Pento:  “It looks like the central bankers around the world have, after years of saying they were going to keep interest rates low and they weren’t going to allow markets to work, decided to change their minds.

And I’ve seen a watershed moment for Mr. Bernanke....

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“You’ve seen the releases from China, and now the Fed is feigning an interest in letting markets work.  I believe it’s because they have duped themselves into believing that all of the cocaine they have put the economy on, in order to put a floor under real estate and give a boost to equity markets, isn’t the reason why we have some semblance of growth in global GDP.

So they have now duped themselves into believing they can now remove that cocaine, and yet they think it won’t send us back to the same place where we were in December of 2007.  If the central bankers around the world see a deflationary depression taking hold of the economy, just as it did after Lehman Brothers collapsed in 2008, will they say after 5 years of manipulation of interest rates and markets that now is the time to accept that deflationary depression?  I don’t think so.

Once the economic news shows an increasingly negative trend, and it will, my guess is by the end of the year or by early 2014, they will once again admit the economy’s addiction to QE and manipulation of interest rates, and risk assets will once again be in vogue.”

Eric King:  “What have you done with your firm’s money, Michael?”

Pento:  “Last week I let people know that we had sold positions in the general market and that we were now short stocks because I believe it will take a severe erosion in the economic data before Ben Bernanke changes his mind.  At that point Bernanke will then stop pretending he can seriously taper back on QE, and he will also stop pretending that he can begin draining the Fed’s balance sheet.  The Fed’s recent statements about ending QE and draining the balance sheet are preposterous.

Long before we get to the point where Bernanke starts selling assets, interest rates will have soared dramatically.  Interest rates have already had a significant surge in just a matter of weeks.  This backup in rates is for real.  It’s going to crater stocks and put a severe damper on the consumer.

It’s also going to hurt debt service payments made by our government.  That is why, long before they start selling assets, the economic data will turn severely negative and the Fed will be forced to admit the economy is addicted to the cocaine the Fed has been giving it.”

Pento also added this regarding gold:  “When I said I sold general equities and have started to engage in more short positions, the one thing that I have not sold is my gold mining shares.

Why haven’t I sold my gold mining shares?  They presaged the deflationary depression that we are now heading towards.  And since they have already priced in a depression, and a plunging gold price, there is no reason to sell gold stocks when they are down 60% across the board.

I think they are the stocks that are going to move first, even before Bernanke himself realizes that he has to launch QE5, and that’s why I haven’t sold my positions.”

Michael Pento: President & Founder of Pento Portfolio Strategies and the author of

“The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market”

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