Interview With Michael Pento: Stagflation To Force People Into Gold

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Mike Gleason, Money Metals Exchange: It is my privilege now to be joined by Michael Pento, president and founder of Pento Portfolio Strategies and author of the book The Coming Bond Market Collapse: How to Survive the Demise of the US Debt Market. Michael is a money manager who ascribes to the Austrian school of economics and has been a regular guest on CNBC, Bloomberg, and Fox Business News, among others.

Michael, it’s good to talk to you again. Thanks very much for joining us today and welcome back.

Michael Pento, Pento Portfolio Strategies: Thanks for having me back on.

Mike Gleason: Well to start off here, Michael, I want to get your thoughts on some of the economic data we’re seeing out there and maybe you can explain some of the market action to us because there seems to be a lot of confusion. Now as you pointed out in an article you wrote earlier this week, we have a big disconnect between what the payroll reports and the employment numbers are showing compared to the tax receipts the Treasury Department is collecting. Talk about that if you would and also let us know what conclusions you’re drawing from these numbers.

Michael Pento: Well unfortunately, the conclusions I’m drawing is that the payroll numbers aren’t telling the truth. If you listen to the Labor Department, the number of net new jobs created year-over-year this fiscal year so far – it’s going to end at the end of September, so we have almost all the data in – there has been 1.66 million net new jobs created. One would assume if you have all these people in a net basis in the workforce that tax receipts would be increasing, and yet, you see corporate receipts are down 12.8% year-to-date and individual tax receipts are down 0.4% year-to-date. Furthermore, there’s something called the FUTA tax, and that’s basically a tax on, employment insurance tax on, the first $6,000 of anyone employed. So unless these people that are employed, supposedly full time and gainful employment, are earning less than $6,000 a year, these people should be paying into this pool. And those receipts are actually down year over year.

So I believe that the Bureau of Labor statistics is inflating this data and I believe the quality of the data, in other words, the number of jobs created and the quality of those jobs are mostly part time in nature and very low paying service sector jobs, which by the way, would also explain the absolute lack of productivity. Don’t forget, in case you don’t know, in case your audience isn’t aware, productivity has dropped for three quarters in a row, and a productivity of part time bar maids is not very high. That would explain the discrepancy between the two numbers that I just described between the Bureau of Labor statistics and the tax receipt data, and it also explains why I think this economy is most likely in a recession right now.

Mike Gleason: There’s something else here that doesn’t seem to add up. We continue to see records in the stock market, but earnings are not keeping up with the rise in share prices. It’s hard to know who’s actually buying shares. Zero Hedge has reported that retail investors don’t seem to be buyers. So is it possible that the fed might be actively playing in this market? We do know the Swiss Central Bank has been buying U.S. stocks and certainly Bank of Japan is a huge buyer.

Michael Pento: Sure. Really, is it that much of a stress to believe that the Federal Reserve is doing exactly what other central bankers are doing? I think we’re all headed towards helicopter money. This is where this is all going to head up. So if you look at earnings on the S&P 500, it is down 5 quarters in a row and most likely it will be 6 quarters after this earning season is wrapped up. So if you have 6 quarters in a row of falling earnings, what is supporting the stock market, which is, by the way, trading at record highs? If you look at median PE ratios, if you look at price to sales ratios, if you look at total market cap to GDP ratios, this is the most expensive market in aggregate that we have ever had in history. It’s even more expensive when you think of the fact that you have earnings that are most likely falling, that means negative, 6 quarters in a row.