Pento:  “The Federal Reserve saw the economic data that came out, and they were so afraid of indicating any hint of tapering that they went out of their way to make sure that tapering may not happen for a very, very long time.  We had a GDP print of 1.4% if you average in Q1 and Q2 of 2013. 

But if you take out the double-counting, it’s well below 1.4% because don’t forget that they redesigned the way they calculate GDP, the same way they reconfigured the way they calculate inflation.  This way if the government doesn’t like the way the numbers turn out, they simply reconfigure the calculation until it produces the number they want....

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“But they actually said it in this latest report, that inflation was running at a .7% annualized rate.  If you believe that fantasy then you have to ignore the fact that home prices are up double-digits (12%) year-over-year, that oil prices are well above $100 a barrel, that the U.S. is growing the money supply at a 7% annualized rate, and that stocks are at an all-time record high in nominal terms.

So if you go through all of the inputs to the CPI (Consumer Price Index), you have to scratch your head and ask, ‘How do they come up with .7% annualized growth rate of inflation?’  It has to be much higher than that.  If you did a real calculation, and you didn’t double-count, Bernanke knows that the economy really isn’t growing at all.  If the economy really isn’t growing at all, you can’t even mention tapering. 

You have to remember that the last time Bernanke mentioned ‘tapering,’ in 4 days the S&P lost 80 points, and the 2-Year rate soared to 2.7% from 1.6%.  So Bernanke knows that any time reality comes calling to this economy and they actually had to start tapering, the entire economy will lose its lifeline to artificial interest rates and inflation, and it will implode.”

Eric King:  “Michael, putting the Fed propaganda aside, what do you really expect the Fed to do in the future?”

Pento:  “I expect for Bernanke to look at the data coming in which is going to be increasingly weak because interest rates are rising.  Eric, after 5 years of zero percent interest rates, and 4 1/2 years of QE, we only managed to print a highly questionable 1.4% GDP for the first half of 2013.

So why would anybody in their right mind expect the Fed to taper?  Why on earth would we see a rise in GDP in the second half of 2013?  People have been going on the mainstream media since 2008 and trying to convince people that there would be an increase in GDP in the second half of each of those years.  The truth is the economy has flatlined, not recovered.

So for the tenth time since the Great Recession began, market pundits and the mainstream media have come out and tried to convince everyone that the second half of the year will be better than the first half of the year.  But it never is, and there is no reason to think it’s going to be any different this time.”

Eric King:  “Michael, what are you doing with your firm’s money in this environment?”

Pento:  “We are currently short U.S. Treasuries and we are also holding a lot of cash.  But we are also still holding strong with our position in gold.  In fact, we will buy even more once the Federal Reserve stops any talk about tapering, and then starts to increase its balance sheet at an even faster rate, which is what I expect will happen some time in 2014.”

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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