• Jeff Bezos told Americans to prepare for a recession by cutting their spending
• Economists now see a recession as inevitable
• Some Fed members consider a recession necessary to tame record inflation

 

Prepare for a Recession

Amazon Executive Chairman and 4th richest person in the world, Jeff Bezos told people to prepare for a recession. He advised Americans to hold off on big purchases. They should save their cash for a rainy day. Good advice, especially if you are one of the 10,000 Amazon employees he is about to layoff. Bezos didn’t say how long he thinks the downturn will last. But he believes the US will be in recession soon, if it isn’t already.

Inflation is eating away at American’s savings. We are now tapping into our credit reserves. New data showed that household debt surged to $16.5 trillion last quarter. The number of mortgages and car loans is on the decline due to higher interest rates. But credit card debt is swelling quickly. It is rising at its fastest pace since 2008. Personal savings swelled during the pandemic. Today, those savings have plunged in half.¹

Most economists see a recession as inevitable. A Bloomberg economic forecast projected the probability of recession by October 2023 at 100%. The risk of recession is increasing alongside rising interest rates meant to combat inflation. The US economy did meet the informal definition of recession by contracting for two straight quarters in 2022.²

There was growth in the third quarter. But economists said that it was more accounting than actual growth. “If this constitutes improvement, we’ve set a very low bar,” said Bankrate chief financial analyst Greg McBride. He added the “pervasiveness” of inflation “remains problematic,” particularly since shelter, food and energy prices “are still seeing large and consistent increases.”³

The latest Bank of America survey of fund managers found that 77% see a global recession occurring over the next year. Recession in the US will pale compared to elsewhere in the world. 92% of those surveyed predicted the economy will be marked by stagflation. High inflation coupled with negative growth is considered the worst-case scenario for markets. Stagflation would require the Fed to shock the economy with even more drastic rate hikes.⁴

The Federal Reserve May Require a Recession

One Fed official said that it won’t be possible to reduce inflation without a recession. Esther George is president of the Federal Reserve Bank of Kansas City. She said, “I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there.” And in response to other Fed member’s hope for a ‘soft landing’, she replied, “I would love if there was that path, and I’ve seen people paint that path. I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes.”⁵

Ms. George advocates slowing the pace of rate increases. But not stopping them. There is consensus among Fed members that stopping rate hikes prematurely could let inflation return. They feel that situation is worse than a recession. Ms. George and others don’t want to repeat the mistakes of the 1970s and ’80s.

She warns investors not to expect a pivot anytime soon. Inflation is here and recession is coming. Now is the time to reduce risk and find safe haven assets. Our Gold IRA is designed to protect your wealth through a downturn. Contact us today to learn more.

Notes:
1. https://www.dailymail.co.uk/news/article-11434349/Billionaire-Bezos-says-people-prepare-recession-holding-buying-TVs-cars.html
2. https://www.dailymail.co.uk/news/article-11434349/Billionaire-Bezos-says-people-prepare-recession-holding-buying-TVs-cars.html
3. https://www.forbes.com/sites/jonathanponciano/2022/11/15/recession-fears-hit-new-high-even-as-inflation-slows-heres-what-fund-managers-predict-for-2023/?sh=4dab2aeb7f4b
4. https://www.forbes.com/sites/jonathanponciano/2022/11/15/recession-fears-hit-new-high-even-as-inflation-slows-heres-what-fund-managers-predict-for-2023/?sh=4dab2aeb7f4b
5. https://www.wsj.com/articles/bringing-inflation-down-without-a-recession-might-not-be-feasible-fed-official-says-11668571133

• The latest Consumer Price Index report showed inflation is at 7.7%
• Continued high inflation will fuel the Fed’s aggressive interest rate hikes
• Stock market volatility increased as investors fear a major crash

New Inflation Data Released

The US Consumer Price Index was released today. Inflation is now at 7.7%. That is down from 8.2% previously. Elevated inflation has proven to be persistent. It has been running at 40-year highs for more than 8 months now. The previous CPI report indicated the largest increase since June. Much to the frustration of the Fed, not to mention people exhausted by sky high prices, there seems to be no end sight.¹

This report is squashing any hopes of a pivot away from continued aggressive interest rate hikes. The core inflation index is still three times higher than the Fed’s 2% goal. Economist fear that inflation is becoming more and more entrenched. Unless it takes a downward trajectory soon, constantly rising inflation could become a permanent fixture of the economy. The long-term damage caused would be irreparable.

Rising inflation means a fifth-straight 75 basis point interest rate hike is a possibility. We are in the middle of the most aggressive interest rate hike campaign since the 1980s. Some traders are gambling that the Fed will only do a 50 point raise. A number once dreaded is now desired. But smart money is betting on the 75 point increase.²

Higher interest rates mean more expensive debt. The bottom lines of highly leveraged companies will get worse. And stock prices will drop. This one CPI report can make the difference between a rally, a bear market or a total crash.

Stock Market Takes a Wild Swing

Traders expect major stock volatility from the sustained inflation. Stocks have previously fallen more than 1,200 points after a high CPI announcement. The data may be setting the stage for a total market crash in the next few days. Investors know it will empower the Fed to tighten the economy even faster. Traders are growing more uncertain. Market volatility has been escalating with every monetary announcement. Last week, the S&P 500 dropped more than 2% after Fed Chair Powell announced an expected 75 basis-point hike.³

The Fed’s forecast for peak inflation has increased after these past two CPI reports. They maintain that inflation will fall slowly due to the tight labor market. Powell said to stop inflation, the job market must soften. But that isn’t happening. A recent report showed the US added more jobs than expected in October. Earnings increased but they didn’t keep pace with inflation. Labor costs keep increasing, which businesses are passing on as higher prices. Workers are basically funding their own demise according to Fed economists.

“If the labor market is surprising us with strength and resilience, then we shouldn’t anticipate a different outcome with consumer prices,” said Carl Riccadonna, chief US economist at BNP Paribas. “One is going to follow the other. Labor is slow to turn, and the same goes for inflation.”⁴

Actual declines in prices will take a while to be reflected in the CPI. There is a lag between rate hikes and the results of those hikes. For this reason, everyone from CEOs to the IMF fear the Fed will overtighten the economy and drive us into recession.

Brutal inflation, market volatility and recession are the standing order of the day. The time to protect your wealth before things continue to get worse is now. Contact us today to learn how a Gold IRA can preserve your nest egg during this turbulent time. Who knows how damaging the next financial report will be?

Notes:
1. https://www.bloomberg.com/news/articles/2022-11-09/us-inflation-to-cool-only-slightly-keeping-big-fed-hike-in-play
2. https://www.bloomberg.com/news/articles/2022-11-09/us-inflation-to-cool-only-slightly-keeping-big-fed-hike-in-play
3. https://www.wsj.com/livecoverage/stock-market-news-today-09-13-2022
4. https://www.bloomberg.com/news/articles/2022-11-09/us-inflation-to-cool-only-slightly-keeping-big-fed-hike-in-play

• The Federal Reserve raised interest rate 75 basis points for the 4th consecutive time
• Stocks dropped when Fed Chair said not to expect a pivot on rate hikes
• Economists believe a recession is inevitable

Fed Chair’s Comments Send Stocks Sliding

Any hopes that the Federal Reserve would pivot on interest rates dissolved today. The Fed raised interest rates 75 basis points. That is the fourth straight increase at that record level. The rate target range is now 3.75%-4%. The rate range hasn’t been this high since January 2008. The Federal Reserve is applying its most aggressive monetary policy since the early 1980s. Stocks dropped sharply in response to Chairman Powell’s comments about future increases. The Dow fell more than 400 points. The S&P 500 dropped 2.1% and the Nasdaq was 2.9% lower.¹

Stocks dropped after Powell said, “we still have some ways to go” and that “it is very premature to be thinking about pausing.” He also stated, “the ultimate level of interest rates will be higher than expected.” He continued that the question of when to slow the pace of increases is now much less important than the question of how high to raise rates and how long to keep them at those levels.²

The increases are part of the Fed’s fight against inflation. Prices remain near 40-year highs. Even after a series of steep hikes, the cost of living rose 6.2% in September from a year ago. The Fed blames an extremely tight labor market for pushing up wages and fueling inflation. Rate hikes are adding to the pain of inflation. They are raising the cost of credit cards, mortgages, and car loans. Meanwhile, businesses are scaling back investment and laying off workers as capital becomes more expensive. ³

Heading Towards Recession

Many now believe a recession is inevitable. Some economists were hoping the Fed was beginning a ‘step down’ policy of smaller and smaller rate increases. They believe the Fed is overcorrecting since there is lag between raising rates and seeing their effects. An overcorrection is thought to lead to recession.

Lawmakers and the United Nations have called on the Fed to stop raising rates. They fear it could ignite a global recession. A CNN poll showed 75% of Americans think the economy is currently in recession. Even Powell conceded that the chances of a “soft landing” for the economy are low. He added that it’s proven to be more difficult than expected for the Fed to get a handle on inflation. GDP has declined in both the first and second quarter. That meets a common definition of a recession. The housing market shows we are in an economic downturn. Housing demand has plunged as mortgage rates climbed over 7% for the first time in more than two decades. ⁴

There is no indication that hikes will end any time soon. The best that people are hoping for is that the huge hikes come at a slower pace. Investors see a 50% chance that rate will go above a whopping 5% by next March. A falling stock market shows Wall Street’s crisis in confidence in this economy. Stubborn inflation, soaring interest rates and crippling recession are the order of the day. All you can do is preserve the value of your assets before things get worse. Contact us today to learn how a Gold IRA can protect your wealth.

Notes:
1. https://www.wsj.com/articles/fed-approves-fourth-0-75-point-rate-rise-hints-at-smaller-hikes-11667412242
2. https://opoyi.com/business/us-stocks-fall-after-fed-chair-jerome-powells-comments-789883/
3. https://www.cnbc.com/2022/11/02/fed-hikes-by-another-three-quarters-of-a-point-taking-rates-to-the-highest-level-since-january-2008.html
4. https://www.cnbc.com/2022/11/02/fed-hikes-by-another-three-quarters-of-a-point-taking-rates-to-the-highest-level-since-january-2008.html

• Gross Domestic Product appears to have grown in the third quarter
• The bump in GDP is deceptive, experts believe a recession is still on its way
• Numerous other indicators are pointing to a long-term economic downturn

The GDP’s Deceptive Increase

Major banks, the International Monetary Fund, leading CEOs and hedge fund billionaires all predict a recession in 2023. After two quarters of declining growth, some say we are already in one. So, a positive third quarter GDP report should be good news, right? Not so fast.

Gross domestic product is a general measure of the country’s economic output. Analysts estimate it grew 2.4% between July and September. On the surface, that looks great after shrinking for six months. But with that decline, stubborn high inflation and rapidly swelling interest rates, most forecasters predict a long economic downturn. Economists see this one quarter as just a speed bump on the road to recession.¹

The bump in GDP may be more economic sleight of hand than an actual increase in production. The GDP is likely to have increased due to a narrowing gap between imports and exports. With money getting tighter, consumers are buying less. As a result, the US is importing fewer goods. American individuals and businesses are spending less. With consumption being nearly 70% of our GDP, that’s taking the gas out of our economy.

Other Recession Indicators

There are other recession signals flashing. Mortgage rates have more than doubled since last year. This is causing the housing market to come to a standstill. An overpowered dollar is cutting US exports and overseas profits for US companies. Stocks are dropping along with corporate earnings. And a shrinking federal budget deficit reveals less government investment in the economy.

The Chief Global Strategist at JP Morgan said, “there is little reason to expect booming growth at any time over the next few years.”²

The GDP is also being propped up by an increase in retailer’s inventory level. Instead of reflecting actual growth, the increase is most likely a result of unsnarling supply chains.

If anything, this is the canary in the recession coal mine. Inflation-adjusted GDP reflected healthy gains around the onset of four out of the last six downturns according to Joseph LaVorgna, chief economist at SMBC Nikko Securities America and former Trump White House economic adviser.

The state of the economy is no secret to everyday Americans. Consumer confidence has fallen to its lowest level since July. The index dropped 30 points since February 2020. “Dismal” is how the report described most people’s view of the economy. Rising gas and food prices are the main reasons for the poor outlook. People shouldn’t expect it to get better anytime soon. The CEOs of Kraft Heinz and Coca Cola both issued statements that their prices will continue to increase well into next year.³

There is another reason not to get fooled by this GDP bump. A major recession indicator is going off right now. Short- and long-term bond yields have inverted. This means short term bonds are paying better than long term ones. In other words, bond traders are not hopeful about the future. The spread between the three-month Treasury bill and the benchmark 10-year note has inverted several times this week. Inversions have preceded every US recession since 1950. If history is any guide, then we’ll be in full recession within 4 quarters.

At first glance, a headline touting GDP growth looks like good news. But upon closer examination, the data is revealed to be a small bounce before falling over the edge. A recession is all but guaranteed. The best thing you can do is move your wealth into safe haven assets before we feel the full brunt of the decline. Contact us today to learn how our Gold IRA can protect your savings from the dangers of recession.

Notes:
1. https://www.cnn.com/2022/10/26/investing/premarket-stocks-trading/index.html
2. https://www.cnn.com/2022/10/26/investing/premarket-stocks-trading/index.html
3. https://www.cnn.com/2022/10/26/investing/premarket-stocks-trading/index.html

• A strong dollar caused by aggressive interest rate hikes has diverted demand away from gold
• Several factors including recession, global interest rate hikes and dedollarization will weaken the dollar
• Investors are seizing the chance to buy gold before its price rises again as the dollar drops

Gold to Rise as the Dollar Fades

To paraphrase an ancient Chinese proverb, the best time to buy gold was twenty years ago, the second-best time is right now. Due to market forces, now is an ideal buying opportunity for gold. Investors can lock in the benefits of diversifying with precious metals before the price of gold shoots up again.

Inflation is frustrating the Federal Reserve. It hasn’t budged from its forty-year high despite a blistering series of interest rate hikes meant to tame it. What the rate hikes have done is drive up the value of the dollar. The dollar will continue to surge as rates continue to rise. The Fed is believed to be raising rates at its next two meetings. They like a strong dollar because it lowers the costs of imports. This creates a backdoor way to better inflation numbers. The Fed is willing to overlook the damage a strong dollar does, like reducing the value of American company foreign earnings and increasing the costs of debt held in dollars.

The aggressive rate increases have all but guaranteed a recession. These factors have led investors to seek out the dollar as a safe haven investment. As a result, they have moved away from gold, allowing the price to slip.

Challenges to the Dollar

Conditions are opening a short window to get a great deal on gold. A Bank of America survey of major fund managers found 68% of them believe the dollar is overvalued. Wells Fargo predicts the dollar will fall in 2023. By then, they believe the US recession will be bad enough to motivate the Fed to slow down its interest rate hikes. Wells Fargo thinks the Fed will keep cutting rates the deeper the recession runs. As interest rates come down, so will the value of the dollar.¹

The dollar’s rapid rise is also due in part to the Federal Reserve raising rates faster than other central banks. Foreign investors were drawn to the dollar’s growing yield. The greenback was viewed as a store of value for them as their local currencies and securities sank. But other central banks are now raising their rates to fight inflation. The dominant position of the dollar will fade against other currencies as rates match up.

The strength of the dollar is facing another challenge. There is a global movement towards ‘dedollarization‘. The US weaponized its currency against Russia after the outbreak of the Ukraine war. Other countries quickly realized the need to move away from the dollar as a reserve currency. China is leveraging the size of its economy to turn other countries away from the dollar and towards to the yuan. This reduction in demand from central banks will further devalue the dollar.

When the dollar ultimately drops, investors will return to gold. Dollar exchange rates have been clouding the true demand for gold that exists right now. It’s only against the US dollar that gold seems to be less wanted. Gold priced in British pounds is up 2.3% in the last 30 days. Gold in the Australian dollar is up 6.6% in the last 30 days and up 1.24% in the last six months.²

Overall, the global demand for gold will go back up as will its price. Gold will be sought to preserve wealth as currency devalues from inflation and recession. That’s why savvy investors are locking in gold now. Stocks, bonds, and real estate are all set to continue falling well into next year. Nouriel Roubini is a professor of economics at New York University’s Stern School of Business. He has demonstrated that the US is heading into a very painful and extended period of stagflation. He advised, “Investors need to find assets that will hedge them against inflation, political and geopolitical risks, and environmental damage: these include gold and other precious metals.”³ Contact us today to learn why the timing is right to get Gold IRA.

Notes:
1. https://www.bloomberg.com/news/articles/2022-10-18/bofa-survey-screams-capitulation-with-rally-set-for-early-2023
2. https://www.kitco.com/news/2022-10-12/Gold-is-a-2023-story-but-these-are-the-currencies-to-buy-it-in-right-now.html
3. https://time.com/6221771/stagflation-crisis-debt-nouriel-roubini/

• The International Monetary Fund warns of a ‘painful’ global economic slowdown
• Inflation, high interest rates, war and lingering pandemic effects are driving the slowdown
• The UN warns of an international debt crisis caused by central bank policies

IMF Forecasts Global Recession

In its most recent report, the International Monetary Fund warned that “the worst is yet to come, and for many people 2023 will feel like a recession.” They downgraded its forecast for the global economy due to several factors. A primary one is the worldwide shift to high interest rates to fight inflation. The IMF highlighted that the risk of financial policy “miscalibration” had “risen sharply.” They said the world economy “remains historically fragile” and financial markets are “showing signs of stress.”¹

The IMF called inflation “the most immediate threat to current and future prosperity.” They predict inflation will peak this year. But it will stay elevated for a long time. Even as central banks fight to bring it down. Most central banks want to lower inflation to 2%. They are doing so by aggressively raising interest rates. These rapid hikes are part of the threat to the global economy.²

Other causes of the global recession include Russia’s war on Ukraine, high inflation and China’s economic slowdown. The war in Ukraine continues to “powerfully destabilize the global economy,” according to the report. It is driving up fuel and food prices around the world.

The IMF said there is a significant chance that global growth could fall below 2%. Compare that to the 6% seen in 2021. Global growth has fallen below 2% only five times since 1970. The IMF projects this to be the third weakest global economy since 2001. Only the 2008 financial crisis and the height of the pandemic were worse.³

“Next year is going to feel painful,” said Pierre-Olivier Gourinchas, the IMF’s chief economist. “There’s going to be a lot of slowdown and economic pain,” he said.⁴

The IMF downgraded the world’s major economies. The US is forecast to grow only 1.6% this year and just 1% in 2023. China has also been downgraded. Coronavirus is still slowing their economy. Their quickly deteriorating property sector is also dragging the country down.

The IMF followed its World Economic Outlook Report with its Global Financial Stability Report. That report said, “The global environment is fragile with storm clouds on the horizon.” And that policymakers around the world are facing an “unusually challenging financial stability environment.” Further shocks “may trigger market illiquidity, disorderly sell-offs, or distress.”⁵

The UN Also Issues a Warning

The IMF is not alone in its outlook. The World Bank issued a similar warning as did the UN. The United Nations Conference on Trade Development warned that central bank policies could do more damage to the global economy than the 2008 financial crisis or the pandemic.

The UN said that the world is “on the edge of a recession.” They predict Asian countries will be hit the hardest. The effects of collapsing Asian countries will ripple throughout the global economy. Higher interest rates and an increasingly stronger dollar could cause a massive debt crisis to boil over in South Asia and Western Asia.⁶

The IMF report concluded with a prediction, “As the global economy is headed for stormy waters, financial turmoil may well erupt, prompting investors to seek the protection of safe-haven investments.” The time to move your assets into a safe-haven is before the storm hits. Our Gold IRA can protect your assets from the worst of what’s yet to come. Contact us today to learn more.

Notes:
1. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
2. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
3. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
4. https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html
5. https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html
6. https://www.cnbc.com/2022/10/04/unctad-warns-that-asia-global-economy-headed-for-a-recession.html