• The Federal Reserve cut interest rates for the first time in 4 years by 50 bps
• There is concern the outsize interest rate cut is an indicator of deeper economic problems
• Analysts are taking the large rate cut as a sign to move into defensive safe haven assets, like physical gold or silver

Outsize Rate Cut Sparks Concern

The Federal Reserve sent shockwaves through financial markets with its first rate cut in four years. They slashed interest rates by a striking 0.5 percentage points. This aggressive move, twice the size of a typical rate cut, goes beyond a mere attempt to stimulate growth. It signals a much more profound concern within the central bank about the state of the U.S. economy. By taking this bold step, the Fed appears to be bracing for more than just a ‘soft landing’. Instead, it hints at underlying fears of a severe downturn, potentially even a looming recession.¹

Reading Between the Lines: Fear of Recession

Rate cuts are often seen as tools to spur economic activity. They can encourage borrowing, spending, and investment by making money cheaper. However, the magnitude of this cut shifts the narrative from economic support to economic survival.

The size of the rate cut has raised concerns about what the Fed sees on the horizon. While the central bank has refrained from explicitly stating its fear of a recession, its actions speak volumes. In times of economic uncertainty, a modest rate cut is often employed to maintain momentum and confidence.

By contrast, a half-percentage-point reduction could have other implications. The Fed may be worried about more than just a temporary slowdown. Issues like an overheated stock market and an explosive debt crisis pose existential economic problems. Without this larger intervention, the situation could deteriorate rapidly.

“Bond King” Jeff Gundlach stated that the interest rate cuts are too little, too late. “We are in a recession already,” according to him. ²

Several economic indicators have been flashing warning signs for months. Growth has been sluggish. Job cut announcements climbed 193% over the last month. Inflation has remained persistently above the Fed’s 2% target. And global economic uncertainties have been mounting. The U.S. manufacturing sector shrank for the 11th time in the past 12 months, indicating a decline in overall production and demand. Consumer confidence has weakened, as has business investment. All these factors could have contributed to a cautious outlook from the Fed and the need for more dramatic action.³

The Market’s Mixed Reaction

The markets initially responded to the rate cut with enthusiasm. Stocks surged as investors welcomed the prospect of cheaper borrowing costs and a more accommodative monetary policy. However, this euphoria was short-lived. As the implications of the Fed’s decision sank in, a sense of unease began to permeate the markets. The initial 400-point gain was lost by the end of the day.

Broader Implications Across Sectors

The ramifications of the Fed’s decision are expected to ripple through various sectors of the economy. On one hand, lower interest rates can provide a boost to industries such as housing and consumer spending. Mortgage rates often decline in tandem with Fed rate cuts. This can potentially spur home-buying activity. Similarly, consumers might be more inclined to take on debt for big-ticket purchases like cars and appliances. Increased consumer spending can support retail and manufacturing sectors.

However, the flip side of this scenario is the psychological impact on businesses and consumers. When the central bank takes such a dramatic step, it can be interpreted as a sign that all is not well. This perception can lead to a self-fulfilling prophecy. Businesses may cut back on investments and hiring. Consumers can tighten their belts in anticipation of tougher times ahead. And with the era of ultra-low mortgages unlikely to return, the housing market can stall. If this sentiment takes hold, it could deepen the very economic weakness the Fed is trying to prevent.

Chris Rupkey is the Chief Economist at FWDBONDS. He stated, “some investors might be nervous and wondering what the Fed sees and what they do not. The last two times the Fed cut interest rates the first time they did it by 50 bps as well, but it was an emergency inter-meeting cut because the outlook had darkened. There were recessions in fact.”⁴

Historically, the economy doesn’t do well after an initial 50-point cut. On Jan 3rd, 2001, the S&P 500 fell ~39% over the next 448 days. Unemployment rose another 2.1%. And then on September 18,2007, the S&P 500 fell ~54% over the next 372 days. And unemployment rose another 5.3%. ⁵

Moreover, the Fed’s aggressive rate cuts carry the risk of reigniting inflation. By making money cheaper to borrow, the central bank could inadvertently fuel rising prices, especially if demand rebounds unevenly. With economic growth already sluggish, this scenario creates the risk of stagflation—a situation where inflation rises even as economic growth stagnates. Stagflation can be particularly damaging because it limits the Fed’s policy options. If inflation picks up while growth remains weak, the Fed could find itself in a bind, struggling to balance the dual threats of rising prices and anemic economic activity.

⁶

Conclusion: The Shadow of Uncertainty

The Federal Reserve’s decision to cut interest rates by 0.5 percentage points can be seen as more than just a monetary policy adjustment. It may be a statement of concern. Is the central bank aware of economic risks that we aren’t? The fear of a recession looms larger now than it did before the Fed’s announcement. Businesses, consumers, and investors are left to grapple with what might come next. You can protect your portfolio with safe haven assets like physical gold or silver, especially in a tax-advantaged Gold IRA. Contact us today at 800-462-0071 to learn how.

 

Notes:

1. https://www.cnbc.com/2024/09/17/stock-market-today-live-updates.html
2. https://www.businessinsider.com/fed-rate-cuts-recession-layoffs-job-market-outlook-jeff-gundlach-2024-9
3. https://www.businessinsider.com/fed-rate-cuts-recession-layoffs-job-market-outlook-jeff-gundlach-2024-9
4. https://finance.yahoo.com/news/live/stock-market-today-federal-reserve-cuts-interest-rates-by-half-a-percentage-point-stocks-rise-180501561.html
5. https://x.com/tiffany_varty/status/1828137294370611632
6. https://pwonlyias.com/current-affairs/us-fed-rate-cut/

• Gold has been posting record breaking returns in 2024, outperforming the S&P 500
• Analysts think that whether Trump or Harris wins, the price of gold will go up
• Now is opportune time to secure your funds with physical gold before the election

Gold’s Rise to Continue

As the 2024 U.S. presidential election looms, financial markets are bracing for shifts in fiscal and economic policy. But one asset is expected to benefit no matter who wins—gold. The precious metal has already demonstrated remarkable performance this year. It has risen about 21% year-to-date and reaching an all-time high of $2,531.70 in August. Gold has outperformed the S&P 500 index, which is up around 15%. With a combination of economic factors and political uncertainty on the horizon, gold is well-positioned to continue its upward trend.¹

.

²

Bullish Factors Supporting Gold’s Rise

Several key factors are already fueling gold’s bullish trajectory. First, the anticipated cuts in interest rates are making gold a more attractive investment. Lower rates reduce the appeal of yield-bearing assets like bonds. This drives more investors toward safe-haven assets like gold. Commerzbank Research predicts as many as six rate cuts between now and mid-2025, further boosting gold’s potential.³

Another major driver is the strong demand from central banks. In 2023, global central banks purchased over 1,000 tons of gold as they sought to diversify away from the U.S. dollar. The People’s Bank of China has led the charge, engaging in an 18-month buying spree. According to the World Gold Council, 2024 began with 290 tons of net gold purchases in the first quarter alone. That is one of the strongest quarters on record.⁴

Geopolitical risks are also playing a role. The ongoing war between Russia and Ukraine, along with the Middle East conflict, is fueling instability. They are adding to the unpredictability in global markets.

A looming recession and potential market crash are fueling gold demand as well. “Black Swan” investor Mark Spitznagel sees a recession hitting. It will occur after the biggest making bubble “we’ve ever seen” bursts. ⁵

How Each Candidate Could Push Gold Prices Higher

The election itself is adding to economic uncertainty, and, in turn, the demand for safe haven gold. There is intense unease over the unknown direction of future fiscal policy.

Whoever wins is expected to bring policies that can push gold prices higher. Harris and Trump both hold the potential to blow up deficits and reignite inflation.

A Harris win in likely to mean a shift to more progressive policies. They could include higher business taxes and increased regulation. She is also expected to continue, or increase, the high-spending approach of the Biden administration. The U.S. government has already surpassed borrowing $2 trillion annually, and that figure is expected to reach $2.8 trillion by 2034. A Harris administration has little chance of reducing the deficit. As a result, the dollar would weaken, and growth would stagnate. Both of which historically lead to higher gold prices.⁶

If Donald Trump returns to office, his policies could also fuel a bullish gold market. Trump is expected to push for tax cuts, but without credible plans to reduce spending, these cuts could exacerbate the deficit. Additionally, Trump has a history of engaging in trade wars. They could reignite geopolitical tensions and uncertainties in the global market. His tariff threats may speed up the pace of de-dollarization. Countries would seek to protect their economies from a weaponized dollar. Furthermore, if Trump pressures the Federal Reserve to maintain low interest rates, the dollar could weaken. And as weak dollar tends to result in higher gold prices.

Conclusion

Both candidates are expected to have policies that could inflate deficits and create economic or geopolitical uncertainty. Gold stands out as a reliable hedge against this instability. As Naira Metrics notes, investors looking to protect their funds would do well to avoid risky assets. And gold offers a safe alternative.⁷

Ole Hansen is the Head of Commodity Strategy at Saxo Bank. He sums up gold’s future outlook. “Investors are likely to continue viewing gold as a hedge against the uncertainties posed by both economic and policy forces.” Over the past decade, gold has provided an average annual return of 8.4% in U.S. dollars, consistently outpacing inflation. TD Securities predicts gold can hit $2,700 per ounce in the next few quarters. American Precious Metals Exchange forecasts gold could break $3,000 in 2025. ⁸

As we move closer to the 2024 election, the case for gold only strengthens. Whether Kamala Harris or Donald Trump wins, both candidates will bring policies that could further drive demand for gold. To learn more about how physical precious metals can protect your retirement, especially when held in a Gold IRA, contact us today at 800-461-0071.

 

Notes

1. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
2. https://www.telegraph.co.uk/business/2024/08/28/gold-soaring-on-fears-economic-catastrophe-kamala-harris/?ICID=continue_without_subscribing_reg_first
3. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
4. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
5. https://fortune.com/2024/08/17/gold-price-outlook-wall-street-forecasts-3000-fed-rate-cuts-central-banks-recession/
6. https://www.telegraph.co.uk/business/2024/08/28/gold-soaring-on-fears-economic-catastrophe-kamala-harris/
7. https://nairametrics.com/2024/09/06/gold-stocks-and-dollar-octas-guide-to-navigating-market-volatility-during-election-time/
8. https://www.kitco.com/news/article/2024-09-10/trump-vs-harris-gold-wins-either-way-saxo-banks-hansen

• With almost $1 trillion in debt due this year, commercial real estate is being called a ‘ticking time bomb’
• The primary holders of CRE debt, more than 200 regional banks are in danger of collapse
• Physical precious metals, especially those held in a Gold IRA, can protect the value of your savings from the impact of a commercial real estate meltdown

Commercial Real Estate Risk Skyrockets

Commercial real estate, once seen as the bedrock of the American economy, is now being called a “ticking time bomb” as almost $1 trillion in loans come due this year. The collapse of the CRE sector would send shockwaves through the economy that could devastate savings.

The market is still reeling from record low vacancy rates and devalued buildings. Lower valuations make it harder for landlords to borrow money. Banks and property owners are now accepting that their buildings may never recover their pre-pandemic value. Fitch Ratings said office values have dropped 35% from their peak. Capital Economics predicted prices could drop another 20%. ¹

Faced with this reality, office buildings are being sold off at staggering losses. One midtown Manhattan office building sold at a 97.5% discount in July.²

According to the Mortgage Bankers Association, about $930 billion in commercial real estate loans will come due this year. Commercial mortgages are typically set up with a balloon payment. This way, property owners only must pay the interest before the major payment comes due at the end of the loan. Typically, when rates were low, owners would just refinance and push the balloon payment down the road. But with interest rates being held higher for longer, that option is no longer feasible. Commercial real estate lending declined 47% last year. ³

At the same time, operating expenses have gone up dramatically. Owners are choosing to simply not pay back their loans instead of saving their properties with their own cash. About $95 billion of the US properties are in distress or at risk of becoming so. The office sector accounted for two-thirds of newly delinquent loans. In July, $1.9 billion in office loans became newly delinquent. ⁴

⁵

Scott Rechler is the CEO of New York landlord RXR. He called the crisis a slow moving storm and said, “So at some point or another, the day of reckoning needs to come,” he added. “I think it’s here.”⁶

Rate Cuts Too Little, Too Late

The signal for lower interest rates may be too little, too late for the drowning commercial real estate sector. Fed Chair Powel says commercial real estate risk “will be with us for some time, probably for years.”

“Excessive exposure to commercial real estate remains a ticking time bomb within the banking system,” said Rep. Ritchie Torres (D-N.Y.). “An interest rate cut might ease the symptoms, but it will not cure the disease itself. ‘Extend and pretend’ can delay a crisis but it cannot make it magically disappear.”⁷

There is bipartisan support to make it easier to convert office buildings into housing. Solve two problems at once. However, the process is slow and expensive and not all commercial spaces can be converted.

Bond & Bank Worries

A secondary crisis is looming in the bond market. Many of the floating-rate loans were bundled into the $80 billion commercial real estate bonds and sold to investors. This may raise a systemic risk for banks issuing the bonds.

John Devaney is the CEO of the United Capital Markets hedge fund. He has the dubious distinction of being one of Time Magazine’s 25 people to blame for the 2008 mortgage crisis. He stated commercial real estate is a “slow moving train wreck” and the commercial bond market is in shambles. “The CMBS market is actually a disaster right now. Many things are unfolding right now and the bond pricing is telling us things are very, very bad,” the United Capital CEO said. He warned the collapse could ruin large downtown area that depend on tax revenue from office spaces. ⁸

The demise of the sector spells trouble for small and medium-sized commercial banks. They are being classified as “stressed.” Small banks have CRE loans values exceeding 158% of their risk-based capital. Midsize banks are at 228%. ⁹

A recent report stated that 282 of 4,000 US banks are on the verge of collapse. This is due to the double hit of maturing CRE loans and losses resulting from high interest rates. The same things that caused the catastrophic failures of Silicon Valley Bank, Signature Bank and First Republic Bank. Higher for longer interest rates have exposed the vulnerability of banks worldwide according to the International Monetary Fund.

Banking System Risks

If multiple banks try to raise capital at the same time, it could destabilize the banking system, similar to what happened in March 2023. Market volatility might lead investors to demand higher yields, driving up borrowing costs. A new recession could worsen the situation, causing widespread asset devaluation. Significant losses in commercial real estate loans could leave hundreds of small and midsize banks undercapitalized, with larger banks also at risk.

Conclusion

The growing risk factors facing commercial real estate are raising questions about how much longer the sector can go on. Insiders agree that a reckoning is on the horizon, the results of which could be catastrophic and ripple throughout the entire economy. The time to prepare is before the crisis becomes a reality. Physical precious metals, especially those held in a Gold IRA, can protect the value of your savings from the impact of a commercial real estate meltdown. Contact us today at 800-462-0071 to learn more about how to secure your funds.

Notes:

1. https://markets.businessinsider.com/news/bonds/real-estate-crash-commercial-property-prices-investing-mortgage-backed-securities-2024-8
2. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
3. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
4. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
5. https://www.linkedin.com/posts/james-w-stuff_delinquency-office-loans-activity-7228905623340376064-eF_g/
6. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
7. https://www.politico.com/news/2024/09/02/office-property-values-fed-00174697
8. https://markets.businessinsider.com/news/bonds/real-estate-crash-commercial-property-prices-investing-mortgage-backed-securities-2024-8
9. https://www.noradarealestate.com/blog/commercial-real-estate-crash-could-trigger-economic-tsunami/

• At over $35 trillion and growing, the national debt presents a clear and present danger to the United States
• An economic research report stated that the US is approaching a point where no amount of taxes or spending cuts can prevent a crisis
• Safe haven assets, like physical gold and silver, held in a Gold IRA can shield the value of your portfolio from the effects of massive national debt

National Debt, and Danger, Grow Unchecked

As the Presidential election heats up, there is one issue both parties would like to avoid – the national debt. Having reached astronomical heights, and growing, the debt presents a very real danger to the US economy. With a political system that may be structurally unable to prevent a crisis, Americans should prepare now before consequences hit.

By the Numbers

The US national debt currently sits at $35.26 trillion. That is around $104,000 per citizen. Meanwhile, US Federal tax revenue is at $5 trillion. This model obviously cannot be sustained for much longer. We’re growing the debt more than twice as fast as we’re growing the economy. To grasp the enormity of the debt, there is about $450 trillion combined in the world. Our debt accounts for 7% of all the money in existence. ¹

The interest on the debt is already more than military spending. Over the next decade, interest is expected to double to $1.7 trillion. That is roughly the equivalent of adding another Medicare program. ²

³

Prior to 2000, annual deficits were turning into surpluses. The national debt shrank over three years to around $5.6 trillion in 2000. Alan Greenspan went as far to say the debt could be paid off if current policies continued. We had a debt-to-GDP ratio of 55 percent. ⁴

Today, at $35 trillion, the debt-to-GDP ratio is 122% – and rising. Aggressive government spending is raising the debt $1 trillion every 100 days. For context, the debt-to-GDP ratio during World War 2 was 106% of GDP. ⁵

Future of the Debt

The University of Pennsylvania found both Trump and Harris proposals would increase the national debt. Trump’s would raise the national debt by 9.3%. Harris’ would add 4.4%. The debt would expand more under Trump because he would make his 2017 tax cuts permanent. He would also cut taxes on corporate income and Social Security benefits. Harris would let the cuts expire and raise taxes on businesses and high-income individuals. At the same time, those taxes would be offset by more government spending. ⁶

No matter who wins, the US is headed for $50 trillion in debt by 2034.

Systemic Failure on the Debt

Impediments to preventing a debt crisis may be built into the system. A study by Arnold Ventures states that the US budget process itself has broken. There has always been political brinkmanship, fighting until the very last possible minute. But now, instead of finding workable solutions, Congress simply signs off on raising the debt limit without accountability from either party. The Democrats get more spending, and the Republicans get more tax cuts. Both sticking the American people with the bill.

Vanishing Debt Safeguards

Some economists say the unique role of the US in the world economy protects it from the consequences of runaway debt. They call it ‘exorbitant privilege’. A study found the US can sustain debt around 22% of GDP. That’s because the dollar is the dominant currency for international trade and reserve currency. Other countries will continue buying US debt to avoid sinking their economies. In addition, the US gets significant leeway from seigniorage revenues – printing dollars for next to nothing, and then selling them to other nations for market value. ⁷

The de-dollarization movement could totally undermine this debt protection. China’s yuan or a new gold-back BRICS+ currency could rival the dollar. If US debt reaches extremely high levels, rival currencies may look like the safer choice. The US debt will become a greater liability when we can no longer ‘force’ other nations to finance our debt. Interest rates would skyrocket and send the country into a debt-doom spiral.

Economists Smetters and Gokhale concluded that if US debt held by the public exceeds 200 percent of GDP, no amount of tax hikes or spending cuts can prevent default. We’ll either have to say we will not pay back all our debt, or else inflate it away. Both of which would have massive negative consequences for American workers and consumers. They estimate that the US will reach this point in about 20 years.⁸

Solutions

To fix the problem, entitlements will need to be slashed, taxes will need to be raised, as will the retirement age. Paying off the debt will be a painful legacy passed to future generations.

Some economists are trying to find hopeful solutions. World Bank Group President David Malpass explained tackling the deficit will raise stocks prices, increase employment, and lift wages. To get past a broken Congress, he says begin spending cuts with “small popular one, and then another small one, and then a big popular one, and then a tough one. Build credibility.”⁹

Conclusion

Come January 25th, the debt ceiling will need to be lifted again. Whoever is President on that day is unlikely to take measures that reduce the national debt. Instead, we’ll hurtle closer to “most predictable crisis” – one that can ruin the country’s, and every American’s, financial future. That’s why protecting your portfolio now with safe haven assets like physical gold and silver is a good idea. A Gold IRA can safeguard your savings from the consequences of runaway national debt. Call us today at 800-462-0071 to learn how.

Notes:
1. https://ktrh.iheart.com/featured/houston-texas-news/content/2024-08-27-the-national-debt-now-accounts-for-seven-percent-of-all-global-money/
2. https://www.barrons.com/articles/national-debt-federal-deficit-trump-harris-6c5c6740
3. https://www.forbes.com/sites/dougcriscitello/2024/08/27/will-the-us-government-be-there-when-you-need-it-most/
4. https://ktrh.iheart.com/featured/houston-texas-news/content/2024-08-27-the-national-debt-now-accounts-for-seven-percent-of-all-global-money/
5. https://www.barrons.com/articles/national-debt-federal-deficit-trump-harris-6c5c6740
6. https://www.newsmax.com/newsfront/donald-trump-kamala-harris-trillions/2024/08/28/id/1178179/
7. https://cepr.org/voxeu/columns/exorbitant-privilege-and-sustainability-us-public-debt
8. https://www.vox.com/policy/367278/us-national-debt-gdp-government-inflation-solutions-recession
9. https://www.barrons.com/articles/national-debt-federal-deficit-trump-harris-6c5c6740