they do it
Michael Pento: That. So they're creating inflation. Credit is money, and that leads to more lending and more inflation. And if it goes out to helicopter money, they bypass the banking system. So you don't hope that the banks get money like we did in 2008. We lend banks money, we take their bad assets, we lend them money, they have credit, so they remain solvent, but they don't have to lend it out. They could just trade stocks and bonds with that money and they don't have to lend it out. So we don't have a broad based expansion of the money supply, but if we're sending helicopter money out, well, the money goes right to people. It has to go to people where it starts. They're sending checks to people.
Mike Maharrey: And that's exactly, I mean, they're already talking about doing that, right? With the tariff rebates that you value
Michael Pento: $2,000 per every. So the way the math works on that, I believe it's everyone who's making under a hundred thousand dollars a year gets two grand, and that comes to $300 billion. And we've taken in a little bit over a hundred billion, a hundred billion in revenue. So it doesn't make any sense.
Michael Pento: And when the president, who I support and vote voted for, so please save your emails when he says, well, we're going to balance the budget and then we're going to pay down the national debt with, what are you talking about? I mean, the national debt is skyrocketing, and the deficit was $1.8 trillion. So that's how much is added to the national debt every year. So what dividend are you giving people to? Where's the money coming from? It's very aggravating. And when he says, well, inflation, there's no inflation anymore. Well, okay, inflation was, lemme just give you a minute of truth, and a lot of people will agree with me on this one. So the level of prices as bankrupt, the middle class, the lower three or four quintiles, so the lower 60 or 80% of the population is struggling to make ends meet. That's evident in all the earnings reports that you see. They just don't have any money anymore. It's the level of freaking prices. So that inflation is embedded. People can't afford a house, they can't afford health insurance, they can't afford to pay their taxes, they can't afford to eat properly. And then the level of inflation goes from 9% the way they calculate it to three. Now that's on a second derivative basis of a drop, but prices are still rising by 3% on the change.
Michael Pento: So the level of prices is bankrupt people, it's still rising way above 50% above their asinine 2% target. So how does that equal no inflation? And what we're going to do now is print more money and send out helicopter money and send out a round of helicopters, get the helicopters going again.
Mike Maharrey: Yeah. I tell people all the time that inflation is the plan. I mean, there's never no inflation. They're just trying to keep it at a point where people don't get too upset about it, I think is the strategy that they've got going,
Michael Pento: Michael, you're exactly right. Exactly right, because I'll give you a little inside baseball here. You should probably know about it anyway. So the Federal Reserve doesn't give a rat's patooty about the American people. And when it comes down to it, they care about one thing only in the first and foremost. And the vanguard is they care about banks, they care about the health of banks, and then a second, an ancillary derivative of that. They might care about people, but really they care about banks. I mean, if you really cared about people, you would say, I declare that I want 0% inflation. I have a mandate from Congress for stable prices, not redefined as 2%, but where did this 2% come from and how did it go from two to nine and why is it still at three? And if you missed your target for four and a half years, do you really even have a target if you missed your target for four and a half years and now you're trying to get inflation to go even higher?
Michael Pento: Well, why? And the answer is they want to protect banks assets and what they hold are stocks, bonds, mortgage derivatives, bonds. And if home prices and bonds and stocks fall in price, these banks and investment banks, shadow banks, primary dealers go bankrupt. So the way to ensure that they never do is to always make sure that their assets go up in value, their mortgage backed securities, which are backed by houses. If houses are going up at a nice, they don't want it to go too high because bonds would revolt, but they want to make sure that their assets that they hold, mortgage related bonds, which are backed by mortgages, which are pooled mortgages, which are backed by houses, never go in default. How do you do that? Make sure the home prices always go up and sometimes they go up by 2% and sometimes they go up by 20% year after year. They did post COVID. Oops, oops. And now the real estate market is frozen because people can't afford a house. But they're for you. The Fed is for you. They got your back.
Mike Maharrey: Yeah, nobody in government's got my back. Let's talk a little bit about bonds. You mentioned that as well, and I think it's interesting, and you've kind of touched on this, but I'd like for you to expound on a little bit, and that's the fact that the Fed really doesn't have control over interest rates as much as they want us to think. Because if you look at the yield curve, the entire thing has gone up since they started cutting rates. So what is this telling us about the bond market right now?
Michael Pento: Well, the bond market's concerned about two things. When you loan money, if I'm going to loan you, Mike, I'm concerned about Mike, am I going to loan you Mike Maharry money? I want to know about, well, what's your financial position? Are you capable of financing this debt? And if I loan it to you, at what rate am I going to get based upon your suitability to pay me back and inflation? Those are the two primarily primary components. Well, we have a situation now in this country where we have basically an insolvent nation that just has given up on bringing prices into stability. So when that's the case, yields have to go up, prices have to go down for bonds, and yields have to go up. I mean, are you going to loan? They were floating an idea of a 50 year mortgage.
Mike Maharrey: Oh, yeah.
Michael Pento: I mean, how in God's name are you going to price that out? A 50 year mortgage? I don't even know if we're going to have a currency in 50 years, much less be able to tell you, yeah, I'm holding that bond for 50 years for 6%. That sounds about right to me. I mean, I have no idea if inflation's going to be 6% or 106% in 50 years. So if you have an insolvent nation with an intractable inflation problem, that's going to get much worse. Then your yield, the price goes down, the yield goes up for these bonds. That's it.
Mike Maharrey: So if you're somebody that you're trying to preserve your wealth and keep it from dwindling away in this kind of inflationary environment, what do you do? I mean, it's almost like everywhere you turn, there's problems. So how do you navigate this as somebody we recognize the problem, how do we shield ourself from it to the best extent that we can?
Michael Pento: Well, in sag deflation, you usually turn to energy. I mean, nothing's guaranteed, but base metals, energy, precious metals and short bonds, that's my, because I run money for a living, so that's what I'm going to do. I'm already short bonds anyway. It boggles my mind that people say, well, they think that the 10 year treasury audit's going to go down in yield up in price. Well, if it was yielding 4% when I shorted it, and now it's above four, well, we have 6% nominal, GDP, 6% nominal GGDP. So in what world would we have 4% 10 year benchmark? No way. So the only way that the yield is going to go down and the price go up on a 10 year benchmark treasury bond as if we have a recession. And that's only for a little while, Mike, because if we have a recession, the deficit is going to go to 5 trillion per annum. That's my calculator. That's my best estimate as to where are theyre going to go, because it usually increased by two, 300% during a recession. And I have no doubt that that's exactly going to happen again. So the deficit's going to go from two to $6 trillion, but let's be kind and say $5 trillion. Well, who the hell's going to buy all that? Who's going to buy 5 trillion an annual deficit
Michael Pento: That by way 5 trillion is a hundred percent of our revenue?
Mike Maharrey: Yeah, it's pretty crazy. I mean, I've talked to some folks, and I've talked about this, the fact that a lot of countries are starting to look at this from outside of the United States, and they're starting to say, well, we don't want these Treasuries anymore. You're seeing a pivot away in a lot of places. But then people will tell me, oh, no, no, no, this isn't really happening. De-dollarization isn't real. Bonds are still – do you think that bonds have kind of lost that safe haven status globally, or is it just kind of a blip on the radar? Right now,
Michael Pento: US Treasuries are backed by dollars, right?
So, if our foreign creditors, surplus countries used to love parking their money in Treasuries, they get a nice juicy yield and the dollar was very stable. That was a pretty good deal. But then you have the fact that, well, our Treasuries aren't really that stable anymore, and they're backed by a dollar that's been losing value. And the reason why that is, is because when you introduce capricious actions like sanctions and confiscations into the picture, well, if I'm Russia, and I'm going to say, well, and I'm not saying it's not justified, maybe it's completely justified if I'm Russia or China or anybody else, and I have a lot of my reserves parked in US dollars and Treasuries, and the United States has a history of now capriciously imposing sanctions and confiscations on that money, and the interest rate I'm getting paid is going down. Well, maybe I'm just better off holding gold in my own possession, so I'll take my surplus. Okay, you're going to give me dollars for my stuff that I'm producing. Instead of buying Treasuries and parking at the Fed, what I would rather do is just sell your dollars and buy gold. And that's the calculation that's being made.
Mike Maharrey: And you can see that in the reserve statuses as you look at the reserve mixes, you see treasury reserves dropping. You see gold reserves going up.
Michael Pento: That’s exactly what's happening. They're exactly the reason I just mentioned
Mike Maharrey: Michael, but people still tell me de-dollarization isn't real. I'm a kook for thinking that.
Michael Pento: Well good. Well good for them. Tell them to tell 'em to short gold then. That's wonderful.
Mike Maharrey: Yeah, yeah. So, what do you think the ramifications are of the bond market becoming less and less appealing to folks and yields going up and bond prices falling?
Michael Pento: It's everything. It's everything. It increases the interest payments on our national debt. So the deficit is going to go up. It increases mortgage rates because mortgage rates are pegged off the long end of the yield curve. It increases the corporate borrowing rate because corporate corporations borrow at the long end of the yield curve. Most corporations do, so student loans, auto loans, some auto loans are priced off the loan. So it affects… so the economy gets wiped, washed down the toilet when this happens. And again, there's not much they can do unless they want to impose yield curve control. So another round of quantitative easing with a twist where they're just buying long-term debt and selling short-term debt, that's a possibility. But they have to do it in numbers that it can't just be an operation twist. It's got to be a massive expansion of the Federal Reserve’s balance sheet, which is going to cost further erosion than dollar and send inflation through the roof.
Mike Maharrey: I was told after the 2008 financial crisis that quantitative easing was a temporary program and they were not monetizing the debt.
Michael Pento: No, no. So here's a little history of the Fed's balance sheet. So it was basically a few hundred billion dollars, actually 700 billion up until 2000 and the end of 2007, 700 billion. The Federal Reserve printed 8.3 trillion at the peak until, so from 2007, 2008 to 2022, $8.3 trillion and that stuff, most of it is still on the feds balance sheet, mortgage-backed securities and Treasuries is the balance sheet now six and a half trillion dollars from 700 billion. So don't tell me this is debt that's been permanently churned into money. It's been,
Never again will be in public domain. It's been taken off out of the marketplace and into the warm and loving hands of our federal reserve.
Mike Maharrey: Yes.
Michael Pento: That money and credit is out there forever and ever. And that's why people are buying gold. Exactly. Because it's going to happen again. We're going to go back to 9 trillion probably double digits shortly. And by the way, just so, and I know your audience understands, gold doesn't go up in value. It's the beauty of gold. It's not even an investment. It's the perfect parking place. It's a placeholder of your wealth.
So if you are going to retire and you have lots of money and you don't want to have your money diluted and your purchasing power go to zero, your standard of living, you could keep your standard of living by holding gold. It keeps space with inflation. So, now if you want to actually make money, a real return after inflation, you can't. Gold mining shares maybe, but gold’s not an investment. So gold. That's what makes gold so beautiful. It's the perfect store of wealth.
Mike Maharrey: Yeah. It's the savings account in effect.
Michael Pento: An inflation-adjusted savings account isn't that beautiful?
Mike Maharrey: It’s a beautiful thing. Here's a question for you, and this just kind of popped into my head. I'm curious what you think about this. So you go back to 2008, we had the three rounds of quantitative easing at the time was unprecedented, and then we had interest rates at 0% for seven years, and they never really normalized interest rates. You could argue that they didn't even really normalize them in this last hiking cycle. So we've got this entire generation of folks that came into the financial world and into this business post 2008. To them, this is normal. Do you see that thinking in younger folks that are out there in the world that, hey, 0% interest rates, that's fine, that's normal. That's what we're supposed to have. And just this kind of a lack of perspective in terms of what interest rates would really look like normally.
Michael Pento: Well, it was a time not too long ago when you got paid to borrow money. You remember that Mike, for the first time in human history I did, right, I'm going to lend you money and then I'm going to pay you instead of me getting paid interest. Right? That doesn't make much sense, does it?
Mike Maharrey: No.
Michael Pento: No. Well, it's actually a brilliant observation to your point. I've written about this extensively. So from the beginning of time, all the way to 2000, we had something called a real interest rate. So not only was the nominal rate positive, but after inflation it was still positive. And then from the year 2000 all the way to 2022, especially from 2008 to 22, over those 14 years, it was negative and sometimes negative 8%. So if I can borrow money at close to zero in nominal terms and inflation's running at 8%, I could buy anything and make money. What does that engender? That engenders a massive round of borrowing. That's what Black Stone did. I mean, borrowing money for borrowing money like crazy and buying large tracks of land and single family houses and renting them out to the poor, helpless hapless population because home prices are going up 20% a year, and I'm borrowing money at 4%, 3% on a mortgage.
It's pretty easy calculation, right? So yeah, this is the great distortion and the more financialized, the asset bubble ridden, the more inflation you have in your economy, the lower the real interest rate has to be. Because you see what happens if you have a real interest rate for any period of time, the economy collapses because asset bubbles don't burst innocuously, they rise and then they collapse. That's, that's just the way leverage works. They're built on leverage. And when interest rates rise, you can't finance the debt any longer and you sell it and you liquidate. There's mass liquidation of your assets, and that's what causes, it's a depression. It's not a recession anymore, it's a depression. If you look at how distorted things are, total market cap of equities, 220% of GDP. Yeah, that's a great metric too. Don't tell me about, well, the GDP doesn't count anymore because of corporations sell stuff overseas.
Well, here's a factoid for you. Guess what? Foreign corporations manufacture stuff in the United States. That's why GNP and GDP run commensurate with each other, the same numbers. So that metric still valid. And guess what? It used to be about a hundred percent. That was rich. Now it's 220. So we're in for a grand reconciliation of asset prices. It's going to happen. Not my opinion. It's a fact. It has to happen. Same thing with home prices. Home prices don't belong at over five times. Incomes should be closer to three, but that's where they are. And so home ownership is unaffordable. So, what's the solution? A 50 year mortgage? No, that's not the solution. The solution is to allow prices to fall. Now, if you want to manage that fall as gracefully as possible, I can be sympathetic to that, but trying to reinflate the bubble, what's happening?
Mike Maharrey: Yeah. I have this mental picture of the central bankers in their suits, sticking their fingers in all the holes in the dams. They're trying to keep this, and it's interesting because you got the flip side of the asset bubble. You've got the debt bubble that has blown up over that time period and everybody's levered to the hilt. Surprise!
Michael Pento: That's what caused the asset bubble,
Mike Maharrey: Right?
Michael Pento: Bubbles don't happen on their own. They're engendered by low and negative real interest rates, which cause people to borrow a tremendous amount of money to invest in these assets. That's what happens.
Mike Maharrey: Yep. Well, it's the world we live in, and like you said, we can't really change it. We have to cope with it. So before I let you go, I do want you to let folks know where they can find you and avail yourself to your themselves, to your information and your services.
Michael Pento: Well, I have a weekly podcast called the Midweek Reality Check. It's $50 a year, and you get my take on the real salient information you need to know every week. And I give you a high level summary of where I am in my portfolio. I have an inflation, deflation, and economic cycle model looks at the second derivative of inflation in the context of growth. I avoid recessions, depressions, sharp deflations, deflations and disinflation. I avoid, I avoid those things, try to profit from them. I also want to avoid the hyperinflations too and the stagflation. And what I think is more likely to happen first is a spike in long-term bond yields that wrecks this whole bubble. That's what I'm thinking is going to happen. Could be starting today.
If you're with your, let's… just one last thing. By the way, you have a hundred million, I'm sorry. If you have a hundred thousand dollars and you're a US citizen and you're qualified for a long short portfolio, I will take care of you personally in my money management service. Oh boy. Hope I didn't forget what I was going to say. It has something to do with spiking volume. Oh, so if you're good, I remembered. Thank you, God. So if you're in your 60 40 portfolio and you're like, I have 60% stocks and I'm 40% bonds, and my bonds are a nice ballast to my 60% stocks, now my 60% stocks are like all like AI stocks because that's what you own. If you own the S&P 500, that's what everybody's pegged again. So, when the AI bubble bursts like it did with Cisco Systems lost over 80% of its value even though the internet was a real thing. AI is a real thing too, but there's a lot of overinvestment in it right now. So you're 60% of the sleeve of your portfolio gets wiped out and they go, but I have 40% in bonds. But the reason why your 60% got wiped out is because your bond portfolio got wiped out because your prices shrank and interest rates spike. You're in a world of hurt. So you better be thinking out of the box here. You need to think out of the box. We are way out of the box historically speaking.
Mike Maharrey: I like that. That'd be a good headline. We're way out of the box. What's your website?
Michael Pento: PentoPort.com.
Mike Maharrey: And you're out there on the Twitter or not Twitter, I still want to call it Twitter in the X sphere?
Michael Pento: No, I hate social media. I don't do that. Again, I have a website and if you want to contact me and my staff, there's a contact page. Perfect. I don't want to tweet anybody, and I don't want to go to LinkedIn or anything like that. I want to have a relatively small group of intelligent investors who want to make sure their retirement doesn't get flushed down the toilet. That's what I want to make sure I take care of them.
Mike Maharrey: That makes sense. And you probably save a lot of sanity and time and energy avoiding the whole social media thing too.
Michael Pento: Yeah, I don't care. I don't care what you think about me and I, I'm sure you don't care what I think about you, not you. I mean, people say, oh, he's been saying this for so long. Well, you know what? The 2000, the market crapped out 2008. The market crapped out 2018, 19, 20, 22. I mean, these are periods of time that are predictable and you want to avoid them. And so maybe you don't care. Maybe it'll never happen again. You're wrong. I think I'm right. And by the way, I'm still long. I mean, I have a nice gain in the stock market this year. I have a model that allows me to participate in these bubbles, but tries to get me out and short when they change. That's important.
Mike Maharrey: Yeah, absolutely. Absolutely. Well, I really appreciate you and I appreciate your insight.
Michael Pento: Let me say one thing, the last thing I'll say, just because I don't like the foundation of the edifice, just because I could tell you that the edifice is fracturing and it's weak, doesn't mean it's going to collapse that day. It just means, hey, I'll go up in the building. I'll eat lunch in the building, I'll have dinner in the building, I'll have a dance party in the building, but I know that this thing's going to fall, and I know for the early warning signs when I can get out.
Mike Maharrey: Yeah, you're not going to live in the building.
Michael Pento: Perfect, perfect. Good job, Michael.
Mike Maharrey: I'm good at analogies.
Michael Pento: Very good. Alright,
Mike Maharrey: Well, I really do appreciate you taking the time to spend with us, and I like the fact that you give kind of a big picture overview of the things that are going on because it's so important. As you say, this is the world of edifice. I like that word that we live in, and it's important for people to try to grasp that bigger picture. So I appreciate that insight.
Michael Pento: Yep. Thank you Michael.
Mike Maharrey: Have a fantastic day and we'll talk to you soon.
Michael Pento: Looking forward to it. Bye-bye.
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Always love to hear Michael Pento’s thoughts, good stuff there as we’ve come to expect from one of our best guests.
Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. And remember to tune in as well to the Money Metals Midweek Memo, hosted by Mike Maharrey.
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Until next time, this has been Mike Gleason with <a href="https://www.moneymetals.com/">Money Metals Exchange</a>, thanks for listening and have a wonderful weekend everybody.

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