• Disappointing progress on inflation is stifling hopes for interest rate cuts this year
• Multiple Fed Board members warn rates will stay higher for longer
• A Gold IRA offers long-term portfolio protection from losses incurred due to high interest rates

No Relief from High Interest Rates in Sight

The Federal Reserve is signaling that relief from high interest rates may not come as soon as many had hoped. Despite earlier expectations of multiple rate cuts in 2024, Fed officials are now hinting at the possibility of only one cut, or even none, as they continue to grapple with persistent inflation. This stance has significant implications for the economy and retirement funds.

The Fed has kept interest rates high, between 5.25%-5.5%, since last July. Those are the highest interest rates since 2001. The stock market had surged earlier in the year on signals for three rate cuts in 2024. Now policymakers are hinting they may only cut rates once this year – or not at all. If a cut does happen, it wouldn’t occur until December.

¹

Inflation was back on the rise in April and March, up from both February and January. The prior dip in inflation that inspired rate cut hopes has largely been attributed to a temporary drop in fuel prices.

Fed Board Members Weigh In

Mary Daly – San Francisco Federal Reserve President: Daly said that there is still “more work to do” on bringing inflation down. And that “inflation is not the only risk we face.”² Daly warned that the Federal Reserve must “exhibit care” because rising unemployment is a growing risk.

Daly said demand must be further restrained to bring down inflation. But slowing the market can result in higher unemployment.

Daly did not know how much rates needed to drop to navigate between bringing inflation under control and stalling the economy. The Fed is prepared to hold rates higher for longer if that’s what their data points them to.

Daly is against preemptive cuts to avoid a recession. “We’re going to be resolute until we finish the job. That’s why not taking preemptive action when it’s not necessary is so important.”³

Neel Kashkari – Minneapolis Federal Reserve President: Kashkari said it could take up to two years to get inflation down to the Fed’s 2% target. He indicated that wage growth was too high to reach that target right now.

Michelle Bowman – Federal Reserve Governor: Bowman stated she is open to raising rates if inflation doesn’t drop.

Bowman said, “I remain willing to raise the target range for the federal funds rate at a future meeting should progress on inflation stall or even reverse.” Bowman said she does not project any rate cuts happening this year. She has instead shifted those into future years.⁴

Reducing rates too soon could risk reigniting high inflation, she warned. That would require additional rate increases to tame price pressures within the economy.

Lisa Cook – Fed Reserve Governor: Cook is optimistic inflation will show more progress in 2025, allowing the Fed to lower rates eventually. She sees supply and demand in the labor market coming into better balance. But, to her, economic risks remain. Risks include higher credit card delinquency rates and tighter credit conditions. Along with the difficulty in assessing economic data that has come under continuous and significant revision.

Austan Goolsbee – President of the Federal Reserve Bank of Chicago – Goolsbee said if he sees “more months” of improving inflation data, then he would be open to cutting rates. Overall, the FOMC, the board that decides cuts, is waiting on hard evidence that inflation is hitting their target before they make any cuts.

Impact of High Rates

High interest rates, slowing growth and lingering inflation are a formula for stagflation. JPMorgan CEO Jamie Dimon said, “I look at the range of outcomes and again, the worst outcome for all of us is what you call stagflation, higher rates, recession. That means corporate profits will go down.”⁵

When interest rates stay high for a long time, it can negatively impact retirement funds. Higher rates cause bond values and stock prices to drop. A slower overall economy can drag down investments across the board. Money may not grow as fast as expenses, causing savings to shrink more quickly. Real estate can lose value too. It’s crucial for people to understand these effects and plan accordingly for their future.

Owning physical gold can act as a hedge against the negative effects of higher interest rates. Gold often maintains or increases its value during economic uncertainty. It can potentially offsetting losses in bonds and stocks when interest rates remain high for extended periods. A Gold IRA offers long term portfolio protection from losses incurred due to high interest rates. To learn how you can start protecting your fund today, call American Hartford Gold at 800-462-0071.

Notes:
1. https://fred.stlouisfed.org/series/DFEDTARU
2. https://www.reuters.com/markets/us/feds-daly-inflation-not-only-risk-policy-must-exhibit-care-2024-06-24/
3. https://www.cnbc.com/2024/06/25/fed-governor-bowman-says-shes-still-open-to-raising-rates-if-inflation-doesnt-improve.html
4. https://www.cnbc.com/2024/06/25/fed-governor-bowman-says-shes-still-open-to-raising-rates-if-inflation-doesnt-improve.html
5. https://www.cnbc.com/2024/05/23/jpm-jamie-dimon-us-could-see-hard-landing-stagflation-is-worst-outcome.html

 

 

 

• The CBO released a new report stating the deficit is increasing faster than just a few months ago
• Servicing the growing interest on the debt may sink the government into a doom loop that ends with a bankrupt nation
• Moving assets into physical gold and silver can preserve purchasing power as the value of the dollar collapses from debt

New CBO Warning

A new Congressional Budget Office report warns that Congress and the White House must get serious about getting the national debt under control. The federal budget deficit will reach nearly $2 trillion this year – the third largest in US history (behind pandemic era relief spending). That is 27% higher than February’s forecast due to the latest glut of government spending. The CBO warned that the rapidly rising debt is putting the nation at risk of a financial crisis. ¹

The projected deficit increase was tied to student debt cancellation, bank failure bailouts, and funding for foreign aid. The annual deficit is expected to keep growing. It is predicted to top $2.8 trillion in ten years. This increase is on top of growing mandated spending for programs like Social Security and the higher cost of paying interest on the debt. ²

The national debt as related to the size of the GDP is also growing. As of now, it stands at 99% – the debt is essentially the same size as the US economy. Interest on the debt will exceed spending on defense this fiscal year.

Debt held by the public is projected to rise from around $28.2 trillion this year to more than $50 trillion in 2034. That translates to 122% of the GDP – a historical record high for the US, beating 106% after World War 2. ³

⁴

Effect on Individual Americans

The CBO found the debt will slow the growth of American household income and economic growth. The estimated GDP per person is considered a measure of average income. Right now, it is about $84,000. The CBO projects that if the debt remains stable, that income will increase to $128,000 by 2054. But if the debt grows as the CBO projects, that income is $123,000. Meanwhile, the nonpartisan Committee for a Responsible Federal Budget estimates income would slow by about one third to $114,100. ⁵

Household income would shrink due to the “crowding out effect.” Excessive government spending to service the debt drags down the economy by crowding out more productive investments that improve American living standards.

Essentially, the government sells bonds to borrow money. Investors choose the bonds over private sector investment because the government has been forced to offer high rates of return. For example, instead of buying a corporate bond, stock, or putting money in the bank, someone buys federal bonds.

This results in less investment in the private economy. Over time, this means fewer buildings, machines, equipment, and software innovations. Consequently, wage and income growth slow down. This process happens gradually, little by little.

In addition, higher levels of government debt cause interest rates to rise. So as your income slows, your expenses accelerate, like your house and car loans. And the federal government is spending more on interest, so it cannot provide stimulus or relief.

Conclusion

Th CBO strongly advises that Congress and the White House need to act now. The problem is only going to grow exponentially worse, requiring stricter solutions the later it is addressed. However, a highly divided government seems unlikely to make the compromises necessary to curb the debt. Raising taxes and cutting services, especially in an election year, are non-starters.

Left unchecked, the debt will erase the value of the dollar. With their intrinsic value, physical precious metals can preserve purchasing power as the currencies collapse. A Gold IRA can secure your retirement funds for the long term. Contact American Hartford Gold today at 800-462-0071 to learn how.

Notes:
1. https://www.foxbusiness.com/politics/federal-budget-deficit-reach-nearly-2-trillion-year-cbo-projects
2. https://www.foxbusiness.com/politics/federal-budget-deficit-reach-nearly-2-trillion-year-cbo-projects
3. https://www.foxbusiness.com/politics/federal-budget-deficit-reach-nearly-2-trillion-year-cbo-projects
4. https://www.pgpf.org/sites/default/files/ltbo-2022-chart-1.jpg
5. https://www.foxbusiness.com/economy/rising-national-debt-reduce-americans-income-growth-report

 

 

 

• Investors are leaving an overheated stock market in record numbers
• They are driven by fear fed by years of high interest and inflation rates, political chaos, and geopolitical conflict
• Physical precious metals, especially in a Gold IRA, can diversify and protect retirement savings from stock market volatility

Investors Beat a Retreat

Economic data is pointing to some concerning trends underlying the current stock market rally. According to the numbers, US stock market is shrinking. Just as billionaires did months ago, regular investors are pulling their money out at a near-record pace.

Seen as an omen of economic trouble, Americans are strategically moving their assets to safe haven physical precious metals.

Fear is currently driving the market according to CNN’s Fear and Greed Index. The fear is fed by years of high interest and inflation rates, political chaos, and geopolitical conflict. Morgan Stanley said, “Summer 2024 may prove volatile with momentum stalling.” The market already big swings as traders react to unexpected economic data. The presidential election is only going to increase the volatility.¹

Investors are losing their taste for risk and are retreating. Bank of America said their clients have been net sellers of stocks for five weeks in a row. They sold off $5.7 billion more in stocks than they purchased. That is the highest outflow since last July.

A sign that the market is in retreat is the shrinking number of public companies. JPMorgan CEO Jamie Dimon said,” The total [of public companies] should have grown dramatically, not shrunk.” He expressed concern about the implications by following up with, “This trend is serious.”²

Americans Squeezed

The retreat may go beyond simply avoiding risk. Some Americans are being squeezed out of the market. Rent, gas, food, and childcare cost 15%-40% more today than they did just three years ago. Inflation is causing 46% of US middle class workers to slash contributions to their retirement funds according to a Primerica survey. ³

The survey continued to find that 67% say their income is falling behind the cost of living. Average paychecks have risen but fallen short of the higher cost of living. As result, 36% are using credit cards to keep up with expenses. Credit card debt is now at record highs. The problem is worsened because higher interest rates have made debt increasingly expensive. With credit cards maxed out, Americans are being forced to rein in even essential spending. ⁴

The pausing of retirement contributions can have long term ramifications. American are going to be finding themselves unable to retire comfortably, if at all. The Primerica survey revealed almost 80% of respondents don’t think they’ll be better off next year. Meaning the retreat is likely to continue.

A Strategic Retreat

American may be pulling out the market to secure their gains. Or they may be forced to cover their expenses. Whatever the cause, exiting the market now might turn into a fortunate decision.

Richard Bernstein is the chief investment officer of the RBA hedge fund. He says the mega-caps stocks are overvalued and risk a big correction. As of now, the top 10 stocks in the S&P 500 make up 35% of the benchmark’s total value. That is the highest percentage ever recorded. And Goldman Sachs economists said the market looks to be the most overvalued since 1932.

⁵

Bernstein predicts the losses from a correction could rival the dot-com crash. After the boom in internet stocks, the Nasdaq Composite dropped 78% from its peak. Tech stocks continued to struggle over the next 14 years. A “lost decade” in the stock market followed, with the S&P 500 losing 1% from 1999 to 2009.⁶

Bernstein said, “Fundamentally, it makes zero sense. The bond market is saying corporate profits are going to be strong … but the equity market with this incredibly narrow leadership of seven companies is saying that it’s an apocalyptic earnings outlook. I think the stock market’s in a bubble and the bond market is right.”⁷

Time to Diversify

Modern portfolio theory stresses diversifying your assets when the stock market is overvalued and on the verge of crashing. Converting assets into physical precious metals is a time-tested diversification strategy. Gold has historically maintained its value during economic downturns, offering a safe haven against inflation and recession.

Conclusion

As money becomes tighter, each decision about saving for your retirement carries greater weight, necessitating assets that can preserve wealth. Unlike stocks, which can plummet during market corrections, gold typically retains or even increases in value, providing stability and protection for your portfolio. By including gold, you mitigate risk, ensuring a portion of your nest egg is safeguarded against the volatility and uncertainties of a financial crisis. And by opening a Gold IRA, you can gain tax advantages along with the wealth protection benefits of physical precious metals. Call us today at 800-462-0071 to learn more.

Notes:
1. https://www.cnn.com/2024/06/05/investing/premarket-stocks-trading/index.html
2. https://www.cnn.com/2024/06/05/investing/premarket-stocks-trading/index.html
3. https://moneywise.com/retirement/middle-class-workers-are-slashing-or-cutting-contributions-to-retirement-funds
4. https://moneywise.com/retirement/middle-class-workers-are-slashing-or-cutting-contributions-to-retirement-funds
5. https://markets.businessinsider.com/news/stocks/stock-market-outlook-correction-dot-com-bubble-crash-buy-opportunity-2024-6
6. https://markets.businessinsider.com/news/stocks/stock-market-outlook-correction-dot-com-bubble-crash-buy-opportunity-2024-6
7. https://markets.businessinsider.com/news/stocks/stock-market-outlook-correction-dot-com-bubble-crash-buy-opportunity-2024-6

 

 

• Gold’s record-breaking ascent is fueled by numerous drivers
• Excess money printing, geopolitical conflict, central bank purchasing and fears over the national debt are giving gold tailwinds
• Now is an opportune time to add protect portfolio value with physical precious metals

Gold Prices on the Rise

In recent months, gold has been reaching new all-time highs as it continues its upward trajectory. With numerous factors behind the upswing, now is an opportune time to protect your retirement funds with physical precious metals.

Multiple Drivers Impacting Gold Prices

Gold’s current rise is not just an economic blip; it’s backed by multiple strong drivers:

Significant Money Printing: Since 2020, there has been a substantial increase in money printing, which is now starting to take effect on the economy. From 2020 to 2024, the M2 money supply increased from $15 trillion to $22 trillion. This has decreased the purchasing power of the dollar by 25-30%. People are turning to gold as a store of value as the oversupplied dollar depreciates.

Geopolitical Conflict: Ongoing major conflicts around the world are spurring safe haven demand and contributing to the upward pressure on gold prices.

Central Bank Purchases: Central banks are buying gold at the fastest rate in 55 years, further driving up demand. They seek to fortify their own economies with gold by hedging against inflation, moving away from the dollar, and securing against potential sanctions.

National Debt: Crossing $34 trillion and climbing fast, the national debt is at crisis levels. But the government is unwilling to cut spending. Already costing more than defense, the cost to service the runaway debt could strangle all government services, including Social Security. Americans are buying gold to protect against inevitable inflation and collapse.

Gold as a Response to Economic Uncertainty

Given these factors, it’s no wonder that investors are flocking to gold. Gold offers stability in times of economic uncertainty and has historically been a trusted store of value. The increasing cost of gold in terms of dollars reflects the declining trust in the US dollar and government policies.

Investment banks are predicting even higher gold prices by the end of the year and beyond. Experts believe that if we see any rate cuts or economic instability, gold prices could soar even higher. Interest rate cuts could push gold to $2,700 an ounce. Meanwhile, some analysts say further bank failures or election chaos could see gold reaching $3,000 an ounce or higher.

Considering Silver

For those looking for a more accessible option, silver is also worth considering. Currently valued at around $28 an ounce, silver has significant upside potential. It’s investment and industrial demand are at historic levels while production deficits are unable to keep up. It’s not just a less expensive alternative to gold but also a valuable hedge in a recession or rate cut environment.

Conclusion

Gold has stood the test of time as a reliable store of value. It isn’t just a safe haven; it’s a smart diversification tool. It acts as an insurance policy against currency devaluation and economic instability. In today’s volatile economic environment, having a portion of your portfolio in gold makes sound financial sense.

Contact American Hartford Gold today at 800-462-0071 to learn more about how you can secure your financial future with a Gold IRA.

• 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