Catch Me on CNBC's 'Fast Money' Tonight

By Michael Pento | March 17, 2010 | 12:49 PM |  3 CommentsTweet This

I will be appearing on CNBC's Fast Money tonight! My segment will occur promptly at 5:00 EST. Be sure to tune in, should be fun!

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More Fed Feathers to Come in Today's Statement

By Michael Pento | March 16, 2010 | 11:45 AM |  0 CommentsTweet This

The Fed meets today for a one-day affair in order to decide how dovish their statement should be. If you listen to Bloomberg's interview with Frederic Mishkin, (former Fed Governor and member of the FOMC) you will understand their statement will be extremely dovish.

He stated the two key drivers for inflation are: consumer's expectations about future slack in the economy and future expectations about inflation. Are you laughing? The two key drivers for inflation are not easy money and credit; it's where we feel inflation is headed. Then the interviewer asked what new methods the Fed might use to measure inflation; he responded, there is nothing new here.

Therefore, the Fed is not considering using gold or the value of the dollar to measure inflation. They won't monitor money supply growth either. What they will continue to look at are things like the TIPS yield spread and the unemployment rate to get a grip on what the future rate of inflation might be.

To his credit he did say one thing encouraging. Mr. Mishkin believes that when the Fed begins to tighten---unfortunately sometime in the far distant future-the pace should not be at a gradual 25bps rate. In that we totally agree!

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Yellin Promoted at the Dole of Doves

By Michael Pento | March 15, 2010 | 3:06 PM |  0 CommentsTweet This

President Obama has nominated Janet Yellen to replace Donald Kohn as the Vice-Chairman of the Federal Reserve. Ms. Yellen served as a former assistant professor at Harvard during Bernanke's tenure as an undergraduate there and currently serves as the President of the Federal Reserve Bank of San Francisco.

But now Ms. Yellen will most likely garner a more senior position within the dole of doves at the Central Bank. Her confirmation should further cement the Phillips Curve philosophy held at the Fed, that inflation is engendered from too much prosperity and not from too much money creation. Her appointment vastly increases the potential that the Fed will concentrate even more on the unemployment rate and not enough on the inflationary forces that are already at work.

Contrary to what is promulgated by the media, the U.S. is already experiencing a moderately-high rate of inflation even though the unemployment rate in nearly 10%. That's because less people working and producing goods and services actually has a tendency to increase the rate of inflation, rather than rendering it quiescent. But thanks to a monetary base that has skyrocketed to over $2.1 trillion, Americans have had to endure higher prices along with a struggling economy. If the Fed had not exploded their balance sheet, (in order to bail out banks with a record yield spread) we would have at least enjoyed the mollifying effect falling consumer prices have on an anemic economy.

Most on Wall St. and in Washington claim that inflation is not currently a problem. But the fact is that the U.S. has a year over year inflation rate of 2.7%, according to the Bureau of Labor Statistics CPI. What's most interesting is an Inflation rate that is equal to or even less than that of the U.S., is viewed by the Chinese and the Australians as something very troubling.

The People's Bank of China believes a YOY inflation rate of 2.7% is enough to increase reserve requirements twice. The latest such move became effective February 25^th, which raised the deposit to reserve ratio to 16%.

Australia has an inflation rate that increased 2.1% YOY, .6 percentage points below that of the U.S. Yet The Reserve Bank of Australia's central banker Glenn Stevens thought the rate was high enough to raise the over-night money market rate to 4%.  Compare that to our own target rate of 0-.25%. How can it be that year over year price increases in the area of 2.5% are enough to send some foreign central bankers scrambling to quell inflation, whereas it compels our Federal Reserve to just claim that inflation remains "subdued?"

China and Australia understand how pernicious inflation can be for an economy. The Central Bankers of those countries are currently taking steps to ensure their inflation rates do not become intractable. Unfortunately for us in America, the Obama administration is instead ensuring the Fed is stacked with more doves. Our government wants to ensure money supply is growing at a fast enough pace that it can adequately finance its Treasury auctions and also devalue its existing debt. But the big winners in this country will only be the bankers and the Treasury; while the losers will be savers, those on a fixed income and the entire middle class.

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Still Digging

By Michael Pento | March 12, 2010 | 10:02 AM |  2 CommentsTweet This

Yep, we're still digging. I know, all you here about is how the consumer is now saving and corporations are rapidly deleveraging. But the truth can once again be found in the Flow of Funds Report released yesterday.

We see that Total Non-financial debt of the United States increased to a record $34.7 trillion in Q4 of 2009 from a previously reported $34.5 trillion in Q3. And that the rate of debt accrual is increasing at a 1.6% annual rate. Therefore, after years of digging our financial black hole with a gargantuan sized backhoe, we are now just using a really big shovel. It is true that the consumer and corporate sectors are shedding debt. But the state and local governments are piling on debt at a 4.7% annual rate and the Federal government is piling on the red ink at a 12.6% annual rate!

We are not saving at all yet as a nation. The sad truth is that we continue to add to our level of debt, albeit at a slower pace. Of course, every dollar of debt is a promise to tax that same dollar sometime in the future. So Public debt is no better than private debt. And therefore, our over-leveraged condition has not even begun to heal.

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Trade Gap and Chinese Inflation

By Michael Pento | March 11, 2010 | 9:59 AM |  0 CommentsTweet This

Two quick points for today's blog:

1. The U.S. trade deficit contracted for the month of January. The gap decreased 6.6 percent to $37.3 billion from a revised $39.9 billion in December. Maybe this report will finally-but I completely have my doubts-put to rest one of the dumbest axioms on Wall Street; that a falling dollar boosts exports and can reconcile a trade imbalance. Whereas, a rising dollar discourages exports and causes a trade imbalance to increase. The dollar has been on a tear recently and increased from 78 to over 80 on the DXY during the month of January alone. That move should have, according to the specious theory, dampened the demand for U.S. exports and increased our demand for imports-thus serving to widen the gap. But the truth is that currency moves rarely have a significant effect on trade imbalances. Tax rates, wages and regulations have a much greater influence over trade than currency moves. That point has been proven over and over again throughout history.
2. China's inflation rate soared to the highest level in 16 months. That means the PBOC will raise rates shortly and may again increase reserve requirements as well. Their aim will be to curb inflation by allowing the value of the Yuan to rise. One of the major consequences of allowing the Yuan to increase is that China's demand for Treasuries must fall. Therefore, while the U.S. has just embarked on its multi-year path of a massive increase in debt issuance, China's appetite will continue to wane, just when we need to have it increase the most. The consumer and the Treasury should prepare for much higher interest expenses?

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