• The recently passed Inflation Reduction Act drastically increases the number of IRS employees
• Despite promises to the contrary, new IRS audits will most likely target middle- and low-income Americans
• A Gold IRA can help shield savings from a newly empowered IRS

The Inflation Reduction Funds the IRS

Joe Biden just signed the poorly named Inflation Reduction Act into law. Many economists agree that the law will do little to reduce inflation. What it will do is give $80 billion to the IRS to hire 87,000 new employees. As a result, Americans should prepare for an onslaught of new tax audits.¹

Democratic leadership says middle-income Americans have nothing to fear. They say audits won’t increase in regularity for anyone making less than $400,000 a year. Yet, the same Democrats torpedoed an attempt to codify such language into the bill. There is nothing to stop the IRS from targeting average Americans. Nothing except the promises of politicians desperate to win their midterm elections. Treasury Secretary Janet Yellen was asked about the bill’s impact. She did not dispute that more middle-class and low-income earners might face audits.

Statistically, the IRS most often targets disadvantaged individuals and communities. Low-income individuals have less ability to contest audits. They do not have the armies of attorneys available to the super wealthy.

IRS Audits Will Continue to Focus on Low- and Middle-Income Americans

The Government Accountability Office studied the IRS. They said, “From fiscal years 2010 to 2021, the majority of the additional taxes IRS recommended from audits came from taxpayers with incomes below $200,000. Audits of the lowest-income taxpayers resulted in higher amounts of recommended additional tax per audit hour compared to all income groups except for the highest-income taxpayers.”²

The Joint Committee on Taxation expects the taxes on households earning between $50,000 and $75,000 to increase. But households earning more than $1 million might actually get a tax break. They also said up to 90 percent of the money raised from underreported income will come from Americans earning less than $200,000. The Congressional Budget Office studied the Act. They said $20 billion of the Act’s promised revenue will come from audits of taxpayers making less than $400,000.³

A House GOP analysis studied the Act using historic audit rates. It found Americans with an annual income of less than $75,000 would be subject to more than 700,000 new IRS audits. By comparison, individuals making more than $500,000 will receive about 95,000 new audits.⁴

The Inflation Reduction Act doesn’t fix any of the structural problems with the IRS. It gives them more resources to enforce the convoluted loophole-filled tax laws. Laws that the wealthy know how to dodge. Most middle- and low-income Americans don’t have high priced attorneys to defend them. They soon find liens placed on their property, bank accounts frozen and wages garnished. Punitive actions that occur long before someone has a chance to defend themselves in court. Right or wrong, it is easier to pay them off.

National Taxpayers Union EVP Brandon Arnold said, “A lot of taxpayers don’t want to fight the IRS. They don’t have the time, they don’t have the money to fight the IRS. So they’ll roll over and pay those relatively small amounts, and that’ll squeeze a lot of money out of taxpayers just by harassment.”⁵

The Inflationary Reduction Act isn’t about making billionaires pay their ‘fair share’. The IRS isn’t here to make sure you get a refund or a tax break. Instead, a bulked-up group of new IRS enforcers will audit regular Americans to justify their $80 billion government gift. You can protect your income from aggressive government overreach. A Gold IRA offers the wealth-building power of tax-deferment. It also provides the wealth protection features of physical gold. Once established, taxes on gains are deferred until your metals are withdrawn from the account or sold. Contact us to learn more today.

Notes:

1. https://thenevadaindependent.com/article/yes-progressives-also-should-be-worried-about-87000-new-irs-agents
2. https://www.gao.gov/products/gao-22-104960#:~:text=In%20recent%20years%2C%20IRS%20audited,incomes%20of%20%24200%2C000%20or%20more.
3. https://thenevadaindependent.com/article/yes-progressives-also-should-be-worried-about-87000-new-irs-agents
4. https://nypost.com/2022/08/16/ex-irs-whistleblower-says-middle-class-targeted-under-inflation-bill/
5. https://www.foxbusiness.com/politics/highly-suspicious-democrats-bill-beefed-up-irs-means-more-audits-taxpayers-union-exec-warns

• Gold prices ticked up after the recent inflation report and on a softening dollar
• Overseas demand is increasing with China leading the way
• Potentially smaller interest rate hikes and continued inflation make an ideal buying opportunity

Gold Demand Increasing

Demand for gold is going up around the globe. China is the world’s largest gold consumer. The World Gold Council said Chinese demand for the precious metal is booming. It increased as the price of gold fell and strict covid restrictions were lifted. Also, Chinese investors sought safe haven assets as their local stock market fell. In a traditionally quiet season, the Shanghai Gold Exchange had its strongest July since 2015. Gold imports were at their highest in five months to help meet the demand.

In the US, gold rallied as well. Gold prices had gained on Tuesday due to a weaker dollar. A weaker dollar makes gold less expensive for overseas buyers. Gold prices have gained for three consecutive weeks and are working on a fourth.

US Mint data show that gold coin sales are trending up. Annualizing current sales suggest that 2022 sales could surpass full year 2021. Sales would go up from 1.6 million ounces in 2021 to 1.9 million ounces in 2022. This would represent the strongest year of sales since 1999. ¹

Gold, Inflation, and Interest Rates

Gold ticked up after the July inflation data was released. Inflation appears to have cooled a small amount. It came in at 8.5%. Down, but still hovering near its highest rate in four decades. Markets had expected it to come in at 8.7%. This follows last month’s record shattering 9.1% inflation rate. ²

Gold jumped to a fresh daily high of $1,824 an ounce in reaction to the inflation data. “For gold, the slowdown in inflation could trigger substantial buying,” said analysts at TD Securities. Investors consider the precious metal an inflation hedge. Gold benefits when inflation is running high, and rates are flat. Investors move to gold as the purchasing power of currency shrinks. But higher interest rates make the non-yielding bullion less attractive. ³

Investors are getting bullish on the hope that a lower inflation rate may cause the Fed to slow down or stop their aggressive interest rate hikes. The Fed is trying to bring soaring prices under control by raising interest rates to tamp down demand.

However, the Fed is having a tough time figuring out how to react to recent data. Last week’s better-than-expected labor market report challenged their plans. The report showed employers added 528,000 jobs last month.

“If those numbers are to be believed, we generated over a half-million new paychecks in the month of July, which is a lot of extra income,” said an analyst at KPMG. “Even if individuals feel like they’re losing ground relative to inflation, that extra income is supporting demand, keeping upward pressure on prices.” ⁴

Investor excitement should be tempered by reality. The small drop in inflation is mostly due to falling gasoline prices. Core inflation paints a different economic picture. It takes out volatile food and energy costs. That rate remained virtually unchanged since last month. Regular Americans are still feeling the bite of inflation. Prices are rising faster than wages. Workers’ purchasing power is being chipped away. Average wages in July were up only 5.2% from a year ago — well short of the inflation rate.⁵

Thus, rate hikes are still coming. Only now, there is a slight chance they won’t be as epic as the last two increases. As a result, gold is in a perfect position. Prices look set to rise as higher interest rate headwinds die down. But the need for inflation protection remains. Contact us about a Gold IRA today to take advantage of this opportune moment.

Notes:
1. https://www.gold.org/goldhub/research/gold-market-commentary-july-2022
2. https://www.kitco.com/news/2022-08-10/Gold-price-jumps-as-U-S-inflation-cools-a-bit-but-key-core-metric-remains-unchanged-in-July.html
3. https://www.kitco.com/news/2022-08-10/Gold-price-jumps-as-U-S-inflation-cools-a-bit-but-key-core-metric-remains-unchanged-in-July.html
4. https://www.npr.org/2022/08/10/1116481885/gas-prices-inflation-interest-rates-federal-reserve
5. https://www.npr.org/2022/08/10/1116481885/gas-prices-inflation-interest-rates-federal-reserve

• The 60/40 portfolio strategy was a widely accepted investment plan to build wealth
• Inflation, high interest rates and recession are undoing the principles behind the 60/40 plan
• Advisors say a 60/40 portfolio should be rebalanced with real assets to protect wealth

The 60/40 Portfolio Strategy Works

What is the 60/40 portfolio? It is an investment strategy that splits a portfolio between S&P 500 Index stocks (60%) and investment grade bonds (40%). ‘Balanced’ portfolios blend the higher risk of stocks with the relative safety of government bonds. They are accepted as a robust method of building wealth. The combination was tough to beat for a long time. Investors using the 60/40 mix got better returns than more complex strategies from 2009 to 2021.

Until It Doesn’t

Then 2022 came. The tried and tested 60/40 formula for buy and hold investment portfolios got off to its worst start since WWII. They fell about 20% in the first half of 2022. That is the biggest decline on record for the start of a year. Some investors think it’s time to forget about this ‘set it and forget it’ model of investing.¹

All assets began 2022 in a precarious position. Stock and bond valuations were hovering around their highest levels in a century. They were being pumped up by super low interest rates and below-average inflation.

Due to a combination of factors, inflation soared to a 40 year high. Consumer prices and wages spiraled upwards. The Federal Reserve scrambled to undo the effects of their easy money give away. They raised interest rates at a blistering pace. Fears of recession now rattle investors alongside worries about runaway inflation.

Inflation, surging interest rates and recession all drove down the value of 60/40 assets. Stocks fell sharply. The S&P 500 Index is down 21%. Bonds are breaking records in the worst way possible. The Bloomberg US Aggregate bond index is down 11%. And with inflation eroding purchasing power, real returns are even worse. As a result, the 60/40 portfolio is floundering. It was down 17.6% this year through June 22. If it holds, that performance would rank only behind two Depression-era downturns, in 1931 and 1937.²

The idea behind the 60/40 strategy is being defeated. Theoretically, stocks serve as the growth engine of a portfolio. When stocks don’t do well, bonds serve as a counterweight. They are supposed to move in opposite directions. But that hasn’t been the case for 2022. Stocks and bonds have both moving in the same direction – down.

The near-term outlook for the 60/40 is not good. Christian Mueller-Glissmann is the head of asset allocation research strategy at Goldman Sachs. He said, “In an environment where you have both growth risk and inflation risks, like stagflation, 60/40 portfolios are vulnerable and to some extent incomplete. You want to diversify more broadly to asset classes that can do better in that environment.”³

Cash as an asset class isn’t a good option. If you are in cash right now, you’re losing 8.5% a year.
Real assets become more important when inflation is stuck at record highs. Precious metals can protect purchasing power when consumer and commodity prices are skyrocketing.

“A portfolio with a slice of real assets, like gold, performed even better than the 60/40 over the long run. In that case the optimal strategic asset allocation since World War II was closer to one-third equity, one-third bonds and one-third real assets”, Mueller-Glissmann said.⁴

Investors may need to reexamine their 60/40 portfolio plan. They should at least reset their expectations. Positive real returns will be hard to achieve in this climate. Instead, they should focus on protecting their purchasing power. This way they’ll be able to take advantage of future opportunities. Allocating a part of your portfolio to gold is one way to decrease risk. The price of gold is predicted to keep rising. Precious metal is an investment that can protect your wealth. It may also generate positive returns in a market where they are hard to come by. Contact us to learn more about how a Gold IRA can boost a changing portfolio strategy.

Notes:
1. https://www.goldmansachs.com/insights/pages/how-to-overhaul-tried-and-tested-investment-portfolio-when-inflation-soars.html
2. https://www.cnbc.com/2022/06/24/how-inflation-interest-rate-hikes-affect-the-60/40-portfolio-strategy.html#:~:text=Investing%20Club-,Inflation%20and%20rising%20interest%20rates%20have%20stressed%20the%2060%2F40,not%20dead%2C’%20says%20financial%20advisor&text=The%20model%20of%20a%20portfolio,inflation%20and%20rising%20interest%20rates.
3. https://www.goldmansachs.com/insights/pages/how-to-overhaul-tried-and-tested-investment-portfolio-when-inflation-soars.html
4. https://www.goldmansachs.com/insights/pages/how-to-overhaul-tried-and-tested-investment-portfolio-when-inflation-soars.html

• The Federal Reserve raised interest rates by another 0.75 percentage points to fight inflation
• The Fed has not ruled out higher rate hikes at future meetings, increasing uncertainty in the market
• The record pace of rate hikes is taking the US closer to recession and exploding national debt

The Fed Raises Rates – Again

When it comes to interest rates, it seems like the sky is the limit. The Federal Reserve raised interest rates by another 0.75 percentage points on July 27th. This is the fourth increase of the year, making it the fastest pace of tightening since 1981. The Fed had kept the rate pinned close to zero to ease the shock of the pandemic. The levels now match the peak of 2016-2018 tightening cycle.¹

The Fed is quickly raising rates to get inflation under control. Households are feeling the strain of costlier rent, groceries, and gas. The Fed has seen few reassurances that its souped-up rate hikes are working. Inflation in June notched a new peak, climbing to 9.1 percent compared with the year before.²

But wait, there’s more. A New York Federal Reserve survey suggests that price hikes aren’t over yet. The group predicts that prices will have risen approximately 6.8% from their current levels by June 2023.³

The Fed Plays Catch Up

The Federal Reserve waited too long to respond to early signs of inflation. Former Fed Chair Ben Bernanke said, “The forward guidance, overall, slowed the response to the Fed to the inflation problem.” Treasury Secretary Janet Yellen also acknowledged the misdiagnosis coming from her own department, and that of current Fed Chair Jerome Powell. “Both of us could have probably used a better word than ‘transitory,’” she said.⁴

Future of Interest Rates

The Fed is committing to bring inflation down to its target of 2%. It said that failing to get inflation under control and allowing it to become “entrenched” is worse than moving too aggressively.

The central bank is prepared to raise interest rates well into the second half of 2022. Economists are split on whether the Fed will raise rates by another 0.75 percentage points in September or downshift to a half-point increase. Economists think the benchmark rate must go from the current 2.5% to 5% to hit the Fed’s inflation goals.

“While another unusually large increase could be appropriate at our next meeting,” that will depend on the data between now and then, Powell said. Powell will likely avoid sending strong signals. He wants to keep the Fed’s options open for a half- or three-quarters point move in six weeks. Powell said they will make decisions on a “meeting by meeting” basis. This is leaving the markets guessing.⁵

Those guesses are taking different sides. Barclays predicted annual inflation will fall to 5.7% by December. Down from its current highs but still well above the Fed’s 2% target. Goldman Sachs and Barclays both expect the central bank to approve a half-point rate increase in September. They then believe the Fed will move back to more traditional quarter-point moves in November and December. Bloomberg Economics disagrees. They think there’s little chance that the Fed will slow down its rate hikes later this year.⁶

Effects of Interest Rate Hikes

Markets have switched to seeming to fear recession more than persistent inflation. Evidence of a slowing economy is already emerging. Initial jobless claims recently hit an eight-month high. Housing sales have slumped amid higher mortgage rates. Retail sales did increase last month. But they declined after adjusting for inflation.

Fed officials still maintain that a recession can be avoided. Powell said that he did not believe the economy was in recession. He cited a “very strong labor market” as evidence. He acknowledges that the path to avoiding a recession has narrowed. A Bloomberg survey of economists put the probability of a downturn over the next 12 months at 47.5%.⁷

Personal debt increases as interest rates rise. But so does government debt. Higher interest rates will drive US debt payments to record levels according to the Congressional Budget Office. The CBO found that the cost to the federal government to make just the interest payments on money already borrowed will rise to a record 3.3 percent of the nation’s gross domestic product by 2032. Under the CBO’s projections, paying off the nation’s debt will become the most expensive federal program. More costly than even Social Security or Medicare.⁸

The Federal Reserve is dead set on bringing runaway inflation under control. They are prepared to raise rates as high and as fast as they must. The Fed experiences the dangers of recession, depleted retirement funds and unpayable debt as numbers on a chart. But it will be individual Americans who live with the real consequences of their policy. Fortunately, there is a way to protect your retirement funds from the hazards of skyrocketing interest rates. A Gold IRA from American Hartford Gold is a safe haven for your assets. Contact us today to learn more.

Notes:
1. https://www.marketwatch.com/story/fed-hikes-rates-by-0-75-percentage-points-and-signals-more-hikes-coming-11658944875
2. https://www.washingtonpost.com/business/2022/07/27/fed-rate-hike/
3. https://www.cnbc.com/2022/07/27/how-the-federal-reserve-fights-inflation-through-interest-rate-hikes.html
4. https://www.cnbc.com/2022/07/27/how-the-federal-reserve-fights-inflation-through-interest-rate-hikes.html
5. https://www.bloomberg.com/news/articles/2022-07-27/fed-raises-rates-by-75-basis-points-to-double-down-on-inflation
6. https://www.usatoday.com/story/money/2022/07/27/fed-interest-rate-hikes/10150515002/
7. https://www.bloomberg.com/news/articles/2022-07-27/fed-raises-rates-by-75-basis-points-to-double-down-on-inflation
8. https://www.washingtonpost.com/business/2022/07/27/fed-rate-hike/

• Caused by high interest rates, a recession often sees dropping stock prices, collapsing businesses, increasing unemployment, and shrinking retirement funds
• Recession is especially difficult on pre-retirees due to lack of time to make up retirement fund losses
• Investors can prepare for recession by adjusting when they retire, building savings and investing in safe haven assets

Recession and Retirement

Skyrocketing inflation is punishing Americans with drastically higher prices at every turn. It’s also eroding people’s futures by reducing the value of their retirement funds. The Federal Reserve recognizes the dangers of inflation. Bringing it under control is now their top priority. The Fed is prepared to raise interest rates until inflation is tamed. Even if it means pushing the economy into a recession.

Recessions have several negative impacts on the economy. Financial markets drop. There is an increase in foreclosures and personal bankruptcies. There is also a decrease in consumer spending and business investment. Some businesses may be forced to close their doors. Others are forced to lay off employees. Unemployment numbers tend to go up during a recession.

A recession is hard for the economy overall. But it’s especially difficult for those who are about to retire or have recently retired. The five years before and after retirement are often referred to as the “fragile decade.” A recession during this period can have a serious impact on your retirement funds. It is harder to make up portfolio losses once you enter the fragile decade. And if you’ve started to draw on your retirement funds, the withdrawals combined with the market losses could deplete your account faster than you had planned.

Ideally, you should avoid selling off investments during a recession. When you sell an investment that’s lost value, you lock in your losses. The market will someday recover, and your investments will bounce back. However, near-retirees don’t have as much time to ride out the ups and downs of the market. It is more difficult for them to recover from any losses in their retirement plan. This why some people choose to postpone retirement. The hope is that working for a few more years allows you to make up for your losses.

By continuing to work, you can keep contributing to your retirement account. If you stop contributing, you’ll be doing so when prices have dropped. As a result, you won’t see the benefits when the market bounces back. You will also be able to delay your withdrawals.

Delaying retirement has potential benefits. However, it is not always an option. During a recession, companies tend to layoff pre-retirees first. People are forced to retire earlier than planned. A worst-case scenario emerges. Without a job, you stop contributing to your retirement fund. You need to tap into your savings earlier than planned. Plus, you’ll be making these withdrawals when your portfolio itself is taking losses. You are basically depleting your funds with very little chance of ever gaining them back.

Recession Proof Your Retirement

A recession is obviously bad for people in the fragile decade. While economists argue if we are officially in a recession, there are things you can do now to protect yourself.

Advisors recommend saving money and building an emergency fund. You should also pay off high interest debt, like credit cards. Perhaps most importantly, you should diversify your portfolio with recession proof assets.

Gold is an exceptional hedge against recession. Former Federal Reserve Chairman Ben Bernanke said, “The reason people hold gold is as a protection against what we call tail risk, really, really bad outcomes. And to the extent that the last few years have made people more worried about the potential of a major crisis, then they have gold as a protection.” 1

Historic gold prices prove out its value during a recession. After rising 2.6 percent in 2008, the Producer Price Index for gold increased 12.8 percent in 2009 during the Great Recession. From September 2010 to September 2011, gold prices jumped a whopping 50.6 percent, due to the uneven recovery and volatility in the U.S. financial markets. 2

As part of the business cycle, a recession is all but guaranteed. All you can do is prepare for it. Especially if you are nearing retirement or are already retired. Call us about a Gold IRA to learn how precious metals can protect your wealth.

Notes:
1. https://www.bls.gov/opub/btn/volume-2/pdf/gold-prices-during-and-after-the-great-recession.pdf
2. https://www.bls.gov/opub/btn/volume-2/pdf/gold-prices-during-and-after-the-great-recession.pdf

• 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