• JP Morgan Chase CEO predicts an economic hurricane to pummel the economy
• The economy faces unprecedented challenges including record inflation, rising interest rates, and the Ukraine War
• JP Morgan is preparing for that turbulence by becoming more conservative with its balance sheet

Dimon Forecasts Economic ‘Hurricane’

JP Morgan CEO Jamie Dimon warned investors to brace for an economic “hurricane.” The economy is struggling against an unprecedented combination of challenges. Those challenges include tightening monetary policy and Russia’s invasion of Ukraine.

Dimon dismissed the recent stock market bounce. “Right now, it’s kind of sunny, things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.” he added. Still, he cited the strength of the consumer, rising wages and plentiful jobs as the “bright clouds” in the economy.¹

Causes for Concern

There are two main factors that have Dimon worried:

The Federal Reserve is under pressure to get runaway inflation under control. Their plan is to shrink the economy by raising interest rates. They will also reverse its emergency bond-buying program and shrink its balance sheet. So-called quantitative tightening, or QT, is scheduled to begin this month. It will ramp up to $95 billion a month in reduced bond holdings. The Fed will be followed by other major central banks in the first ever round of global QT.

“We’ve never had QT like this, so you’re looking at something you could be writing history books on for 50 years,” Dimon said. Several aspects of quantitative easing programs “backfired,” including negative rates, which he called a “huge mistake.” He acknowledges that central banks don’t have a choice. There is simply too much liquidity in the system.²

Stocks have been hammered as investors prepare for the end of the Federal Reserve’s cheap money era. Stock prices are also dropping on fears that the Fed will push the economy into recession as it tries to tame inflation.

Dimon’s concerns for the market deepened since last week. During the response to the 2008 financial crisis, central banks, commercial banks and foreign exchange trading firms were the three major buyers of U.S. Treasury’s. The players won’t have the capacity or desire to soak up as many U.S. bonds this time, he warned. “I’m prepared for, at a minimum, huge volatility, ” Dimon said.

The other large factor worrying Dimon is the Ukraine war. It is roiling commodity markets around the world. The prices of oil, gas and wheat are being severely impacted. Oil could hit $150 or $175 a barrel, he said.³

A top Goldman Sachs Group Inc. executive echoed Jamie Dimon’s pessimistic tone, warning of tougher times ahead amid a string of shocks rattling the global economy.

“This is among — if not the most — complex, dynamic environments I’ve ever seen in my career,” Goldman President John Waldron said Thursday. “The confluence of the number of shocks to the system to me is unprecedented.” He fears that risks from inflation, changing monetary policy and Russia’s invasion of Ukraine could kneecap the global economy.⁴

Dimon said JP Morgan is preparing for that turbulence by being conservative with its balance sheet.⁵

In the face of an impending economic hurricane, safe haven assets are crucial to protecting the value of investments. The Gold IRA from American Hartford Gold is designed to help investors weather financial storms. Contact us today to learn more. 800-462-0071

Notes:
1. https://www.cnbc.com/2022/06/01/jamie-dimon-says-brace-yourself-for-an-economic-hurricane-caused-by-the-fed-and-ukraine-war.html
2. https://www.cnbc.com/2022/06/01/jamie-dimon-says-brace-yourself-for-an-economic-hurricane-caused-by-the-fed-and-ukraine-war.html
3. https://www.cnbc.com/2022/06/01/jamie-dimon-says-brace-yourself-for-an-economic-hurricane-caused-by-the-fed-and-ukraine-war.html
4. https://www.bloomberg.com/news/articles/2022-06-02/goldman-s-waldron-warns-of-unprecedented-shocks-in-echoing-dimon#xj4y7vzkg
5. https://www.bloomberg.com/news/articles/2022-06-01/jamie-dimon-says-bank-is-bracing-itself-for-economic-hurricane?srnd=premium

• Surveys reveal a majority of Americans are worried about their retirement funds
• Soaring inflation, rising interest rates and steep stock market drops are devaluing funds
• Retirees and potential retirees face stark choices to adapt to the changing financial landscape

Americans Are Worried About Their Retirement

For many Americans, runaway inflation is eating away more than just their take home pay. Inflation is threatening their future as it shrinks the value of their retirement funds.

Overall, people are very worried about their financial futures. Voya Financial’s Consumer Research survey found 66% are worried about inflation affecting their ability to save for retirement. That number jumps up to 75% when it comes to Millennials and Gen X. And more than 40% have tapped their retirement funds to cover their bills today.¹

Retirement funds primarily rely on the stock market. 2021 was a banner year for stocks. It gave some people the incentive to retire early. But rampant inflation, rising interest rates and recession fears are causing a sharp reversal. The S&P 500, the benchmark for many index funds, is about 17% from its all-time high in early January. The sinking stock market is fueling retirement fears.

Retirement planning is becoming more challenging as the investment landscape shifts. Bonds are losing their reputation as a safe haven. High inflation has made bonds, and the fixed payments they make, less attractive. One index of high-quality U.S. bonds has lost more than 9% this year. This is because the price of bonds goes down as interest rates go up. And right now, the Federal Reserve is quickly raising interest rates to get record inflation under control.²

Inflation is already punishing people with higher prices on everything from gasoline to food. And the rising rates to fight inflation may very well slam the economy into recession. A vicious progression is happening. Inflation is leading to rising interest rates. They lead to recession. And in turn, recession puts downward pressure on stock prices. Further reducing the value of retirement funds.

Inflation Is Breaking The 4% Rule

Famed financial advisor Bill Bengen first devised the 4% retirement rule in 1994. Since then, retirees have relied on this rule to help determine how much they should spend in retirement. The rule is relatively simple. You add up all of your investments. Then you withdraw 4% of that total during your first year of retirement. In later years, you adjust how much you withdraw to account for inflation.

This approach would have protected retirees from running out of money during every 30-year period since 1926. Even when considering the Great Depression, the tech bubble, and the 2008 financial crisis. However, due to the combination of high inflation and high stock and bond market valuations, Bengen believes his 4% rule is no longer adequate. Retirees will need to cut back on their spending to make their money last.³

What To Do

Historically, the stock market starts delivering positive returns within a year of a crash. But some people can’t wait to make up their losses. Many Americans now expect a significant shortfall in their retirement savings. The leading concern, according to the 2022 Schroders U.S. Retirement Survey, was that inflation would shrink the value of their assets. The second concern is becoming a reality right now- a major market downturn significantly reducing their assets. A great number of people’s portfolios are down 20% or more for the year.⁴

Americans on the cusp of retiring face a choice, stay on course or keep working. Some people are pushing back their retirement date in the hopes of waiting out the market. There are other advantages to waiting. Delaying retirement gives you an opportunity to snag higher Social Security benefits, boost your savings, and stretch your nest egg. And any of those things individually could set the stage for a more financially secure ride during your senior years.

Those who have already retired are picking up part time jobs. In line with the advice of financial planners like Bengen, they are also delaying major purchases or travel plans.

Social security is small comfort. It does have a built-in inflation adjustment, but it doesn’t keep up with real inflation. Pensions, for those few people who still have them, often max out their inflation adjustment at 1.5%.

A new paradigm is emerging as we witness the end of a 40-year bull run. For people facing retirement or recently retired, preserving value in the face of soaring inflation and a highly volatile stock market should be a priority. They should learn about how safe haven assets like precious metals can secure their retirement funds. For more information, contact American Hartford Gold to find out about their Gold IRA.

Notes:
1. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/high-inflation-disrupts-retirement-savings-strategies.aspx
2. https://www.tampabay.com/news/nation-world/2022/05/24/stock-market-slump-unsettling-americans-eying-retirement/
3.https://www.usatoday.com/story/money/personalfinance/retirement/2022/05/20/retirement-4-percent-spending-rule-no-longer-works/50251755/
4. https://www.fa-mag.com/news/a-comfortable-retirement-appears-out-of-reach-for-most-americans-68040.html

• The S&P 500 is poised to become an official bear market
• Stock market selloffs are being driven by inflation, interest rate hikes, and global uncertainty
• The market bottom may not be hit until October, investors seek safe havens

Beginnings of the Bear Market

This summer is quickly beginning to look like bear season. The bull market is almost officially over. Stocks have fallen dramatically in 2022. The Nasdaq, down nearly 25%, is in a bear market. The S&P 500 is on a six-week losing streak and about 16% below its all-time high. Some analysts forecast a stock market downturn where losses exceed those of the 2008 stock market crash.¹

A bear market is, by definition, a 20 percent decline from the most recent market top. Technically, the Standard & Poor’s 500 stock index is in a “correction”. A correction is a decline between 10 percent and 20 percent.²

The S&P 500 entered correction territory last month. That is the second time this year. A tough April for stocks was followed by an even rougher May. Stocks plummeted as investors dumped megacap tech stocks. Netflix shares, for example, have plunged 75 percent. Online payment company PayPal is down 74 percent from its high.³

Investors bailed on formerly highflying favorites in reaction to unchecked inflation. As well as the Fed’s mad scramble to stop it with aggressive rate hikes.

Hopes that the April data would show inflation had peaked were dashed. The annual pace of inflation slowed to 8.3% from 8.5% in March. Moreover, a core CPI reading, which strips out food and energy, showed an unexpected monthly rise.

Based on figures going back to 1929, the average bear market sees a median fall of 33.2%. On average, it has taken 80 trading days for the S&P 500 to hit its low after entering a bear market.⁴

So stocks may need to drop a lot further before the market finally hits bottom. Especially since the Federal Reserve seems intent on raising interest rates more aggressively to fight inflation — no matter what happens to stocks.

“Restoring price stability is an unconditional need. It is something we have to do,” Fed Chair Powell said. “There could be some pain involved,” Powell added. “The Fed will continue to raise rates until they see a clear breaking of the inflation trend.” The sinking market is revealing the true value of stocks after the Fed’s price supports have been pulled out from underneath it.⁵

The big question is how much lower the US S&P 500 might fall. The good news, according to Bank of America strategist Michael Hartnett, is that “bear markets are quicker than bull markets”. Based on data gleaned from the last 19 of them, he reckons the S&P 500 “still has another roughly 25% downturn ahead of it from current levels”. The bottom, he suggests, might be hit in October. Though “a floor does not equal a new bull market for tech stocks.” They are likely to “remain in a bear market for the next two years”.⁶

How to Treat a Bear

Some advisors suggest that if you’re retired, don’t take withdrawals from your stock funds in a bear market unless you have no other choice. You won’t have income to cover your losses. And if your stock fund is down 15 percent and you withdraw 4 percent, your account will be down 19 percent. Withdrawals in a bear market just make things worse.

Instead, many financial planners recommend putting some funds in ultrasafe investments, such as gold. Gold acts as a hedge against the depreciation of stocks in your portfolio. To learn more about how a Gold IRA can protect the value of your funds, contact American Hartford Gold today.

Notes:
1. https://www.cnn.com/2022/05/16/investing/stocks-bear-market-federal-reserve-inflation/index.html
2. https://www.aarp.org/money/investing/info-2022/bear-market-field-guide.html
3. https://www.aarp.org/money/investing/info-2022/bear-market-field-guide.html
4. https://www.marketwatch.com/story/the-s-p-500-is-on-the-brink-of-a-bear-market-heres-the-threshold-11652381057
5. https://www.wsj.com/amp/articles/feds-powell-to-take-wsj-questions-on-inflation-and-economic-outlook-11652779802
6. https://www.theweek.co.uk/business/markets/956728/bear-market-how-long-will-the-carnage-last

• Newly released inflation data suggest inflation could be at a peak
• The stock market experienced massive drops in reaction to the Fed’s inflation numbers
• Trader’s ‘fear gauge’ implies the market hasn’t hit bottom yet, seek safe haven assets

Peak Inflation May Have Been Reached

Just because things aren’t getting worse, doesn’t mean they are getting better. Newly released inflation data suggests the U.S. may have hit peak inflation. The consumer price index accelerated 8.3% in April, more than the 8.1% estimate. It is near the highest level in more than 40 years. However, this is down from 8.5% in March. Some economists are seizing this as a sign that we’ve hit peak inflation.¹

However, core CPI, which excludes food and energy, was higher than expected, rising 6.2%. Shelter costs, which comprise about one-third of the CPI, rose at their fastest pace since 1991. And inflation-adjusted earnings continued to decline for workers. This rise clouds the hopes that inflation has actually peaked. The Bureau of Labor Statistics reported on Wednesday that the continuing climb has pushed consumers to the brink and is threatening the economic expansion.²

The Federal Reserve considers inflation the single biggest threat to the economic recovery from the Covid pandemic. Bringing the record inflation under control has become their singular focus. The Fed last week raised interest rates by 50 basis points. Chair Jerome Powell said two more such hikes were likely at the upcoming policy meetings. There has also been speculation in markets the U.S. central bank will need to move by 75 basis points at one meeting.

Morgan Stanley now forecasts 2022 global economic growth to be less than half of last year’s. These signs of slowdowns might be exactly what the Fed is hoping for. The central bank is looking to slow growth via its interest-rate hikes, just not so much that it causes a severe contraction. Chair Jerome Powell said last week that nothing suggested the economy is close or vulnerable to a recession. However, economists and the market disagree.

Stock Market Responds to the Fed with Wild Volatility

Following the announcement of rate increases, the markets went into free fall as investors sold everything. Traders hit the sell button on virtually every key asset class — including stocks, bonds and bitcoin — ratcheting up the fear factor on Wall Street. The S&P was sent reeling to its weakest levels in a year. U.S. stocks have now seen a string of days with drastic losses.

The VIX, aka ‘Wall Street’s fear gauge’ is still not signaling that the stock-market bottom is near, analysts said Monday. The VIX is referred to as Wall Street’s ‘fear gauge’ because it tends to rise when stocks tumble. According to analysts, the VIX indicates investors fear an even deeper selloff in coming months as the Fed prepares to continue tightening aggressively in its effort to rein in inflation.

Investors are ditching the market and searching out safer terrain. While bonds have historically been a good addition to reduce portfolio risk, today’s inflationary environment is likely to substantially decrease the benefits of bonds. Government paper has relinquished its traditional role as a safe-haven when stocks are in turmoil.

Meanwhile, gold bounced up as the dollar retreated after the inflation data announcement. Gold’s uptick resumed on Wednesday.

There is the possibility that we are at peak inflation. But based on the reaction of the market, the climb down is going to be slow and dangerous. The Fed’s desire to engineer a soft landing for the economy is getting tougher by the day. The truth is that no one knows when inflation will hit a ceiling and when stocks will hit the floor. The smart move now is protecting your assets. To lean how a Gold IRA can secure your funds, contact AHG today.

Notes:
1. https://www.cnbc.com/2022/05/11/cpi-april-2022.html
2. https://www.cnbc.com/2022/05/11/cpi-april-2022.html

• The Federal Reserve raised interest rates by half a point, with the promise of more to come
• The gold market accounted for these hikes and remains strong
• The price of gold is set to reach new heights according to several financial experts

The Fed’s Record Rate Hikes

Today, the Federal Reserve raised its benchmark interest rate by half a percentage point. The 50-basis-point increase is the biggest hike since May 2000. It’s the most aggressive step yet in its battle against the highest inflation in 40 years. Meanwhile, a possible 75-basis-point hike is on the table for June.¹

Along with the raising rates, the central bank indicated it will begin reducing asset holdings on its $9 trillion balance sheet.

Many on Wall Street are concerned that the Fed’s ‘overtightening’ could lead to a recession. They feel the Fed is going too far in one direction after once calling inflation ‘transitory’. Despite the markets being prepared for both moves, there was increased volatility.

Gold Predicted to Overcome the Effects of Increased Rates

Gold, however, seems to be going off script when it comes to rate hikes. Traditionally, gold prices go down when rates go up. The idea being that the demand for an inflation hedge decreases. Also, fewer dollars would be required to buy an ounce of gold, reducing its dollar price. In this world rocked by inflation, war, and pandemic, old beliefs are being challenged as investors are forced to adapt. As the markets turn bearish, gold looks more and more like a bull.

Gold traders have baked an aggressive set of policy moves by the Federal Reserve into their prices. This means gold could rally if the Fed delivers as expected. It could also get support if the Fed responds to the possibility of a recession by slowing down the pace of its future rate hikes.

Gold is now seen as a winning bet in the face of the Fed’s move according to several sources.

Fidelity International believes that the price of gold is being held back. First, by aggressive interest rate increases. And second, by speculation over what Russia might do with its $140 billion worth of gold reserves.

However, Fidelity stated that gold is still an attractive investment. They cited the war in Ukraine, China’s economic slowdown, hot inflation, and the volatile stock market as reasons. The suppressed price can actually be a buying opportunity.

“Gold might have seemed the ideal asset to own, so have would-be gold investors now missed the boat? To the frustration of longer-term gold bulls, the answer is probably not,” Fidelity analysts noted. All the precious metal might need to reach new record highs is time, according to Fidelity International. ²

A recent Reuters poll of 31 analysts and traders echoes this sentiment. It concluded that the median forecast for gold prices came in at $1,920 an ounce for the April-June quarter. Gold prices are expected to hold firm this quarter as investors seek refuge from market volatility.³

Billionaire hedge fund manager Paul Tudor Jones is of a similar opinion. Jones shot to fame after he predicted and profited from the 1987 stock market crash. “You can’t think of a worse environment than where we are right now for financial assets,” Jones said Tuesday. “Clearly you don’t want to own bonds and stocks.” He said investors should prioritize capital preservation in such a challenging environment. One of the best ways to preserve capital is to invest in gold.⁴

Finally, Bloomberg Intelligence believes time is on gold’s side. They think gold will breach $2,000 once markets identify the end of the Federal Reserve rate-hike cycle. Their reasoning is that the rate hikes will contract the stock market. After the drop is great enough, the Fed will ease up on the financial tightening. When that bottom is reached, gold will launch up again. And this is what is likely to happen in 2022, according to the report. When the market predicted that rate raises were over, gold began the rally from about $1,000 an ounce to the high close of $2,063 in August 2020.⁵

The Fed’s clumsy attempts to fine tune the economy keep overcompensating in the wrong direction. First, it pumped in too much cash during pandemic. Now, it is aggressively taking money out. In the face of all this heavy handiness, gold is proving itself to be the stable choice. Now is the time to think long term and learn about a Gold IRA. Contact American Hartford Gold to learn how.

Notes:
1. https://www.cnbc.com/2022/05/04/fed-raises-rates-by-half-a-percentage-point-the-biggest-hike-in-two-decades-to-fight-inflation.html
2. https://www.fidelity.co.uk/markets-insights/investing-ideas/investing-ideas/whats-been-holding-the-gold-price-back/
3. https://money.usnews.com/investing/news/articles/2022-05-03/inflation-and-war-risks-to-buoy-gold-in-short-term-reuters-poll
4. https://www.cnbc.com/2022/05/03/paul-tudor-jones-says-he-cant-think-of-a-worse-financial-environment-for-stocks-or-bonds-right-now.html
5. https://www.bloomberg.com/professional/blog/commodities-appear-at-higher-risk-of-2008-style-pump-and-dump/

• China enforces strict lockdowns to stop Covid-19
• Shuttered Chinese industry will cause shortages and raise inflation
• Snarled Chinese ports will also drive inflation higher

China Shuts Down to Stop Covid-19

The economic crisis caused by the pandemic is returning to where it all began. Beijing is prioritizing control of the pandemic above all, including the fate of the global economy. The Chinese government is taking drastic measures to stop the spread of COVID-19. They have implemented a zero COVID policy. As of April 19, more than half of China’s biggest cities were under some form of lockdown. Two and a half weeks after extending a partial lockdown into a shutdown of the entire city, Shanghai shows few signs of easing its COVID-19 controls.

The economic damage caused by the massive lockdowns is not confined to China itself. Experts say China’s lockdowns will make inflation and the supply chain nightmare even worse.

China accounts for about 12% of global trade and 18% of all U.S. imports. And for computers and electronics, that number rises to 35%. Covid restrictions have idled factories and warehouses, slowed truck deliveries and exacerbated container logjams. U.S. and European ports are already snarled. The $22 trillion trade in global goods is facing months of severe disruption.¹

Covid Lockdown Effects on the Global Economy

Companies are beginning to panic. “The downstream impact is coming, and it’ll be heavy.” John Bree, the chief risk officer at Supply Wisdom, said. “The latest China lockdowns combined with the Russia-Ukraine war is too heavy a burden. The global chaos is going to further exacerbate disruption and take inflation to a new level.”²

Bank of America analysts said that it’s “another adverse supply shock for the global economy.” And that it will weaken growth and extend the period of high inflation.³

A top Huawei executive said, “If Shanghai cannot resume production by May, all of the tech and industrial players who have supply chains in the area will come to a complete halt. Especially the automotive industry. That will pose severe consequences and massive losses for the whole industry. This will result in supply shortages of some consumer goods in the U.S. in the coming months. Notably electronics, home appliances, and clothing will be affected.”⁴

Shipping congestion at Chinese ports also threatens to derail a global recovery already hurt by inflation. Shanghai, home to the world’s largest container port, has remained shuttered since March 28. One in five container ships is now stuck at ports worldwide. 30% of the backlog is coming from China. Problems at ports mean rising costs for companies. And in turn, increasing inflation for U.S. consumers.

Even if strict lockdowns in Shanghai are lifted, U.S. ports will likely be slammed with a wave of pent-up cargo from newly reopened factories in China. That will lead to higher freight rates. It will worsen congestion at ports worldwide. The costs of which, again, get passed onto the consumer. It will likely take at least a year for the logjams to unsnarl and return to normal.

The long-term effect of this chaos could be the end of globalization as we know it. Supply chains are so interconnected and fragile that a single issue in one place will affect consumers around the globe. Bringing supply chains closer to home has now become a business necessity.

There is one positive result from all of this. The price of oil has gone down. The commodity dropped as the market anticipates less demand from a locked down China.

The return of Covid in China seems to be restarting an awful cycle. The global economy is always hanging on the cusp of normalizing, but never getting there. Now is the time to put your money in a safe asset that can weather this storm. Contact AHG about opening a Gold IRA today.

Notes:
1. https://www.bloomberg.com/news/features/2022-04-25/china-s-covid-crisis-threatens-global-supply-chain-chaos-for-summer-2022
2. https://fortune.com/2022/04/23/china-lockdowns-inflation-supply-chain-nightmare-shanghai/
3. https://fortune.com/2022/04/23/china-lockdowns-inflation-supply-chain-nightmare-shanghai/
4. https://time.com/6168543/china-zero-covid-shanghai-lockdown-economy-impact