Fiscal & Monetary Madness To Blow Up Bonds, Stocks & Housing In 2026? | Michael Pento

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**Michael Pento** (0:45)
We don't have a recession. If we don't have a credit crisis, we are going to have a blow up in the bond market just because we have so much fiscal and monetary madness going to happen in 2026 And I think if those bond yields go north of 6%, I think that completely submarines the housing market and completely blows up the credit bubble, obviously, and also the equity bubble.

**Adam Taggart** (1:14)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. When today's guest was on this channel earlier this year, he warned that a triumvirate of three massive asset price bubbles in credit, real estate, and stocks threaten to take down our fragile economy and dash the retirement hopes for millions. But since then, the bubbles have only expanded. So, will they expand further or pop in 2026? To find out, we've got the great good fortune to welcome money manager Michael Pento back to the program. Michael, thanks so much for joining us today.

**Michael Pento** (1:50)
Hey, I'm looking forward to a great conversation, Adam.

**Adam Taggart** (1:53)
It is always a great conversation with you, Michael. I'm looking forward to this too. Lots to talk about. Not a lot of time. So, we're going to have to just bang through a bunch of stuff as quickly as we can. So, let's start here. So, the day we're recording, Michael, it's Friday, yesterday, Thursday, market closed. Record high for the S&P and for the Dow, kind of riding a recent sugar rush with the recent Federal Reserve guidance and Chairman Powell talking about how the Fed is going to be buying $40 billion worth of T-bills going forward. Markets interpreting that as QE light or maybe just regular QE.
So, anyways, you've warned about these bubbles. They seem to continue being blown here. Let's start there. As we look into 2026, is it just going to be more of the same or do you think there'll be a reckoning at some point next year?

**Michael Pento** (2:54)
So, if you don't mind me answering the question this way, let's just go back on a timeline. So, my IDEC model on November 6th, said it was time to get a little more defensive after being, so we started the year bearish, as you remember, cautious. April 2nd was Liberation Day, April 9th we recanted all of our Liberation Day tariffs, or most of them, at least the levels. And then we went bullish, and I've been on your program several times saying that we're not max bullish, but we were about 40 percent along the market until November 6th. That's when the IDEC model began to tell me, hey, start getting more defensive, and I did. And the reason why, I'm glad you're having me on, I want to walk the audience through what I saw and what I see now, and then we can talk about 2026 So I noticed that on November 6th, financial conditions stopped easing, and credit spreads began to widen out. So that had me thinking, well, why would that happen? Is it just a fluke or is the move substantiated? So then I looked at the reverse repo facility, which effectively is zero. These are the liquidity metrics that I look at. The level of the real Fed funds rate had been in positive territory for two and a half years, which in previous cycles indicated it was time to get bearish because that's when you'd have a sell off in the market. Bank reserves had been falling for the past few months, and the slope of that line was increasing to the downside.
And the yen carry trade, again, there'll be slides on this stuff later in the show. The yen carry trade started to erode significantly, which is basically just real quick, people, mostly institutions borrow in yen, they sell the yen and buy various currencies across the globe, their bonds and their stocks, and they get a much higher yield. And they also get a currency appreciation of that too. When they repatriate back into yen, the yen is usually declined. It's a huge source of liquidity, and that has dried up or was drying up. Then I look at some AI credit default swap spreads, in particular Oracle, and they were blowing out. And the last thing I looked at in my model, these are all things in my model, was the move index, which is a measure of bond market volatility, that was spiking. So for those reasons, I sold down the equity exposure from 40% to just 15% net long. Then on November 13th, the Fed funds, this is before November 13th. So the model is very, very robust. I picked up on this trouble before. November 13th is when the Fed funds futures market said that there would not be a rate cut in December. It went below 50%.