• The Federal Reserve’s eighth interest rate increase is the smallest since March
• Wall Street is rallying on hopes of a Fed pivot, despite Fed assurances that hikes will continue
• As Wall Street and the Fed fight, investors can come out ahead by turning to physical precious metals

Wall Street and the Fed Battle over Rate Hikes

Federal Reserve officials made their eighth interest rate increase in a year on Wednesday. They raised it a quarter-point in their continued fight against inflation. Wall Street and the Fed are finding themselves in a standoff. Investors are eager for the Fed to pivot on rate hikes so markets can rebound. The Fed is focused on bringing down inflation even it means crashing stock prices. There is a way to come out ahead as these two forces clash.

Investors and policymakers have been deadlocked for a while now. The Federal Reserve insists rates will rise above 5% and stay there for some time. Money markets see the Fed struggling to get rates above 5% and have priced in cuts by year-end. This view has helped fuel a tech- and growth-led rally for stocks in 2023.

This scene has repeated several times over the past year. Stocks, bonds, and crypto rally as Wall Street hopes for a halt in rate hikes. The stop doesn’t happen, and prices come crashing back down.

Fed Chair Powell tried to deflate this unfounded investor optimism. “I just don’t see us cutting rates this year,” he said. But he inadvertently fueled that hope. Stocks turned sharply upward after Mr. Powell said that future decisions on rates would be made meeting by meeting. In other words, investors could hope rate hikes might stop at any time.¹

The resulting rallies don’t help the Fed’s effort to tame inflation. Higher stock and bond prices increase capital companies can spend. This can stoke more demand and potentially drive-up prices and keep inflation elevated.

There will be no ‘Fed put’ as it is called. Since the late 1980s, traders had been taught that the Fed was always there to prop up financial markets. It would scrap plans to hike rates or maybe even start cutting them. Even though that era slammed to a stop last year, traders still hold faith in the idea.

Neel Kashkari is President of the Minneapolis Fed. He warned investors: If they doubt the central bank’s resolve to properly finish the job on inflation, even at the cost of putting millions of Americans out of work, they are mistaken. “They are going to lose the game of chicken, I can tell you that.”²

The Fed’s View on Inflation

“Inflation has eased somewhat but remains elevated,” officials said in their statement announcing the rate decision. They repeated that ongoing increases in the target range will be appropriate. “We’re talking about a couple more rate hikes,” said Powell.³

Powell did say that disinflation has begun. But the Fed doesn’t want to prematurely declare victory over inflation. He thinks inflation is still running hot despite recent drops. Powell expects to keep rates high through 2023. The chairman said it would be bad to realize, months from now, that the Fed had not done enough to bring inflation under control. And while
Powell is still holding out hope of a soft landing, he is being very careful not to build expectations.

How to Come Out Ahead

Wall Street and the Fed are two powerful institutions in the U.S. economy. Right now, they are at loggerheads. The Fed wants to return to low inflation while Wall Street wants to return to profits. The means to achieve their ends stand in direct opposition.

The way to get ahead in this conflict is to step outside of it. Investors should look beyond paper securities and into safe haven assets like physical precious metals. Gold prices are on track for their third monthly gain. They surged above $1,900 an ounce on expectations that rates will soon stop rising. This brought Treasury yields and the dollar down. Central banks also bought bullion. A Reuter’s poll of 38 analysts predicted the price of gold to keep rising through the year and into the next.⁴ Learn how a Gold IRA can be your path to wealth preservation and profit. Contact us today.

Notes:
1. https://www.nytimes.com/live/2023/02/01/business/fed-interest-rates-inflation
2. https://www.bloomberg.com/news/articles/2023-02-01/fed-interest-rate-hike-is-latest-salvo-in-wall-street-battle
3. https://www.usatoday.com/story/money/economy/2023/02/01/federal-reserve-interest-rate-decision-meeting-live-updates/11135680002/
4. https://www.reuters.com/markets/commodities/gold-edges-higher-track-third-straight-monthly-gain-2023-01-31/

• The Inflation Reduction Act’s new taxes on business have taken effect
• The ill-timed taxes can hurt corporate earnings and lower stock prices
• Investors turn to precious metals since they are not subject to the new taxes

Higher Business Taxes Threaten 401(k) Savings

Business taxes are rising as the economic forecast grows worse. Biden signed the Inflation Reduction Act into law in August 2022. It includes a corporate alternative minimum tax (CAMT). The CAMT is a 15% minimum tax on large corporations. Also, parts of the 2017 tax overhaul are set to expire. These new business taxes are likely to hurt the value of retirement funds as they cause corporate earnings and stock prices to drop.

Biden tweeted, “It’s 2023. That means the largest, most profitable corporations will have to start paying a 15% minimum tax. The days of the wealthiest companies not paying taxes are over.” These taxes are going to pay for the left-wing agenda found in the Inflation Reduction Act. However, the Joint Committee on Taxation (JCT) found that revenue from the bill won’t cover the costs of all the new programs. It will come up about $100 billion short.¹

Creating more taxes and adding more debt is bad for the economy. Adding new taxes on businesses during a recession is even worse. Around 200 of the country’s largest corporations will feel the brunt of the new taxes. The JCT estimates that the taxes will hit US manufacturing the hardest. Their new tax burden will be over $150 billion. 401(k) anchors like Tesla, Ford Motor, Amazon, and Salesforce are also targeted. Aerospace and defense company Raytheon Technologies said their tax bill spiked by $1.5 billion.

Experts expect the new taxes to drag on 2023 earnings. Goldman Sachs said, “We estimate that all of these provisions would lower 2023 S&P [earnings per share] by three percent.”²

“On the impact of tax increases in a recessionary period, we are highly concerned,” said Chris Netram from the National Association of Manufacturers. He continued, “Some of the items that have already taken effect, that Congress failed to reverse at the end of last year, are causing a lot of pain for our members.” A fragmented Congress is highly unlikely to do anything to help despite calls from the business community.³

Effect on the Economy

The policies of the Biden administration are the exact opposite of what usually happens during a downturn. Taxes and interest rates are normally reduced to help business. Now, taxes are increasing. And the Federal Reserve is raising interest rates at an unprecedented pace to combat inflation. Together, they are stifling growth and encouraging recession.

These new taxes can harm the value of 401(k)s and IRAs by reducing the value of stocks held within them. Investors can defend their retirement funds from Biden’s agenda-driven taxes. They can preserve their wealth by diversifying with assets that are out of the Democrat’s grasp. Safe haven assets like precious metals can protect the value of a 401(k) from the new business taxes. Contact us today to learn how our Gold IRA defends your nest egg from taxes, inflation, and recession.

Notes:
1. https://finance.yahoo.com/news/corporate-alternative-minimum-tax-now-182026379.html
2. https://www.foxbusiness.com/economy/business-taxes-rising-us-economy-heads-choppy-water
3. https://www.foxbusiness.com/economy/business-taxes-rising-us-economy-heads-choppy-water

• CEOs meeting at the World Economic Forum (WEF) in Davos expressed a negative outlook on the global economy
• The WEF found inflation to be the leading short-term crisis
• The UN Secretary General joined business leaders in expressing concern for a global recession

A Negative Outlook from the World Economic Forum

The World Economic Forum is underway in Davos, Switzerland. Judging from the dismal predictions of the nearly 600 CEOs in attendance, the key theme is negativity about the global economy. The macroeconomic forces they are addressing will impact the financial well-being of everyone on the planet.

The World Economic Forum Annual Global Risks Report found the inflation crisis poses the greatest short-term risk facing the world right now. The report determined the Ukraine war, and the pandemic turned the energy crisis, food scarcity and inflation into the most pressing global issues. The report has been published for the Davos summit for 17 years. It factors in the views of 1,200 figures across the private and public sectors. And the World Economic Forum survey found 63% of chief economists think we are heading into a global recession.

The UN Secretary General offered his bleak view of the global economy at Davos. He said, “We are looking into the eye of a Category 5 hurricane. Our world is plagued by a perfect storm on a number of fronts. Start with the short term, the global economic crisis. The outlook, as we all know, is bleak. Many parts of the world face recession and the entire world faces a slowdown.” He said we are facing a “clear recession perspective” due to the war in Ukraine, soaring inflation, rising interest rates and supple chain disruptions.¹

He fears what he calls the Great Fracture – the global economy splitting between China and the West. This could result in two different sets of trade rules, dominant currencies, and internets. The IMF reported that such a divided world economy could cut global GDP by $1.4 trillion.

Outlook from the C-Suite

CEOs shared an overall negative outlook on the global economy. UBS CEO Ralph Hamers said the “era of higher inflation is here to stay”. He continued, “what we do believe is that certainly inflation is on the way back, both in the U.S. as well as in Europe.”²

Standard Chartered CEO Bill Winters said, “Inflation is not done” and suggested the Fed “has got a way to go.”³

Swiss Re CEO says inflation won’t fall back to low levels for at least 10 years. “I wouldn’t get too excited about the end of the Fed hiking cycle.”⁴

If CEOs are negative, so are everyday people. Inflation hovers around 40-year highs. The World Bank warned the global economy was perilously close to recession. And the IMF director said global economic growth will slow down in 2023. A global survey of more than 32,000 people across 28 countries found 60% of people believe they will be worse off in five years. The report has been conducted for more than two decades. It found economic optimism is at “all-time lows”.

The elites are meeting to discuss the fate of their business fortunes in Davos. Yet, their personal fortunes are unlikely to be in real danger. This cannot be said for everyone else. As they argue policy and proposals, individuals concerned about their financial future need to act. A Gold IRA from American Hartford Gold can protect the value of your retirement fund during a global downturn. Contact us to learn more about it today.

Notes:

1. https://www.foxbusiness.com/economy/global-economy-heading-eye-category-5-hurricane-un-secretary-general-warns
2. https://www.cnbc.com/2023/01/17/the-year-of-inflection-top-bank-ceos-weigh-in-on-inflation-outlook.html
3. https://www.cnbc.com/2023/01/17/the-year-of-inflection-top-bank-ceos-weigh-in-on-inflation-outlook.html
4. https://www.cnbc.com/2023/01/17/the-year-of-inflection-top-bank-ceos-weigh-in-on-inflation-outlook.html

• Subjective inflation data is used to try and predict which way the markets will go
• Wall Street traders see inflation going down vs. the Fed who thinks inflation will linger
• As a result, the only thing investors can count on is higher market volatility

What Inflation Data Means to Investors

Before every Consumer Price Index inflation report comes out, there is tense speculation. Is inflation falling or rising? Will the market rally or collapse? Every bit of data is analyzed to determine what the Fed will do next. Even though the Fed clearly states their position. There is what the markets want and what the Fed wants. Somewhere in between, lies the best course of action to protect the value of your retirement funds.

Economic data so far has been unclear. Overall inflation is dropping. But core inflation, the rate when volatile fuel and food have been removed, is increasing. Wage growth is easing which should reduce inflation. Yet unemployment is also easing, which means inflation should remain steady.

Based on trade data, Wall Street expects inflation to fall faster than economists and Fed officials do. The Fed Fund Futures market bets on the inflation rate. It sees inflation coming down to 2.5% in the next seven months.

Federal Reserve projections say inflation will remain well above 3% until 2024. Fed officials have clearly signaled that interest rates must be raised above 5% to hit their 2% inflation target.¹

Investors seem to be forgetting a basic rule. Don’t fight the Fed. The disconnect between Wall Street and the Fed will result in more market volatility ahead. “I think at some point the markets will realize, ‘oh we can’t get to 2%,” and then the markets probably do sell off on that. I think maybe in short term [the stocks go] up and then in the second quarter, they go back down as people realize that 2% is not realistic,” said chief strategist at Spouting Rock Asset Management.²

BlackRock is the world’s largest asset manager. They have $10 trillion in assets under management. They warn that investors are underestimating the threat of stubborn high inflation and elevated interest rates. They see inflation running hot well into 2023. The firm sees little chance of the Federal Reserve cutting rates even if the economy slides into recession. “Even with a recession coming, we think we are going to be living with inflation,” they wrote. “We do see inflation cooling as spending patterns normalize and energy prices relent – but we see it persisting above policy targets in coming years.”³

As the ‘will they’ ‘won’t they’ debate plays out about interest rate hikes, the market continues to struggle. All three major indexes fell this past year. The Dow Jones Industrial Average ended the year down 8.8%, the best of the three. The S&P 500 sank 19.4%, while the tech-heavy Nasdaq Composite plunged 33.1%.⁴

Longest Bear Market in History

A study by Motley Fool shows that this may turn into the longest bear market in history. Most bear markets turn around in under a year. As of the closing bell on Jan. 4, 2023, the S&P 500 had spent 282 calendar days in a bear market. And it doesn’t look close to hitting bottom. The Fed published its “Summary of Economic Projections.” It said not to expect interest rate easing until 2024. If that’s the case, and the S&P 500 adheres to this century’s average timeline to find a bottom, we’re talking about a bear market that could easily top more than 1,000 calendar days. It will become the longest on record. As of now, the longest bear market occurred between 2000 and 2002 and lasted 929 calendar days.⁵

Wall Street vs. the Fed. Optimism vs. history. With all the subjective data, the path to protecting the value of your retirement funds doesn’t seem clear. 99% of us aren’t in a position to know the whole truth. Investors should tune out the noise and rely on what is tried and true. The one safe haven asset that outperformed a sinking market this past year is gold. Contact us today to learn how our Gold IRA can preserve the value of your funds, no matter what Wall Street or the Federal Reserve does.

Notes:
1. https://www.cnn.com/2023/01/11/investing/premarket-stocks-trading/index.html
2. https://www.marketwatch.com/story/why-thursdays-u-s-cpi-report-might-kill-stock-markets-hope-of-inflation-melting-away-11673449025
3. https://www.foxbusiness.com/markets/markets-may-be-underestimating-threat-high-inflation-blackrock-warns
4. https://www.foxbusiness.com/markets/markets-may-be-underestimating-threat-high-inflation-blackrock-warns
5. https://www.fool.com/investing/2023/01/08/this-may-be-the-longest-bear-market-in-history/

• Record losses were recorded across stocks, bonds, real estate and crypto
• Federal Reserve policy sent assets plummeting to their true value
• Investors turn to gold, which is poised to enter a bull market

Epic Losses Across Asset Classes

A Financial Times report found that a traditional portfolio consisting of 60% stocks and 40% bonds will have seen its worst performance since 1932. More than $12 trillion in value was erased from the US stock market last year. In other words, it hasn’t looked this bad since the Great Depression. Plummeting stocks were joined by bonds, crypto and real estate. The ‘everything bubble’ has burst and investors are scrambling to adapt.

The Federal Reserve has raised interest rates to their highest levels since 2007. They stoked mammoth swings across global markets and a steep selloff in assets from stocks and bonds to cryptocurrencies. The Fed’s aggressive interest rate hikes have stopped the flow of ‘free money’ that propped up asset prices. They are now sinking to their true value.

Sound Planning Groups’s CEO said, “I’m calling it the Federal Reserve bubble. I believe that there is a bubble in the stock market, there’s a bubble in the bond market here today. We’ve got a real estate bubble, and that’s also hurting corporations as we look at how they are no longer able to borrow at such low-interest rates.”¹

The once booming tech sector led the securities nosedive. A handful of tech stocks were responsible for almost a quarter of the market’s total decline. Giants such as Netflix, Meta, Zoom, Spotify and Tesla saw their share prices falling in the range of 51% and 70%, according to Yahoo Finance. Formerly bedrock stocks like Microsoft are now seen as “risk assets.”

The impact of Federal Reserve rate hikes is beginning to ripple through the real estate market. Rising mortgage rates are crushing demand. The Federal Housing Finance Agency shows that U.S. house prices were stagnant through September and October.

Crypto was once called Gold 2.0 because of its supposed resilience to market volatility. The total crypto market cap fell from $2.25 trillion to $798 billion throughout the year. That represents a drop of 64.5%, and crypto billionaires recorded huge losses.²

Money managers say they are positioning for an environment that bears little resemblance to the one to which many grew accustomed after the last financial crisis. The era of ultralow bond yields, mild inflation and accommodative Fed policy has ended.

There is a belief that we are entering another ‘lost decade’. The term “Lost Decade for Stocks” refers to the ten-year period from 12/31/1999 through 12/31/2009, when the S&P 500 generated an annualized total return of -0.9% over the period. This was only the second time that the market had a negative total return over a decade period. The other period was the Great Depression decade of the 1930s.

Gold Alone Is Set for a Bull Market

In a climate that is prioritizing wealth preservation over profit, traders are turning to gold. Gold prices have been on an incline since November. Analysts think we are entering the ‘Goldilocks’ zone for gold. They theorize that the Fed will stop raising interest rates as inflation plateaus and recession concerns increase. Flattened interest rates will result in less appealing Treasuries and a weaker dollar. Investors will return to gold to shield their wealth in the face of continued inflation.

Eric Strand is the portfolio manager and creator of the European-listed AuAG ESG Gold Mining exchange-traded fund. He said, “We anticipate a new all-time high for gold during 2023 and the start of a new secular bull market when the price goes over $2,100 per ounce.”³

Investors are facing the fallout of the bursting everything bubble. Our Gold IRA can shield your wealth as this new economy takes shape. Contact us today to learn more.

Notes:
1. https://www.foxbusiness.com/economy/stock-market-kicks-off-2023-with-start-of-lost-decade-expert-warns
2. https://cointelegraph.com/news/everything-bubble-bursts-worst-year-for-us-stocks-and-bonds-since-1932
3. https://www.kitco.com/news/2022-12-19/Gold-will-explode-higher-in-2023-but-it-s-the-miners-investors-should-pay-attention-to-ESGO-s-Eric-Strand.html

• Gold hit record highs in 2022, and rebounded strongly after a mid-year dip
• Gold outperformed almost every other asset class in 2022
• Several factors are aligned for gold to reach new record prices in 2023

Gold in 2022

Gold had a remarkable 2022. Bullion soared 16% between the end of January 2022 and the beginning of March. It traded above $2,070 per ounce for the first time. Investors flocked to gold as safe haven when Russia invaded Ukraine. After interest rate hikes caused a dip, gold rebounded towards the $1,800 level. Since the beginning of November, gold prices are up almost 13%. Analysts predict the surge to continue into 2023.¹

The Fed’s fight against inflation put downward pressure on gold prices. They aggressively raised interest rates to shrink the economy. Higher interest rates saw investors move away from gold and toward interest bearing securities. Also, the U.S. dollar climbed toward its 20-year high. Gold prices are inversely related to the dollar. When the dollar goes up, the price of gold goes down.

At $1,800 in December, gold was a winner compared to other markets. Stocks, bonds, cryptocurrencies, real estate, and most other asset classes suffered significant losses in 2022. Gold’s 2022 performance in the face of a strong dollar and high interest rates is a testimony to its strength.

Gold in 2023

Gold is primed to continue its leading role due to several factors, including:

Inflation has been at record levels for almost a year. It will continue to persist for the foreseeable future. Gold is traditional store of value in the face of inflation. As long as inflation stays elevated, the upward price pressure will continue.

Interest rates are predicted to plateau in 2023. Investors believe the Fed will hit the brakes on interest rate hikes as a recession settles in. Gold will become more attractive compared to other interest-bearing investments.

Supply is not keeping up with international demand. Russia was the world’s third leading gold supplier. With sanctions still in effect, scarcity is increasing. In addition, investment in new gold sources has not kept pace with demand.

Dedollarization is seeing non-Western countries move away from using the US dollar as a reserve currency. Sanctions and a global political realignment are causing countries to choose gold for economic and security reasons.

China is relenting on their strict covid restrictions. China is the world’s top consumer of gold. As the restrictions loosen, their demand will increase.

Central banks purchased a record 399 tons of gold for about $20 billion in Q3 2022. Over the first nine months of 2022, total official sector purchases were at the 673-ton level, the highest since 1967. The robust demand for gold from central banks is likely to continue in 2023 according to the World Gold Council.²

Overall, gold is primed to have a banner year in 2023. Analysts say gold can hit the $2,000 level. Saxo Bank said, that with the right conditions, gold will break $3,000 an ounce next year. How high gold will go depends on the Fed’s actions on interest rates.

In the best-case price scenario, gold could even surpass its all-time high if stagflation occurs and the Fed reduces its tightening. This would likely force investors to steer clear of bonds, equities, and currencies altogether, just like in the 1970s. Now is an opportune time to get it into gold for the new year. Contact us today to learn how you can take advantage of the price upswing with our Gold IRA.

Notes:
1. https://www.investing.com/analysis/gold-could-continue-its-run-in-2023-200633836
2. https://www.investing.com/analysis/gold-could-continue-its-run-in-2023-200633836

• After a volatile 2022, silver prices are set to surge over the next few years
• Skyrocketing demand and limited supply are pushing silver prices up
• Investors are turning to silver alongside gold for its safe haven qualities during economic uncertainty

Experts are Bullish on Silver

If you don’t have silver in your portfolio, now is the time to add it. After a volatile year, silver prices are set to surge. Exponentially increasing demand, limited supply and continued economic uncertainty could send silver into record territory.

Silver earned its nickname as the ‘restless metal’ in 2022. After recovering from price drops, silver demand spiked to an all-time high. It’s been on an upward trend since mid-October, adding 30% to its price. The rise was partially fueled by news that China is loosening its Covid restrictions.

Silver prices were also boosted by the prospect of lower interest rates in the future. Like gold, silver tends to go down when rates go up. That’s because investors are drawn to interest bearing assets over precious metals.

The upswing in silver prices coincided with news that demand is projected to hit a new record of 1.21 billion ounces.¹ This will result in a second year of supply deficit. “At 194 million ounces, this (deficit) will be a multi-decade high and four times the level seen in 2021,” a recent report from the Silver Institute states. Global silver output is projected to increase by only 1 percent. Any fresh supply will be quickly absorbed. Mining production is being limited by skyrocketing costs for energy, supplies and transportation.²

“Silver is in a unique place. Many factors are transitioning silver into an industrial metal. This, with supply issues, government regulations and current pricing, is poising silver for a breakout.” says Steve Cope, President & CEO of Silver Viper Minerals.³

Growing Demand

Industrial demand accounts for half of total silver consumption. Silver is vital to the production of solar power cells. The market for photovoltaics alone could support the surge in the metal’s price. This demand will grow as government’s push renewable energy policies. The European Commission just mandated rooftop solar panels be installed on all public and commercial buildings in the next five years.

Silver demand is also being driven by the electric car market. Electric vehicle manufacturer’s need for silver will climb from 45 million ounces in 2017 to 70 million ounces by 2030.⁴

Investment demand for silver is increasing as well. Investors are turning to silver for the same reason they look to gold – to hedge against inflation and risk. Sales of silver coins and bars for investment jumped 36%. Investors bought 278.7 million ounces, the highest amount since 2015. “Retail investors in North America and Europe, motivated by safe-haven and inflationary concerns, took advantage of periodically lower silver prices to purchase coins and bars,” said the Silver Institute.⁵

Frank J. Basa is Chairman & CEO of Canada Silver Cobalt Works. He said, “I expect that increasing demand for silver for solar panels, along with growing investor interest for silver as a hedge against inflation, will together drive the price of silver higher in the coming year.”⁶

Future Silver Prices

Analysts forecast silver will hit $34 in 2023. Some are predicting that it will break $48 by 2024 under the right conditions. Silver will move higher as the dollar drops and inflation remains high.

Data indicates that silver is likely to outperform gold in 2025 and 2026. Silver is historically undervalued relative to gold right now. Making it an attractive investment opportunity. Supply trends cannot keep up with longer-term demands. Green technology demands will increase even if there is a global recession.

The gold to silver ratio is also sending a powerful buy signal. The gold to silver ratio represents the number of silver ounces it takes to buy a single ounce of gold. Historically speaking, the gold to silver ratio has rested somewhere between 15 and 10 to 1, reflecting the average supply of each metal.

The ratio now is like what it was just prior to the 2008 financial crisis and recession, when it also hovered around 80. Following the financial meltdown, silver rallied 400% over three years.⁷

Unstoppable demand and limited supply are combining with inflationary pressures to create a perfect storm for silver prices to erupt. You can easily add silver to a self-directed IRA like our Gold IRA. Contact us today to learn more.

Notes:
1. https://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/silver-forecast/
2. https://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/silver-forecast/
3. https://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/silver-forecast/
4. https://capital.com/silver-price-predictions-for-years-ahead
5. https://capital.com/silver-price-predictions-for-years-ahead
6. https://investingnews.com/daily/resource-investing/precious-metals-investing/silver-investing/silver-forecast/
7. https://www.kitco.com/Gold_Silver_Ratio_Charts/gold-silver-ratio-charts.html

• The Federal Reserve raised interest rates .5 percentage points
• Smaller than the previous four increases, this hike signals the inflation fight is far from over
• Investors will need to contend with inflation, high interest rates and recession for years to come

 

Fed Raises Interest Rates

The Federal Reserve raised interest rates .5 percentage points. Only in these twisted times is that considered an easing. True, it is smaller than the four previous .75-point increases. But it is still double the customary quarter-point hike. Prior to this year, the Fed hasn’t raised rates by more than a quarter of a point at a time in 22 years. The Fed has hiked rates six times this year to tame record high inflation. Even though it is smaller, this latest hike will cause pain for millions of American businesses and individuals.¹

This rate hike will bring the overnight borrowing rate for banks to a range between 4.25% and 4.5%. That is the highest it has been since 2007.²

The Fed may be reducing the intensity of the hikes, but the effects will continue long after they stop. The average period between peak interest rates and the first rate reductions by the Fed is 11 months. If the bank stops actively hiking rates, they could remain high well into 2024.

Inflation, as measured by the Consumer Price Index, was up 7.1% on an annual basis. That was below expectations and well below the 7.7% in October. Traders became hopeful that the Fed would pivot on this news. They were therefore disappointed by comments from Fed officials.³

Fed Chairman Powell stated that while the reduction was welcome, he needs substantially more evidence that inflation is being tamed. He continued, “Historical experience cautions strongly against prematurely loosening policy. I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way.” He also said that Fed policy is not “sufficiently restrictive”, and more hikes are appropriate.⁴

No Relief in Sight

Federal Reserve officials expect inflation to prove more stubborn that predicted. It could stay doggedly high for years to come. They anticipate having to raise rates next year more than planned. Their economic projections show they will need to inflict more economic pain to get inflation under control.

Officials expect to raise interest rates to 5.1 percent by the end of 2023. They plan to keep rates higher for longer as well. You can count on rates staying elevated into 2025. Unemployment is predicted to jump and remain high for years. Growth will be much weaker in 2023. A recession is almost guaranteed.

Retirement funds will continue to be squeezed by the triple threat of inflation, high interest rates and recession. The Fed admits that bringing inflation down from 40-year high levels will be a long, hard slog. Investors can hope the Fed pivots away from their policy. Or they can face facts and prepare for an extended downturn. A Gold IRA can protect your wealth from all three threats. Contact us today to learn how.

Notes:
1. https://www.cnbc.com/2022/12/14/heres-everything-the-federal-reserve-is-expected-to-do-wednesday.html
2. https://www.cnn.com/2022/12/13/economy/federal-reserve-december-meeting/index.html
3. https://www.cnbc.com/2022/12/14/live-updates-fed-rate-hike-december.html
4. https://www.cnbc.com/2022/12/14/live-updates-fed-rate-hike-december.html

• The price of gold rose alongside fears of a global recession
• Both increases are fueled by lingering inflation, interest rate hikes and global uncertainty
• Gold demand is being amplified by central banks looking for safe haven assets

Recession Fears Increase

The price of gold is rising along with concerns about an incoming recession. Persistent inflation, aggressive interest rate hikes and global instability are fueling both increases. Economic leaders are preparing now to make the best from both situations.

CEOs across industries are getting ready for the economic slowdown. JP Morgan CEO Jamie Dimon said inflation is eating up consumer savings. People are running out the money they stockpiled during the pandemic. This will put a damper on consumer spending and slow the economy. In addition, he thinks the Fed’s interest rate hikes meant to curb inflation will push the economy into recession. “It could be a hurricane. We simply don’t know.”¹

Mary Barra, CEO of GM, is also preparing for a collapse in demand. GM will move forward conservatively in 2023 cost-wise. She believes the economy will be plagued by chip shortages and strained supply chains through 2023. And Union Pacific Railroad CEO Lance Fritz says shipping is slowing down and the economy is tightening. “The Fed is trying to hit all of us in the line of fire with a slower economy and hurting demand. It’s not good,” said Fritz.²

Gold Demand Increases

The economic downturn is amplifying the demand for gold. A Kinesis Money market analyst said, “A global recession with a subsequent flight to haven assets should benefit gold, as should a [Federal Reserve] forced to be less aggressive with its rate hikes to avoid tipping the U.S. economy into recession.”³

Saxo Bank made a bold gold prediction. They think a return to a pre-inflation, pre-pandemic world is impossible. According to them, we have entered a global war economy. Countries are scrambling to shore up their military and economic security. They predict gold will rocket to $3,000 an ounce on unstoppable inflation.

In pursuit of that security, central banks are purchasing gold as global recession fears and international instability mount. They bought 400 tons of gold in the third quarter. The World Gold Council said this was the largest single quarter of demand ever. “What we have seen and expect to continue to see is that central banks continue to diversify their reserves and hedge against risk with gold,” said a World Gold Council representative.⁴

China bought 32 tons of gold in November. Analysts think China has been building its reserves throughout the year. China, along with many other non G-10 nations, are preparing for ‘deglobalization’. The global economy is heading toward dedollarization. Countries are acquiring gold to protect their economies as the new economic order takes shape. Central banks want the safe haven qualities of gold to diversify their foreign reserves.

Gold futures climbed on projected increased demand. Current prices lifted on a weakening US dollar and US Treasury yields. Weakness in the dollar tends to decrease the opportunity costs for investors considering dollar-priced gold as an option versus other havens. Meanwhile, lower bond yields can raise the prospects for gold against government bonds.

Central banks to CEOs are preparing for a recession and global instability. A key component of that preparation is moving assets into safe havens that thrive in bad conditions. Gold is a proven safe haven asset that can protect country, corporation and individual. Contact us today to learn how our Gold IRA can safeguard your financial future.

Notes:
1. https://www.cnbc.com/2022/12/06/recession-walmart-jpmorgan-gm-ceos-talk-about-possible-slowdown.html
2. https://www.cnbc.com/2022/12/06/recession-walmart-jpmorgan-gm-ceos-talk-about-possible-slowdown.html
3. https://www.marketwatch.com/story/gold-futures-eye-back-to-back-gains-11670427092
4. https://www.kitco.com/news/2022-12-07/China-buys-32-tonnes-of-gold-in-November-first-increase-in-reserves-since-2019.html

• Housing market demand continues to decline as mortgage rates soar
• Current inflation rates don’t reflect the drop in housing prices due to a lag in data
• The Federal Reserve is highly unlikely to pivot on rate increases and help real estate

 

Interest Rates Cause Drop in Housing Demand

The once booming housing market continues to deflate. The housing industry is seeing a slowdown in sales. Mortgage applications to purchase a home were down 41% from the same week a year ago. They have been decreasing week over week for the past few months. And it looks like it is only going to get worse as interest rates continue to climb.¹

Brian Moynihan is CEO of Bank of America. He said there are tough times ahead for the housing market. Mortgage rates are skyrocketing due to interest rate hikes. “This is the toughest thing. You have to slow down the economy. You have to slow down inflation. And the way you do that is raising interest rates,” Moynihan said. “The intended outcome of [the Fed’s] policies doesn’t feel good when you are trying to buy a home.” He says it is almost impossible for many younger Americans to buy a first home. He foresees two years of pain in the housing market before activity returns to normal. ²

Jeremy Siegel is a Professor at Wharton. He predicts the housing market will see negative growth in 2023 due to interest rate hikes. The average rate for a 30-year fixed mortgage has more than doubled this year. As a result, Siegel forecasts housing prices to fall 10-15%. The median home price would fall from $440,000 to $375,000.

Siegel joins other economists in saying that the Fed acted too late on inflation. The problem now is that they are basing their decisions on trailing data. There is a lag between hikes and results. The Fed is not capturing the effects their rate hikes are having. The data they are using doesn’t reflect the real state of the economy.

Housing makes up 50% of the core inflation rate. The price lag is therefore distorting the true rate of inflation. October inflation data showed Shelter climbed .8% after climbing .7% in September. But housing prices are going down, so the real rate of inflation is lower. The Fed should be easing up on rate hikes, not increasing them.

Siegel says a recession is ‘virtually 100%’ assured if the Fed keeps raising rates into next year.
He joins other analysts in thinking the Fed will pivot once they see inflation beginning to relent. Data last week showed a seventh consecutive month of declining money supply. That is the biggest drop since World War 2. The longer the Fed delays a pivot, the deeper the recession will be.

Fed Unlikely to Pivot on Rate Hikes

Siegel shouldn’t count on that pivot. John Williams and James Bullard are two of the Fed’s regional presidents. They warned that the inflation threat hasn’t faded. The US central bank may have to lift rates higher and keep them there throughout next year to curb soaring prices. Williams said, “My baseline view is that we’re going to need to raise rates further from where we are today. I do think we’re going to need to keep restrictive policy in place for some time. I would expect that to continue at least through next year.”³

The Fed has already raised rates by 75 points four consecutive times. Even if December’s hike is lower, it will still be the most aggressive tightening since the 1980s. The housing market will continue to contract, along with the rest of the economy. A home has long been a traditional store of wealth that people relied on to help fund their retirement. As the market collapses, safer assets should be sought. Our Gold IRA can preserve your wealth during this economic downturn. Contact us today to learn more.

Notes:
1. https://www.cnbc.com/2022/11/30/mortgage-rates-fall-for-the-third-straight-week-but-demand-still-drops-further.html
2. https://www.cnn.com/2022/11/29/economy/bank-of-america-brian-moynihan/index.html
3. https://www.foxbusiness.com/economy/inflation-fight-could-last-until-2024-fed-official-warns

• While retail industry groups predict record sales, consumer surveys say otherwise
• Holiday spending habits are reminiscent of those seen during the 2009 Great Recession
• Stocks show an inverse relationship between Black Friday sales and end of year performance

 

Black Friday – Boom or Bust?

The day after Thanksgiving is another American tradition – Black Friday. The ‘Black’ normally refers to retailers trying sell enough goods, so their income statements are in the ‘black,’ or profitable, for the year. This year the color may refer more to consumer’s moods.

Retail industry groups are predicting another record year of sales. The National Retail Federation forecasts a 6-8% jump over the $890 billion people spent last holiday season.¹ However, according to surveys, consumers are going to reel in their spending this winter.

People are concerned about high prices, rising borrowing costs and a recession. A recent survey showed 62% of consumers are worried about job security. And 35% said they are worried about their financial situation.²

Researchers have noticed several behaviors last seen in 2009 during the Great Recession. People are spending less. They plan on spending 20% less this holiday season compared to the last 3 seasons. The main reason given is inflation. And when they do spend, they are buying gifts for fewer people or less expensive items.

Impulse buying is being avoided. Consumers are planning their purchases. They are searching for the best deals and prioritizing necessities. Cash is being used as a primary form of payment. Fewer people are using buy-now-pay-later options as they try to avoid debt.

Finally, shoppers are much more sensitive to price. 90% of those surveyed said price is the major factor in holiday shopping. People are choosing value brands with decent quality over premium brands.³

Black Friday and the Stock Market

Who will be right this Black Friday – the retail industry or the researchers? Will it be a boom or a bust? When it comes to the stock market, the impact isn’t what you might expect.

Analysts looked at the post-Thanksgiving behavior of the S&P Retail Select Industry Index SPSIRE. The index shows that if stocks fell on weak holiday sales, they would then rise through to the end of the year. Just the opposite tended to happen when initial reports show stronger-than-expected sales. This was the case in 73% of the years since the index was created in 1999. The direction of that initial two-day post-Thanksgiving window was the opposite of its direction from then until the end of the year.⁴

Researchers believe this inverse correlation is caused by investors overemphasizing Black Friday sales reports. When sales go well, investors overreact and conclude that happy days are here again. When reality sinks in over the next few weeks, as it almost always does, the market corrects itself. Investment analysts concluded that the best advice is to pay no attention to Black Friday sales reports and enjoy your Thanksgiving weekend.

What economists are concerned about is people behaving like the recession is already here. This could become a self-fulfilling prophecy. Reduced spending leads to reduced sales. Which, in turn, reduces business earnings, lowers stock prices and tax receipts. Businesses then slow production and lay people off. With less money to spend, consumers continue to fuel the downward spiral. This economic uncertainty calls for stable safe haven assets. A Gold IRA can give you the gift of peace of mind this holiday season. Contact us today to learn more.

Notes:
1. https://theconversation.com/retailers-may-see-more-red-after-black-friday-as-consumers-say-they-plan-to-pull-back-on-spending-acting-as-if-the-us-were-already-in-a-recession-194978
2. https://theconversation.com/retailers-may-see-more-red-after-black-friday-as-consumers-say-they-plan-to-pull-back-on-spending-acting-as-if-the-us-were-already-in-a-recession-194978
3. https://theconversation.com/retailers-may-see-more-red-after-black-friday-as-consumers-say-they-plan-to-pull-back-on-spending-acting-as-if-the-us-were-already-in-a-recession-194978
4. https://www.marketwatch.com/story/what-retailers-black-friday-and-cyber-monday-sales-tell-you-about-retail-stocks-recession-and-the-economy-11669105931?mod=home-page

• Jeff Bezos told Americans to prepare for a recession by cutting their spending
• Economists now see a recession as inevitable
• Some Fed members consider a recession necessary to tame record inflation

 

Prepare for a Recession

Amazon Executive Chairman and 4th richest person in the world, Jeff Bezos told people to prepare for a recession. He advised Americans to hold off on big purchases. They should save their cash for a rainy day. Good advice, especially if you are one of the 10,000 Amazon employees he is about to layoff. Bezos didn’t say how long he thinks the downturn will last. But he believes the US will be in recession soon, if it isn’t already.

Inflation is eating away at American’s savings. We are now tapping into our credit reserves. New data showed that household debt surged to $16.5 trillion last quarter. The number of mortgages and car loans is on the decline due to higher interest rates. But credit card debt is swelling quickly. It is rising at its fastest pace since 2008. Personal savings swelled during the pandemic. Today, those savings have plunged in half.¹

Most economists see a recession as inevitable. A Bloomberg economic forecast projected the probability of recession by October 2023 at 100%. The risk of recession is increasing alongside rising interest rates meant to combat inflation. The US economy did meet the informal definition of recession by contracting for two straight quarters in 2022.²

There was growth in the third quarter. But economists said that it was more accounting than actual growth. “If this constitutes improvement, we’ve set a very low bar,” said Bankrate chief financial analyst Greg McBride. He added the “pervasiveness” of inflation “remains problematic,” particularly since shelter, food and energy prices “are still seeing large and consistent increases.”³

The latest Bank of America survey of fund managers found that 77% see a global recession occurring over the next year. Recession in the US will pale compared to elsewhere in the world. 92% of those surveyed predicted the economy will be marked by stagflation. High inflation coupled with negative growth is considered the worst-case scenario for markets. Stagflation would require the Fed to shock the economy with even more drastic rate hikes.⁴

The Federal Reserve May Require a Recession

One Fed official said that it won’t be possible to reduce inflation without a recession. Esther George is president of the Federal Reserve Bank of Kansas City. She said, “I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there.” And in response to other Fed member’s hope for a ‘soft landing’, she replied, “I would love if there was that path, and I’ve seen people paint that path. I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes.”⁵

Ms. George advocates slowing the pace of rate increases. But not stopping them. There is consensus among Fed members that stopping rate hikes prematurely could let inflation return. They feel that situation is worse than a recession. Ms. George and others don’t want to repeat the mistakes of the 1970s and ’80s.

She warns investors not to expect a pivot anytime soon. Inflation is here and recession is coming. Now is the time to reduce risk and find safe haven assets. Our Gold IRA is designed to protect your wealth through a downturn. Contact us today to learn more.

Notes:
1. https://www.dailymail.co.uk/news/article-11434349/Billionaire-Bezos-says-people-prepare-recession-holding-buying-TVs-cars.html
2. https://www.dailymail.co.uk/news/article-11434349/Billionaire-Bezos-says-people-prepare-recession-holding-buying-TVs-cars.html
3. https://www.forbes.com/sites/jonathanponciano/2022/11/15/recession-fears-hit-new-high-even-as-inflation-slows-heres-what-fund-managers-predict-for-2023/?sh=4dab2aeb7f4b
4. https://www.forbes.com/sites/jonathanponciano/2022/11/15/recession-fears-hit-new-high-even-as-inflation-slows-heres-what-fund-managers-predict-for-2023/?sh=4dab2aeb7f4b
5. https://www.wsj.com/articles/bringing-inflation-down-without-a-recession-might-not-be-feasible-fed-official-says-11668571133