It looks to be a matter of weeks before the ESFS and ESM get a banking license and then its just a matter of Ctrl+P for the eurozone as Michael Pento gives his views to KingWorldNews and what this means for gold prices.
“In my estimation, the ECB is about three or four weeks away from giving a banking license to the EFSF and the ESM. This will lead to unlimited purchases of European debt, and an unlimited dilution to their currency.”
Pento also warned, “I am telling my clients, I am gearing them towards the inevitable inflation,” because “you will see the most salient moves in precious metals, base metals, energy and agricultural stocks and commodities.”
Pento also discussed what will happen in other key markets, but first, here is what Pento had to say about the Fed and ECB decisions: “My first impression was that the reports we had from the Wall Street Journal that the Fed was imminently going to interfere with the markets (with more QE), once again proved to be untrue. Bernanke is waiting for Jackson Hole. He’ll make some kind of announcement, like he did back in 2010, and then he will start to put his plan to destroy the currency in effect, probably in September.”
“Mario Draghi doesn’t understand the commitment he has pledged to undertake. If he is actually going to purport to the market that he will control the interest rates of the seventeen countries within the euro, my question for him would be, how long will you monetize European debt?
How much euro dilution will occur? The ECB will become the entire market for European debt….
“There will be no private market for these bonds. This is a recipe for severe stagflation which will destroy the middle-class and European savings.
However, he seems to be very confused because Draghi wouldn’t commit to these purchases being unsterilized. This means he could be buying short-term European debt, and selling mid and longer-term European debt, which would further drive up yields. For instance, the Spanish 10-Year right now is 7.17%, up 6.5% in one day.
It tells me that he doesn’t really know what he’s doing. Draghi had to take one side or the other. He either had to say the PIIG countries borrowed so much debt that they can no longer pay them back and they must default explicitly, or we are going to stupidly try to monopolize the entire bond market, and monetize all of this debt.
We have an unlimited bazooka, with unlimited ammunition, and here we go, we’re starting today. But by doing what he did, he promised the world, and delivered nothing. That is the reason why we are down today on the Dow. That is the reason why Spanish and Italian yields are blowing out today.
In my estimation, the ECB is about three or four weeks away from giving a banking license to the EFSF and the ESM. This will lead to unlimited purchases of European debt, and an unlimited dilution to their currency.”
When asked what investors should be doing in this environment, Pento responded, “I am telling my clients, I am gearing them towards the inevitable inflation. But I think it’s silly to go ‘all-in’ right now. We have significant holdings in precious metals and we have written covered calls against that strategy. Then, we are ready to go all-in once we have a firm commitment on the part of these two central bankers to massively monetize the debt.”
Pento also spoke about what he expects to unfold as central planners add more liquidity: “I think, temporarily, the euro will rise. Bond yields will fall for a very truncated period of time. You will see the major averages scream higher, but you will see the most salient moves in precious metals, base metals, energy and agricultural stocks and commodities.”