Don’t Be Seduced, Why Summer Will Be Disastrous for Markets
May 12, 2012
Today Michael Pento told KWN why “this summer is going to be disastrous for equity prices.” Pento, of Pento Portfolio Strategies, also stated he believes JP Morgan, the Fed and gold are headed for a major showdown. But first, when asked about the JP Morgan debacle, Pento responded, “I blame the Fed, like I do for much of the world’s ailments. The Fed buys a bond from JP Morgan, yielding say 2% on the 10-Year, and then they expect the bank, JP Morgan, to accept 25 basis points from the Federal Reserve. Now, they have to beat earnings by a penny, so what do they do?”
Michael Pento continues:
“Instead of allowing the 25 basis points to be given to them by the Federal Reserve, they go out and buy distressed European debt, and they hedge it by buying a CDS (credit default swap). Then the hedge blows up and they report a loss. So, once again, the Fed and the banks are to blame.
Now, you don’t need any new regulations. All of these Keynesians come out and say, ‘Well, we have to over-regulate the banks and step up more Dodd-Frank and all of these regulations.’ Well, we had a good regulation, it’s called the ‘gold standard.’ That’s the best bank regulator ever conceived. It’s a free market based system of money.
Under a gold standard, banks would be much more careful when they make a loan. They knew (under the gold standard) that the Federal Reserve wasn’t there to bail them out….