"Watch Credit Spreads" For Crash Signals - Insights From Pento & Roberts On 2025 Positioning
Are markets headed for a cliff? Most analysts flipped bullish following the Trump win with promises of peace, lower taxes, and business-friendly regulation. But one strategist, Michael Pento, is calling for a major crash as severe as 50% off the S&P.
Friday night concluded another ZeroHedge live-premium debate with Pento, founder of Pento Portfolio Strategies, and Chief Investment Strategist at RIA Advisors Lance Roberts.
Expertly moderated by Real Vision’s Ash Bennington, we’ve compiled key moments below but encourage all readers to listen to the full debate (linked at the bottom).
Credit Spreads Canary
Unlike the stock market, driven by sentiment and speculation, credit markets are "fundamentally based" on assessing inflation, credit risk, and returns — according to Roberts.
He points out that these spreads have historically served as a “good early warning indicator” of bear markets. Roberts concedes Pento’s thesis about the precarious state of the market and even admits, “we’re going to crash” (but strongly advises against all-cash and shorting, explained later).
“If there's anything you're going to watch to tell you a crash is going to come, watch credit spreads.”
— ZeroHedge Debates (@zerohedgeDebate) December 14, 2024
Fed Is Finished
Pento argues that the Federal Reserve is unlikely to intervene aggressively in the event of another economic crash due to significant changes since pre-COVID conditions. He challenges the assumption that "the Fed's got your back" by pointing to current constraints that make a return to policies like zero interest rates (ZIRP) and quantitative easing (QE) less feasible.
Pento: “It's a little sophomoric to say, ‘well, the Feds got your back. Well, the Fed’s just going to print money.’”
“Look at what happened in 2020. The Fed's balance sheet went from $4 trillion to $9 trillion from 2020 to 2022… the reason why the Fed is going to be loathe and reticent and reluctant to do that again, is because we had inflation in this country for the first time really since 1981. And if you measure inflation the way they did pre-Boskin in 1996, inflation was really about 20%.”
“Inflation has already wiped out the bottom four quintiles of the middle class.”
— ZeroHedge Debates (@zerohedgeDebate) December 14, 2024
Even if the Fed tries to put up a fight, says Pento, there’s no guarantee that they can save markets. Japan has thrown the kitchen sink at its markets to levels well beyond the American central bank but to no avail:
“Japan has zero percent interest rates. The Bank of Japan owns every JGB that's ever issued. They own half of the ETF market, and their market is below where it was 35 years ago.”
— ZeroHedge Debates (@zerohedgeDebate) December 14, 2024
Harmful Doomer Predictions
Roberts blasts doomsday predictions for causing massive losses for retail investors, encouraging them to remain permanently out of markets while the S&P climbs to new highs.
“If you’re going to say a crash is coming… it's got to have a specific timeframe.”
He highlights the market’s resilience during events like the 2020 shutdown. “If there was ever a reason the market should be down 50%, 60%, 70%, 80%, it should have been that event.” Though Roberts concedes that the federal government kept stocks afloat with stimulus checks, debt forgiveness, zero interest rates, and $120 billion in monthly quantitative easing.
Overall, he strongly discourages investors against crash predicting because current conditions, fueled by liquidity and support, may sustain the rally longer than expected. “They might be surprised how long this can last because of what’s still fueling the underlying market.”
— ZeroHedge Debates (@zerohedgeDebate) December 14, 2024
To hear Pento’s entire case for the 50% crash and his full discussion with Roberts that went for over an hour, you must sign up for the ZeroHedge Premium or Professional tiers. Pro subs additionally gain access to institutional research from the major banks to help you gain an edge when trading. Also tune in this Tuesday evening for a debate between Jonathan Turley and GW Professor Dave Karpf on free speech and Elon’s acquisition of Twitter, moderated by Gene Epstein of the SoHo Forum.
