Pento: “The U.S. Ten-Year Note yield has been surging of late.  Absent another recession, or renewed European debt crisis that threatens the existence of the Euro currency, or the Fed launching QEV; the yield should approach 4% by the end of this year.  How much should we be concerned about yields rising to that level?....

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“Well, the surge in yields from 1.6%, to 2.6% since the beginning of May has already caused purchase applications for new homes to plunge 28% month over month.  Mr. Bernanke predicated the economy’s healing on saving the real estate market.   Since the Fed is now threatening to begin removing its stimulus programs, that primary support column for the economy is being eliminated. 

One has to question what rising rates will do for this so-called recovery.  The U.S. economy (and indeed the rest of the globe as well) is already suffering from anemic growth.  Now we are told by the puppet masters of the economy that the manipulation is going to end.  But can we really believe them?

There’s plenty of evidence that the global economy is just treading water.  Base metal prices have fallen sharply in the last six months.  Chinese exports were down 3.1% in June on a YOY basis, while exports to Europe plunged 8.3%.  The IMF lowered its growth forecast for the U.S. to just 1.7% in 2013.  And the European recession deepens with the unemployment rising to 12.2%, with Greek unemployment hitting a record 26.8%.  Emerging market economies are suffering, while Japan is headed towards a complete collapse of its currency and bond market.  This collapse will shake the world financial system. 

So, where do we go from here?  Now we have to add to all of this global malaise the surge in oil prices, Middle-East revolutions, and most importantly, rapidly rising borrowing costs in some key countries.  Yields aren’t just rising in the United States.  The Portuguese 10-Year Note jumped from 5.2% in the middle of May, to well over 7%. 

The rise in debt service payments and cost of money will cause the already fragile global economy to fall sharply lower.  Once this fact becomes clear to the Fed, Mr. Bernanke will withdraw his outline for ending QE and perhaps even increase the monthly allotment of bond buying.  It is at this point that the price consolidation for gold will come to an end, and gold will begin its ascent to $2,000 an ounce by the middle of next year.”

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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