• 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

• A KPMG survey showed a vast majority of CEOs are preparing for a recession
• Recession fears are being driven by the Fed’s aggressive rate hikes to fight inflation
• A poll indicated that most CFOs believe inflation is here to stay
• Market analysts think the recession, if not severe, will be long

Majority of CEOs Anticipate a Recession

The view from the C-suite looks grim for the economy. KPMG conducted a survey of 400 CEOs. It found that 91% of them predict a recession in the next 12 months. Only 34% think the recession will be mild and short.¹

“Once-in-a-generation issues — a global pandemic, geopolitical tensions, inflationary pressures and financial difficulties — have come in short succession and taken a toll on the optimism of global CEOs,” said Bill Thomas, KPMG’s CEO.²

Fears of a recession are coming as the Federal Reserve is hiking interest rates to fight inflation. Market leaders think the large, rapid hikes will slow the economy right into a recession. The Fed has already raised rates by 75 points three times in a row. And there are more large hikes coming. Fed Chairman Powell vowed not to stop until inflation is back down to 2%.

The KPMG survey said more than half of the CEOs are considering reducing their workforce to deal with a recession. They are also holding off on enacting long term spending plans.

CEOS are waiting for the political dust to settle after the midterm elections before making commitments. “There is real uncertainty about the outcome of the midterms and potential for tougher tax legislation and increased regulations,” said a KPMG executive.³

Smaller company leaders are feeling the fear as well. A survey of mid-market companies showed that more than 90% of CEOs of midsized companies are concerned about a recession. More than a quarter of these CEOs said they have already begun layoffs or plan to do so within the next 12 months.⁴

CFOs Surveyed About Peak Inflation and Recession

A CNBC poll showed a majority of CFOs say inflation hasn’t peaked yet. More than a quarter of them say inflation is the greatest risk to their business.

“This inflation is here to stay,” said JPMorgan Asset & Wealth Management CEO Mary Callahan Erdoes. And Unilever CEO Alan Jope said ” any early optimism that inflation has peaked is misplaced.”

Most of the CFOs surveyed believe a recession is already here or about to hit. Nearly half (48%) of CFOs polled said they expect a recession in the first half of 2023. Nineteen percent of CFOs say they expect a recession in the fourth quarter of this year. And another 19 percent said that the U.S. economy is in a recession now.⁵

Recession Expectations

This downturn may be moderate in comparison to the Great Recession. Yet, analysts predict that it will be longer. High inflation is going to stop the government from trying to relieve it. The Fed is ok will with dealing out the pain until inflation is at an acceptable level.

“The Fed is not going to pause until they see that inflation has convincingly come down. That means that this Fed will be hiking well into economic weakness, likely prolonging the duration of the recession,” said Anna Wong, chief US economist.⁶

And there will be pain. In the dozen recessions since World War II, on average the economy contracted by 2.5%. Unemployment rose about 3.8 percentage points and corporate profits fell 15%. The KPMG survey showed 71 percent of CEOs think a recession will impact company earnings by up to 10 percent. Which means an already battered stock market may suffer an even steeper fall as earnings drop.⁷

The people responsible for trillions of dollars of assets can see the writing on the wall. If they are preparing for recession, then so should you. One the best ways to protect your assets during an economic downturn is with a Gold IRA. Contact us today to learn what it can do for you.

Notes:
1. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
2. https://thehill.com/policy/finance/3673092-86-percent-of-ceos-expect-recession-in-next-12-months-survey%EF%BF%BC/
3. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
4. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
5. https://www.cnbc.com/2022/09/29/inflation-yet-to-peak-cfos-say-recession-already-here-or-soon-to-hit.html
6. https://www.bloomberg.com/news/articles/2022-07-03/long-moderate-and-painful-what-next-us-recession-may-look-like
7. https://www.bloomberg.com/news/articles/2022-07-03/long-moderate-and-painful-what-next-us-recession-may-look-like

• The Social Security Trust Fund is scheduled to run out in 2035
• If Congress doesn’t act, benefits will be delayed or cut
• The most recent cost of living allowance may increase beneficiary’s taxes and premiums

Social Security Trust Fund Running Out

The National Institute on Retirement Security describes retirement income as a ‘three-legged stool’. The three legs are Social Security, a pension plan and retirement savings like a 401(k) or an IRA. But unless Congress acts quickly, one of those legs is going to get a lot shorter.

Since its inception in 1937, Social Security has held a surplus in its Trust Fund. Social Security is funded by payroll tax deductions paid by employees and employers. The taxes aren’t set aside in a fund just for the payees. Current workers are paying for current retirees’ benefits. The Social Security Administration (SSA) had always collected more in payroll taxes than the amount paid out. The trust fund had $2.85 trillion in reserves at the end of 2021.¹

Fifty million retired workers collected social security benefits in 2020. In 15 years, millions of retirees may find their benefits being cut. The 2022 Social Security Trustees report said the Social Security trust fund surplus will be depleted in 2035. The number of people paying in is decreasing as the number of those collecting benefits is increasing. This is due to the birth rate decline after the baby boom period following World War 2. As baby boomers retire, fewer workers are left to contribute toward the benefits of each retiree.²

When the trust is empty, beneficiaries would be subjected to benefit cuts of more than 20%. The fund that finances Medicare Part A will run out of reserves in 2028. Afterwards, Medicare will only be able to pay 90 percent of scheduled benefits.³

Congress can fix long term funding issues by cutting benefits, raising taxes or both. Cutting benefits could mean cutting benefits for everyone or increasing the full retirement age. The SSA faced a reserve deficit in 1983. Congress solved the problem then by increasing full retirement age from 65 to 67. They also began collecting income tax on benefits.

An AARP survey found 90% of Democrats, Republicans, and Independents support Social Security. The Center on Budget Policy Priorities says half of seniors get more than 50% of their retirement income from Social Security.⁴

Despite its popularity, Social Security is known as the third rail of politics. Lawmakers fear any solution will upset some block of voters. Congress is going to put off solving this for as long as possible. In the past, Congress has approved payroll tax hikes to preserve Social Security. Which means future retirees can most likely count on more taxes now and fewer benefits later.

Inflation, COLA and Taxes

We are currently experiencing the highest inflation in 40 years. In response, the SSA issued a Cost of Living Allowance (COLA) to help retirees keep up. The COLA was raised 5.9% in 2022. It was the biggest cost-of-living hike in four decades. It can go even higher next year based on inflation.

More money sounds great, at first. But annual COLAs can push a beneficiary over an income threshold into a higher income bracket. This can result in higher Part B premiums. After the 5.9% bump, some people may pay a 20% increase in premiums.⁵

Also, income thresholds do not increase each year. More people can be left paying higher taxes on their benefits. Increased premiums and taxes reduce the net benefit a person receives.

Social Security is turning into the weakest leg of the retirement stool. People should be focusing on retirement funds that they can control and preserve their wealth. Retirees shouldn’t have to find themselves at mercy of the government. A Gold IRA is made to protect your savings from inflation and fickle government policies. Contact us today to learn more.

Notes:
1. https://www.ssa.gov/history/tftable.html
2. https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around.html
3. https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around.html
4. https://www.cnbc.com/select/will-social-security-run-out-heres-what-you-need-to-know/
5. https://smartasset.com/retirement/social-security-medicare