#412 Michael Pento: 2027 Will Be a Very Difficult Year – Here's Why

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Julia La Roche (0:31)

Hey everyone, welcome back to another episode of The Julia La Roche Show, where we have a returning guest and friend of the show joining us today is Michael Pento. He is the founder and president of Pento Portfolio Strategies and someone who joins us every single quarter.

In this episode, Michael shares where we are as relates to that triumvirate of bubbles across credit, real estate and equities. And he thinks that we are headed toward a depression or what he also calls a hyperstagnationary environment. Now, for the first time ever, he's giving more of a timeline and he thinks that 2027 is going to be a very difficult year for investors. He also thinks that rising long term rates, that will be the pin that pops everything. I really enjoyed this conversation with Michael. I know you all always love hearing from him. So I hope you all enjoy this one as much as I did.

Michael Pento, founder and president of Pento Portfolio Strategies. It is such a treat to welcome you back to the show. Great to see you as always, Michael. It's been too long.

Michael Pento (1:38)

Yes, it's been too long and always great to see you, Julia.

Julia La Roche (1:42)

Well, we love our quarterly appearances with you. And so, gosh, Michael, I feel like so much has happened since the last time we had you on, which was about four months ago. So we're definitely overdue for a conversation.

Let's get your latest on the big picture, the macro view, where we are today, where you see things headed, what's been on your radar of late. And as you know, Michael, you can take all the time you need to set the table.

Michael Pento (2:08)

Well, thank you. Thank you for that. So first of all, I think you should understand, and you and your audience should understand that the bottom five quintiles of consumers have been battered with about five years plus of incessant inflation.

And that has gotten much worse recently with the escalation in the war, with, you know, Brent back up to $100 a barrel, WTI the same. Of course, you add to that the commodities, the fertilizer, and now spiking interest rates. I just want to talk a little bit about what I see as a relentless push higher, a tendency for yields to rise. And I'm going to go through some reasons real quick if I can. Because when you add a massive amount of debt to spiking interest rates, to inflation, you get a tremendous amount of pressure on consumption, which is, as you know, 70%, as they say, a plus of GDP. So we're almost at six years of inflation, as I talked about already. That is pushing upward pressure on yields.

If you look at where nominal yields should be, benchmark treasury yields tend to trade with nominal GDP, which right now is around 6%. So we're actually way below where treasuries should yield. I don't think that nominal, that's telling me that nominal increase in GDP will not last. And I think the real component, so nominal is real plus inflation, I think that comes down. I think the real part of that growth comes down. And I'm trying to paint the picture in this interview. So then you add to the upward pressure on yields because they're so far below where they should be. And you add that almost six years of inflation missing the target of 2% badly. And then you add insolvency to that picture, Julia. So we have debt that's now 720% of our revenue. I heard someone on CNBS say, and I want to mention his name, but he was commenting on how easily, we don't have a debt problem because interest rates are rising, not because we have a debt problem, because the debt is what he claims was 100% of GDP. Well, the debt is actually 120% or 23% of GDP. I guess he's just talking about publicly traded debt. I guess he thinks that we could just renege on our social security and Medicare obligations.

So, I mean, the stuff that's already been taxed there, the stuff that's supposedly in their accounts, right? In their reserve accounts.