Thursday, June 24, 2010

Michael Pento on America's Ticking Debt Time Bomb

Must watch video here from Micheal Pento who is senior market strategist of Delta Global Advisors(click on the screen if it turns black):

My Take:

Pento totally nails IMO.  If we want to save our countries economy we immediately need to slash spending. 

The math is very clear here folks.  We are on a path that is unsustainable and we cannot spend our way out of this problem.  You don't solve debt issues by issuing more debt.  This is insanity in it's purest form.  You don't give a heroine addict more heroine if you are trying to get him to stop!

All you need to do is look at Greece if you want to see what America will look like in the next few years if we continue down this road.  By the way: Yields on Greek bonds hit all time highs today.  This triggered a nice selloff in Europe.  We also got this out of Portugal today:

"The funding of Portuguese banks from the European Central Bank more than doubled last month, as financial institutions struggled to access international capital markets.

Portuguese banks borrowed €35.8bn from the ECB in May compared with €17.7bn in April, according to the Bank of Portugal.

The country was also forced to pay extremely high yields to sell five-year bonds as investors demanded big premiums amid the continuing worries over high debt levels in the eurozone.

It was forced to pay average yields of 4.657 per cent, almost 1 percentage point more than the 3.701 per cent paid at an auction at the end of May.

Steven Major, global head of fixed income research at HSBC, said: “These yields are approaching that magic number of 5 per cent that is likely to be charged by the European stability fund.

“If the yields keep going up at this rate, then they will be paying much more than 5 per cent next month, which is arguably unsustainable.”

My Take Continued:

Steven Major's quote obove pretty much sums it up.  I think we are going to start hearing the word "unsustainable" on pretty regular basis moving forward.

After looking at today's trading in the bond pits, you have to wonder if the bond market is starting to hop on the unsustainable train as well.  Treasuries on the long end of the curve sold off today despite the sharp move down in the equity markets:

Take a look at today's upward move on TBT which is an etf that shorts the long end of curve:

Time will tell whether or not this is the beginning of a trend or just an anomaly.  Either way it caught my attention.  The bond market usually acts well in deep red days as investors flock to the "safety" of bonds.

Ummmm...Perhaps they aren't looking so safe anymore?

The Bottom Line

If we do not move towards some sort of austerity program the economy is pretty much toast.  As Pento warns in the video above, the only other way to get out of this is for the Fed to print. 

This would be twice as bad as any "austerity" triggered depression because this country would face a serious inflation crisis.

History has shown us what happens to countries when hyperinflation hits.  Governments fall and people starve because as the currency becomes worthless.  This then leads to political and social chaos. 

Geithner and Bernanke need to make an immediate 180 degree turn on how they are approaching our current depression. 

The current can kicking policy via bailouts is not working, and it will be short lived because the math no longer works.

Time is running out folks.  Prepare yourself.

Disclosure:  No new positions at the time of publication.  Owner of etf TBT in shorter term trading account.


joe said...

I don't even think austerity would work at this point. We've reached the point of no return. Federal spending would have to drop 30-40% just to match actual revenues. And that doesn't even begin to address paying down any of the national debt.

When this goes bust it's really gonna be a shocker.

Jeff said...



Thats what scares me.

I question whether or not the people of this country could handle the massive austerity cuts that are needed.

We pretty much need to cut spending by 50% in order to make progress.

Is that realistic? Probably not but thats what needs to be done in order to start digging ourselves out.

Bonds are selling off again a tad so far this morning.

MArket is down slightly. I am thinking Wall St is digesting the Finreg regulations that were agreed to on capitol hill this morning.

Should be an interesting day.

getyourselfconnected said...

I took the day off! Had a great time on the water, I put some pictures up if you are into that kind of stuff.

Jeff said...


I will hope over and check them out.

Sounds like a nice relaxing day!