The Federal Reserve has achieved its aim to foster unsustainable price increases for stocks, bonds and homes, says Michael Pento, president of Pento Portfolio Strategies
"This is the first time in the history of United States economics that we have a bond bubble, a real estate bubble, and an equity bubble all existing concurrently, which is exactly what the Federal Reserve wants to occur," he told Newsmax TV in an exclusive interview.
As for stocks, revenues aren't rising, says Pento.
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And earnings aren't increasing much either.
"Primarily we've seen a P-E [price-earnings ratio] expansion. And why has that been the case?" he asks. "Because investors have no other alternative, really, but get their money out of cash, out of the banking system, and even out of Treasurys and throw it into riskier assets."
The Fed also has been propping up the economy, says Pento, author of "The Coming Bond Market Collapse."
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"You take away the $3 trillion of Fed credit that's been poured into the system since 2008, and what you'll see is an economy that is crumbling, suffering and just living off the fumes of inflation created by zero percent interest rates and a huge increase in credit."
Meanwhile, the 10-year Treasury yield is headed up to 4 percent, Pento says. Benchmark 10-year yields pierced 3 percent on Thursday for the first time since July 2011.
"The last time we weren't in a recession, and we didn't have a collapse in Europe, and we didn't have a quantitative easing (QE), the 10-year was at 4 percent."
He thinks it will hit that level in the first quarter. Then the Fed will see a weak economy and abandon the tapering of its QE, Pento says. And that will cause interest rates to fall, he maintains.
"But then that will give us about a two- or three-year lag time before we have an inflationary, free-market crack-up of the bond market, and that's when the devastation will hit."
Pento believes that the government understates inflation. It says that shelter costs account for 40 percent of core inflation. And the government calculates that shelter prices are rising 2.3 percent a year, he says.
But existing home prices are increasing 13.7 percent year-on-year, according to the National Association of Realtors, Pento says. And new home prices are gaining 8.5 percent, according to the Commerce Department, he says.
That should put the core inflation rate at 5.1 percent, Pento says.
Meanwhile, he has no preference between Larry Summers and Janet Yellen as the next Fed chairman. "It really doesn't make much of a difference, because they both have their master's degree or doctorate in counterfeiting," Pento said.
"So whatever they need to do to expand credit to the Federal Reserve and to private banks, they will do. And they will do President Obama's bidding."
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