Michael Pento: A Coming Credit Crisis Is The Most Likely Trigger For A Market Plunge

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**Michael Pento** (1:00)
So what I think is likely to happen is we're going to have a credit crisis and you'll have spiking interest rates. I think the market starts to cascade, just plunge. And I think that will be a truncated period of time. And then the Fed and Treasury will get together and try to just dump another round of multiple trillions of dollars in helicopter money. And I think that might work for a while, be stagflation on steroids. Because it'll work to reflate asset bubbles, but I don't think it does anything but damaging the economy much more. And then you have to figure out, will the credit markets behave?
If once they ascent to interest rate repression infinitely, once they ascent to that task, do the shorts and do the sellers overpower the central bank and the treasury? And if the answer to that question is yes, then there's nothing that can stop it. It's going to go, that chart, those charts will mean revert viciously quickly and below that average, that mean.

**Adam Taggart** (2:26)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. When today's guest was back on this channel in July, 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. 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** (2:59)
Thank you, Adam. It's always a pleasure to be with you.

**Adam Taggart** (3:02)
Hey, same here, my friend. All right. Well, look, there's a lot going on in the world right now, so we've got no shortage of things to talk about, and you prepared some slides for us. So I guess I'll get to those pretty quickly. Before we do, let me just ask you at a very high level. I mentioned those three bubbles that you had talked about last time you were on the channel, credit, real estate, and stocks. In your assessment, what's the state of those three bubbles today?

**Michael Pento** (3:32)
Well, they're humongous, they're record breaking, and they're getting bigger, credit, real estate, and the equity market. We have some charts to show us how we got here and where we are, unfortunately.
But then again, after April 9th, when Donald Trump changed from liberation day, April 2nd became, hey, we can work something out on April 9th. We've been in what I call sector four of the inflation, deflation, and economic cycle spectrum, which is reflation, so accelerating growth and accelerating inflation on a second derivative basis, which is the best sector to invest in. I thank God for the model because it divorces me from my emotions, because my emotions have had me like wringing my hands for years now. And sometimes I've been correct. You know, 22 was one of those times. But it's not about whether I'm correct or not. Let's just make sure we get this right. This is the biggest bubble in history. Triumvirate of bubbles, they will pop. But as we stand right now, the model says we're in sectors three and four, which is stasis and reflation, in between those two sectors. And I just want one caveat, too. So we got to be very idiosyncratic here. We have to be very specific. The last week and a half, we've seen incipient tremors or fractures in the credit markets. Now, I don't know if that's just because of TriColor and Five Brands, those first brands, those two auto lenders. And it might just be because Trump, President Trump, threatened 100 percent, increased to 130 percent, so an additional 100 percent tariffs on China because of the rare earths ban. That could be it and they can be recanted very easily. And maybe it is idiosyncratic when it comes to those two auto lenders. But there is an incipient fracturing of my model, which says, hey, you need to be on high alert now. Because I kind of regret this wasn't like a week from now, because if it was a week from now and things kind of stabilize, where you see the move index contract and you see some of the credit spreads kind of return to quiescence, then it was all for naught, which is like a little blip. It was just because we just mentioned about the tariffs. But what if this idiosyncratic and very limited fracturing of subprime auto lenders is not contained and does spread? That's a very big possibility. But then again, Adam, you know what? I've come to the conclusion that it is going to be the credit markets. I've been doing this for 35 years, so it's not a flippant conclusion that I've reached.