• The latest Consumer Price Index report showed inflation is at 7.7%
• Continued high inflation will fuel the Fed’s aggressive interest rate hikes
• Stock market volatility increased as investors fear a major crash

New Inflation Data Released

The US Consumer Price Index was released today. Inflation is now at 7.7%. That is down from 8.2% previously. Elevated inflation has proven to be persistent. It has been running at 40-year highs for more than 8 months now. The previous CPI report indicated the largest increase since June. Much to the frustration of the Fed, not to mention people exhausted by sky high prices, there seems to be no end sight.¹

This report is squashing any hopes of a pivot away from continued aggressive interest rate hikes. The core inflation index is still three times higher than the Fed’s 2% goal. Economist fear that inflation is becoming more and more entrenched. Unless it takes a downward trajectory soon, constantly rising inflation could become a permanent fixture of the economy. The long-term damage caused would be irreparable.

Rising inflation means a fifth-straight 75 basis point interest rate hike is a possibility. We are in the middle of the most aggressive interest rate hike campaign since the 1980s. Some traders are gambling that the Fed will only do a 50 point raise. A number once dreaded is now desired. But smart money is betting on the 75 point increase.²

Higher interest rates mean more expensive debt. The bottom lines of highly leveraged companies will get worse. And stock prices will drop. This one CPI report can make the difference between a rally, a bear market or a total crash.

Stock Market Takes a Wild Swing

Traders expect major stock volatility from the sustained inflation. Stocks have previously fallen more than 1,200 points after a high CPI announcement. The data may be setting the stage for a total market crash in the next few days. Investors know it will empower the Fed to tighten the economy even faster. Traders are growing more uncertain. Market volatility has been escalating with every monetary announcement. Last week, the S&P 500 dropped more than 2% after Fed Chair Powell announced an expected 75 basis-point hike.³

The Fed’s forecast for peak inflation has increased after these past two CPI reports. They maintain that inflation will fall slowly due to the tight labor market. Powell said to stop inflation, the job market must soften. But that isn’t happening. A recent report showed the US added more jobs than expected in October. Earnings increased but they didn’t keep pace with inflation. Labor costs keep increasing, which businesses are passing on as higher prices. Workers are basically funding their own demise according to Fed economists.

“If the labor market is surprising us with strength and resilience, then we shouldn’t anticipate a different outcome with consumer prices,” said Carl Riccadonna, chief US economist at BNP Paribas. “One is going to follow the other. Labor is slow to turn, and the same goes for inflation.”⁴

Actual declines in prices will take a while to be reflected in the CPI. There is a lag between rate hikes and the results of those hikes. For this reason, everyone from CEOs to the IMF fear the Fed will overtighten the economy and drive us into recession.

Brutal inflation, market volatility and recession are the standing order of the day. The time to protect your wealth before things continue to get worse is now. Contact us today to learn how a Gold IRA can preserve your nest egg during this turbulent time. Who knows how damaging the next financial report will be?

Notes:
1. https://www.bloomberg.com/news/articles/2022-11-09/us-inflation-to-cool-only-slightly-keeping-big-fed-hike-in-play
2. https://www.bloomberg.com/news/articles/2022-11-09/us-inflation-to-cool-only-slightly-keeping-big-fed-hike-in-play
3. https://www.wsj.com/livecoverage/stock-market-news-today-09-13-2022
4. https://www.bloomberg.com/news/articles/2022-11-09/us-inflation-to-cool-only-slightly-keeping-big-fed-hike-in-play

• The Federal Reserve raised interest rate 75 basis points for the 4th consecutive time
• Stocks dropped when Fed Chair said not to expect a pivot on rate hikes
• Economists believe a recession is inevitable

Fed Chair’s Comments Send Stocks Sliding

Any hopes that the Federal Reserve would pivot on interest rates dissolved today. The Fed raised interest rates 75 basis points. That is the fourth straight increase at that record level. The rate target range is now 3.75%-4%. The rate range hasn’t been this high since January 2008. The Federal Reserve is applying its most aggressive monetary policy since the early 1980s. Stocks dropped sharply in response to Chairman Powell’s comments about future increases. The Dow fell more than 400 points. The S&P 500 dropped 2.1% and the Nasdaq was 2.9% lower.¹

Stocks dropped after Powell said, “we still have some ways to go” and that “it is very premature to be thinking about pausing.” He also stated, “the ultimate level of interest rates will be higher than expected.” He continued that the question of when to slow the pace of increases is now much less important than the question of how high to raise rates and how long to keep them at those levels.²

The increases are part of the Fed’s fight against inflation. Prices remain near 40-year highs. Even after a series of steep hikes, the cost of living rose 6.2% in September from a year ago. The Fed blames an extremely tight labor market for pushing up wages and fueling inflation. Rate hikes are adding to the pain of inflation. They are raising the cost of credit cards, mortgages, and car loans. Meanwhile, businesses are scaling back investment and laying off workers as capital becomes more expensive. ³

Heading Towards Recession

Many now believe a recession is inevitable. Some economists were hoping the Fed was beginning a ‘step down’ policy of smaller and smaller rate increases. They believe the Fed is overcorrecting since there is lag between raising rates and seeing their effects. An overcorrection is thought to lead to recession.

Lawmakers and the United Nations have called on the Fed to stop raising rates. They fear it could ignite a global recession. A CNN poll showed 75% of Americans think the economy is currently in recession. Even Powell conceded that the chances of a “soft landing” for the economy are low. He added that it’s proven to be more difficult than expected for the Fed to get a handle on inflation. GDP has declined in both the first and second quarter. That meets a common definition of a recession. The housing market shows we are in an economic downturn. Housing demand has plunged as mortgage rates climbed over 7% for the first time in more than two decades. ⁴

There is no indication that hikes will end any time soon. The best that people are hoping for is that the huge hikes come at a slower pace. Investors see a 50% chance that rate will go above a whopping 5% by next March. A falling stock market shows Wall Street’s crisis in confidence in this economy. Stubborn inflation, soaring interest rates and crippling recession are the order of the day. All you can do is preserve the value of your assets before things get worse. Contact us today to learn how a Gold IRA can protect your wealth.

Notes:
1. https://www.wsj.com/articles/fed-approves-fourth-0-75-point-rate-rise-hints-at-smaller-hikes-11667412242
2. https://opoyi.com/business/us-stocks-fall-after-fed-chair-jerome-powells-comments-789883/
3. https://www.cnbc.com/2022/11/02/fed-hikes-by-another-three-quarters-of-a-point-taking-rates-to-the-highest-level-since-january-2008.html
4. https://www.cnbc.com/2022/11/02/fed-hikes-by-another-three-quarters-of-a-point-taking-rates-to-the-highest-level-since-january-2008.html

• Gross Domestic Product appears to have grown in the third quarter
• The bump in GDP is deceptive, experts believe a recession is still on its way
• Numerous other indicators are pointing to a long-term economic downturn

The GDP’s Deceptive Increase

Major banks, the International Monetary Fund, leading CEOs and hedge fund billionaires all predict a recession in 2023. After two quarters of declining growth, some say we are already in one. So, a positive third quarter GDP report should be good news, right? Not so fast.

Gross domestic product is a general measure of the country’s economic output. Analysts estimate it grew 2.4% between July and September. On the surface, that looks great after shrinking for six months. But with that decline, stubborn high inflation and rapidly swelling interest rates, most forecasters predict a long economic downturn. Economists see this one quarter as just a speed bump on the road to recession.¹

The bump in GDP may be more economic sleight of hand than an actual increase in production. The GDP is likely to have increased due to a narrowing gap between imports and exports. With money getting tighter, consumers are buying less. As a result, the US is importing fewer goods. American individuals and businesses are spending less. With consumption being nearly 70% of our GDP, that’s taking the gas out of our economy.

Other Recession Indicators

There are other recession signals flashing. Mortgage rates have more than doubled since last year. This is causing the housing market to come to a standstill. An overpowered dollar is cutting US exports and overseas profits for US companies. Stocks are dropping along with corporate earnings. And a shrinking federal budget deficit reveals less government investment in the economy.

The Chief Global Strategist at JP Morgan said, “there is little reason to expect booming growth at any time over the next few years.”²

The GDP is also being propped up by an increase in retailer’s inventory level. Instead of reflecting actual growth, the increase is most likely a result of unsnarling supply chains.

If anything, this is the canary in the recession coal mine. Inflation-adjusted GDP reflected healthy gains around the onset of four out of the last six downturns according to Joseph LaVorgna, chief economist at SMBC Nikko Securities America and former Trump White House economic adviser.

The state of the economy is no secret to everyday Americans. Consumer confidence has fallen to its lowest level since July. The index dropped 30 points since February 2020. “Dismal” is how the report described most people’s view of the economy. Rising gas and food prices are the main reasons for the poor outlook. People shouldn’t expect it to get better anytime soon. The CEOs of Kraft Heinz and Coca Cola both issued statements that their prices will continue to increase well into next year.³

There is another reason not to get fooled by this GDP bump. A major recession indicator is going off right now. Short- and long-term bond yields have inverted. This means short term bonds are paying better than long term ones. In other words, bond traders are not hopeful about the future. The spread between the three-month Treasury bill and the benchmark 10-year note has inverted several times this week. Inversions have preceded every US recession since 1950. If history is any guide, then we’ll be in full recession within 4 quarters.

At first glance, a headline touting GDP growth looks like good news. But upon closer examination, the data is revealed to be a small bounce before falling over the edge. A recession is all but guaranteed. The best thing you can do is move your wealth into safe haven assets before we feel the full brunt of the decline. Contact us today to learn how our Gold IRA can protect your savings from the dangers of recession.

Notes:
1. https://www.cnn.com/2022/10/26/investing/premarket-stocks-trading/index.html
2. https://www.cnn.com/2022/10/26/investing/premarket-stocks-trading/index.html
3. https://www.cnn.com/2022/10/26/investing/premarket-stocks-trading/index.html

• A strong dollar caused by aggressive interest rate hikes has diverted demand away from gold
• Several factors including recession, global interest rate hikes and dedollarization will weaken the dollar
• Investors are seizing the chance to buy gold before its price rises again as the dollar drops

Gold to Rise as the Dollar Fades

To paraphrase an ancient Chinese proverb, the best time to buy gold was twenty years ago, the second-best time is right now. Due to market forces, now is an ideal buying opportunity for gold. Investors can lock in the benefits of diversifying with precious metals before the price of gold shoots up again.

Inflation is frustrating the Federal Reserve. It hasn’t budged from its forty-year high despite a blistering series of interest rate hikes meant to tame it. What the rate hikes have done is drive up the value of the dollar. The dollar will continue to surge as rates continue to rise. The Fed is believed to be raising rates at its next two meetings. They like a strong dollar because it lowers the costs of imports. This creates a backdoor way to better inflation numbers. The Fed is willing to overlook the damage a strong dollar does, like reducing the value of American company foreign earnings and increasing the costs of debt held in dollars.

The aggressive rate increases have all but guaranteed a recession. These factors have led investors to seek out the dollar as a safe haven investment. As a result, they have moved away from gold, allowing the price to slip.

Challenges to the Dollar

Conditions are opening a short window to get a great deal on gold. A Bank of America survey of major fund managers found 68% of them believe the dollar is overvalued. Wells Fargo predicts the dollar will fall in 2023. By then, they believe the US recession will be bad enough to motivate the Fed to slow down its interest rate hikes. Wells Fargo thinks the Fed will keep cutting rates the deeper the recession runs. As interest rates come down, so will the value of the dollar.¹

The dollar’s rapid rise is also due in part to the Federal Reserve raising rates faster than other central banks. Foreign investors were drawn to the dollar’s growing yield. The greenback was viewed as a store of value for them as their local currencies and securities sank. But other central banks are now raising their rates to fight inflation. The dominant position of the dollar will fade against other currencies as rates match up.

The strength of the dollar is facing another challenge. There is a global movement towards ‘dedollarization‘. The US weaponized its currency against Russia after the outbreak of the Ukraine war. Other countries quickly realized the need to move away from the dollar as a reserve currency. China is leveraging the size of its economy to turn other countries away from the dollar and towards to the yuan. This reduction in demand from central banks will further devalue the dollar.

When the dollar ultimately drops, investors will return to gold. Dollar exchange rates have been clouding the true demand for gold that exists right now. It’s only against the US dollar that gold seems to be less wanted. Gold priced in British pounds is up 2.3% in the last 30 days. Gold in the Australian dollar is up 6.6% in the last 30 days and up 1.24% in the last six months.²

Overall, the global demand for gold will go back up as will its price. Gold will be sought to preserve wealth as currency devalues from inflation and recession. That’s why savvy investors are locking in gold now. Stocks, bonds, and real estate are all set to continue falling well into next year. Nouriel Roubini is a professor of economics at New York University’s Stern School of Business. He has demonstrated that the US is heading into a very painful and extended period of stagflation. He advised, “Investors need to find assets that will hedge them against inflation, political and geopolitical risks, and environmental damage: these include gold and other precious metals.”³ Contact us today to learn why the timing is right to get Gold IRA.

Notes:
1. https://www.bloomberg.com/news/articles/2022-10-18/bofa-survey-screams-capitulation-with-rally-set-for-early-2023
2. https://www.kitco.com/news/2022-10-12/Gold-is-a-2023-story-but-these-are-the-currencies-to-buy-it-in-right-now.html
3. https://time.com/6221771/stagflation-crisis-debt-nouriel-roubini/

• The International Monetary Fund warns of a ‘painful’ global economic slowdown
• Inflation, high interest rates, war and lingering pandemic effects are driving the slowdown
• The UN warns of an international debt crisis caused by central bank policies

IMF Forecasts Global Recession

In its most recent report, the International Monetary Fund warned that “the worst is yet to come, and for many people 2023 will feel like a recession.” They downgraded its forecast for the global economy due to several factors. A primary one is the worldwide shift to high interest rates to fight inflation. The IMF highlighted that the risk of financial policy “miscalibration” had “risen sharply.” They said the world economy “remains historically fragile” and financial markets are “showing signs of stress.”¹

The IMF called inflation “the most immediate threat to current and future prosperity.” They predict inflation will peak this year. But it will stay elevated for a long time. Even as central banks fight to bring it down. Most central banks want to lower inflation to 2%. They are doing so by aggressively raising interest rates. These rapid hikes are part of the threat to the global economy.²

Other causes of the global recession include Russia’s war on Ukraine, high inflation and China’s economic slowdown. The war in Ukraine continues to “powerfully destabilize the global economy,” according to the report. It is driving up fuel and food prices around the world.

The IMF said there is a significant chance that global growth could fall below 2%. Compare that to the 6% seen in 2021. Global growth has fallen below 2% only five times since 1970. The IMF projects this to be the third weakest global economy since 2001. Only the 2008 financial crisis and the height of the pandemic were worse.³

“Next year is going to feel painful,” said Pierre-Olivier Gourinchas, the IMF’s chief economist. “There’s going to be a lot of slowdown and economic pain,” he said.⁴

The IMF downgraded the world’s major economies. The US is forecast to grow only 1.6% this year and just 1% in 2023. China has also been downgraded. Coronavirus is still slowing their economy. Their quickly deteriorating property sector is also dragging the country down.

The IMF followed its World Economic Outlook Report with its Global Financial Stability Report. That report said, “The global environment is fragile with storm clouds on the horizon.” And that policymakers around the world are facing an “unusually challenging financial stability environment.” Further shocks “may trigger market illiquidity, disorderly sell-offs, or distress.”⁵

The UN Also Issues a Warning

The IMF is not alone in its outlook. The World Bank issued a similar warning as did the UN. The United Nations Conference on Trade Development warned that central bank policies could do more damage to the global economy than the 2008 financial crisis or the pandemic.

The UN said that the world is “on the edge of a recession.” They predict Asian countries will be hit the hardest. The effects of collapsing Asian countries will ripple throughout the global economy. Higher interest rates and an increasingly stronger dollar could cause a massive debt crisis to boil over in South Asia and Western Asia.⁶

The IMF report concluded with a prediction, “As the global economy is headed for stormy waters, financial turmoil may well erupt, prompting investors to seek the protection of safe-haven investments.” The time to move your assets into a safe-haven is before the storm hits. Our Gold IRA can protect your assets from the worst of what’s yet to come. Contact us today to learn more.

Notes:
1. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
2. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
3. https://www.cnn.com/2022/10/11/economy/imf-world-economic-outlook/index.html
4. https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html
5. https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html
6. https://www.cnbc.com/2022/10/04/unctad-warns-that-asia-global-economy-headed-for-a-recession.html

• A KPMG survey showed a vast majority of CEOs are preparing for a recession
• Recession fears are being driven by the Fed’s aggressive rate hikes to fight inflation
• A poll indicated that most CFOs believe inflation is here to stay
• Market analysts think the recession, if not severe, will be long

Majority of CEOs Anticipate a Recession

The view from the C-suite looks grim for the economy. KPMG conducted a survey of 400 CEOs. It found that 91% of them predict a recession in the next 12 months. Only 34% think the recession will be mild and short.¹

“Once-in-a-generation issues — a global pandemic, geopolitical tensions, inflationary pressures and financial difficulties — have come in short succession and taken a toll on the optimism of global CEOs,” said Bill Thomas, KPMG’s CEO.²

Fears of a recession are coming as the Federal Reserve is hiking interest rates to fight inflation. Market leaders think the large, rapid hikes will slow the economy right into a recession. The Fed has already raised rates by 75 points three times in a row. And there are more large hikes coming. Fed Chairman Powell vowed not to stop until inflation is back down to 2%.

The KPMG survey said more than half of the CEOs are considering reducing their workforce to deal with a recession. They are also holding off on enacting long term spending plans.

CEOS are waiting for the political dust to settle after the midterm elections before making commitments. “There is real uncertainty about the outcome of the midterms and potential for tougher tax legislation and increased regulations,” said a KPMG executive.³

Smaller company leaders are feeling the fear as well. A survey of mid-market companies showed that more than 90% of CEOs of midsized companies are concerned about a recession. More than a quarter of these CEOs said they have already begun layoffs or plan to do so within the next 12 months.⁴

CFOs Surveyed About Peak Inflation and Recession

A CNBC poll showed a majority of CFOs say inflation hasn’t peaked yet. More than a quarter of them say inflation is the greatest risk to their business.

“This inflation is here to stay,” said JPMorgan Asset & Wealth Management CEO Mary Callahan Erdoes. And Unilever CEO Alan Jope said ” any early optimism that inflation has peaked is misplaced.”

Most of the CFOs surveyed believe a recession is already here or about to hit. Nearly half (48%) of CFOs polled said they expect a recession in the first half of 2023. Nineteen percent of CFOs say they expect a recession in the fourth quarter of this year. And another 19 percent said that the U.S. economy is in a recession now.⁵

Recession Expectations

This downturn may be moderate in comparison to the Great Recession. Yet, analysts predict that it will be longer. High inflation is going to stop the government from trying to relieve it. The Fed is ok will with dealing out the pain until inflation is at an acceptable level.

“The Fed is not going to pause until they see that inflation has convincingly come down. That means that this Fed will be hiking well into economic weakness, likely prolonging the duration of the recession,” said Anna Wong, chief US economist.⁶

And there will be pain. In the dozen recessions since World War II, on average the economy contracted by 2.5%. Unemployment rose about 3.8 percentage points and corporate profits fell 15%. The KPMG survey showed 71 percent of CEOs think a recession will impact company earnings by up to 10 percent. Which means an already battered stock market may suffer an even steeper fall as earnings drop.⁷

The people responsible for trillions of dollars of assets can see the writing on the wall. If they are preparing for recession, then so should you. One the best ways to protect your assets during an economic downturn is with a Gold IRA. Contact us today to learn what it can do for you.

Notes:
1. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
2. https://thehill.com/policy/finance/3673092-86-percent-of-ceos-expect-recession-in-next-12-months-survey%EF%BF%BC/
3. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
4. https://www.cnn.com/2022/10/04/investing/ceos-recession-economy-outlook/index.html
5. https://www.cnbc.com/2022/09/29/inflation-yet-to-peak-cfos-say-recession-already-here-or-soon-to-hit.html
6. https://www.bloomberg.com/news/articles/2022-07-03/long-moderate-and-painful-what-next-us-recession-may-look-like
7. https://www.bloomberg.com/news/articles/2022-07-03/long-moderate-and-painful-what-next-us-recession-may-look-like

• The Social Security Trust Fund is scheduled to run out in 2035
• If Congress doesn’t act, benefits will be delayed or cut
• The most recent cost of living allowance may increase beneficiary’s taxes and premiums

Social Security Trust Fund Running Out

The National Institute on Retirement Security describes retirement income as a ‘three-legged stool’. The three legs are Social Security, a pension plan and retirement savings like a 401(k) or an IRA. But unless Congress acts quickly, one of those legs is going to get a lot shorter.

Since its inception in 1937, Social Security has held a surplus in its Trust Fund. Social Security is funded by payroll tax deductions paid by employees and employers. The taxes aren’t set aside in a fund just for the payees. Current workers are paying for current retirees’ benefits. The Social Security Administration (SSA) had always collected more in payroll taxes than the amount paid out. The trust fund had $2.85 trillion in reserves at the end of 2021.¹

Fifty million retired workers collected social security benefits in 2020. In 15 years, millions of retirees may find their benefits being cut. The 2022 Social Security Trustees report said the Social Security trust fund surplus will be depleted in 2035. The number of people paying in is decreasing as the number of those collecting benefits is increasing. This is due to the birth rate decline after the baby boom period following World War 2. As baby boomers retire, fewer workers are left to contribute toward the benefits of each retiree.²

When the trust is empty, beneficiaries would be subjected to benefit cuts of more than 20%. The fund that finances Medicare Part A will run out of reserves in 2028. Afterwards, Medicare will only be able to pay 90 percent of scheduled benefits.³

Congress can fix long term funding issues by cutting benefits, raising taxes or both. Cutting benefits could mean cutting benefits for everyone or increasing the full retirement age. The SSA faced a reserve deficit in 1983. Congress solved the problem then by increasing full retirement age from 65 to 67. They also began collecting income tax on benefits.

An AARP survey found 90% of Democrats, Republicans, and Independents support Social Security. The Center on Budget Policy Priorities says half of seniors get more than 50% of their retirement income from Social Security.⁴

Despite its popularity, Social Security is known as the third rail of politics. Lawmakers fear any solution will upset some block of voters. Congress is going to put off solving this for as long as possible. In the past, Congress has approved payroll tax hikes to preserve Social Security. Which means future retirees can most likely count on more taxes now and fewer benefits later.

Inflation, COLA and Taxes

We are currently experiencing the highest inflation in 40 years. In response, the SSA issued a Cost of Living Allowance (COLA) to help retirees keep up. The COLA was raised 5.9% in 2022. It was the biggest cost-of-living hike in four decades. It can go even higher next year based on inflation.

More money sounds great, at first. But annual COLAs can push a beneficiary over an income threshold into a higher income bracket. This can result in higher Part B premiums. After the 5.9% bump, some people may pay a 20% increase in premiums.⁵

Also, income thresholds do not increase each year. More people can be left paying higher taxes on their benefits. Increased premiums and taxes reduce the net benefit a person receives.

Social Security is turning into the weakest leg of the retirement stool. People should be focusing on retirement funds that they can control and preserve their wealth. Retirees shouldn’t have to find themselves at mercy of the government. A Gold IRA is made to protect your savings from inflation and fickle government policies. Contact us today to learn more.

Notes:
1. https://www.ssa.gov/history/tftable.html
2. https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around.html
3. https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around.html
4. https://www.cnbc.com/select/will-social-security-run-out-heres-what-you-need-to-know/
5. https://smartasset.com/retirement/social-security-medicare

• The Federal Reserve raised interest rates .75 percent to fight inflation
• The Fed will continue raising rates well into next year with the aim of hitting a 2% inflation rate
• The blistering rate hikes could cause recession, sink stock markets and raise unemployment

Interest Rates Increased by 75 Basis Points for Third Straight Month

Federal Reserve raised interest rates three quarters of a percentage point to fight inflation. This is the third massive interest rate hike in a row. The goal of this rapid escalation is to ease inflation by slowing the economy.

Inflation is at its highest levels since the 1980s. To the shock of the Fed, inflation rose in August. The increase occurred even after two record setting rate hikes. After this rate increase, the rate is now in the 3% – 3.25% range. That is the highest it has been since 2008.¹

The Fed indicated they will keep hiking rates to well above the current level. They signaled rates could be raised to 4.6% in 2023. Which means another potential three-quarters point hike in November. Fed Board members don’t expect to cut rates until at least 2024.²

This is the most aggressive tightening cycle as of 1990. Fed Chairman Powell surrendered any hope that inflation was transitory when rates were raised back in March. And after his remarks in Jackson Hole, he has virtually given up on achieving a ‘soft landing’. Instead, he warned of pain coming to households and businesses.

Members of the Federal Reserve Board hope inflation drops down to 5.4% by the end of this year. But when food and energy prices are removed from their calculations, inflation is expected to drop only .1% this year. They don’t plan on reaching their 2% inflation goal until 2025.³

Effects of Rate Increases

Rate increases make home loans, credit cards and car financing more expensive. Some credit card issuers have hiked up their rates to 20%. Mortgage rates have nearly doubled from one year ago to 6%. Existing home sales plunged in August. That’s the seventh straight monthly drop. Prospective buyers are failing to qualify for mortgages as rates tick up.⁴

The Fed says they feel comfortable raising rates because of the current low unemployment numbers. They point to an hourly pay increase of 5.2% from last year. What they don’t emphasize is that inflation more than wipes out any wage gains.⁵ Unemployment is expected to rise to 4.4% by next year from its current 3.7%. Unemployment jumps that large usually go hand in hand with a recession.

The Fed predicts GDP growth slowing to .2% in 2022. That’s down 1.5% from their last estimate in June. Their prediction follows two consecutive quarters of negative growth. In other words, we’re in a technical recession and expect it to continue into next year.

Market experts fear the Fed will slow the economy more than investors expect. Some traders are pricing in the idea that the Fed will give up when they get close enough to their inflation target. That they won’t force a recession to stop inflation. Chairman Powell wants to drive home that there will be no pivot.

“The Fed almost always over-tightens because it uses lagging indicators,” said Tom Porcelli, chief U.S economist with RBC Capital Markets, “It has to wait for everything to be out in the open.”⁶

The stock market is going to be battered if another 75-basis point hike is issued at the next Fed meeting. The rate increase will create a drastic slowdown in profits and the economy.

The Chief Investment Officer with Citi Global Wealth said, “People haven’t considered the amount of earnings declines and the impact on the markets. There’s a real risk to the economy. It’s why we’re worried about corporate earnings next year.”⁷

The Federal Reserve has proven that they are committed to stopping inflation at any cost. By continuing this path with wavering, the Fed could cause markets to collapse, unemployment to jump and a severe recession to take hold. The effects on retirement funds could be devastating. There is a way to protect your savings. Ask us about a Gold IRA today to learn more.

Notes:
1. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
2. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
3. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
4. https://www.foxbusiness.com/economy/fed-meeting-interest-rate-hike-jerome-powell
5. https://www.cnbc.com/2022/09/21/fed-rate-hike-september-2022-.html
6. https://www.cnn.com/business/live-news/stocks-markets-today-fed-rate-hike/index.html
7. https://www.cnn.com/business/live-news/stocks-markets-today-fed-rate-hike/index.html

• Stocks plummeted more than 1,000 points on news of rising inflation
• The real estate market could collapse as the Fed must drive housing prices down to tame inflation
• Analysts are saying this bond bear market is the worst year in history due to inflation

Stocks in Disarray

Current events are rewriting the investment rule book. Traditionally, a well-balanced and diversified investment portfolio is like a three-legged stool. One leg represents stocks, the second one bonds, and the third leg is real estate. With inflation stuck at a 40 year high, the stool is falling apart.

Stocks had their worst day in more than two years on Tuesday. The market plummeted after the Consumer Price Index data showed that inflation increased in August. All three leading indexes suffered a drop. The Dow fell 1,276 points. The S&P 500 declined 177 points and the Nasdaq slid 632 points. For the year, the Dow is down 14.4%. The S&P 500 has lost 17.49%. And the Nasdaq plunged 25.64% into bear territory. ¹

The stubborn inflation numbers made investors sell everything. The 11 sectors of the S&P and all 30 of the Dow Jones equities experienced declines. Traders fear the Fed will be forced to continue raising interest rates to bring inflation down. High interest rates will devalue stocks by damaging corporate profits. There is also a high chance that raising rates will cause a recession.

There is now talk of the Fed issuing an unprecedented 100 bps rate hike. The Fed’s own website says that they must raise interest rates above the core rate of inflation. That means the market is vastly underestimating how high rates will go. Powell has repeatedly confirmed his 2% inflation target. Recession or not, any chance of the Fed pivoting away from their aggressive plan is wishful thinking.

Savita Subramanian is the Bank of America’s Securities head. She says the S&P 500 is the “worst thing to own” in this current high inflation environment. That is, unless you are willing and able to wait 10 years. “If you’re thinking about what’s going to happen between now and let’s say the next 12 months, I don’t think the bottom is in,” she continued. ²

Real Estate and Bond Markets in Trouble

The other two investment legs, real estate and bonds, are looking wobbly as well.

Analysts worry the Fed could crash the housing market. Interest rate hikes can lead to higher mortgage rates. Which could give potential home buyers second thoughts. Housing costs are largely responsible for August’s high inflation numbers. Thus, the Fed is going to focus on forcing housing prices down.

Home sales are already slipping. Sales declined in July for the sixth month in a row. Housing starts are a measure of new home construction. They also plunged in July.

The safety of bonds is evaporating too. Analysts are saying this bond bear market is the worst year in history due to inflation. The Bloomberg Global Aggregate Bond Index down more than 20% from its peak for the first time ever. And it is only set to get worse. ³

The Fed is accelerating their ‘quantitative tightening’(QT). In other words, they are speeding up the process of unloading their balance of almost $9 trillion of Treasuries. They bought the assets to help shore up the economy during the pandemic. Now, QT is threatening the already fragile bond market. The government bond market is considered the bedrock of the global financial system. QT is removing the liquidity from it.

Bank of America has described the Treasury market strains as “arguably . . . one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.”⁴

These uncertain times are throwing out the traditional investment rule book. Stocks, bonds and real estate are all stumbling. However, gold remains a sturdy safe haven investment. Robert Kiyosaki is the best-selling author of the ‘Rich Dad, Poor Dad’ series. Kiyosaki says to protect your portfolios with “hard assets” like gold and silver as the “biggest crash in history” unfolds.⁵ To learn more how a Gold IRA can preserve your wealth, contact us today.

Notes:
1. https://www.financialexpress.com/investing-abroad/featured-stories/us-stocks-suffer-their-worst-day-in-more-than-two-years/2667050/
2. https://markets.businessinsider.com/news/stocks/warren-buffett-investing-advice-sp500-worst-thing-to-own-bofa-2022-9
3. https://www.reuters.com/markets/europe/bond-bear-market-worst-year-history-asset-inflation-bites-2022-09-02/
4. https://www.ft.com/content/70e43592-30d0-4348-916b-673910ad7726
5. https://www.kitco.com/news/2022-09-14/The-biggest-crash-in-history-is-here-protect-your-portfolio-with-gold-silver-and-livestock-Robert-Kiyosaki.html

• The Federal Reserve needs unemployment to increase to bring inflation down
• The Fed is massively underestimating how high the unemployment rate needs to go
• With a ‘soft landing’ unlikely, working Americans will pay the price for the Fed’s mistakes

The Fed Likes Unemployment

People going to work is good thing. Unless you are the Federal Reserve. They were happy to see unemployment increase slightly in August. Especially after it had gone down in July and job openings increased to 11.2 million. The Fed is counting on massive job losses to reduce the soaring inflation now hammering the economy. The idea being that increasing unemployment will decrease consumer spending. By removing money from the economy, inflation should go down. Fed Chair Jerome Powell euphemistically called sacrificing other people’s livelihood “softening the labor markets”.¹

The Fed’s plan to reduce inflation is a double punch to working Americans. Not only are they at risk of losing their jobs. Skyrocketing interest rates are making it harder to get a mortgage, buy a car, and manage debts. Meanwhile, the August jobs report showed hourly wages increased. This fuels the Fed’s decision to keep raising interest rates. The irony is that those wage increases are basically wiped out by inflation. The Fed is hurting the people that the government’s inflation-causing spending spree was meant to help.

For decades, economists have thought about inflation as an outgrowth of the unemployment rate. They will tell you that when the unemployment rate falls, the inflation rate rises. That’s because workers have the power to bargain for higher wages. These costs then get passed on to consumers. When the unemployment rate rises, inflation should drop. Workers have less leverage in a weak labor market. Ideally, there is a balance point where the rate of unemployment doesn’t increase or decrease inflation. The problem is, no one knows that point until after you’ve passed it.

Powell keeps emphasizes his goal of a ‘soft landing’. He believes inflation can be stopped without going into a recession or causing staggering unemployment. Yet, he has committed to doing whatever it takes to bring inflation under control. History is not on his side. “We’ve had 13 or 14 recessions since World War II, and more than two-thirds of those recessions were caused by the Fed raising the interest rate faster than the economy can handle,” said University of Chicago economist Austan Goolsbee. ²

The Fed Underestimates How High Unemployment Must Go

Larry Summers is a former Treasury Secretary. He is pushing back against Powell’s unfounded optimism. He said we need five years of unemployment above 5% to bring inflation under control. That translates to throwing more than 10 million people out of work. ³

The goal of a soft-landing clashes with a historical fact. Once the unemployment rate increases beyond a certain amount, it tends to keep rising. Since the 1940s, modest increases of half a percentage point spiral to jumps of 2% or more within a year. “Usually, once the labor market gets going downhill, it picks up speed and it goes further downhill,” said Claudia Sahm, a former Fed economist.⁴

“We don’t seek to put people out of work,” Powell said. “But we also think that you really cannot have the kind of labor market we want without price stability.” If the Fed doesn’t waiver from its 2% inflation goal, unemployment may hit 10%. Powell’s soft landing will be small consolation for millions of people. As former Fed Vice Chairman Alan Blinder said, “To the people that lose their jobs, this is not soft at all.” ⁵

Job insecurity is growing every day. It is important to make sure your assets are protected from inflation and recession. Contact us about our Gold IRA to learn how it can provide financial security during this economic downturn.

Notes:
1. https://thenewamerican.com/the-federal-reserve-wants-you-fired/
2. https://www.npr.org/2022/07/24/1112770581/inflation-recession-soft-landing-rates-jobs-fed
3. https://slate.com/business/2022/07/larry-summers-massive-unemployment-fed-inflation.html
4. https://www.reuters.com/markets/us/feds-job-friendly-soft-landing-hinges-history-not-repeating-2022-09-02/
5. https://www.npr.org/2022/07/24/1112770581/inflation-recession-soft-landing-rates-jobs-fed

• Analysts say lingering inflation and recession will send gold prices to record levels by the end of the decade
• Numerous global economic forces are sending investors looking for safe haven assets like gold
• In the near term, gold is forecast to break $2,000 an ounce

Gold Demand Will Send Prices to New Highs

Gold hit record highs this year. And according to recent reports, those records are set to be broken. Analysts say gold is on track to end the year above $2,000 an ounce. It could rise to nearly $5,000 an ounce by the end of the decade according to the “In Gold We Trust Report” from Incrementum AG. The nearly 400-page “In Gold We Trust report” is world-renowned. It has been dubbed the “gold standard of all gold studies” by the Wall Street Journal. ¹

Inflation has already caused stocks to lose value. The Nasdaq has lost 25% of its value this year. The report presents the case that inflation and recession will power a gold bull market. Gold will be sought as a hedge against the losses caused by the two forces.

The report lays out the numerous challenges driving investors to the safe haven of gold. The report predicts inflation and recession will combine to create a period of extended stagflation. It said the ‘Everything Bubble’ will turn into the ‘Everything Crash’. Supply chain snags will continue to drive up prices. And the push for deglobalization will also fuel inflation.

Meanwhile, the Ukraine war will keep up pressure on oil and food prices. Rising interest rates and a collapsing housing market will grind economic growth to a halt. And a price-wage spiral, a cycle where an increase in one causes an increase in the other, has already begun.

Sanctions also powered the demand for gold. As countries fight and currencies are politicized, gold remains politically neutral, has no counterparty risk and is very liquid. Central banks are acquiring gold at a breakneck pace.

Overall, the bleak economic picture creates a good backdrop for gold. The diversification between stocks and bonds of traditional portfolios won’t be enough to stem losses. They will need gold as a hedge. Gold rises during both inflation and recession. In the last 90 years, there have been only four years when both US stocks and bonds posted negative annual performance. Currently, all indications are that 2022 could be the fifth year.²

Predicted Gold Prices

The “In Gold We Trust” report forecasts gold will hit $4,800 by 2030. Pierre Lassonde is an eminent mining expert and CEO of Firelight investments. His gold price predictions are even higher. Due to unstoppable inflation, he predicts gold will hit $2,200-$2,400 an ounce in the mid-term. In the long term, gold could go as high as $10,000 an ounce. He based this estimate on the Dow to Gold ratio. The Dow to Gold ratio indicates the number of ounces of gold it takes to buy the shares in the Dow Jones Industrial Average index. He said the Dow to Gold ratio could converge to 2:1. If the Dow Jones contracts 20-30%, which is possible in an extended recession, that would send gold to $10,000 an ounce. ³

Based on these forecasts, buying gold today could be a wealth generating investment. However, the demand for gold is ultimately derived from its safe haven qualities. If you are looking to preserve your wealth, then you should learn more about our Gold IRA. Contact us today.

Notes:
1. https://ingoldwetrust.report//wp-content/uploads/2022/05/In-Gold-We-Trust-report-2022-Compact-Version-english.pdf
2. https://ingoldwetrust.report//wp-content/uploads/2022/05/In-Gold-We-Trust-report-2022-Compact-Version-english.pdf
3. https://www.kitco.com/news/2022-02-28/Pierre-Lassonde-predicts-200-oil-price-and-2-400-gold-price-in-a-month-as-Putin-s-war-drags-out.html

• Inflation and sanctions are speeding up the process of “dedollarization” around the world
• Russia and China are taking steps to eliminate the supremacy of the US Dollar
• Central banks and investors are moving towards gold and away from the Dollar

Dedollarization Speeds Up

The US dollar hit record highs last month. The greenback’s gains have been fueled by a combination of higher central bank interest rates, haven buying, and recession concerns. But this may be the dollar’s last gasp. Dollar supremacy could be coming to an end. Changing global conditions are speeding up the process known as “dedollarization”.

Dedollarization is the process of other countries moving away from using American dollars. The American dollar became the supreme currency after World War 2. It became the basis for rebuilding the global economy. In the process, the dollar cemented the United States’ superpower role.

But the state of the world has changed dramatically since World War 2. Countries are rejecting the primacy of the American dollar. And this does not bode well for the American economy.

Russia and China started real dedollarization after 2014. Russia had annexed Crimea and was sanctioned by the West. Russia turned to China. They started trading in the yuan to sidestep the sanctions. China was then pushed closer to Russia after the US imposed billions in tariffs on Chinese goods.

The US turned their currency into a weapon and wound up cutting themselves. China and Russia have since cut their use of the dollar for trade in half. Before 2015, 90% of trade was in dollars. Now, it is at 46%. They moved from the dollar to using their own currencies – rubles and yuan.¹

Sanction’s Unintended Consequences

Sanctions made Russia’s access to their foreign reserves of US dollar inaccessible. So, they accumulated Chinese yuan as a reserve currency instead. They now own one quarter of the world’s yuan reserves. Russia has also allowed the purchase of Chinese bonds. In addition, Russia is making bilateral deals around the world that are based in rubles instead of dollars.

Jeffery Frankel is an economist at Harvard University. He warned that while the dollar’s position is secure for now, spiraling debts and an overly aggressive sanctions policy could erode its supremacy in the long run.

“Sanctions are a very powerful instrument for the United States, but like any tool, you run the risk that others will start looking for alternatives if you overdo them,” he said. “I think it would be foolish to assume that it’s written in stone that the dollar will forever be unchallenged as the number one international currency.”²

China Asserts Its Currency

The Chinese government is strategizing how to avoid the sanctions that hit Russia. They are thinking about dumping their US dollar reserves preemptively. China has world’s largest US dollar reserves at $3.2 trillion. If they drop their dollars, it’s the beginning of end of the dollar as the world’s reserve currency.

And it’s not just China and Russia that are getting rid of their US dollar reserves. The IMF said central banks today are not holding the greenback as reserves in the same quantities as yesteryear. “The dollar’s share of global foreign-exchange reserves fell below 59 percent in the final quarter of last year, extending a two-decade decline.”³

China is also shedding the amount of US debt they buy. The US props up its currency by issuing government debt to other nations to finance its deficit. China rescued the US during the 2008 global financial crisis by purchasing enormous quantities of US Treasury bills. As of last month, China had cut the amount of debt they owned in half. If China stops buying debt, the United States government might not be able to continue functioning. The value of the dollar would plummet, and taxes would soar.

Most alarming is the potential move away from the petrodollar. The US dollar is powerful because, in part, it is the de facto currency for oil sales. That got shaken when China and Saudi Arabia started talking about using the yuan to buy oil. China is the biggest buyer of Saudi oil. Doing so would undermine the power the petrodollar gives the United States.

What’s does this all hold for the future of the US economy? Dedollarization would show a loss of confidence in the US currency as a safe haven. The value of the dollar could drop drastically. Americans could expect inflation, recession, and wild stock volatility. Retirement funds could be wiped out. The US will lose its status as the sole superpower.

As the dollar drops, investors will seek safety in alternative assets, such as gold and other currencies. A survey published in June by the World Gold Council found that 80 percent of the central banks expect to expand their gold reserves within the next year. The survey said central banks are now less confident in the role of the US dollar as a global reserve currency.⁴

If you want to protect your wealth like the central banks, then you should consider the Gold IRA from American Hartford Gold. It is designed to shield your retirement funds from the effects of dedollarization. Contact us today to learn more at 800-462-0071

Notes:
1. https://asia.nikkei.com/Politics/International-relations/China-and-Russia-ditch-dollar-in-move-toward-financial-alliance
2. https://asia.nikkei.com/Politics/International-relations/China-and-Russia-ditch-dollar-in-move-toward-financial-alliance
3. https://internationalbanker.com/finance/we-are-witnessing-a-global-de-dollarisation-spree/
4. https://internationalbanker.com/finance/we-are-witnessing-a-global-de-dollarisation-spree/