• The threat of a banking crisis caused by the failing commercial real estate sector is increasing
• Academic and Government research points to a growing number of banks vulnerable to failure
• Americans are seeking to shelter their assets in physical gold and silver before the chaos erupts

Bank Risks Increase

High interest rates and plummeting demand have put the commercial real estate sector on the edge of collapse. As overexposed regional banks teeter on the brink of crisis, studies show large banks are also at risk. Things look like they are going to get worse before they get better as the prospect of a full-blown banking meltdown emerges. Americans are seeking to shelter their assets in physical gold and silver before the chaos erupts.

Regional banks have been at increasing risk from the collapsing commercial real estate (CRE) market since the Fed started their aggressive rate hikes. The risks stem from the repricing of CRE loans at higher rates as the real estate cycle turns. Banks are stuck holding mortgages and construction loans that are underwater compared to plunging property values.
Now, that risk seems to be spreading to larger banks.

¹

While not to the extent as regional banks, big firms are exposed to CRE risk from direct loans. But they are also at risk by indirect lending to Real Estate Investment Trusts (REITs). REITs are firms that buy and operate commercial real estate, selling shares to investors who want to gain exposure to the space.

However, these vehicles are often debt dependent. They are vulnerable to high interest rates. With higher-for-longer rates depressing revenue, investors are antsy to get their money out. With the rise in redemption requests, the REITs have tapped the banks for more credit. The number of REIT credit lines extended is increasing faster than other forms of borrowing. The lenders are putting themselves in a dangerous position if a crisis hits.

A new study says the greater exposure to commercial real estate debt increases overall systemic risk. When commercial real estate REITs heavily draw on credit lines during widespread financial stress, it can seriously impact the largest banks. This means that the overall risk from commercial real estate is likely much higher than what the banks’ direct exposure suggests. REIT loans raised the largest bank’s exposure by about 40%.²

More Banks at Risk

A Florida Atlantic University study found a growing number of banks facing failure due to the exposure to commercial real estate. They identified that 67 of the largest US banks have CRE loans exceeding 300% of their total equity capital. Regulators consider that level excessively risky. ³

The study cited Flagstar Bank and Zions Bancorporation as the highest risks. Flagstar’s CRE portfolio comprised a stunning 553% of its equity. Zions was 440% of its equity. Both banks rely heavily on uninsured deposits. This makes them extremely vulnerable to bank runs.

“Should another bank fail, depositors may pull money from these highly exposed banks, potentially triggering a banking panic reminiscent of last year,” study authors warned. ⁴

The FDIC Sees Risk

The government is recognizing the growing risk of a banking crisis. The Federal Deposit Insurance Company (FDIC) increased the number of banks on its “Problem Bank List.” It went up from 52 to 63. The number of banks on the watch list is 60% greater than the quarter preceding the collapse of Silicon Valley Bank (SVB). The bank run on SVB triggered a national panic. It helped fuel the collapses of First Republic and Signature Banks.

The FDIC found the amount of exposed assets rose to $82.1 billion. Alongside the increase in endangered banks was an increase in the number of unrealized losses. More than $517 billion in losses are now being held. ⁵

Wall Street Weighs In

Morgan Stanley warned commercial real estate prices could crash 40% in a disaster worse than the financial crisis of 2008.

“More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points,” their analysts said. High borrowing costs and tighter credit conditions could raise difficult hurdles for big real estate investors as they seek to refinance a mountain of loans.

Morgan Stanley says the damage won’t stay contained to the property owners and banks. It will extend to “interconnected business communities, private capital funders and owners of any underlying securitized debt,” they note. “The tech and consumer discretionary sectors will not be immune.”⁶

Conclusion

High interest rates and plummeting demand are devastating the commercial real estate sector. No longer limited to regional banks, its collapse threatens to spark a full-blown banking crisis. The impact of which could undermine the entire financial system in a way not seen since the Great Financial Crisis of 2008. That crisis caused retirement savers to lose up to 50% of their funds. With the writing on the wall, now is the time to protect your portfolio with physical precious metals. A Gold IRA from American Hartford Gold can help secure your financial future. Call 800-462-0071 to learn how today.

Notes:
1. https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iNNwTUUX4yY4/v3/620x-1.jpg
2. https://www.businessinsider.com/commerical-real-estate-crisis-bank-debt-contagion-reits-cre-lending-2024-5
3. https://www.mpamag.com/us/specialty/commercial/commercial-real-estate-loans-put-67-banks-at-risk-of-collapse/492047
4. https://www.mpamag.com/us/specialty/commercial/commercial-real-estate-loans-put-67-banks-at-risk-of-collapse/492047
5. https://dailycaller.com/2024/06/04/regulators-announcement-red-flag-banking-industry/
6. https://markets.businessinsider.com/news/stocks/commercial-real-estate-prices-outlook-crash-financial-crisis-morgan-stanley-2023-4?_gl=1%2A171pvcl%2A_ga%2AMTY0OTQ1MjIyNS4xNjU2NTA4ODQ3%2A_ga_E21CV80ZCZ%2AMTY4MDY5MDY4Ny44NjkuMS4xNjgwNzAyMzc0LjYwLjAuMA..&utm_medium=referral&utm_source=yahoo.com

 

 

• Some analysts see record setting stock prices as a prelude to a bursting bubble, with prices dropping as much as 65%
• Recessionary forces could knock the support out from overvalued stocks
• Americans can prepare for the stock crash by moving into safe haven assets like physical gold & silver in a Gold IRA

Looming Stock Market Crash

To some analysts, record-setting stock prices don’t seem to be climbing to new heights but rather racing towards the edge of a cliff. Facing potential overvaluation and recession, stock prices have been predicted to crash as much as 65%. Americans are cautioned not to let over-optimism and fear-of-missing-out prevent them from protecting their assets from a major market correction.

The warnings of an impending crash are coming from several sources. John Higgins of Capital Economics says stocks are in a late-stage bubble. That means stocks are in for a steep rally before the bubble bursts. He points to the S&P 500 and DJIA hitting record highs recently. “Bubbles tend to inflate the most in their final stages as the excitement sort of reaches fever-pitch,” Higgins warned.¹

Higgins says that today’s hype around AI resembles the dot com bubble of the 90s. When that bubble burst, the Nasdaq lost 77% peak-to-trough in the early 2000s. The overall market saw $5 trillion in value wiped out in a couple of years. According to Capital Economics, the bubble could burst as soon as the end of next year. That would be five years, the length of the dot-com bubble. ²

³

Warnings from Wall Street

Some Wall Street veterans are taking a bearish view of the current stock market rally.

Gary Shilling is an American financial analyst and commentator who appears regularly in publications such as Forbes, The New York Times, and The Wall Street Journal. He correctly identified the US housing bubble in the mid-2000s. Shilling expects a recession to hit by the end of the year. He thinks a weakening labor market will crush investor confidence. As a result, the stock market could fall as much as 30%. “You look at all the kind of speculation that we’ve had out there, it’s indicative of a lot of overconfidence, and that usually gets corrected and corrected violently,” said Shilling.⁴

John Hussman is the president of Hussman Investment Trust. He correctly predicted the sharp downturns in 2000 and 2008. He thinks the S&P 500 is trading at similar extremes last seen in the run-up to the 1929 Great Depression. Hussman thinks the S&P could crash 65% based on a combination of “extreme valuations, unfavorable market internals, and dozens of other factors.” A loss that size would wipe out a decade of gains.⁵

BCA Research strategist Roukaya Ibrahim warned that a 30% correction in the stock market could be sparked by a recession early next year. He thinks overvalued stock prices and slowing growth will send the S&P back down to 3600. Ibrahim points to the April employment report which signaled an economy in decline. “Eventually, the unemployment rate is going to take higher and that’s going to lead to concerns about a recession,” Ibrahim said.⁶

Market Indicators

One indicator going off is the ‘Hindenburg Omen’. It has predicted two previous stock market crashes. The ‘Hindenburg Omen’ indicator considers the percentage of stocks in an exchange making 52-week highs and lows, along with other market breadth metrics, to assess the potential for a market crash.

The indicator successfully predicted the 1987 market crash and the 2008 financial crisis. And it is sounding the alarm again. Now it is going off despite record market highs. Poor market breadth is the cause for concern. Only a handful of stocks are buoying the whole market.

Other signs are showing that the economy is heading towards recession. A recession could crater stock prices.

Top economist David Rosenberg points to the Sahm Rule. Rosenberg famously predicted the 2008 recession. The Sahm Rule is a way to identify the start of a recession using the unemployment rate. It signals a recession if the three-month average unemployment rate rises by 0.5 percentage points or more above its lowest point in the previous 12 months. The rule is about to go into effect. Unemployment ticked higher than 3.9% in April. In addition, manufacturing shrank for the 17th month out of the last 18 months.

The Fed’s “higher for longer” interest rates are also pushing the economy towards a hard landing. Albert Edwards, the Societe Generale strategist, said, “”I believe the Fed is sowing the seeds of yet another policy disaster.” He maintains that decades of near zero interest rates fueled speculative bubbles that kept “bursting in their faces.” And now, he thinks, suddenly high interest rates are going to burst the AI bubble. ⁷

Conclusion

While it may seem that record setting stock prices may never end, forecasters are warning to brace for a crash. The meteoric rise will inevitably fall. The question is how hard and how fast. According to some analysts, everything will be great until it isn’t. Then prices could drop 65%, devastating retirement funds. Now is the time to prepare for a market drop by learning how a Gold IRA can protect the value of your funds. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:

1. https://markets.businessinsider.com/news/stocks/stock-market-crash-prediction-dot-com-bubble-correction-economy-recession-2024-5
2. https://markets.businessinsider.com/news/stocks/stock-market-crash-prediction-dot-com-bubble-correction-economy-recession-2024-5
3. https://m.foolcdn.com/media/dubs/images/stock-market-bubble-infographic.width-880.png
4. https://markets.businessinsider.com/news/stocks/stock-market-crash-predictions-recession-soon-inflation-corporate-profits-decline-2024-5?utm_medium=ingest&utm_source=markets
5. https://markets.businessinsider.com/news/stocks/stock-market-crash-predictions-recession-soon-inflation-corporate-profits-decline-2024-5?utm_medium=ingest&utm_source=markets
6. https://markets.businessinsider.com/news/stocks/stock-market-crash-predictions-recession-soon-inflation-corporate-profits-decline-2024-5?utm_medium=ingest&utm_source=markets
7. https://www.businessinsider.com/stock-market-crash-recession-warning-signs-interest-rates-fed-edwards-2024-5?utm_medium=ingest&utm_source=markets&_gl=1*1eqjxbf*_ga*MjEyNjU3MzkyMi4xNjYyNDEwODU4*_ga_E21CV80ZCZ*MTcxNjk5ODIzOC4xNDkuMS4xNzE2OTk4MzEwLjU5LjAuMA

 

• Silver prices are reaching new heights and are predicted to keep climbing
• Record industrial and investor demand are far outstripping supply, supporting high prices
• With safe haven benefits and a lower entry point than gold, now is an opportune time to add silver to your Gold IRA

Silver Prices on the Rise

As gold shatters records week to week, silver is carving its own upward path. Individuals and hedge funds are flocking to silver to protect their wealth from rising inflation. Silver’s role as an industrial and monetary metal is creating a “perfect storm” to drive prices higher.

Because both metals are seen as safe investments during economic uncertainty, silver typically rising along with gold. And now is no exception. Silver is seeing its best prices in 11 years, trading at over $32 an ounce. Silver outperformed gold in recent weeks. It gained 35% this year against gold’s 18% rise. It is finding support to stay over $31 an ounce with room to move higher. A Commodity Futures Trading Commission report showed traders are betting on silver to keep rising. Bullish positions are expected to increase now that silver has broken $30 an ounce. ¹

Market conditions have been building for silver’s breakout for a while as industrial demand fuels part of the spike. Used in solar panels and electronics, silver is an essential component of the global green technology push. Industrial demand hit a new high in 2023, for a third consecutive year, according to the Silver Institute.

Prices are being forced up as supply cannot keep up with demand. There are notable shortages in the supply of silver. Based on this, TD Securities predicts silver may break $50 an ounce. ²

The “Silver Squeeze”

There is now talk of a potential “silver squeeze.” A “silver squeeze” refers to a rapid increase in demand for physical silver that outstrips available supply, causing prices to surge. This phenomenon is often driven by coordinated buying efforts from retail investors or speculative traders. They aim to create an artificial shortage and force up prices.

The term gained prominence in early 2021 when a group on Reddit’s WallStreetBets forum attempted to replicate the GameStop short squeeze by collectively buying silver. Their goal was to force large institutional short sellers to cover their positions, theoretically sending silver prices skyrocketing. Their efforts had a temporary impact, driving prices up around 9%. However, the recent surge in silver prices has reignited talks of another potential squeeze in 2024.

Investor Demand – $50/oz silver?

Barring a silver squeeze, there’s still a rapid swelling of investor demand alongside industrial demand. Together, they can support higher silver prices. TDS Securities said growing demand could wipe out the above ground stocks of silver within 12 to 24 months.

A senior commodity strategist at Canadian Bank said, “The last time silver prices broke through $30/oz, it traded to $50/oz in less than ten weeks.”³ They think that if silver breaks above $30 per ounce, it could trigger a lot of ETF buying. This would reduce the available silver stocks at the London Bullion Market Association. The last time there was a big push to buy silver, it led to a huge demand of about 110 million ounces in a few days. That would cut the available silver by 35% if it happened again.

Gold/Silver Ratio

⁴

Analysts point to the gold/silver ratio to say that silver is just getting started as it plays catch up to gold. Silver’s recent rise has pushed the gold/silver ratio to 75 points. Its lowest since December 2022.⁵

The gold/silver ratio is a simple way to compare the prices of gold and silver. It tells you how many ounces of silver you need to buy one ounce of gold. For example, if the ratio is 80, you need 80 ounces of silver to get one ounce of gold.

When the ratio is high, like 80, silver is relatively cheap compared to gold, which can be a good time to buy silver. When the ratio is low, like 50, silver is more expensive relative to gold, making it a better time to buy gold instead.

The average gold/silver ratio over the past 20 years is approximately 68:1. Which means today’s ratio indicates that silver is relatively cheap compared to gold. It suggests that silver might be undervalued.

Silver in Uncertain Times

Silver’s rise is not surprisingly from a historical perspective. There is a correlation between spikes in silver prices and economic downturns. Recessions have historically been “ramp up” periods for silver prices, setting the stage for significant gains after the economic downturn.

During the Great Recession of 2007-2009, silver prices initially spiked. They reached a high of $19.24/oz in February 2008 before dropping to a low of $9.09/oz in October 2008 near the depths of the recession. However, after the recession ended, silver prices surged again. They hit a post-recession high of $48.70/oz in April 2011, a 435.8% increase from the recession low. ⁶

Conclusion

Silver is breaching new highs and analysts think this is only beginning of a long bull cycle. Industrial and investor demand are soaring at the same time of record supply shortages. With safe haven benefits and a lower entry point than gold, now is an opportune time to learn if adding silver to your portfolio or Gold IRA is right for you. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:
1. https://www.kitco.com/news/article/2024-05-21/silver-eyes-50-td-securities-predicts-major-breakout-after-31-support-holds
2. https://www.kitco.com/news/article/2024-05-21/silver-eyes-50-td-securities-predicts-major-breakout-after-31-support-holds
3. https://www.kitco.com/news/article/2024-05-21/silver-eyes-50-td-securities-predicts-major-breakout-after-31-support-holds
4. https://www.usatoday.com/money/blueprint/investing/silver-price-05-22-2024/
5. https://www.usatoday.com/money/blueprint/investing/silver-price-05-22-2024/
6. https://www.silverinstitute.org/silverprice/2000-2010/#:~:text=During%20the%20first%20half%20of,of%20generally%20firm%20fabrication%20demand.