Overview
Michael Pento, president and founder of Pento Portfolio Strategies, joins Kai Hoffmann of Soar Financially on July 2, 2026, the day a disappointing June non-farm payrolls report sent gold and silver sharply higher. Pento says the weak print was no surprise: with labor force growth near zero and the border closed, low payroll numbers are the natural state of the economy. The real story is that both growth and inflation are decelerating on a second derivative basis, which takes the market's rate hike expectations off the table and makes a cut the Fed's next move.
Pento walks through his recent positioning in detail. Heading into late February he sold down precious metals because the market had penciled in three cuts he considered overly optimistic. When war pushed oil to 120 dollars and inflation to 4.2 percent, expectations flipped to two or three hikes under new Fed chair Kevin Warsh. Pento took the other side again: with inflation rolling from 4.2 back toward 3 percent and growth slowing into a midterm election year, hiking made no sense. He doubled his gold, sold his silver, went long low volatility and dividend stocks, and took a new position in gold miners through GDX and GDXJ, arguing that miners enjoy a rare combination of falling energy input costs and a rising product price while trading at 14 to 15 times earnings.
The conversation then widens to Pento's structural thesis. Total equity market cap sits at roughly 235 percent of GDP against a historical norm near 90 percent, a deformation he attributes entirely to a central bank that expanded its balance sheet by more than 8 trillion dollars since 2007. Inflation, he argues, is not caused by wage price spirals but by base money creation that outruns the production of goods and services. The result is a K-shaped economy where the bottom 80 percent cling to a lifeboat while the top 20 percent live off asset bubbles, and a political environment where socialist candidates win because voters were never taught the theory of money and credit.
Looking forward, Pento expects the next crisis to erupt in private credit, private equity, and the debt-funded AI infrastructure build-out. His progression runs: credit bust, disinflation turning to deflation, a recession that quickly becomes a depression, the Fed cutting to zero, helicopter money and UBI, and a monetized balance sheet in the double digit trillions. Unlike 2000 and 2008, the US now enters that crisis with 40 trillion dollars of debt at 720 percent of revenue, so long rates may spike rather than fall, confidence in the dollar and Treasury market may break, and recovery could take a decade or more. His summer positioning: low volatility dividend payers, international stocks, weak dollar beneficiaries, gold, miners, and the short end of the yield curve.
Why This Matters
The interview is a clean, dated record of a working second derivative framework applied in real time. Pento's calls are falsifiable and time-stamped: sold metals ahead of the late February inflation spike, bought gold and miners after Warsh's first FOMC meeting, and was vindicated by the July 2 payrolls print during the recording itself. Whether or not his depression endgame arrives, the method of trading the rate of change of growth and inflation rather than their levels is a durable, testable discipline that transfers directly to resource investing decisions.
The miner logic is the most immediately usable piece: a margin expansion trade defined by rising product price and falling input costs, expressed through GDX and GDXJ specifically to avoid idiosyncratic single-mine risk. The Newmont wall collapse mentioned in the interview is a live illustration of why. For anyone tracking gold equities, this frames the difference between a macro call on the sector and a stock picking exercise, and makes an honest case for keeping them separate.
The structural material connects to a larger repository thread on monetary regime change: market cap to GDP as a reversion anchor, the arithmetic of a Treasury borrowing at 720 percent of revenue, and the argument that the next easing cycle may not rescue asset prices the way 2000 and 2008 did. These are the same fault lines running through the Rick Rule, Kevin Warsh, and Ray Dalio material already archived here, viewed from a portfolio manager who must act on them quarterly rather than theorize about them.
Key Points
- The weak June 2026 payrolls report was predictable: with labor force growth near zero and the border closed, the economy does not need large job gains to satisfy its natural growth, so low prints are structural rather than shocking.
- Pento trades the second derivative: the rate of change of the rate of change of growth and inflation. With inflation rolling over from 4.2 percent toward 3 percent and growth slowing, betting on rate hikes was offsides regardless of the absolute inflation level.
- His sequencing this year: sold precious metals in late February when three penciled-in cuts looked overly optimistic, then reloaded gold and bought miners after Kevin Warsh's first FOMC meeting when the market swung to pricing two or three hikes he considered impossible.
- He believes the Fed's next move is a cut, not a hike. Trump's chair did not hike when inflation was 4.2 percent and peaking; hiking later with growth and inflation both slowing into a midterm election makes no political or economic sense.
- The miner trade is a margin expansion story: the product coming out of the ground is rising in price while energy input costs fall dramatically, and the sector traded at 14 to 15 times earnings after a roughly 35 percent drawdown from the late January high.
- He expresses the trade through GDX and GDXJ rather than individual names to avoid idiosyncratic risk. Getting the macro right and then losing to a mine flood or wall collapse (Newmont suffered one the day of recording) is an unforced error.
- He sold silver while doubling gold because silver underperforms gold when the second derivatives of growth and inflation are both decelerating; gold specifically loves falling nominal and real rates.
- Total equity market cap at roughly 235 percent of GDP versus a historical norm near 90 percent defines what he calls the most deformed, overpriced market in history, spanning stocks, real estate, and credit at once.
- Inflation, in his framework, comes from printing base money faster than the output of goods and services, not from wage price spirals, which he says have never existed and cannot exist.
- The bottom 80 percent of households are clinging to a lifeboat while the top 20 percent live off asset bubbles; that bifurcation, not ideology, is driving the electoral success of socialist candidates.
- The next crisis nucleus is private credit, private equity, and the hundreds of billions in debt being thrown at AI infrastructure. When it breaks, he expects rates to spike, forcing the Fed back in.
- Unlike 2000 and 2008, the government enters the next downturn with 40 trillion dollars of debt at 720 percent of revenue, so the traditional rescue of releveraging the sovereign balance sheet risks breaking confidence in the dollar and the Treasury market, and recovery could take a decade or more, resembling Japan.
Quotable
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Michael Pento
"You buy the miners, GDX, GDXJ, because their input costs are going down and the product that they're pulling out of the ground is going up. Simple."
The entire miner thesis compressed into one sentence: a margin expansion trade stated as arithmetic, not narrative. It also encodes his vehicle choice, ETFs over single names.
Michael Pento
"If you ever really had a regime of positive real interest rates and a shrinking Fed balance sheet, you'd crush asset prices, crush the economy, and you wouldn't be looking at a recession, you'd be looking at a depression rather quickly."
His core claim that the Fed is trapped. Normalization is not merely painful, it is impossible without collapsing an overfinancialized system, which is why he faded rate hike expectations.
Michael Pento
"The bottom four quintiles, the bottom 80 percent, are clinging to a lifeboat. They're not really participating in this economy."
A vivid statement of the K-shaped economy that connects monetary policy to political outcomes: asset bubbles for the top quintile, delinquencies and food lines for everyone else.
Michael Pento
"It's like that free beer tomorrow at the pub. The next two years we'll be back to 2 percent."
A memorable dismissal of the Fed's inflation target credibility. Five plus years of missing to the upside turns the dot plot into a punchline, and punchlines travel.
Michael Pento
"Eventually all roads to me lead to hyperstagflation."
The destination of his entire framework in five words. Everything else in the interview, the cuts, the helicopter money, the monetized balance sheet, is the road map to this endpoint.
Michael Pento
"I don't manage money according to theories and hypotheses about what could happen a decade from now. What's happening now is the dollar had been strengthening on the misguided hypothesis that the Fed was going to be hiking rather aggressively this year."
The discipline that separates him from pure doom commentary: hold a dark long-term thesis, but trade the observable second derivative in front of you.
Concepts
Core Frameworks
Second Derivative Investing
Pento's central discipline is trading the rate of change of the rate of change of growth and inflation, not their absolute levels. Inflation at 4.2 percent sounds like a reason to expect hikes, but if it is decelerating toward 3 percent while growth also slows, the policy pressure points toward cuts. He stresses this does not mean the consumer is saved; a slower rate of price increase still compounds on an already stressed household. The point is narrower: when both second derivatives roll over, betting on tightening is the wrong side of the trade, and assets that love falling nominal and real rates, gold above all, become the right side. His entire 2026 sequence, selling metals in February and reloading after Warsh's first meeting, was executed off this single signal.
The Inflation-Deflation and Economic Cycle Model
Pento's firm runs a proprietary 20-component model designed to identify where the economy sits on the inflation-deflation spectrum over the next three months and to position a long short portfolio accordingly. The model's practical output in this interview: full or 90 percent positioned in low volatility stocks, dividend payers, international equities, weak dollar beneficiaries, gold, and miners, with Treasury exposure kept on the short end of the curve. The design philosophy matters more than the specific holdings: build a repeatable process that answers one question well, the direction of growth and inflation, then let asset selection follow mechanically rather than emotionally.
The Great Reconciliation of Asset Prices
Total equity market cap stands near 235 percent of GDP against a long-run norm around 90 percent. Pento treats this as a reversion anchor: returning even to 100 percent implies at least a 50 percent equity correction, and that assumes GDP holds, which it never does in a bust. He preempts the standard objection that the metric is obsolete by pointing to corroborating signals: price to sales, the Shiller CAPE, negative risk premiums, and the same ratio computed against GNP. The reconciliation is not a prediction with a date; it is the gravitational field his portfolio is built to survive and eventually profit from.
Macro Diagnosis
Overfinancialization and the Trapped Fed
Since 2007 the Fed's balance sheet expanded by more than 8 trillion dollars at its peak. That is high-powered base money, the foundation of the broader monetary aggregates, and it is why stocks, housing, and credit are simultaneously the most overpriced in history. The trap follows directly: with this much debt priced off suppressed rates, a genuine regime of positive real rates plus balance sheet shrinkage would not produce a recession but a depression. Pento credits Warsh with privately understanding the Fed became far too involved in the economy, but frames the open question as whether any chair has the political capital to actually shrink the balance sheet.
What Actually Causes Inflation
Pento rejects the wage price spiral as a mechanism that has never happened and cannot happen. Inflation originates in base money creation: the Fed prints reserves, banks gamble and lend against that liquidity, the money supply grows faster than the output of goods and services, and prices rise. This is why he watches the balance sheet and the aggregates rather than oil headlines. It also reframes the 2 percent target as incoherent: stable prices means a zero rate of change, and an institution that misses 2 percent to the upside for over five years has turned its own target into a joke.
The K-Shaped Economy and the Cantillon Effect
Money printing does not land evenly. The top 20 percent, who own the real estate, equities, and credit instruments the Fed inflated, are prospering; the bottom four quintiles face record delinquencies on auto, student, and credit card loans, food lines at record levels, and housing they cannot afford. Pento connects this directly to politics: socialist candidates are winning elections because voters see the bifurcation but were never educated in the theory of money and credit, so they blame markets rather than the central bank. The K collapses into a flat line only when the asset bubbles supporting the top quintile crack.
The Insolvent Treasury Arithmetic
The US carries 40 trillion dollars in debt, roughly 720 percent of federal revenue, and runs 2 trillion dollar deficits during relative peace and prosperity. In a recession, automatic stabilizers alone, unemployment insurance, SNAP, falling tax receipts, push deficits toward 5 or 6 trillion before any new TARP or helicopter program. This arithmetic is why the next crisis differs from 2000 and 2008: those rescues worked by releveraging a government balance sheet that had room, at 35 to 60 percent debt to GDP. At 123 percent, the same maneuver risks breaking confidence in the sovereign itself.
Market Views
Why Miners Over Silver Right Now
Pento sold his silver and doubled gold because silver historically lags gold when the second derivatives of growth and inflation are both decelerating; silver carries industrial demand exposure that gold does not. Gold, by contrast, loves recessions, falling nominal rates, and falling real rates, exactly the regime his model projects. The miners amplify the gold call: their revenue line rises with the metal while their largest input cost, energy, falls with the slowing economy, producing operating leverage on both sides of the income statement at a moment when the sector traded 35 percent below its high at 14 to 15 times earnings with growing revenue.
ETF Expression Over Stock Picking
Pento deliberately expresses the miner call through GDX and GDXJ rather than individual companies. His reasoning is a clean separation of edges: his edge is the macroeconomic model, not balance sheet analysis of individual miners, and getting the macro right only to lose money on a flood or wall collapse at a single operation, as happened at a Newmont mine the day of the recording, is an avoidable failure mode. For a clientele in or near retirement, diversified sector exposure captures the thesis without speculating on arcane names. The transferable principle: match the instrument to the level at which you actually have conviction.
The Dollar's Two-Act Play
Near term, the dollar had strengthened on what Pento calls the misguided hypothesis of aggressive 2026 hikes; as disinflation removes hikes from the front burner, the dollar weakens, which is bullish for commodities and precious metals in particular, less so for base metals and energy. Longer term he expects two acts: a temporary dollar bid during the initial credit crisis, the usual flight to safety, followed by dollar weakness like we have never seen as the Fed and Treasury releverage into an already insolvent position. In that second act he expects the dollar and the Treasury complex to crack simultaneously, especially against hard assets.
The Next Crisis Nucleus: Private Credit and AI Debt
Every cycle breaks where the leverage accumulated. Pento locates the current buildup in private credit and private equity, now joined by companies borrowing hundreds of billions to fund AI infrastructure. He owns some AI exposure but calls the semiconductor trade old news; his preferred expression is companies that benefit from AI while also paying high dividends and holding up in a weakening economy. When the credit bust arrives, he expects rates to spike first, forcing the Fed to intervene, and the open question is whether intervention still works with the sovereign balance sheet already spent.
Warnings
The Crisis Progression Sequence
Pento lays out an explicit order of operations: a credit bust brings disinflation that may tip into outright deflation; recession quickly deepens into depression given the leverage; the Fed cuts to zero; helicopter money and universal basic income follow; the Fed monetizes and its balance sheet goes to double digit trillions. The unresolved question is whether that monetization mollifies the problem or makes long rates spike instead of fall. Beyond the crisis sits protracted stagflation and, at the end of the thought experiment, hyperinflation followed by a reset of the currency and the debt. He is explicit that the reset is not near; the sequence is a map, not a countdown.
Why the Next Recovery Could Take a Decade
In 2000 the benchmark Treasury yield fell from 6 to 3 percent; in 2008 from 5 to below 2. That falling benchmark, which most debt prices off, is how the economy healed and how stocks recovered their 50 percent drawdowns within about five years. Pento argues that cushion is gone: if the Fed cuts to zero next time, he expects the 10-year to fall perhaps 100 basis points and then go right back up, because the US now has a solvency problem and an inflation problem it lacked in prior cycles. Without the rate relief mechanism, recovery could take a decade or longer, with Japan's 35-year round trip to its nominal high as the cautionary precedent. Catching the temporary long-end rally requires being very agile; it is a trade, not a position.
Implementation
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Track second derivatives, not headlines
Build a simple monthly log of the direction of change in inflation (CPI trend) and growth (payrolls, labor force growth, GDP nowcasts). The actionable signal in Pento's framework is when both are accelerating or both are decelerating. A 4.2 percent inflation print decelerating toward 3 is a different regime than 2.5 percent accelerating, even though the first number is higher.
Hunt for offsides consensus
Pento's two profitable 2026 trades both faded a crowded expectation: three cuts penciled in during February, then two to three hikes after Warsh's first meeting. Before positioning, write down what the market is pricing (Fed funds futures, positioning data) and ask whether the second derivative data supports it. When everybody is on one side of the boat and the data disagrees, that is the trade.
Express miner conviction at the sector level
Unless you have genuine company-level expertise in balance sheets, jurisdictions, and mine operations, use GDX for seniors and GDXJ for juniors to capture the macro call. This quarantines the thesis from single-mine disasters like floods and wall collapses. Reserve individual names for situations where you have done real due diligence, as with the PNPN-style deep dives already in this repository.
Separate the gold and silver decisions
Treat gold and silver as different regime assets rather than a single precious metals bucket. In decelerating growth and inflation, favor gold and miners; silver's industrial demand component makes it the weaker hold in that regime even while it rallies on rate cut days. Revisit the split whenever the second derivative regime flips.
Check the miner margin equation before buying
The trade works when the product price is rising while input costs fall. Before adding exposure, confirm both sides: gold price trend versus energy prices (the miners' dominant input) and sector valuation (Pento entered at 14 to 15 times earnings after a 35 percent drawdown). If energy is spiking alongside gold, half the thesis is missing.
Keep Treasury duration short until the bust
Pento holds the short end of the curve and plans to extend duration only tactically when the recession actually hits, expecting perhaps 100 basis points of long-end relief before rates reverse higher. If you hold bonds, know which of those two phases you are positioned for, and treat any long-duration rally in the next crisis as a trade requiring agility, not a buy-and-hold.
Screen AI exposure for dividends and defensiveness
Rather than chasing the semiconductor trade, apply Pento's filter: companies that benefit from AI adoption, pay a high dividend, and have earnings that hold up in a weakening economy. That triple screen is the sweet spot he identifies for the current phase, and it naturally excludes the debt-funded infrastructure names he expects to be the crisis nucleus.
Stress test against the reconciliation scenario
Run your whole portfolio, not a slice, through a scenario where equities fall at least 50 percent, long rates spike instead of falling, and the recovery takes a decade. Note what survives, what compounds (gold, cash flow payers), and what is permanently impaired. The goal Pento states for his own clients applies generally: participate safely in the bubble while it grows, and protect and profit when the reconciliation begins.
Tools & Resources
Mentioned Resources
| Resource | Description |
|---|---|
| Pento Portfolio Strategies | Michael Pento's registered investment advisory firm, running the 20-component inflation-deflation and economic cycle model. Managed accounts require US citizenship, a 100,000 dollar minimum, and long short qualification. |
| Midweek Reality Check | Pento's weekly Wednesday podcast and commentary, 50 dollars per year, covering the salient economic data and his high-level portfolio positioning. |
| The Coming Bond Market Collapse | Pento's book on the US debt bubble and the interest rate shock he expects when it bursts, referenced by the host as his bond market foundation. |
| VanEck Gold Miners ETF (GDX) | Senior gold miner ETF, one of the two vehicles Pento uses to express his miner position without single-company risk. |
| VanEck Junior Gold Miners ETF (GDXJ) | Junior gold miner ETF, the second of Pento's two miner vehicles, giving small-cap producer exposure alongside GDX. |
| Soar Financially | Kai Hoffmann's channel and platform hosting the interview, focused on macro, commodities, and resource investing conversations. |
Suggested Resources
| Resource | Description |
|---|---|
| TradingView | Charting platform for tracking GDX, GDXJ, gold, the 10-year yield, and the dollar index, the exact instruments this framework trades on. |
| FRED (St. Louis Fed) | Free source for the underlying data in Pento's model inputs: the Fed balance sheet, M2, non-farm payrolls, labor force participation, and market cap to GDP proxies. |
| CME FedWatch Tool | Real-time market-implied probabilities for Fed rate decisions, the consensus positioning Pento fades when the second derivative data disagrees. |
| Intelligence Repository | Companion pages in this repository on Rick Rule, Kevin Warsh, and related resource investing and monetary policy sources that share this interview's fault lines. |
Source Material
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[00:00]
Michael Pento: If you ever really had a regime of positive real interest rates and a shrinking Fed's balance sheet, you've crushed asset prices, crushed the economy, and you wouldn't be looking at a recession, you'd be looking at a depression rather quickly.
Kai Hoffmann: Well, it seems like things are accelerating anyway in that direction, sadly. So the question is, are we seeing a soft landing or are we really going down the recession slash depression road here? The US jobs number just disappointed. Gold, silver are rallying. Maybe rate cut or rate hike expectations are lower now, only down to 20 percent now for the next Fed meeting in about 4 weeks time. The question is, what does that mean? Isn't June one of the seasonally stronger months when it comes to the jobs market? It has disappointed. We've also seen downward revisions for April and May, and like they're always expected, but is there something more happening underneath the surface? I've invited back Michael Pento of Pento Portfolio Strategies and really excited to dissect the current market and the current economy with him, just to get a sense of where are we at. It is the midst of summer here. We're recording this on July 2nd. So are we just in the summer doldrums or is there more to it? Before I switch over to my guest though, help us out with the algorithm. Hit that like and subscribe button. Leave a comment down below. It helps us out tremendously and we truly appreciate it. Now, Michael, it is a great pleasure to have you back on the program. Thank you so much for joining us again.
Michael Pento: Hey, thanks for having me on, Kai.
Kai Hoffmann: Yeah, really looking forward to the next 30 minutes with you, Michael, and we should start with the jobs market and the jobs number that we just got out of the Bureau of Labor Statistics. Unemployment rate 4.2 percent, down 0.1 percent, but it has disappointed because we've seen less new jobs created as well. What do you make of the jobs market right now, Michael? Let's start there.
Michael Pento: Well, when you have the labor force growth pretty much near zero, it doesn't really surprise me that you have very low non-farm payroll growth numbers. So you don't really need a lot of labor force growth to satisfy the natural growth of the economy. Plus, you've closed the border too, which is a good thing in my view. You want to know who's coming in your country. We need legal immigration. We need to vet the people that come in here. Just a two-minute political speech there, but the border is closed and the natural growth of the labor force is just not growing. So it doesn't surprise me at all. People who follow my work and listen to my interviews, clients of mine, the Midweek Reality Check that I put out every week on Wednesday, understand that this is not a surprise to me at all. What was a surprise to me was the non-farm payroll report for May. That was a surprise. But that was mostly because of the hiring for the World Cup, and maybe the last vestiges of the tax refunds that were coming out, because it was mostly leisure and hospitality and state and local government jobs that were created. But I have been, for the past few weeks, especially after Warsh's speech after his first FOMC conference and meeting, I've been loading up on gold and the miners. The miners for the first time in a very long time. And I was wrong for a few days, and I was vilified and excoriated by a certain number of people for why I did so. But to me the story goes like this, Kai. At the beginning of the year, we had penciled in three rate cuts up until February 28th. Then the war broke out and oil prices shot to 120 dollars a barrel West Texas. Inflation went to 4.2 percent from where it was in the mid twos. And then all of a sudden we went from, oh, we're going to hike because Trump's man Warsh was coming in and inflation was rather quiescent or heading back towards 2 percent, to oh my God. So that was the complete wrong side of the trade. And I had that one right too, because I sold down my precious metals headed into that, because I thought they were very overly optimistic with rate cuts. And when I heard Warsh speak and when I saw the market's reaction to a very hawkish Fed that was supposedly going to hike rates two to three times this year, I said, I was like one of the few people to look out for two things to happen: growth to slow and inflation to slow. So disinflation was on a second derivative basis. So instead of rising by 4.2 percent, it's probably going to go back to three. That doesn't actually save the consumer. The consumer is in a whole heck of a lot of trouble. I'm just saying, from a rate of change of the rate of change basis, second derivative, that it would be wrong to bet on rate hikes in that scenario.
[05:01]
Michael Pento: So Trump's man comes in, doesn't hike rates when inflation is 4.2 percent and peaking, when growth is peaking, and supposedly a month or so later is going to hike rates while growth is slowing and inflation is slowing and we're closer to the midterm election. That didn't make any sense to me. So I think the Fed's next move is a cut, not a hike. And that's why I went long low volatility stocks, dividend stocks, increased the position in the metals, gold, not silver, and took a decent position in the miners. And today it was proven correct with that rather surprisingly weak non-farm payroll.
Kai Hoffmann: Yeah, I'm having a jolly day here in the markets, especially for gold and silver investors. I think silver was up 4.5 percent or so this morning. Let me just double-check so I don't misspeak. Yeah, 3.66 percent right now. So in all, we've been having a day.
Michael Pento: In all candor, and I'm all about honesty and accountability here, I did sell my silver. I doubled the gold, sold the silver, and increased and took a new position in miners. And the reason why is because I just don't like, in this macroeconomic environment where the second derivative of inflation and growth are slowing, silver tends not to do as well as gold. That doesn't mean you should sell your silver and get negative on it. I'm not saying that. I'd rather put my precious metals resources towards gold and the miners right now, and that's what's paying off, especially in the miners, because you think about what they're pulling out of the ground is getting more expensive, because the specter of rate hikes is fading quickly, very quickly. But also the energy that they use to produce the metal, their input costs, are coming down rather dramatically. So I think the miners are a huge win right now, when they were just being dumped. Where in this market can you find stocks trading at 14, 15 times earnings with a very robust earnings picture? I don't see anything out there like that.
Kai Hoffmann: And growth.
Michael Pento: And growth. Growth in earnings, growth in revenue, cheap. And when you get right down to it, Kai, and we can talk about this a little later in the program, the idea that the Federal Reserve can actually shrink its balance sheet innocuously and raise interest rates, making interest rates in a real sense positive, is just ridiculous. Not with the amount of debt that we have. We have so over-financialized this country. In fact, most of the entire planet is over-financialized. If you ever really had a regime of positive real interest rates and a shrinking Fed balance sheet, you'd crush asset prices, crush the economy, and you wouldn't be looking at a recession, you'd be looking at a depression rather quickly.
Kai Hoffmann: Well, it seems like things are accelerating anyway in that direction, sadly. So the question is, are we seeing a soft landing or are we really going down the recession slash depression road here?
Michael Pento: Well, eventually all roads to me lead to hyperstagflation. That's what I think we're eventually headed toward. And then after that, if you want to do a thought experiment out even further, you're looking at a depression and a reset of the currency and a reset of the debt. That only occurs after you have hyperinflation though. So we're not anywhere near that right now. But it just sort of hammers the point home that you need to have active management. The 60/40 target date portfolio is just not going to work. And I think I must have said this when I've been on your program before, but it's so important to understand: we have never seen anything like this in the history of the United States or in the history of the planet Earth. This is the most deformed, overpriced market, and when I say market, I mean bond market, housing market, and real estate market. Stocks, real estate, and credit that we have ever seen or ever imagined. And the reason is how we got here. So for an example, total market cap of equities as a percentage of GDP is 235 percent, which is absolutely unimaginable just a few decades ago. Usually that metric is around 90 percent. We're way over double where we should be. And again, I always hasten to add this too, because people say, well, that metric doesn't really matter anymore. Well, you don't like price to sales either? You don't like the Cape Shiller PE ratio?
[10:00]
Michael Pento: You don't like negative risk premiums? For people who say that ratio doesn't matter anymore, use GNP if you don't like GDP. Gross national product, which is all the things that we produce here and abroad. So I've got to tell you, no matter how you look at that metric, it screams, oh my God, how did we get here? And the reason why we're here is because we've never before had a central bank that was willing to print trillions upon trillions of dollars. That's not an exaggeration. Since 2007, the Fed's balance sheet increased by well over eight trillion dollars at its peak. What does that mean, the Fed's balance sheet? Does that mean anything? That's high-powered money. It's part of the base money supply. It forms the foundation of the broader monetary aggregates. That's why you see M2. They don't publish M3 anymore. ShadowStats does. The monetary aggregates have just ripped to the thermosphere. And you sit around and wonder, why is consumer sentiment so bad? Why can't people afford to buy a house? Why is the economy not functioning well? Why are food lines and soup lines and bread lines at record levels, and record default rates on auto loans and student loans and credit card loans? The delinquencies and defaults are surging. And this is all laid at the feet of a central bank that has facilitated with alacrity the insolvent condition of the Treasury.
Kai Hoffmann: Well, it sort of brings me to the K-shaped economy and the Cantillon effect as well. The question is, where is the tipping point, right? When does a K turn into a flat line, and when do we see maybe a reset? That's maybe too strong of a word here, but maybe an adjustment and maybe a return to a more normal scenario. Or has that ship sailed here, Michael?
Michael Pento: Well, the bottom four quintiles, the bottom 80 percent, are clinging to a lifeboat. They're not really participating in this economy. It's the top 20 percent who are mostly living off asset bubbles of real estate and equities and credit. So when those bubbles crack, that's when you return to normalcy. But as you look around and you see what's happening in this Democratic Republic, the 250th anniversary of its founding, you see around the country now socialist candidates becoming elected. People don't know where to turn. They're looking at the bifurcation of the economy. They don't understand the theory of money and credit. They haven't been educated on it. Not enough people watch your program. You're not going to get it on the mainstream financial media. That's why I was thrown off. I'll put it right in your face. Hey, why don't we talk, instead of talking about, well, is the wage-price spiral going to send inflation higher? What BS. There is no such thing as a wage-price spiral. It's never happened, it never can happen. Let's talk about your balance sheet. Warsh knows this. There's some tacit evidence that he kind of pushes the line. You give him some truth serum and he'll go out and tell you, hey, the Fed got way too over-involved in this economy. And he doesn't need a committee, Kai. He doesn't need a focus group to determine if we should shrink the balance sheet. He knows he's got to shrink that balance sheet. The question is, does he have the political capital and the temerity to do so? That's the question. But that's where your inflation comes from. Inflation comes from printing too much base money supply, which is the credit for banks. Banks go out and gamble with that, they make loans, that's the liquidity for banks. That increases the money supply. And when the money supply increases faster than the output of goods and services, you get higher prices, and that's where inflation comes from, and it isn't a mystery, Kai.
Kai Hoffmann: No, it's not, and we can all agree. Everybody looks at the headlines, like, ooh, oil is higher or lower. Now at this point we're back to pre-war levels, but people keep focused on that constantly, and it's the wrong thing to focus on.
Michael Pento: The reason why, well, look at it. Okay, despite, because of the war, why oil came down, that takes inflation back from 4.2 back to three. But why in
[15:00]
Michael Pento: God's good earth are we looking at that as some kind of victory? I mean, why do we have an inflation target of 2 percent in the first place anyway? I thought we're supposed to have stable prices. Well, stable means zero, right? The rate of change should be zero, not two. And if you miss two over five years to the north, if you can't get back to two for over 5 years, your target has become a punchline. It's a joke.
Kai Hoffmann: Well, it's always 2 percent tomorrow, right?
Michael Pento: No, it's like that free beer tomorrow at the pub. The next 2 years we'll be back to 2 percent. Two, two, two, two.
Kai Hoffmann: Is that what the dot plot, or what is that, the forecast, whatever they call it? I forgot the exact name.
Michael Pento: Jerome Powell, who the president of the United States excoriated and vilified for being someone who was too late to cut interest rates. He was cutting interest rates into this latest inflation spike that we had, into the war, cutting rates. He printed more money than any other chairperson in Federal Reserve history. And the reason why we don't like this person is because he was too hawkish. I mean, what do we really want? What kind of central bank do we really want? We already have 40 trillion dollars in debt. It's 720 percent of revenue. Two trillion dollar deficits in relative peace and prosperity. When we have a recession, those deficits are going to 5, 6 trillion dollars, just because of the automatic stabilizers that kick in. SNAP, WIC, unemployment insurance, tax receipts that go down. And that's before the government comes in and says, well, let's do another TARP program. Let's do another round of helicopter money, which I'm sure they're going to do. So that's why I said the progression, Kai, I think is going to go like this. We're going to have a credit bust. So you'll see the disinflation maybe go to deflation for a while. A recession which will quickly become a depression. The Fed cuts rates to zero, and then we launch some kind of helicopter money, UBI, universal basic income. And then the Fed monetizes, the balance sheet goes to double digits. And the question is, does that ameliorate the problem? Does that mollify the problem? Or does that make long-term interest rates spike rather than fall? In the past two big recessions that we had, 2000 and 2008, interest rates fell. But the national debt to GDP was like 35 percent, 60 percent. It wasn't 123 percent. And the Fed's balance sheet was a few hundred billion. It wasn't 7 trillion where it is now. So the odds are very high that the next time we have a crisis, instead of it taking, you know, the stock market drops 50 percent and goes up 100 percent 5 years later, I think it might be a decade or longer, simply because you're not going to have that mollifying effect of lower interest rates. And if you have rates that actually rise instead of fall, which again is not guaranteed, but the odds are there because we have a solvency problem and an inflation problem that we didn't have in 2000 and 2008, then it could take many, many, many years. We could look like China or Japan. Japan took 35 years to get back to their nominal high.
Kai Hoffmann: Absolutely. Michael, what's the bond market telling you? I know that's sort of your, I wouldn't say bread and butter business, but I know you're focused on the bond market quite a bit. You wrote a book about it. The 10-year now at 4.47. It seems to be like we're in the eye of a hurricane a little bit. Everything's fine, there's no wind, and rates are somewhat steady. So I'm curious what your take on it is and what kind of euphemism you're using to describe it, perhaps.
Michael Pento: Well, I don't know if it's a euphemism, but the way I look at it is we've deformed and manipulated interest rates for decades now. Decade after decade after decade. And we just talked about where I see protracted and inexorable stagflation after this next credit crisis. All the money printing in the world and all the extraordinary steps that the Fed and Treasury went through to protract this business cycle, it hasn't abrogated the business cycle. It has not canceled the business cycle.
[20:00]
Michael Pento: We will have another recession, and I think the problem is going to be in credit, and the nucleus of that problem is going to be in private credit, private equity, and now we see this AI bubble where these companies are now borrowing hundreds and hundreds of billions of dollars and throwing it at AI infrastructure. And I think that's going to be a huge problem. And I can't tell you the date. I know it's not now, but when it happens, you'll see interest rates spike. And then the Fed's going to have to come and do something about it.
Kai Hoffmann: I was going to say, what
Michael Pento: And the question is, will they be successful? Because again, ramping up the printing presses and issuing trillions of dollars in debt. We always pulled ourselves out of a problem by using the government's balance sheet. That's how we rescued stocks in 2000 and real estate in 2008. We just massively releveraged the government's balance sheet. When we do that again, does that break the dollar, and does that break the confidence in the sovereign, in the Treasury bond market of the United States? I think the odds are very high that that happens, and then you will have interest rates spike out of control.
Kai Hoffmann: No, we keep looking for the cracks here, and maybe one other crack, the US dollar. A poor segue, I apologize, but we need to talk about it like another asset class. It seems fairly strong right now, based also on rate hike expectations. The dollar has gained. Now today it's coming down, obviously, because as you said, the air is coming out of the rate hike balloon a little bit. What do you make of the US dollar right now?
Michael Pento: Well, usually in times of crisis the US dollar gains a bit. I expect that to happen again temporarily when we do hit the credit crisis, but on the other side of that I would expect dollar weakness like we've never seen before. The dollar cracks completely, especially against hard assets. The dollar and the Treasury complex crack simultaneously after the next crisis is over. But right now, let's just talk short term, because I manage money. I don't manage money according to theories and hypotheses about what could happen a decade from now or whatever. What's happening now is the dollar had been strengthening on the misguided hypothesis that the Fed was going to be hiking rather aggressively this year. And what you see now is, I believe you're going to get a lot more evidence of, let me just be specific, the second derivative of inflation falling from 4.2 back towards 3 percent, which would take rate hikes off of the front burner, and that means that you're going to see a weaker dollar, which is great for commodities in general, especially precious metals. Not so much base metals, not so much energy, but precious metals, in particular gold. Because gold loves recessions. Gold loves it when nominal rates are falling and real rates are falling. And that's what I see happening.
Kai Hoffmann: You talked about the miners earlier, and I know our audience loves the mining space as well. Just curious, when you say miners, maybe you can be a bit more specific. You don't have to give us names, Michael, that's for your subscribers and for your clients. But what are you looking for when you look at the miners? It is a fairly narrow field, but there's still a certain level of separation between them.
Michael Pento: Yeah, I mean, if you want an expert who can tell you the best balance sheets and the best individual corporations, it's just not me. I have a model called the inflation-deflation economic cycle model. So when my output says buy miners, I'm looking at GDX and GDXJ. Because I could get too idiosyncratic and get it wrong. It's hard enough to get the macroeconomic conditions correct. What I don't want to do is get that right and then mess it up by some flood that happens in Newmont's mine, for example. I don't want to do that.
Kai Hoffmann: Well, Newmont had a wall collapse today at one of its mines. So, you know, to your point.
Michael Pento: To my point. Yeah, you got everything right, but you went and bought Agnico. You said Agnico Eagle?
Kai Hoffmann: Yeah.
Michael Pento: I mean, I don't have to do that. You don't have to do that.
Kai Hoffmann: No, fair enough. I appreciate the honesty here. It makes a lot of sense.
Michael Pento: Your other guest can say, listen, this arcane Chinese gold mining company is going to be, you know. That's great. But my clientele are either in retirement or about to retire. We don't need to speculate on arcane miners around the world. You think gold is going up? Yes, you're correct. You think interest rates are
[25:01]
Michael Pento: going to be heading down when everybody thinks they're going up? It's offsides there. Everybody's on one side of the boat. You buy the miners, GDX, GDXJ, because their input costs are going down and their product that they're pulling out of the ground is going up. Simple.
Kai Hoffmann: It's so simple sometimes, right? KISS, keep it simple, stupid, right? Absolutely. Michael, you know the summer season is upon us and we have to talk a little bit about portfolio construction for the summer, perhaps. Not financial advice, but I'm curious what an ideal portfolio looks like, maybe for the next 8 weeks. I know you're quite active, so everybody who listens to this, in 3 months this might be outdated. And again, it's not financial advice. Everybody's different, so huge asterisks. But I'm curious what it looks like for you going into the summer.
Michael Pento: So again, I haven't done my due diligence on everybody in the audience, so this is just for me, myself, my clients. We have been positioning over the past few weeks, and now we're fully positioned, or 90 percent positioned, with low-volatility stocks, dividend-paying stocks, international stocks, weaker dollar, gold and the miners. That's our positioning right now. And our Treasury positioning is on the short end of the yield curve. We're not yet on the long end of the yield curve, because when this recession hits, it's not now, but when it hits, you could and should get declining rates on the long end of the yield curve, but temporarily. Very temporarily. I don't think it lasts long and I don't think it's as deep. If you look back in 2000 and in 2008, the way the economy healed was the falling benchmark Treasury, which a lot of debt is priced off of. Rates went from 6 percent to 3 percent in 2000, and in 2008 they went from 5 percent down to just below 2 percent. I don't think that happens this time. I think if the Fed were to cut rates from where they are now to zero or 1 percent, I think the 10-year Treasury note maybe goes down a little bit, maybe by 100 basis points, and then goes right back up. So if you want to catch that move, you've got to be very, very agile. But while everybody's piling into the AI trade, I have some exposure there. The semiconductor trade, I think that's old news. I would look for the companies that benefit from the AI trade, but also benefit from an economy that is weakening, and that pay a high dividend. That's the sweet spot right now.
Kai Hoffmann: Absolutely. No question.
Michael Pento: The gold miners, by the way, if anybody had any exposure to the gold and gold miners, they've gotten whacked this year. I think the miners were down like 35 percent. Absolutely terrible.
Kai Hoffmann: I think we're somewhat flat for the year, but yes, it had a massive run-up early until the end of January.
Michael Pento: Yeah, and then from February 28th, the last few months, that's when I was selling my precious metals. From February 28th, not the year, correct, thank you. But down like 35 percent from the high. So they're on sale, and I hope it's not too late. I hope this interview comes out quickly and people can avail themselves of this opportunity while it's on sale.
Kai Hoffmann: Absolutely. No, Michael, tremendous advice. I love our conversations. Every time you come on, I'm looking forward to it. Where can our audience follow more of your work and where can they reach out to you?
Michael Pento: So the website is pentoport.com. And on that website you'll see the Midweek Reality Check, and it's 50 dollars a year. It gives you a high-level view of the salient economic data and what I'm doing with the portfolio on a high level. And if you want me to personally manage your money in the inflation-deflation and economic cycle model, which is really good at picking out the direction of what's happening now, in the next 3 months, with inflation and growth, I'll manage your money directly in that portfolio. You have to be a US citizen, you have to have at least 100,000 dollars, and be qualified for a long short portfolio. Because I think the opportunity is, here's the goal, Kai. The goal is to participate safely in these asset bubbles as they grow, which we've been doing. But most importantly is to be able to protect and profit when the great, what I call the great reconciliation of asset prices, begins. When you see that ratio of total market cap of equities to GDP go from 235 percent back to around 100 percent, that means that the stock market has to crash by at least 50 percent, assuming GDP doesn't go down. Which is a bad assumption, because GDP always goes down. So we're looking at at least a 50 percent correction when it happens.
[30:00]
Michael Pento: And it's happened many times in the past. I'm very confident it's going to happen again. You need to be on the right side of that. That's what interests me. If you think, the market's up 15 and we're up eight, and you're like, oh, I'm underperforming. Well, first of all, I manage a whole portfolio. That means I have your stocks and I have your fixed income. A prudent investor has to manage your whole net worth, not just a tiny slice of it. But if you're interested in participating in the bull market but protecting and profiting from reality when it arrives, then this is the place you have to be.
Kai Hoffmann: Absolutely. I fully agree, Michael. That's the right approach in my opinion, and tremendously appreciate your time. It was great to have you back on here, and I hope everybody reaches out that has some interest. And I can't wait to do this again with you in the fall. We'll see where we're at, and what the rate hike expectations look like in September, October here, Michael.
Michael Pento: Looking forward.
Kai Hoffmann: I wish you a wonderful summer. Thank you so much. And everybody else, thank you so much for tuning in. A phenomenal conversation here with Michael Pento of Pento Portfolio Strategies. If you enjoyed the conversation, go visit his website, go reach out to him, but also leave a comment, leave a like down below here as well. It helps us out tremendously with the algorithm, helps us bring phenomenal guests like Michael onto the program. I wish you all a great summer. We'll be back with more episodes. I'm not going anywhere for a while. I'm off to the Rule conference on the weekend in Boca Raton, Florida, going to enjoy some humidity here, but we'll be back with lots more. So take care, and enjoy the summer. Bye.
AI Prompt
AI-generated from source material. Verify important details against the original source.
AI Implementation Prompt
CONTEXT You are working from a July 2, 2026 Soar Financially interview between host Kai Hoffmann and Michael Pento, president and founder of Pento Portfolio Strategies, a registered investment advisory firm running a proprietary 20-component inflation-deflation and economic cycle model. The interview was recorded the day a weak June non-farm payrolls report sent gold and silver sharply higher. Pento's core thesis: growth and inflation are both decelerating on a second derivative basis (inflation rolling from 4.2 percent back toward 3 percent after a war-driven oil spike to 120 dollars in late February), which removes the rate hikes the market had priced in under new Fed chair Kevin Warsh and makes a cut the Fed's next move. On this signal he doubled gold, sold silver, went long low volatility and dividend stocks, and took a new position in gold miners via GDX and GDXJ, citing rising product price plus falling energy input costs, with the sector at 14 to 15 times earnings after a 35 percent drawdown from its late January high. His structural backdrop: total equity market cap at 235 percent of GDP versus a 90 percent norm, a Fed balance sheet up more than 8 trillion dollars since 2007, US debt of 40 trillion dollars at 720 percent of revenue, and a coming crisis nucleated in private credit, private equity, and debt-funded AI infrastructure. His progression: credit bust, deflation, depression, Fed to zero, helicopter money and UBI, monetized balance sheet, possible long-rate spike and broken confidence in the dollar and Treasuries, protracted stagflation, and at the far end of the thought experiment, hyperinflation and a currency and debt reset. KEY PRINCIPLES 1. Trade the second derivative: the rate of change of the rate of change of growth and inflation, not their absolute levels. 2. When everybody is on one side of the boat and the data disagrees, the crowded expectation is the trade to fade. 3. Inflation comes from base money creation outrunning the output of goods and services, not from wage price spirals. 4. An overfinancialized system cannot survive positive real rates plus balance sheet shrinkage; the central bank is structurally trapped toward easing. 5. Gold loves falling nominal and real rates; silver lags gold when growth and inflation are both decelerating. 6. Miners are a margin expansion trade: buy when the product price is rising while input costs (chiefly energy) are falling. 7. Match the instrument to your actual edge: macro conviction belongs in sector ETFs (GDX, GDXJ), not single names exposed to floods and wall collapses. 8. Market cap to GDP is a reversion anchor: 235 percent versus a 90 percent norm implies at least a 50 percent correction in the great reconciliation. 9. The next easing cycle may not rescue assets: with a solvency and inflation problem, long rates may spike rather than fall, and recovery could take a decade, as in Japan. 10. Manage the whole net worth against the reconciliation scenario: participate safely in the bubble, protect and profit when it ends. KEY LEVERS Regime identification (direction of the second derivatives of growth and inflation over the next three months); positioning versus consensus (Fed funds futures and market expectations as the thing to fade); asset selection by regime (gold and miners versus silver, low volatility dividend payers versus growth, short-end versus long-end duration); instrument selection by edge (ETF versus single name); margin analysis for miners (metal price trend versus energy cost trend versus sector valuation); and crisis sequencing (knowing which phase of the credit bust progression you are positioned for, and treating the temporary long-duration rally as an agile trade). WHAT THIS IS NOT This is not permabear doom commentary: Pento is 90 percent invested and explicitly trades the observable present, not decade-out hypotheses. It is not a stock picking framework: he deliberately refuses single-miner selection and defers to those with company-level expertise. It is not a silver thesis: he sold silver into the rally on regime grounds. It is not a claim that lower inflation saves the consumer: disinflation is a rate-of-change statement, not relief. It is not the standard 60/40 or target date approach, which he says cannot work in this environment. And it is not a prediction with dates: he explicitly cannot time the credit bust, only describe its nucleus and sequence. IMPLEMENTATION MODES 1. Apply: help me position a portfolio or a resource-sector watchlist using the second derivative regime framework, starting from current data. 2. Diagnose: assess my existing holdings against the reconciliation scenario (50 percent equity correction, spiking long rates, decade-long recovery) and identify what survives. 3. Build: construct a monthly second derivative dashboard (inflation trend, payrolls, labor force growth, Fed balance sheet, M2, market cap to GDP, energy costs versus gold price) with clear signal rules. 4. Critique: stress test Pento's claims, including the no-wage-price-spiral assertion, the 235 percent reversion anchor, and the Japan analogy, against counterarguments and data. 5. Compare: contrast Pento's ETF-level miner expression with company-level due diligence approaches (Rick Rule style) and help me decide which layer a given idea belongs in. 6. Teach: explain any concept from the interview (Cantillon effect, base money mechanics, the crisis progression) at whatever depth I need. 7. Content Creation: draft posts, briefs, or intelligence summaries grounded in this framework in an observational, systems-level, matter-of-fact voice without hype. 8. Decision Support: when a specific Fed meeting, jobs report, or CPI print lands, help me interpret it strictly through the second derivative lens and identify whether consensus is offsides. 9. Opportunity Discovery: screen for the AI-plus-dividend-plus-defensive sweet spot Pento describes, or for miner margin expansion setups. 10. Research Expansion: identify what data would confirm or falsify the private credit and AI debt bubble thesis as the next crisis nucleus. AI OPERATING INSTRUCTIONS Remain grounded in the source material and clearly separate Pento's claims from your own analysis or external data. Focus on practical implementation over commentary. Avoid generic motivational or permabull/permabear framing. Ask clarifying questions when my objective or constraints are unclear. Challenge weak assumptions, including mine and Pento's, with specific counter-evidence rather than hedging. Draw connections to related frameworks (Austrian monetary theory, other resource investors, prior cycles) when they sharpen a decision. Nothing here is financial advice; frame outputs as analysis and decision support. GUIDED DISCOVERY Ask me up to three questions, one at a time, to determine: (1) what I am trying to accomplish, (2) which ideas from this source are most relevant to my situation, (3) how these concepts could be applied most effectively. Once you understand my situation, help me build a practical implementation plan.