• The Consumer Price Index increased to a 40-year high of 9.1%
• Though led by energy prices, inflation is making every sector more expensive for Americans
• Recession is more likely as the Federal Reserve is set to raise interest rates more aggressively

Inflation Hits a New 40-year High

Inflation defied expectations, again. The consumer price index increased 9.1% from a year ago in June. It was above the 8.8% Dow Jones estimate. That marked that fastest pace for inflation going back to November 1981.¹

The record high inflation is punishing millions of Americans. The Bureau of Labor Statistics said shoppers are paying higher prices for a variety of goods. Costs swelled for gasoline, groceries, rent and dental care.

Energy prices surged 7.5% from last month. They are up 41.6% from a year ago. Gasoline costs 59.9% more than it did last year. Food and shelter costs were up as well. This was the sixth straight month that food and shelter increased. In addition, rental costs had their largest monthly increase since April 1986. ²

Inflation has largely erased the strong wage gains seen in recent months. Real average hourly earnings decreased 1% in June from the previous month according to the Labor Department. On an annual basis, real earnings dropped 3.6%. ³

The average American worker has lost $3,400 in annual wages under Biden thanks to inflation.
Meanwhile, the average family in which both parents work has lost $6,800 in annual wages. Inflation has basically wiped out the federal stimulus money people received during the pandemic. The same stimulus that most economists hold responsible for inflation in the first place. ⁴

Today’s data seems to counter the idea that inflation may be peaking. What is worrying is that the sources of inflation are increasing. A Navy Federal Credit Union economist stated, “Though CPI’s spike is led by energy and food prices, which are largely global problems, prices continue to mount for domestic goods and services, from shelter to autos to apparel.”⁵

Gas prices have started to drop in recent weeks. However, economists warn that the situation might not significantly improve for some time. People will continue to struggle to afford essentials like housing and groceries. Oxford Economics projects that inflation will still be running at 7 percent by the end of the year.

Chris Zaccarelli, Chief Investment Officer of Independent Advisor Alliance, said, “This morning’s number is staggeringly high. It’s higher than expected and shows that inflation is going quickly in the wrong direction. It really pushes the Fed even further into the corner they’ve been operating in. They need to raise rates quickly and they need to raise rates by large amounts.”⁶

The Fed Forced to Respond More Aggressively

The Federal Reserve seems set to take an even more aggressive position. They have already raised borrowing costs by 1.5 percentage points. The Fed is expected to raise interest rates another .75 percentage points at their next meeting. The last .75 percentage point increase was the biggest hike since 1994. ⁷

However, traders now believe a full percentage point increase is on the table. About 38% of traders are now pricing in the chances of a 100-basis point increase later this month, according to the CME Group’s FedWatch tool. That is up from a 0% chance last week. ⁸

The Fed’s plan is to make it more expensive to borrow money and do things like buy a home or take out a car loan. The goal is to weaken consumer demand, leading to Americans spending less, and, eventually, prices dropping. Economists fear the Fed won’t stick their ‘soft landing’. Instead, they will crash the economy into a recession. Record interest rate hikes without results are eroding the credibility of the Fed.

Stocks fell following the data release. Since the Fed started raising interest rates in March, the S&P 500 stock index is down almost 9 percent. The Dow Jones Industrial Average is down more than 6.5 percent during the same period. It is down almost 16 percent since the beginning of the year.

Debt heavy technology stocks have been hit particularly hard. The Nasdaq stock index is down more than 10 percent since rates started going up. It is down nearly 30 percent since January. ⁹

Policymakers are short on solutions but long on blame. Inflation is rooted in multiple factors. They include clogged supply chains, outsized demand for goods, and trillions of dollars in Covid-related stimulus spending.

White House officials have blamed the uptick in prices on Russia’s invasion of Ukraine. However, inflation was already moving aggressively higher before that attack in February. The administration also blames “greedy corporations” for using the pandemic as an excuse to raise prices. And yet, after-tax corporate profits have increased just 1.3% in aggregate since the second quarter of 2021, when inflation took hold.¹⁰

The causes of inflation aren’t showing any signs of relenting. The Federal government is revealing how powerless it is to bring inflation under control. Investors should take the initiative to protect their wealth while they still can. A Gold IRA from American Hartford Gold can shield your retirement funds from runaway inflation. Contact us today to learn more.

Notes:
1. https://www.cnbc.com/2022/07/13/inflation-rose-9point1percent-in-june-even-more-than-expected-as-price-pressures-intensify.html
2. https://www.cnbc.com/2022/07/13/inflation-rose-9point1percent-in-june-even-more-than-expected-as-price-pressures-intensify.html
3. https://www.cnbc.com/2022/07/13/inflation-rose-9point1percent-in-june-even-more-than-expected-as-price-pressures-intensify.html
4. https://www.foxbusiness.com/politics/average-american-worker-lost-3400-annual-wages-under-biden-inflation
5. https://www.cnbc.com/2022/07/13/inflation-rose-9point1percent-in-june-even-more-than-expected-as-price-pressures-intensify.html
6. https://www.reuters.com/markets/us/view-hot-us-june-cpi-turns-up-pressure-fed-2022-07-13/
7. https://www.foxbusiness.com/economy/inflation-surges-june-hitting-new-40-year-high
8. https://thehill.com/policy/3557459-five-takeaways-from-the-stunning-inflation-numbers/
9. https://thehill.com/policy/3557459-five-takeaways-from-the-stunning-inflation-numbers/
10. https://www.cnbc.com/2022/07/13/inflation-rose-9point1percent-in-june-even-more-than-expected-as-price-pressures-intensify.html

• The first six months of 2022 were dismal for the global economy
• This has been the worst start to a year for stocks in more than 50 years
• The second half of the year promises to be worse with soaring inflation, high interest rates, and recession

A Terrible First Six Months

The good news is that a miserable first half of the year is over. The bad news is that the second half looks like it’s going to be even worse.

A long list of economic crises is battering the economy. Uncertainty is at unprecedented levels. The Ukraine war persists. Covid 19 is wreaking havoc in China. Global supply chains are still snarled. Inflation is at an unrelenting 40 year high. Central banks are tightening monetary policy. Recession fears are growing. As the economy teeters, markets have tanked. The first half of 2022 was historically dismal for global stock markets. Analysts think the future isn’t any brighter.

This has been the worst start to a year for stocks in more than half a century. The NASDAQ has fallen by 30%. The S&P 500 closed out its largest first half decline since 1970. It is down over 20%. Both indexes are in bear territory. The Dow Jones Industrial Average is down over 15%. Bonds have had a terrible 6 months as well. This is a worrying sign since they are so closely tied to economic health. Whipsawing stock prices reflect how nervous investors have become. ¹

The Next Six Months Don’t Look Better

Deutsche Bank economists say it is “plausible” for the stock market to fall 35 to 40 percent from its January peak. This means that the current decline is only about halfway finished. Morgan Stanley also said there could be more downside ahead. According to them, a recession could send the S&P 500 more than 20% lower to 3,000 this year. In addition, Morgan Stanley points to falling bond yields as another indicator of an incoming recession. ²

It all began with a revelation from a Fed meeting on January 5. Data showed that Inflation was rising quickly. It posed a major risk to the economy. Interest rates would have to rise sooner than planned. And just like that, the era of red-hot stock prices fueled by cheap money ended. Aggressive interest rates to curb inflation dramatically altered the economic landscape.

The Federal Reserve’s determination to tame inflation by raising interest rates is a major factor in the current market turmoil. Jerome H. Powell, the Fed chair, said on Wednesday that the central bank’s efforts to fight inflation were “highly likely to involve some pain.”³

HSBC’s global chief strategist says the days of low inflation and low interest rates are behind us. He forecasts a future with persistent high inflation, increased interest rates and more volatile economic cycles. HSBC believes additional new reasons will fuel inflation. Deglobalization, climate policy and a commodity super cycle will push prices up across major economies. The bank believes we might be at peak inflation, but it won’t start declining until the end of the year. They advised that clients “will need to think harder about diversification and portfolio resilience.”⁴

The Schwab Center for Financial Research stated that stocks are going to feel strong downward pressure. The pressure is going to come from the Fed’s tighter monetary policy, reduced liquidity, and slow economic growth. They advise that investors should prepare for more volatility. Companies will be reporting earnings in the next few weeks. Weak earnings and profit margins could prompt yet another market downturn. They emphasize the importance of diversifying with low-risk assets. Gold has traditionally been such a safe haven asset.⁵

The risk of recession is rising. A lot would have to go right for there to be a second half of the year market rally. Inflation would need to be under control. A recession would have to be avoided. The Ukraine war would have to reach a resolution. And company earnings would have to stay afloat. Achieving any one of them is a tall order. All four would be nothing short of miraculous. Barring any miracles, major money managers are advising to hedge against risk with safe haven assets. The Gold IRA from American Hartford Gold is designed to preserve wealth during economic downturns. Contact them today to learn more.

Notes:
1. https://www.npr.org/2022/06/30/1108787657/6-months-stocks-2022-economy-first-half-nasdaq-dow
2. https://www.nytimes.com/2022/06/30/business/stock-market-worst-start-50-years.html
3. https://www.nytimes.com/2022/06/30/business/stock-market-worst-start-50-years.html
4. https://www.cnbc.com/2022/07/05/h2-market-outlook-strategists-on-how-to-weather-the-market-storm.html
5. https://www.schwab.com/learn/story/quarterly-market-outlook

• Stocks, bonds and cryptocurrencies continue to experience epic drops in prices
• Gold has maintained its value in the face of runaway inflation, rising interest rates and the threat of recession
• Analysts and history point to gold prices continuing to rise as global uncertainty increases

Gold Stands Above the Rest

The global economy has been rocked by war, pandemic, inflation, and broken supply chains. As a result, stocks, bonds, and cryptocurrencies have all seen epic downfalls this year. The gleam of gold is the one shining light in the middle of it all. Gold remains solidly secure within its one-year average.

Major indexes have notched big declines in 2022 due to high inflation and rising interest rates. Growing concerns about corporate profits and economic growth have dented investor appetite for risk. The blue-chips are down 18% this year, while the S&P 500 is down 23% and the tech-heavy Nasdaq Composite has fallen 32%.¹

Gold prices are typically lowest in the June to August timeframe. The high for the year was $2,080 per ounce in March. The price rose because of Russia’s invasion of Ukraine. The low for the year was $1,780 in January. Right now, gold is hovering around the $1,800 mark. That price point is where the 52-week moving average lies. Historically speaking then, gold is surpassing expectations. ²

Gold prices were hemmed in a tight range on Tuesday. Prospects of higher interest rates challenged bullion’s safe-haven appeal while recession risks boosted it. Typically, rate hikes dim gold’s appeal by increasing the opportunity cost of holding the asset which pays no interest. “The yellow metal is being pulled in two directions as a hawkish Fed regime clashes with recession fears,” said TD Securities in a note.³

So it can be seen that gold is also doing exactly what it is supposed to: preserve its value and protect capital. Meanwhile, wealth held in securities continues to erode. According to Federal Reserve Bank data, Americans lost half a trillion dollars in wealth in early 2022. ⁴

Gold is holding its own even as the U.S. dollar gains in strength. A rising dollar usually lessens bullion demand from overseas buyers. Gold is actually doing better against other currencies. It is not far off its all-time highs against the pound, the yen and the euro. Analysts predict that as those currency markets are tightened to fight inflation, the dollar will drop. As the dollar drops, the price of gold is expected to go higher.

Gold Forecasts

Goldman Sachs has upgraded their year-end gold target to $2,500 an ounce. In their report, the bank stated that threats of recession would lead to higher gold prices. It also believes that the risk of inflation is likely a strong factor to influence gold prices this year. Goldman has said that inflation expectations may become “unhinged.” Inflation has become far from transitory as the Fed once predicted.

The Goldman report also said that in any scenario where inflation increases rapidly and sustainably, gold will likely outperform other assets. The report stated this is because gold is a physical asset with no liabilities. Its value cannot be eroded by inflation like other assets such as bonds and equities.⁵

War, soaring inflation, a looming recession, and the specter of stagflation are recalling images of the 1970s. While everything looked grim then, gold had one of its best decades. It went from $35 an ounce in 1971 to $850 an ounce in 1980.

The global economy is wracked with challenges. There is out-of-control inflation, geopolitical instability, and escalating de-globalization. Around the world, leadership is losing the faith of the people as their failures mount. All of these conditions are driving investors to gold. The precious metal continues to prove itself as a store of wealth in all the uncertainty. A Gold IRA from American Hartford Gold can deliver the peace of mind that safe haven assets offer. Contact us today to learn more.

Notes:
1. https://www.wsj.com/livecoverage/stock-markets-today-fed-rates-06-16-2022#:~:text=Major%20indexes%20have%20notched%20big,Nasdaq%20Composite%20has%20fallen%2032%25.
2. https://moneyweek.com/investments/commodities/gold/605038/gold-has-been-incredibly-boring-to-own-but-thats-no-bad-thing
3. https://www.cnbc.com/2022/06/28/gold-markets-russia-dollar-treasury-yield.html
4. https://www.cnn.com/2022/06/09/economy/americans-wealth-stock-market-housing/index.html
5. https://www.kitco.com/news/2022-06-29/Goldman-Sachs-raises-its-gold-price-forecast.html

• Major banks and economists now say chances of a recession have significantly increased
• A recession is marked by a decline in employment, income, sales, and GDP
• Jobs, investments, and manufacturing are all put at risk during a recession

Recession Much More Likely According to Major Banks

Goldman Sachs says the risk of the US falling into recession within a year has doubled after the Fed’s aggressive rate hike. They think that the risk has jumped to 30% from 15%. When considering the likelihood of recession over the next two years, that risk jumps to almost 50%.¹

The Fed just raised rates 75-basis-points. The increase was the biggest rate hike in borrowing costs since 1994. The Federal Reserve is responding to inflation hitting a 41-year high of 8.6% in May.²

The stock market is reacting negatively to the rate hikes. Stocks are falling and bond yields are rising. They are now seen as a drag on economic growth.

Nomura, a leading Japanese investment bank, also predicted a recession. It said the slowdown would be shallow but lengthy. That’s because the Fed and government are highly unlikely to step in with any stimulus.

Morgan Stanley sees the chance of recession at 35% over the next year, up from 20% previously. Morgan Stanley said US stocks could crash another 20% as recession risks increase. Meaning the S&P 500 would drop to 3,000. The index has already dropped 20% from its recent high in early January.³

What is a Recession?

The general definition of a recession is two straight quarters of declines in real gross domestic product. The official declaration that we are in a recession comes from the National Bureau of Economic Research, a private organization of economists. NBER usually declares a recession from 6 to 18 months after the recession’s start. They declare a recession based on certain indicators. The indicators include – lower employment, a drop in personal income, a drop in manufacturing, lower retail sales, and a drop in monthly GDP.

What to Expect During a Recession

Recessions are painful. People lose jobs, can’t pay bills and some lose their homes. There is less money for luxuries. People forego vacations or nights out. There is also less money for essentials like food and medical care.

Jobs: During a recession, jobs disappear. Unemployment levels rise. It becomes harder to find a job since more people are out of work. The biggest losses are in manufacturing and related industries. Sectors that rely on discretionary spending, like leisure, hospitality, and retail, will all lose jobs. Financial industries will shrink as well because businesses and individuals borrow less. Those who keep their jobs can expect to not get a raise or bonus. Hours and wages may be reduced. Even worse, if you can’t pay your bills due to job loss, you may face the prospect of losing your home and other property.

Stock: Stocks generally tank during a recession. The stock market begins to fall from its peak months before the actual recession starts. Investors usually move from riskier securities and into safer investments like precious metals. Retirement plans get upset as the value of stock portfolios drop.

Savings: People who still have jobs tend to spend less and save more. But this can create the “paradox of thrift.” One person’s spending is another person’s income. So, if too many people spend less, the result is a negative spiral. Incomes become progressively lower, and unemployment gets higher.⁴

Manufacturing and Services: These areas decline during a recession. As costs rise and demand drops, industries cut back production and services.

Liquidity: Banks are less likely to lend in recessions. They fear they are not going to get repaid.

Deficits: Deficits usually increase. Governments often increase spending to offset the recession’s effects. At the same time, tax receipts falls as corporate and personal incomes decline.

The only upside is that recessions don’t last forever. The NBER tracks the average length of U.S. recessions. According to NBER data, from 1945 to 2009, the average recession lasted 11 months. This is an improvement over earlier eras: From 1854 to 1919, the average recession lasted 21.6 months. Knowing that a recession is likely gives you the opportunity to prepare for it. Contact American Hartford Gold to see how a Gold IRA can secure your nest egg during an economic downturn.⁵

Notes:
1. https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6
2. https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6
3. https://markets.businessinsider.com/news/currencies/us-economy-recession-risk-doubles-gdp-fed-inflation-wages-goldman-2022-6
4. https://www.jhinvestments.com/viewpoints/investing-basics/what-happens-in-a-recession
5. https://www.forbes.com/advisor/investing/what-is-a-recession/

• In reaction to inflation hitting 8.6%, the Federal Reserve raised rates .75 percentage points
• Recession and higher unemployment deemed necessary to bring inflation down
• “Mad Money” Jim Cramer recommends gold to hedge against inflation and recession

Record Breaking Interest Rate Hikes

Record-high inflation is being met by record-high interest rate hikes. After the inflation rate surged to 8.6%, the Federal Reserve raised interest rates by 0.75-percentage points. That is the largest increase since 1994. It had previously indicated that it would raise rates by .50-percentage points as it had done last month. The Fed signaled that it would continue raising rates until inflation is under control. Projections show interest rates hitting at least 3% this year and 3.75% by the end of 2023. This would be the most aggressive rate rise since the 1980s.¹

Regarding the .75 increase, Fed Chairman Jerome Powell said, “I do not expect moves of this size to be common.” However, he immediately followed that statement by saying the Fed could decide between a 50 and 75 basis point increase at its next meeting.²

Analysts believe current rate hikes will lead to a recession. Recession seems to be the only way to break the grip of inflation. Most Federal Reserve officials now project an almost 40% drop in growth from previous projections.

Mr. Powell suggested the chances of a “soft landing” are slim. “What is becoming more clear is that many factors that we don’t control are going to play a very significant role in deciding whether that’s possible or not,” he said. “It is not going to be easy.”³

The effects of interest rates are rippling through the economy. Mortgage lenders are quoting a 30-year fixed rate above 6%. Levels that high haven’t been seen since 2008. Large real estate brokerages are announcing layoffs as home purchases have stalled.

Higher Unemployment Required

Not so long ago, the Federal Reserve was providing stimulus to help the labor market recover from the pandemic. Now, officials are signaling that high unemployment rates may be necessary to stop inflation.

Unemployment is currently near a half-century low of 3.5%. Low unemployment is thought to fuel inflation. In theory, a tighter labor market forces employers to compete for workers by raising wages. Increasing wages raises the cost of production and in turn, prices. They also devalue the dollar. If everyone gets a 20% raise, then prices will rise accordingly. Mr. Powell estimates that the desired “natural” level of unemployment which won’t cause inflation is well above 3.6%.

A Global Problem

Around the globe, central banks are following the Federal Reserve’s lead in raising rates to control inflation. They suggest we are entering a new inflationary era. High inflation will become the rule, not the exception. As a result, people should expect slow housing markets, high unemployment, and depressed stock prices.⁴

Global inflation is being driven by geopolitical concerns. The Fed is in a tight spot. They can’t do anything about the world outside their immediate grasp. They can raise interest rates. They can cause a recession. And high inflation could still become a fact of life for years to come.

Gold Stands Out

Inflation affects every aspect of life. Truthfully, the Fed has limited options and no guarantees of success. That’s why “Mad Money” host Jim Cramer is recommending gold.

“As an investment, gold won’t offer the same returns as stocks, but it can offer some relief from rising inflation, says Jim Cramer. “I believe in gold,” Cramer said. He argues that it is one of three things that “holds its value in a recession.” The other two are fine art and mansions.

Cramer has always recommended owning a bit of gold “as insurance against the unknown,” as he said in 2019. Within his personal portfolio, 5% is typically put aside for gold-related investments.⁵

Buying physical gold is an accessible way to own precious metals. To learn more about how a Gold IRA can protect your assets, contact American Hartford Gold today.

Notes:
1. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170?mod=livecoverage_web
2. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170?mod=livecoverage_web
3. https://www.wsj.com/articles/fed-raises-rates-by-0-75-percentage-point-largest-increase-since-1994-11655316170?mod=livecoverage_web
4. https://www.wsj.com/livecoverage/federal-reserve-meeting-interest-rates-june-2022/card/haunting-the-fed-meeting-a-possible-shift-to-a-higher-inflation-regime-1TU1aIpfR3Nia69QlOts
5. https://www.cnbc.com/2022/06/15/jim-cramer-why-gold-is-a-winner-in-times-of-inflation.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

• World Bank Global Economic Prospects Report forecasts stagnant growth and high inflation
• The Report details the very real risks of a global debt crisis and stagflation
• Treasury Secretary Yellen admits upcoming stagflation but deflects responsibility for inflation

World Bank Report Forecasts Global Economic Downturn

The World Bank Global Economic Prospects Report released its most recent findings. And the globe’s prospects do not look good. According to the World Bank, the effects of the Ukraine War and the Covid-19 pandemic will likely lead to years of slow growth and high inflation.

The World Bank lowered their global economy growth forecast. It went from 5.7% in 2021 to 2.9% in 2022. This forecast is lower than their original one of 4.1%. They expect a steeper decline to occur in 2023 and 2024. Poorer countries will be hit the hardest. Millions in the developing world will be pushed into extreme poverty.¹

Central banks around the world are quickly raising interest rates. They aim to bring inflation under control. This is the most widespread tightening in two decades. In the past four months, monetary authorities announced more than 60 rate increases. More are expected ahead.

As a result, low- and middle-income countries now face a serious debt crisis. Their debt is at multi-decade highs. “The associated rise in global borrowing costs and exchange-rate depreciations may trigger financial crises, as it did in the early 1980s,” the World Bank said.² 

Recession and Stagflation Predicted

The Report said the combined impact of the pandemic and the war would leave global economic output in the five years from 2020 to 2024 more than 20% lower than the growth between 2010 and 2019. World Bank President Malpass said, “For many countries, recession will be hard to avoid.”³

The World Bank also warned of possible global stagflation. Stagflation is stagnant economic growth combined with high inflation. They likened current conditions to the stagflation of the 1970s. The ’70s recovery required steep interest rate increases. These increases caused financial crises in developing economies. They also sparked a global recession and a string of debt crises.

Stagflation will be a rude awakening for most Americans. It has been 50 years since the country experienced it. The two ingredients for stagflation may already be here. During Q1 2022, the U.S. economy contracted 1.5%. And, in April, the Consumer Price Index inflation measure was 8.3%.

Treasury Secretary Addresses Inflation

Treasury Secretary Janet Yellen has even said that we’re already seeing “stagflationary effects”. The United States faces “unacceptable levels of inflation” she said. Yellen added that it was likely to remain high but that she hoped price increases would soon moderate.⁴

Ms. Yellen is part of a wide-ranging publicity effort. Inflation is the dominant midterm election issue. Democrats are at risk of losing their narrow control of Congress. At a Senate Finance Committee hearing, Yellen rejected the Republican theory on inflation. They said that the record inflation was caused by Democratic President Joe Biden’s $1.9 trillion American Rescue Plan last year.

Yellen repeated her views that inflation is being fueled by supply-demand mismatches. She cited excessive demand for goods over services during the pandemic. She also blamed severe supply chain disruptions. High energy and food prices caused by Russia’s invasion of Ukraine have also pushed inflation higher, she said.

The causes of inflation may be up for debate. However, the effects are not. “The world economy is again in danger,” World Bank President David Malpass said. “It is facing high inflation and slow growth at the same time. Even if a global recession is averted, the pain of stagflation could persist for several years.”⁵

The entire planet is experiencing an economic upheaval. Experts agree that things will get worse before they get better. Protect your assets from this global economic downturn. A Gold IRA is one of the best investment vehicles to provide you with an economic safe haven. Contact AHG to learn more. 800-462-0071

Notes:
1. https://www.ft.com/content/6f379a95-21e0-4d25-ba09-c91b1432c584
2. https://www.bloomberg.com/news/articles/2022-06-07/stagflation-danger-sees-world-bank-cut-global-growth-outlook
3. https://www.bloomberg.com/news/articles/2022-06-07/stagflation-danger-sees-world-bank-cut-global-growth-outlook
4. https://www.fastcompany.com/90759068/what-is-stagflation-world-bank-warning-economy
5. https://www.bloomberg.com/news/articles/2022-06-07/stagflation-danger-sees-world-bank-cut-global-growth-outlook

• JP Morgan Chase CEO predicts an economic hurricane to pummel the economy
• The economy faces unprecedented challenges including record inflation, rising interest rates, and the Ukraine War
• JP Morgan is preparing for that turbulence by becoming more conservative with its balance sheet

Dimon Forecasts Economic ‘Hurricane’

JP Morgan CEO Jamie Dimon warned investors to brace for an economic “hurricane.” The economy is struggling against an unprecedented combination of challenges. Those challenges include tightening monetary policy and Russia’s invasion of Ukraine.

Dimon dismissed the recent stock market bounce. “Right now, it’s kind of sunny, things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.” he added. Still, he cited the strength of the consumer, rising wages and plentiful jobs as the “bright clouds” in the economy.¹

Causes for Concern

There are two main factors that have Dimon worried:

The Federal Reserve is under pressure to get runaway inflation under control. Their plan is to shrink the economy by raising interest rates. They will also reverse its emergency bond-buying program and shrink its balance sheet. So-called quantitative tightening, or QT, is scheduled to begin this month. It will ramp up to $95 billion a month in reduced bond holdings. The Fed will be followed by other major central banks in the first ever round of global QT.

“We’ve never had QT like this, so you’re looking at something you could be writing history books on for 50 years,” Dimon said. Several aspects of quantitative easing programs “backfired,” including negative rates, which he called a “huge mistake.” He acknowledges that central banks don’t have a choice. There is simply too much liquidity in the system.²

Stocks have been hammered as investors prepare for the end of the Federal Reserve’s cheap money era. Stock prices are also dropping on fears that the Fed will push the economy into recession as it tries to tame inflation.

Dimon’s concerns for the market deepened since last week. During the response to the 2008 financial crisis, central banks, commercial banks and foreign exchange trading firms were the three major buyers of U.S. Treasury’s. The players won’t have the capacity or desire to soak up as many U.S. bonds this time, he warned. “I’m prepared for, at a minimum, huge volatility, ” Dimon said.

The other large factor worrying Dimon is the Ukraine war. It is roiling commodity markets around the world. The prices of oil, gas and wheat are being severely impacted. Oil could hit $150 or $175 a barrel, he said.³

A top Goldman Sachs Group Inc. executive echoed Jamie Dimon’s pessimistic tone, warning of tougher times ahead amid a string of shocks rattling the global economy.

“This is among — if not the most — complex, dynamic environments I’ve ever seen in my career,” Goldman President John Waldron said Thursday. “The confluence of the number of shocks to the system to me is unprecedented.” He fears that risks from inflation, changing monetary policy and Russia’s invasion of Ukraine could kneecap the global economy.⁴

Dimon said JP Morgan is preparing for that turbulence by being conservative with its balance sheet.⁵

In the face of an impending economic hurricane, safe haven assets are crucial to protecting the value of investments. The Gold IRA from American Hartford Gold is designed to help investors weather financial storms. Contact us today to learn more. 800-462-0071

Notes:
1. https://www.cnbc.com/2022/06/01/jamie-dimon-says-brace-yourself-for-an-economic-hurricane-caused-by-the-fed-and-ukraine-war.html
2. https://www.cnbc.com/2022/06/01/jamie-dimon-says-brace-yourself-for-an-economic-hurricane-caused-by-the-fed-and-ukraine-war.html
3. https://www.cnbc.com/2022/06/01/jamie-dimon-says-brace-yourself-for-an-economic-hurricane-caused-by-the-fed-and-ukraine-war.html
4. https://www.bloomberg.com/news/articles/2022-06-02/goldman-s-waldron-warns-of-unprecedented-shocks-in-echoing-dimon#xj4y7vzkg
5. https://www.bloomberg.com/news/articles/2022-06-01/jamie-dimon-says-bank-is-bracing-itself-for-economic-hurricane?srnd=premium

• Surveys reveal a majority of Americans are worried about their retirement funds
• Soaring inflation, rising interest rates and steep stock market drops are devaluing funds
• Retirees and potential retirees face stark choices to adapt to the changing financial landscape

Americans Are Worried About Their Retirement

For many Americans, runaway inflation is eating away more than just their take home pay. Inflation is threatening their future as it shrinks the value of their retirement funds.

Overall, people are very worried about their financial futures. Voya Financial’s Consumer Research survey found 66% are worried about inflation affecting their ability to save for retirement. That number jumps up to 75% when it comes to Millennials and Gen X. And more than 40% have tapped their retirement funds to cover their bills today.¹

Retirement funds primarily rely on the stock market. 2021 was a banner year for stocks. It gave some people the incentive to retire early. But rampant inflation, rising interest rates and recession fears are causing a sharp reversal. The S&P 500, the benchmark for many index funds, is about 17% from its all-time high in early January. The sinking stock market is fueling retirement fears.

Retirement planning is becoming more challenging as the investment landscape shifts. Bonds are losing their reputation as a safe haven. High inflation has made bonds, and the fixed payments they make, less attractive. One index of high-quality U.S. bonds has lost more than 9% this year. This is because the price of bonds goes down as interest rates go up. And right now, the Federal Reserve is quickly raising interest rates to get record inflation under control.²

Inflation is already punishing people with higher prices on everything from gasoline to food. And the rising rates to fight inflation may very well slam the economy into recession. A vicious progression is happening. Inflation is leading to rising interest rates. They lead to recession. And in turn, recession puts downward pressure on stock prices. Further reducing the value of retirement funds.

Inflation Is Breaking The 4% Rule

Famed financial advisor Bill Bengen first devised the 4% retirement rule in 1994. Since then, retirees have relied on this rule to help determine how much they should spend in retirement. The rule is relatively simple. You add up all of your investments. Then you withdraw 4% of that total during your first year of retirement. In later years, you adjust how much you withdraw to account for inflation.

This approach would have protected retirees from running out of money during every 30-year period since 1926. Even when considering the Great Depression, the tech bubble, and the 2008 financial crisis. However, due to the combination of high inflation and high stock and bond market valuations, Bengen believes his 4% rule is no longer adequate. Retirees will need to cut back on their spending to make their money last.³

What To Do

Historically, the stock market starts delivering positive returns within a year of a crash. But some people can’t wait to make up their losses. Many Americans now expect a significant shortfall in their retirement savings. The leading concern, according to the 2022 Schroders U.S. Retirement Survey, was that inflation would shrink the value of their assets. The second concern is becoming a reality right now- a major market downturn significantly reducing their assets. A great number of people’s portfolios are down 20% or more for the year.⁴

Americans on the cusp of retiring face a choice, stay on course or keep working. Some people are pushing back their retirement date in the hopes of waiting out the market. There are other advantages to waiting. Delaying retirement gives you an opportunity to snag higher Social Security benefits, boost your savings, and stretch your nest egg. And any of those things individually could set the stage for a more financially secure ride during your senior years.

Those who have already retired are picking up part time jobs. In line with the advice of financial planners like Bengen, they are also delaying major purchases or travel plans.

Social security is small comfort. It does have a built-in inflation adjustment, but it doesn’t keep up with real inflation. Pensions, for those few people who still have them, often max out their inflation adjustment at 1.5%.

A new paradigm is emerging as we witness the end of a 40-year bull run. For people facing retirement or recently retired, preserving value in the face of soaring inflation and a highly volatile stock market should be a priority. They should learn about how safe haven assets like precious metals can secure their retirement funds. For more information, contact American Hartford Gold to find out about their Gold IRA.

Notes:
1. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/high-inflation-disrupts-retirement-savings-strategies.aspx
2. https://www.tampabay.com/news/nation-world/2022/05/24/stock-market-slump-unsettling-americans-eying-retirement/
3.https://www.usatoday.com/story/money/personalfinance/retirement/2022/05/20/retirement-4-percent-spending-rule-no-longer-works/50251755/
4. https://www.fa-mag.com/news/a-comfortable-retirement-appears-out-of-reach-for-most-americans-68040.html

• The S&P 500 is poised to become an official bear market
• Stock market selloffs are being driven by inflation, interest rate hikes, and global uncertainty
• The market bottom may not be hit until October, investors seek safe havens

Beginnings of the Bear Market

This summer is quickly beginning to look like bear season. The bull market is almost officially over. Stocks have fallen dramatically in 2022. The Nasdaq, down nearly 25%, is in a bear market. The S&P 500 is on a six-week losing streak and about 16% below its all-time high. Some analysts forecast a stock market downturn where losses exceed those of the 2008 stock market crash.¹

A bear market is, by definition, a 20 percent decline from the most recent market top. Technically, the Standard & Poor’s 500 stock index is in a “correction”. A correction is a decline between 10 percent and 20 percent.²

The S&P 500 entered correction territory last month. That is the second time this year. A tough April for stocks was followed by an even rougher May. Stocks plummeted as investors dumped megacap tech stocks. Netflix shares, for example, have plunged 75 percent. Online payment company PayPal is down 74 percent from its high.³

Investors bailed on formerly highflying favorites in reaction to unchecked inflation. As well as the Fed’s mad scramble to stop it with aggressive rate hikes.

Hopes that the April data would show inflation had peaked were dashed. The annual pace of inflation slowed to 8.3% from 8.5% in March. Moreover, a core CPI reading, which strips out food and energy, showed an unexpected monthly rise.

Based on figures going back to 1929, the average bear market sees a median fall of 33.2%. On average, it has taken 80 trading days for the S&P 500 to hit its low after entering a bear market.⁴

So stocks may need to drop a lot further before the market finally hits bottom. Especially since the Federal Reserve seems intent on raising interest rates more aggressively to fight inflation — no matter what happens to stocks.

“Restoring price stability is an unconditional need. It is something we have to do,” Fed Chair Powell said. “There could be some pain involved,” Powell added. “The Fed will continue to raise rates until they see a clear breaking of the inflation trend.” The sinking market is revealing the true value of stocks after the Fed’s price supports have been pulled out from underneath it.⁵

The big question is how much lower the US S&P 500 might fall. The good news, according to Bank of America strategist Michael Hartnett, is that “bear markets are quicker than bull markets”. Based on data gleaned from the last 19 of them, he reckons the S&P 500 “still has another roughly 25% downturn ahead of it from current levels”. The bottom, he suggests, might be hit in October. Though “a floor does not equal a new bull market for tech stocks.” They are likely to “remain in a bear market for the next two years”.⁶

How to Treat a Bear

Some advisors suggest that if you’re retired, don’t take withdrawals from your stock funds in a bear market unless you have no other choice. You won’t have income to cover your losses. And if your stock fund is down 15 percent and you withdraw 4 percent, your account will be down 19 percent. Withdrawals in a bear market just make things worse.

Instead, many financial planners recommend putting some funds in ultrasafe investments, such as gold. Gold acts as a hedge against the depreciation of stocks in your portfolio. To learn more about how a Gold IRA can protect the value of your funds, contact American Hartford Gold today.

Notes:
1. https://www.cnn.com/2022/05/16/investing/stocks-bear-market-federal-reserve-inflation/index.html
2. https://www.aarp.org/money/investing/info-2022/bear-market-field-guide.html
3. https://www.aarp.org/money/investing/info-2022/bear-market-field-guide.html
4. https://www.marketwatch.com/story/the-s-p-500-is-on-the-brink-of-a-bear-market-heres-the-threshold-11652381057
5. https://www.wsj.com/amp/articles/feds-powell-to-take-wsj-questions-on-inflation-and-economic-outlook-11652779802
6. https://www.theweek.co.uk/business/markets/956728/bear-market-how-long-will-the-carnage-last

• Newly released inflation data suggest inflation could be at a peak
• The stock market experienced massive drops in reaction to the Fed’s inflation numbers
• Trader’s ‘fear gauge’ implies the market hasn’t hit bottom yet, seek safe haven assets

Peak Inflation May Have Been Reached

Just because things aren’t getting worse, doesn’t mean they are getting better. Newly released inflation data suggests the U.S. may have hit peak inflation. The consumer price index accelerated 8.3% in April, more than the 8.1% estimate. It is near the highest level in more than 40 years. However, this is down from 8.5% in March. Some economists are seizing this as a sign that we’ve hit peak inflation.¹

However, core CPI, which excludes food and energy, was higher than expected, rising 6.2%. Shelter costs, which comprise about one-third of the CPI, rose at their fastest pace since 1991. And inflation-adjusted earnings continued to decline for workers. This rise clouds the hopes that inflation has actually peaked. The Bureau of Labor Statistics reported on Wednesday that the continuing climb has pushed consumers to the brink and is threatening the economic expansion.²

The Federal Reserve considers inflation the single biggest threat to the economic recovery from the Covid pandemic. Bringing the record inflation under control has become their singular focus. The Fed last week raised interest rates by 50 basis points. Chair Jerome Powell said two more such hikes were likely at the upcoming policy meetings. There has also been speculation in markets the U.S. central bank will need to move by 75 basis points at one meeting.

Morgan Stanley now forecasts 2022 global economic growth to be less than half of last year’s. These signs of slowdowns might be exactly what the Fed is hoping for. The central bank is looking to slow growth via its interest-rate hikes, just not so much that it causes a severe contraction. Chair Jerome Powell said last week that nothing suggested the economy is close or vulnerable to a recession. However, economists and the market disagree.

Stock Market Responds to the Fed with Wild Volatility

Following the announcement of rate increases, the markets went into free fall as investors sold everything. Traders hit the sell button on virtually every key asset class — including stocks, bonds and bitcoin — ratcheting up the fear factor on Wall Street. The S&P was sent reeling to its weakest levels in a year. U.S. stocks have now seen a string of days with drastic losses.

The VIX, aka ‘Wall Street’s fear gauge’ is still not signaling that the stock-market bottom is near, analysts said Monday. The VIX is referred to as Wall Street’s ‘fear gauge’ because it tends to rise when stocks tumble. According to analysts, the VIX indicates investors fear an even deeper selloff in coming months as the Fed prepares to continue tightening aggressively in its effort to rein in inflation.

Investors are ditching the market and searching out safer terrain. While bonds have historically been a good addition to reduce portfolio risk, today’s inflationary environment is likely to substantially decrease the benefits of bonds. Government paper has relinquished its traditional role as a safe-haven when stocks are in turmoil.

Meanwhile, gold bounced up as the dollar retreated after the inflation data announcement. Gold’s uptick resumed on Wednesday.

There is the possibility that we are at peak inflation. But based on the reaction of the market, the climb down is going to be slow and dangerous. The Fed’s desire to engineer a soft landing for the economy is getting tougher by the day. The truth is that no one knows when inflation will hit a ceiling and when stocks will hit the floor. The smart move now is protecting your assets. To lean how a Gold IRA can secure your funds, contact AHG today.

Notes:
1. https://www.cnbc.com/2022/05/11/cpi-april-2022.html
2. https://www.cnbc.com/2022/05/11/cpi-april-2022.html

• The Federal Reserve raised interest rates by half a point, with the promise of more to come
• The gold market accounted for these hikes and remains strong
• The price of gold is set to reach new heights according to several financial experts

The Fed’s Record Rate Hikes

Today, the Federal Reserve raised its benchmark interest rate by half a percentage point. The 50-basis-point increase is the biggest hike since May 2000. It’s the most aggressive step yet in its battle against the highest inflation in 40 years. Meanwhile, a possible 75-basis-point hike is on the table for June.¹

Along with the raising rates, the central bank indicated it will begin reducing asset holdings on its $9 trillion balance sheet.

Many on Wall Street are concerned that the Fed’s ‘overtightening’ could lead to a recession. They feel the Fed is going too far in one direction after once calling inflation ‘transitory’. Despite the markets being prepared for both moves, there was increased volatility.

Gold Predicted to Overcome the Effects of Increased Rates

Gold, however, seems to be going off script when it comes to rate hikes. Traditionally, gold prices go down when rates go up. The idea being that the demand for an inflation hedge decreases. Also, fewer dollars would be required to buy an ounce of gold, reducing its dollar price. In this world rocked by inflation, war, and pandemic, old beliefs are being challenged as investors are forced to adapt. As the markets turn bearish, gold looks more and more like a bull.

Gold traders have baked an aggressive set of policy moves by the Federal Reserve into their prices. This means gold could rally if the Fed delivers as expected. It could also get support if the Fed responds to the possibility of a recession by slowing down the pace of its future rate hikes.

Gold is now seen as a winning bet in the face of the Fed’s move according to several sources.

Fidelity International believes that the price of gold is being held back. First, by aggressive interest rate increases. And second, by speculation over what Russia might do with its $140 billion worth of gold reserves.

However, Fidelity stated that gold is still an attractive investment. They cited the war in Ukraine, China’s economic slowdown, hot inflation, and the volatile stock market as reasons. The suppressed price can actually be a buying opportunity.

“Gold might have seemed the ideal asset to own, so have would-be gold investors now missed the boat? To the frustration of longer-term gold bulls, the answer is probably not,” Fidelity analysts noted. All the precious metal might need to reach new record highs is time, according to Fidelity International. ²

A recent Reuters poll of 31 analysts and traders echoes this sentiment. It concluded that the median forecast for gold prices came in at $1,920 an ounce for the April-June quarter. Gold prices are expected to hold firm this quarter as investors seek refuge from market volatility.³

Billionaire hedge fund manager Paul Tudor Jones is of a similar opinion. Jones shot to fame after he predicted and profited from the 1987 stock market crash. “You can’t think of a worse environment than where we are right now for financial assets,” Jones said Tuesday. “Clearly you don’t want to own bonds and stocks.” He said investors should prioritize capital preservation in such a challenging environment. One of the best ways to preserve capital is to invest in gold.⁴

Finally, Bloomberg Intelligence believes time is on gold’s side. They think gold will breach $2,000 once markets identify the end of the Federal Reserve rate-hike cycle. Their reasoning is that the rate hikes will contract the stock market. After the drop is great enough, the Fed will ease up on the financial tightening. When that bottom is reached, gold will launch up again. And this is what is likely to happen in 2022, according to the report. When the market predicted that rate raises were over, gold began the rally from about $1,000 an ounce to the high close of $2,063 in August 2020.⁵

The Fed’s clumsy attempts to fine tune the economy keep overcompensating in the wrong direction. First, it pumped in too much cash during pandemic. Now, it is aggressively taking money out. In the face of all this heavy handiness, gold is proving itself to be the stable choice. Now is the time to think long term and learn about a Gold IRA. Contact American Hartford Gold to learn how.

Notes:
1. https://www.cnbc.com/2022/05/04/fed-raises-rates-by-half-a-percentage-point-the-biggest-hike-in-two-decades-to-fight-inflation.html
2. https://www.fidelity.co.uk/markets-insights/investing-ideas/investing-ideas/whats-been-holding-the-gold-price-back/
3. https://money.usnews.com/investing/news/articles/2022-05-03/inflation-and-war-risks-to-buoy-gold-in-short-term-reuters-poll
4. https://www.cnbc.com/2022/05/03/paul-tudor-jones-says-he-cant-think-of-a-worse-financial-environment-for-stocks-or-bonds-right-now.html
5. https://www.bloomberg.com/professional/blog/commodities-appear-at-higher-risk-of-2008-style-pump-and-dump/

• China enforces strict lockdowns to stop Covid-19
• Shuttered Chinese industry will cause shortages and raise inflation
• Snarled Chinese ports will also drive inflation higher

China Shuts Down to Stop Covid-19

The economic crisis caused by the pandemic is returning to where it all began. Beijing is prioritizing control of the pandemic above all, including the fate of the global economy. The Chinese government is taking drastic measures to stop the spread of COVID-19. They have implemented a zero COVID policy. As of April 19, more than half of China’s biggest cities were under some form of lockdown. Two and a half weeks after extending a partial lockdown into a shutdown of the entire city, Shanghai shows few signs of easing its COVID-19 controls.

The economic damage caused by the massive lockdowns is not confined to China itself. Experts say China’s lockdowns will make inflation and the supply chain nightmare even worse.

China accounts for about 12% of global trade and 18% of all U.S. imports. And for computers and electronics, that number rises to 35%. Covid restrictions have idled factories and warehouses, slowed truck deliveries and exacerbated container logjams. U.S. and European ports are already snarled. The $22 trillion trade in global goods is facing months of severe disruption.¹

Covid Lockdown Effects on the Global Economy

Companies are beginning to panic. “The downstream impact is coming, and it’ll be heavy.” John Bree, the chief risk officer at Supply Wisdom, said. “The latest China lockdowns combined with the Russia-Ukraine war is too heavy a burden. The global chaos is going to further exacerbate disruption and take inflation to a new level.”²

Bank of America analysts said that it’s “another adverse supply shock for the global economy.” And that it will weaken growth and extend the period of high inflation.³

A top Huawei executive said, “If Shanghai cannot resume production by May, all of the tech and industrial players who have supply chains in the area will come to a complete halt. Especially the automotive industry. That will pose severe consequences and massive losses for the whole industry. This will result in supply shortages of some consumer goods in the U.S. in the coming months. Notably electronics, home appliances, and clothing will be affected.”⁴

Shipping congestion at Chinese ports also threatens to derail a global recovery already hurt by inflation. Shanghai, home to the world’s largest container port, has remained shuttered since March 28. One in five container ships is now stuck at ports worldwide. 30% of the backlog is coming from China. Problems at ports mean rising costs for companies. And in turn, increasing inflation for U.S. consumers.

Even if strict lockdowns in Shanghai are lifted, U.S. ports will likely be slammed with a wave of pent-up cargo from newly reopened factories in China. That will lead to higher freight rates. It will worsen congestion at ports worldwide. The costs of which, again, get passed onto the consumer. It will likely take at least a year for the logjams to unsnarl and return to normal.

The long-term effect of this chaos could be the end of globalization as we know it. Supply chains are so interconnected and fragile that a single issue in one place will affect consumers around the globe. Bringing supply chains closer to home has now become a business necessity.

There is one positive result from all of this. The price of oil has gone down. The commodity dropped as the market anticipates less demand from a locked down China.

The return of Covid in China seems to be restarting an awful cycle. The global economy is always hanging on the cusp of normalizing, but never getting there. Now is the time to put your money in a safe asset that can weather this storm. Contact AHG about opening a Gold IRA today.

Notes:
1. https://www.bloomberg.com/news/features/2022-04-25/china-s-covid-crisis-threatens-global-supply-chain-chaos-for-summer-2022
2. https://fortune.com/2022/04/23/china-lockdowns-inflation-supply-chain-nightmare-shanghai/
3. https://fortune.com/2022/04/23/china-lockdowns-inflation-supply-chain-nightmare-shanghai/
4. https://time.com/6168543/china-zero-covid-shanghai-lockdown-economy-impact