Pento - Despite Pullback Gold Headed To New All-Time Highs
Pento: “The prevailing mantra on Wall Street is that gold’s bull market is now over and it’s time to bury precious metals as an investment theme for the indefinite future. The rational for this is based on the belief that many investors held misguided fears during the credit crisis about a breakout of massive inflation and economic chaos, which drove gold to nearly $2,000 per ounce....
The
Fed is aware that it cannot ever allow interest rates to significantly
rise without destroying housing, stocks and the economy. Therefore,
this dangerous cocktail of low interest rates, continuous and massive
money creation from the Fed and intractable government debt will be in
place for a very long time. Unfortunately, those factors taken together
will eventual bring to fruition runaway inflation and economic chaos
that the perma-bull crowd on Wall Street and Washington have summarily
declared vanquished.
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Pento: “The prevailing mantra on Wall Street is that gold’s bull market is now over and it’s time to bury precious metals as an investment theme for the indefinite future. The rational for this is based on the belief that many investors held misguided fears during the credit crisis about a breakout of massive inflation and economic chaos, which drove gold to nearly $2,000 per ounce....
“Of course, (the perma-bulls on stocks
claim) those worries have now completely failed to materialize and will
never be a genuine risk in the future. This
argument is patently false because it assumes that the final chapter has
been written on the Great Recession and debt crisis that paralyzed the
entire globe back in 2008.
The
truth is the most pernicious effects of the devastating economic
collapse that began five years ago have been merely held in abeyance due
to record low interest rates and an aggressive expansion of central
bank assets; which is being used to boost real estate values, equity
prices and the economy.
For
the crisis to truly be declared over, the Fed would have to raise the
overnight lending rate to near 6%, while selling nearly $3 trillion
worth of MBS and Treasuries. Then, if the real estate and equity
markets can withstand interest rate normalization and the paring down of
the Fed’s balance sheet to a sustainable level, we will be able to
finally give the all-clear signal.
However,
if the now record $54 trillion in total U.S. debt cannot be serviced
under a normal interest rate regime, investors will know nothing has
been resolved. And, since the progenitors of inflation are; massive
debt levels (especially on the government level), artificially-low
interest rates and an ever-expanding central bank balance sheet, it is
far too early to declare a victory over inflation.
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