• The Federal Reserve voted to keep interest rates at a 22-year high
• Fed Chair Powell said to expect more hikes in the future as rates stay higher for longer
• Stocks drop as hopes for rate cuts diminishes

Fed Hits the Pause Button on Rates

As predicted, the Federal Reserve chose not to raise interest rates again after their latest meeting. They voted to keep interest rates at their 22-year high. Since March 2022, the Fed has lifted interest rates 11 times and held them steady twice, including September’s pause.
Even with a temporary break, the rate hikes are still impacting the stock market, gold, and retirement funds.

¹

Fed Policy Statement Changes

The Federal Reserve Policy statement is a periodic announcement by the Federal Reserve that outlines its decisions on key interest rates and provides insights into its current economic assessment and monetary policy intentions. Economists read it like tea leaves, deciphering every word to make predictions. In this latest statement, the pace of economic activity changed from “moderate” to “solid.” This is being interpreted to mean that the job market is still too strong, so more rate hikes can be expected to drive up unemployment.

Future Hikes

Officials forecasted an additional rate hike before the end of the year to bring down inflation. Powell said, “We’re prepared to raise rates further if appropriate.” He kept his comments on future hikes ambiguous. Powell told reporters that future decisions will be based on upcoming economic data. But a looming government shutdown added more uncertainty to the economy. It could limit the Federal Reserve’s ability to get key data and hinder policy making.²

“A resilient US economy and high consumer spending over the next several months will likely prompt the Fed to raise rates again heading into the new year,” said Frank Lietke, executive director and president at Ally Invest Securities.³

Rate Cuts

The Summary of Economic Projections is a consensus of Fed opinions about policy and economic conditions. It showed that most central bank officials now expect fewer rate cuts next year. That is compared to their estimates from last June. Economists anticipate rates to remain elevated for longer. A sharp economic downturn, like a severe recession, would be necessary to prompt more rapid cuts.

They may get that recession. Unemployment is predicted to jump up to 4.5% over the next two years. They did round up their growth projections for 2024. It went from 1.1% in June to 1.5% now. But that growth rate is still lagging behind inflation.

There are numerous negative consequences when growth lags inflation. The purchasing power of individuals and households diminishes. This means that the money people have becomes less valuable over time, making it harder for them to afford the same goods and services they used to. As lingering inflation erodes purchasing power, people may have to allocate more of their income to cover rising costs. This leaves less room for savings and discretionary spending. A lower standard of living, reduced savings, and worse returns on investments are all potential results. The increased uncertainty reduces business investment and hastens deeper recession.

Market Reacts

Both the S&P 500 and the Nasdaq dropped after Federal Reserve Chair Powell said that the central bank did not consider a soft landing a “baseline expectation.” A soft landing is where the US economy avoids a recession but successfully lowers inflation. Powell said avoiding a recession is possible. But he continued that price stability is the Fed’s top priority. Price stability, in the context of the Fed’s mandate, is typically defined as a low and steady rate of inflation. It aims to achieve an inflation rate of around 2 percent over the longer run. Long term high interest rates are seen as bad for business and profitability. Hence, the fall in stock prices.

Gold

The Fed’s announcement could create a good long-term position for gold. Prices for the metal have been holding steady despite recent hikes. An eventual reduction in interest rates coupled with lingering inflation create a positive environment for gold prices. Those seeking safe haven from inflation tend to turn away from lower paying Treasuries and towards gold.

Conclusion

According to the Fed, inflation is far from over. And neither are rate hikes despite a few months reprieve. Americans can expect at least one more before year’s end. Economists foresee interest rates staying higher, longer. No one can say when they will be cut. If high interest rates push us into recession, and inflation remains unresolved, we may find ourselves mired in stagflation. Much to the demise of savings, stocks, and retirement funds. For those who want to protect the value of those funds, a Gold IRA may be the right choice. To learn more contact American Hartford Gold today at 800-462-0071.

Notes:
1. https://cdn.statcdn.com/Infographic/images/normal/21023.jpeg
2. https://www.cnn.com/business/live-news/markets-fed-meeting-september/index.html
3. https://www.cnn.com/business/live-news/markets-fed-meeting-september/index.html

• Inflation rose for the second consecutive month in August
• Stubborn inflation may trigger even higher interest rate hikes from the Fed
• JPMorgan Chase CEO Dimon warns of an impending downturn

Inflation Climb Continues

Pushing consumer prices to alarming new heights, unrelenting inflation continues to be a major concern. It accelerated for a second consecutive month in August. The Consumer Price Index (CPI), which measures the price of everyday goods like gasoline, groceries, and rents, surged in August compared to the previous month. This increase marked the steepest monthly rise this year. On a year-over-year basis, prices climbed by a daunting 3.7%, exceeding the reading in July. The seemingly unsolvable problem of inflation has financial experts growing more concerned about recession.¹

The problem reaches beyond just headline inflation. That rise is largely attributable to a leap in gas prices. Core prices, which exclude the more volatile measurements of food and energy, also rose in August. It came in much higher than expected. Core prices are showing just how intractable inflation is becoming. They remain more than two times higher than pre-pandemic levels.

²

The Fed Response

The Fed has been aggressively raising interest rates to combat inflation. They are on one of the fastest tightening paces in decades. Despite efforts to curb inflation, it remains well above the Federal Reserve’s 2% target. As of now, the Fed is expected to maintain rates at their current 22-year high during their upcoming meeting in September. However, August’s hotter-than-expected inflation report could influence further rate hikes in the fourth quarter. That is much to the dismay of Wall Street, which was hoping for a pause, or even a cut, in rates that could spur the growth of stock prices.

Inflation’s Personal Impact

Benjamin Franklin said small leaks will sink great ships. Governments and corporations can argue about what effect a small percentage change in data will have on the macrolevel. But inflation’s impact on the individual is what truly moves the economy. And that impact is looking grim.

US household income faced a decline in 2022 for the third consecutive year. This decline was primarily attributed to the soaring 7.8% inflation rate. It marks the largest annual increase in the cost of living since 1981. People are running out of savings to keep up with rising prices. Total household debt reached $17.06 trillion in Q2 2023 and credit card debt exceeded $1 trillion.³

The Supplemental Poverty Measure (SPM) considers participation in government programs. It increased from 5.2% in 2021 to 12.4% in 2022. The data highlights the financial struggle faced by many Americans as the cost of living continues to rise.⁴

People shouldn’t expect relief anytime soon. Robert Frick is an economist with Navy Federal Credit Union. He said, “This was bad news for Americans who feel inflation most acutely when filling their tanks and writing their rent checks… And given core inflation rose, it’s clear inflation around current levels may be with us for months.”⁵

A Warning from Wall Street

JPMorgan CEO Jamie Dimon issued a stark warning about the US economy. Dimon said, “We’ve been spending money like drunken sailors around the world…To say the consumer is strong today, meaning you are going to have a booming environment for years, is a huge mistake.” He cited several significant headwinds to the economy. He included stubborn core inflation, continuing war, and high interest rates.⁶

Dimon has previously warned about an impending “economic hurricane.” He now expresses doubts about the concept of a “soft landing.” While some economists anticipate a gentle economic slowdown, Dimon remains skeptical. He raised concerns about the Federal Reserve’s quantitative tightening campaign, increased reliance on fiscal deficits, and the downstream impact of various economic factors. Dimon emphasized that the impact of these changes might not be evident immediately. Businesses should be prepared for potential disruptions in the coming year.

Protecting Your Portfolio from Inflation

In times of rising inflation and economic uncertainty, it’s essential to consider strategies to safeguard your funds. A Gold IRA from American Hartford Gold can provide a valuable hedge against inflation. Precious metals like gold have historically preserved wealth and retained their value when traditional assets falter. By diversifying your portfolio with a Gold IRA, you can mitigate the impact of inflation and economic turbulence, ensuring a more secure financial future. Learn more today by contacting American Hartford Gold at 800-462-0071.

Notes:
1. https://www.foxbusiness.com/economy/cpi-inflation-august-2023
2. https://www.foxbusiness.com/economy/cpi-inflation-august-2023
3. https://www.newyorkfed.org/newsevents/news/research/2023/20230808
4. https://www.foxbusiness.com/economy/us-household-income-fell-2022-census-data-shows
5. https://www.foxbusiness.com/economy/cpi-inflation-august-2023
6. https://www.foxbusiness.com/economy/jamie-dimon-warns-risks-us-economy-weve-been-spending-drunken-sailors

• The national deficit is projected to double from $1 trillion to $2 trillion
• Increased deficits can lead to inflation, high interest rates, and recession
• Safe haven assets like physical gold and silver can protect funds from the effects of soaring deficits

Deficit Doubles

The American economic landscape is approaching a steep cliff that is growing drastically higher. The US federal budget deficit is projected to double this year. The non-partisan Committee for a Responsible Federal Budget (CRFB) estimates it will grow from about $1 trillion to a staggering $2 trillion. The chasm between government spending and revenue collection is widening at an alarming rate, unseen since major crises such as World War II and the 2008 financial meltdown. The soaring budget deficit could have catastrophic consequences for retirement funds and the economy as a whole.¹

²

Deficit Growth Paradox

Traditionally, deficits tend to shrink during periods of economic growth. Increased business activities and higher income levels lead to greater tax revenues. Also, government must spend less on unemployment benefits. However, economists are baffled. The current deficit surge defies conventional economic wisdom. It is occurring during a time of strong economic growth, record-low unemployment rates, and thriving corporate profits.

Deficit Causes:

The deficit explosion follows a record drop in the budget deficit last year. It fell from about $3 trillion to roughly $1 trillion. That drop was due to an uptick in capital gains revenue as Americans sold more stock and recorded large gains. The Treasury department in 2022 also benefitted from a spike in general tax collection. Inflation pushed up the nominal income for millions of households.³

Several factors contribute to the exponential growth of the federal budget deficit in 2023:

High Inflation: Soaring inflation rates are eroding the purchasing power of the dollar. The government must spend more to provide essential services and pay off debt.

Escalating Interest Payments: As the government accumulates more debt, interest payments rise substantially. Funds need to be diverted away from other critical areas of the budget.

Declining Tax Receipts: Falling markets have led to a sharp decline in capital gains revenue. Higher tax brackets and standard deductions resulted in less tax revenue for the IRS in 2023.

Government Expenditures: Government spending increased in 2023. Social Security and Medicare costs rose since they are indexed to inflation. Also, the 2022 Inflation Reduction Act started disbursing billions of dollars.

The Deficit’s Worrisome Transformation

From August 2022 to July 2023, the federal government spent approximately $6.7 trillion while collecting only $4.5 trillion in revenue. This represents a stark 16% increase in spending compared to the previous year. That is coupled with a 7% decrease in revenue.⁴

The change has economists worried. Marc Goldwein is the senior policy director at the CRBF. He said, “That’s pretty scary, because normal before the pandemic was $1 trillion. And in 2015, it was $500 billion. So, we went from $500 billion is the normal, to $1 trillion is the normal, to $2 trillion is the normal in less than a decade.”⁵

Deficit Impact

The deficit surge comes as lawmakers rush to avert a government shutdown. They are looking to pass a short-term deal to keep the government running. Expect deadlock as the sides spar over spending cuts and expiring tax cuts. If talks stall, a government shutdown would be catastrophic for the country.

Economists anticipate annual deficits approaching $3 trillion within a decade. Such high deficits can lead to inflation, higher interest rates, and ultimately, a debt crisis. Soaring interest rates could stifle private investment and make loans prohibitively expensive.

Brian Riedle is an economist at the Manhattan Institute. He warns, “A debt growing much faster than the economy will drive up interest rates, reduce economic investment, and over time make interest payments the largest federal expenditure — risking a federal debt crisis.”⁶

Higher deficits also hamper the government’s ability to respond effectively to economic downturns. This could lead to prolonged recessions and even depressions.

The Mounting Interest Burden

Interest on the national debt is projected to soar to $5.4 trillion by 2053. That surpasses the amount spent on critical programs like Social Security, Medicaid, Medicare, and defense. It could consume up to 35% of all federal revenue in three decades. Interest payments alone are estimated to triple to a staggering $1.4 trillion by 2032. These spiraling interest costs, coupled with surging national debt, could make borrowing money for the country increasingly expensive. The risk of an existential crisis for the country is real.⁷

“Higher interest costs could crowd out important public investments that can fuel economic growth — priority areas like education, research and development, and infrastructure. A nation saddled with debt will have less to invest in its own future,” the Peter Peterson Foundation said.⁸

Conclusion

The ballooning US federal budget deficit poses an existential threat to the nation’s economic stability and prosperity. As the deficit spirals out of control and the national debt skyrockets, it becomes increasingly vital to safeguard your financial future, including your retirement funds.

To protect your retirement funds, consider exploring alternatives such as a Gold IRA from American Hartford Gold. In uncertain times, diversifying your investments with assets that historically retain their value, like precious metals, can offer a measure of financial security. Contact us today at 800–462-0071.

Notes:
1. https://www.foxbusiness.com/economy/us-federal-budget-deficit-projected-double-year
2. https://www.washingtonpost.com/business/2023/09/03/us-debt-deficit-rises-interest-rate/
3. https://www.foxbusiness.com/economy/us-federal-budget-deficit-projected-double-year
4. https://www.washingtonpost.com/business/2023/09/03/us-debt-deficit-rises-interest-rate/
5. https://www.washingtonpost.com/business/2023/09/03/us-debt-deficit-rises-interest-rate/
6. https://www.washingtonpost.com/business/2023/09/03/us-debt-deficit-rises-interest-rate/
7. https://www.foxbusiness.com/economy/the-us-paying-record-amount-interest-on-national-debt
8. https://www.foxbusiness.com/economy/the-us-paying-record-amount-interest-on-national-debt

• The first half of 2023 was record-setting for gold sales
• Gold demand is predicted to continue rising thru to 2024
• Demand is driven by gold’s safe haven qualities and the de-dollarization trend

Gold Continues Its Upward Trajectory

Gold is having a very good year and the trend is likely to continue to 2024. The global nature of the gold market has allowed different sectors and locations to support an overall rise in gold demand and prices. Central bank, investment, and jewelry demand are creating a supportive environment for gold prices. The London Bullion Market Association (LBMA) gold price averaged $1,976 during the second quarter – a record high. That’s 6% higher than last year and 4% higher than the previous record in 2020.¹

Jewelry

Jewelry consumption improved despite high gold prices with a 3% increase over 2022. The overall rise was attributed to rebounding sales in China and Turkey. Analysts foresee holiday related spending supporting a continued rise to the end of the year.²

Investment

Bar and coin investment increased by 6% in H1 (the first half of the year). The increase was largely due to markets in the US and Turkey. In the US, investment demand was fueled by the banking crisis and the volatile debt ceiling negotiations. Momentum carried the market through to the end of the first half of the year.³

Over the counter investment (buying directly from a dealer) jumped in the second quarter. Sales hit 335 tons, with gold coins leading the way in year-over-year retail growth. In China, bar and coin investment grew 32% from last year.⁴

Meanwhile, US investors continued to show a strong appetite for bars and coins. H1 demand was 65 tons, the strongest half-yearly total since 2008 (the year of Global Financial Crisis). The collapse of Silicon Valley Bank and Signature Bank created shockwaves that sent investors scrambling to buy physical bullion products. US Mint coin sales reflect this upsurge in demand. Sales of American Eagles and Buffaloes reached almost 1 million ounces by the end of June. Compare that with annual sales of 1.4 million ounces over the full year 2022.⁵

There is a sense that investment interest remains piqued. Demand will likely rise as we approach the 2024 presidential election campaigns and if any signs of banking instability re-emerge.

Central Banks

The World Gold Council’s latest Gold Demand Trends report shows that gold benefited from record central bank buying in the first half of the year. Central bank buying in H1 reached 387 tons. Buying slowed down in the second quarter, but a strong first quarter sealed the deal. Gold purchases are widespread among emerging and developed countries.

⁶

Massive central bank purchases are continuing the trend from last year. In 2022, central banks added an eye-catching 1,136 tons of gold, worth about $70 billion, to their stockpiles. According to World Gold Council data, it was the largest amount bought, until this year, since 1950.⁷

Analysts forecast central bank buying will remain strong thru to the end of the year. The global de-dollarization wave is pushing demand. Sanctions on Russia have other countries reducing their reliance on the dollar. They are turning to gold for reserves instead.

Chinese analysts noted that due to an accelerating global de-dollarization trend, the current “gold rush” shows no signs of stopping. It is expected to continue in the coming months. As of June 2023, gold reserves held by the People’s Bank of China (PBC) reached 1,926 tons. That marked an increase of 680,000 ounces compared to the previous month. This makes the eighth consecutive month of rising gold purchases by the PBC.⁸

The US Federal Reserve’s aggressive interest rate hikes since early 2022 have exerted significant devaluation pressure on non-dollar currencies. Under this circumstance, only increasing gold reserves can help other countries stabilize the exchange rates of their currencies, said Chinese bank analysts.

Rating agency Fitch Ratings’ recent downgrade of the US credit rating has also sped up the de-dollarization movement. This surge in investor risk aversion could further drive-up gold prices.

Louise Street, Senior Markets Analyst at the World Gold Council, commented:

“Record central bank demand has dominated the gold market over the last year and, despite a slower pace in Q2, this trend underscores gold’s importance as a safe haven asset amid ongoing geopolitical tensions and challenging economic conditions around the world.”⁹

China

For China, increasing gold reserves is also a means to help internationalize the yuan. Sufficient gold will give the yuan the backing and credibility it needs to become a dominant international currency. They aim to lure other central banks to start using the yuan for settling international trade instead of the dollar.

Recession

A looming global recession will also spur greater gold demand. Street said, “Looking ahead to the second half of 2023, an economic contraction could bring additional upside for gold, further reinforcing its safe-haven asset status. In this scenario, gold would be supported by demand from investors and central banks, helping to offset any weakness in jewelry and technology demand triggered by a squeeze on consumer spending.”¹⁰

Conclusion

The data clearly points to a potential continued upward trajectory for gold. The precious metal is sought by investors and central banks alike for its inherent safe haven qualities. You can take advantage of those qualities with a Gold IRA from American Hartford Gold. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2023
2. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2023
3. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2023
4. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2023
5. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2023/investment
6. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2023/chart-gallery
7. https://www.globaltimes.cn/page/202308/1295753.shtml
8. https://www.globaltimes.cn/page/202308/1295753.shtml
9. https://finance.yahoo.com/news/gold-demand-trends-gold-continues-060000243.html
10. https://finance.yahoo.com/news/gold-demand-trends-gold-continues-060000243.html

• Despite trader optimism, economists point to strong recession indicators
• The recession has been delayed by stimulus money and rate hike effect lag
• The S&P 500 potentially faces more than a 30% drop

Indicators Still Point to Recession

When it comes to recession, bullish economists are eager to say, “I told you so,” pointing to low unemployment, strong consumer spending and an S&P 500 rally. But top Wall Street strategists believe now is not the time to gloat. A recession is on the way.

Forecasters began warning of recession and a stock market sell off back in April 2022. By October 2002, 65% of economists said recession would arrive in 12 months. They based this on the Fed’s rapid rate hikes. The Fed’s goal was to tame record inflation by contracting the economy. The Fed raised rates from near zero to 5.5%. This hiking cycle is the fastest and most aggressive since the early 1980s. Since World War 2, 80% of Fed hiking cycles have resulted in a recession.¹

As the bulls point out, the economy seems to have avoided the drop in earnings and rise in unemployment – so far. The reason for this, according to economists, is due to the lingering effects of the massive fiscal and monetary stimulus efforts during the COVID-19 pandemic. As well as the long lag time before the Federal Reserve’s rate hikes filter through to the economy. Even Fed chair Powell admitted as such. He said, “We have covered a lot of ground, and the full effects of our tightening have yet to be felt.”²

There was nearly $5 trillion in stimulus disbursed. It went to households and businesses, as well as state and local governments. The cushion allowed people to keep spending and ignore higher interest rates. But that is starting to change. Cash reserves are being used up. The number of Americans falling behind on credit card debt is on the rise. Credit card delinquencies have almost doubled since 2021. Auto loan and mortgage delinquencies are also on the rise.

And though inflation seems to have plateaued, prices haven’t come down. Consumers will soon be forced to cut back on spending. Tom Essaye is the founder of Sevens Report Research. He explains it this way – “People get very excited about CPI and say, ‘Hey, CPI went up only 0.1% over the past month and it’s only up 3% over the past year. Well, think about that in practical terms. If I go to buy my kids a bag of Skittles, in 2019 it cost $0.75. Now it costs $1.50. Am I supposed to get excited because next year it costs $1.55?”³

Another reason a recession is considered imminent is the lag time between rate hikes and their effects. This is visible in the manufacturing sector. Industrial production is starting to trend downward. The Institute for Supply Management’s Purchasing Managers Index shows there is widespread worry across the industry. The downward trend reflects dropping consumer demand. Manufacturing is considered a thermometer for the broader economy.

Another lagged effect of the rate hikes is the impact of tighter lending standards. A recent survey showed more than half of banks are making it harder for businesses to get loans. Banks are growing more concerned about borrower’s ability to pay them back. These loans are vital for companies to grow and pay employees. When the money stops, businesses contract and unemployment rises.

Reliable Recession Signal

Economists point to the Treasury yield curve as evidence that a recession is on the way. The Treasury yield curve measures the different interest rates that are paid out on various bonds issued by the US government. Usually, the interest rate on short-dated Treasuries is lower than yields on far-out bonds like the 10-year Treasury. But when that flips and interest rates on short-term Treasuries are higher than their long-term cousins, it is known as a yield-curve inversion. Since the 1960s, the indicator has a perfect track record of preceding recessions.

⁴

The message of an inverted yield curve is that while interest rates are high now, in the future, the rate of economic growth and inflation will be slower. Interest rates will then be lower. Historically, it has taken a recession to realize such a scenario. The extent of the current inversion is extreme by historical standards. It is at its widest gap since the 1982 recession.⁵

Recession Impact and Recourse

If the recession is mild, analysts see the S&P 500 likely falling as much as another 13%. But in the past 13 recessions, the S&P 500 has dropped an average of 32%, as noted by the Royal Bank of Canada.⁶

People can choose to remain optimistic and hope that there will be a soft landing with no recession. Or they can see the financial data and prepare for an economic downturn. methods One of preparation is shifting part of your portfolio into recession resistant assets like physical precious metals. In fact, the Gold IRA from American Hartford Gold is designed to shield portfolio value from recession. Contact us today at 800-462-0071 to learn more.

Notes:

1. https://www.businessinsider.com/us-economy-still-headed-for-recession-stock-market-crash-2023-8
2. https://www.businessinsider.com/us-economy-still-headed-for-recession-stock-market-crash-2023-8
3. https://www.businessinsider.com/us-economy-still-headed-for-recession-stock-market-crash-2023-8
4. https://www.businessinsider.com/us-economy-still-headed-for-recession-stock-market-crash-2023-8
5. https://www.morningstar.co.uk/uk/news/238448/wait-is-the-bond-markets-recession-indicator-broken.aspx
6. https://www.businessinsider.com/us-economy-still-headed-for-recession-stock-market-crash-2023-8

• Moody’s and Fitch Ratings downgraded the credit rating of the banking industry
• The downgrade was due to high interest rates and growing risk of bank failures
• Experts turn to physical precious metals as banks and the government become worse stores of wealth

Banking Industry Downgraded

The phrase “like money in the bank” is taking on a new meaning nowadays. The once secure banking industry is growing increasingly riskier. Bank stability is being challenged with high interest rates, rising deposit rates and slumping profitability. Now they can add a rating downgrade to their list of troubles. On the heels of a US credit downgrade, a depreciating financial industry threatens to undermine the broader economy.

Last week, Moody’s Investment Services downgraded the credit rating of 10 mid-sized banks by a single notch. They cited growing financial risks and strains that could erode their profitability. They also warned of a review of six other lenders and assigned a negative outlook to 11 other banks.

Moody’s actions come after a banking crisis that started in March with the sudden collapse of Silicon Valley Bank. Once the nation’s 16th largest bank, their depositors grew fearful of the bank’s solvency and made a classic bank run. Signature Bank and First Republic Bank soon followed, leading to more concerns about the banking industry’s stability.

Moody’s downgrade is on the heels of one from Fitch Ratings. In June, Fitch lowered the banking industry to AA- from AA. Fitch Ratings is now warning the banking industry could be downgraded again from AA- to A+. If that happens, Fitch would be forced to reevaluate ratings on each of the more than 70 banks it covers. Shares of JPMorgan, Bank of America and Citigroup fell on news of the warning.

Downgrade Meaning

Banks rely on bond sales to help fund their operations. A downgrade makes those issuances more expensive. That’s because Investors demand more return to own lower rated bonds. As a result, costs increase for banks and profits go down.

Impact of Fitch Downgrade

Another Fitch downgrade creates a new problem for banks. If the industry’s score is downgraded to A+, then it would be lower than some of its top-rated lenders. The country’s two largest banks by assets, JPMorgan and Bank of America, would likely be cut to A+ from AA-. This is because banks can’t be rated higher than the environment in which they operate. Which in turn triggers downward adjustments for their smaller rivals. Weaker lenders would be moved closer to non-investment grade status.

Tough Timing

Regulators want banks to issue more bonds as they become more expensive for the banks. The FDIC, Federal Reserve and Office of Comptroller of the Currency are trying to stop the long simmering banking crisis from boiling over. They want to prevent any future bank runs. Regulators want the banks to issue more long-term debt to stabilize them. The long-term debt is meant to absorb losses if the bank fails. It is meant to make it easier for banks to hold onto depositors and slow down a run.

Role of Interest Rates

The Federal Reserve rapidly raised interest rate to fight inflation. Rates went from almost zero to 5.5% within a year.

¹

Minneapolis Federal Reserve President said the risk is that if inflation is not completely under control, the Fed may have to raise rates further. Banks “might face more losses than they currently face today.” According to CME Group’s FedWatch Tool, market participants believe the Fed will hold interest rates near their current levels well into the first half of next year. They want to bring inflation down to the central bank’s 2% target.²

Prolonged higher interest rates could force Fitch to go through with the downgrade. Record high rates put extreme downward pressure on the industry’s profit margin. In addition, higher rates lead to more defaults. The more defaults, the more likely the downgrade is going to happen.

The collapse of the commercial real estate market is also threatening small and mid-size banks. They are the primary lenders in that industry. Small banks hold 67% of all commercial real estate loans. Developers typically only paid the interest on real estate loans. They would refinance when the principle came due. But high interest rates are making that unaffordable. As a result, there is an exponential increase in defaults. These nonpayments are hammering the bottom line of small banks. ³

Follows US Downgrade

Earlier this month, Fitch Ratings downgraded the credit rating of the United States from “AAA” to “AA+.” Fitch cited the nation’s growing debt and continued partisan standoffs over the debt limit. Fitch Ratings said these political standoffs have prompted spiraling national debt and a lack of confidence in the US government to manage it.

Moody’s and Fitch are exposing an unwelcome truth about the banking industry and the United States government. They are both becoming more unstable. Once solid secure repositories for investors, both banks and the US are becoming riskier and riskier investments. For those who are interested in securing their retirement funds, safe haven assets like precious metals offer a safer alternative. A Gold IRA from American Hartford Gold can preserve your wealth as the bedrock of the US (and world) financial system cracks. Contact us today at 800-462-0071 for a personalized gold solution.

Notes:
1. https://www.fool.com/investing/2023/08/15/moodys-downgrades-10-banks-heres-what-investors-ne/
2. https://finance.yahoo.com/news/why-bond-rating-downgrades-are-the-last-thing-banks-need-right-now-204145044.html
3. https://www.fool.com/investing/2023/08/15/moodys-downgrades-10-banks-heres-what-investors-ne/

• Credit Card debt hit a record-breaking $1 trillion
• High interest rates, increasing delinquencies and 401(k) hardship withdrawals signal a growing crisis
• Experts advise moving into secure long-term assets like physical precious metals

Credit Card Debt Hits Record Level

For the first time ever, American credit card debt has skyrocketed to a record-breaking $1 trillion. This alarming milestone sheds light on the increasing reliance on credit cards during these economically challenging times. Amidst rising living costs, credit cards have become lifelines for covering essential necessities such as food and fuel. The mounting debt has consequences for individuals and the country.

During the second quarter, credit card balances surged by a staggering $45 billion. They contributed to an overall household debt increase of $2.9 trillion since 2019. How consumers are managing debt is changing. A Bankrate.com analysis indicated that nearly 50% of individuals now carry debt from one month to the next. That marks a 39% increase from a year ago. The shift is tied to the surging cost of living. Credit cards are increasingly relied upon as a financial safety net.¹

²

This surge in debt is occurring s as interest rates reach a 22-year high. The average credit card is now charging an interest rate of over 20%. This figure marks a new record, surpassing the previous high of 19% set in 1991. Credit Karma has seen credit scores fall by an average of 13 points since the Fed started raising interest rates.³

Matt Schulz is the chief credit analyst for LendingTree. He emphasized the gravity of the situation. He said, “One trillion dollars in credit card debt is staggering. Unfortunately, it’s only going to go up from here. What’s driving it is inflation, higher interest rates and just generally how expensive life is in 2023.”⁴

As the cost of living continues to rise, Bank of America is reporting a surge in hardship withdrawals from their 401(k) accounts. They reflect the growing financial distress faced by individuals. This trend raises concerns about the sustainability of household financial situations. Schulz said, “There’s also only so much hard debt that people can handle before delinquencies really spike.”⁵

The latest New York Fed report highlights that new delinquencies are climbing after a period of historic lows. Credit card delinquencies have reached levels not seen since the first quarter of 2012.

The resumption of student loan payments is expected to add to the stress. A New York Fed research group wrote “rising balances may present challenges for some borrowers, and the resumption of student loan payments this fall may add additional financial strain for many student loan borrowers.”⁶

Impact of Credit Card Debt

While interest rates have reached unprecedented highs, it appears that more debt is languishing unpaid for months on end. As a result, personal debt is growing exponentially. It becomes harder and harder to pay off. Americans are becoming trapped in everyday debt with limited relief in sight. The rise in debt coincides with dwindling savings and the depletion of pandemic-era financial cushions. Cash balances in checking and savings accounts among around 9 million Chase customers have hit their lowest levels since April 2020.⁷

Economists anticipate a cutback in consumer spending as debt mounts. This can hasten the onset of a recession since 70% of the economy depends on consumer spending.

Influential figures like Elon Musk have voiced their concerns. Musk notes, “For a lot of people, they’re just really breaking even every month. In fact, if you look at the rise in credit card debt, they are, in fact, not breaking even every month, like credit card debt is — is looking kind of scary.”⁸

With credit card debt reaching unprecedented levels, surging interest rates, and depleting savings, the financial strain is evident across the board. This surge in debt unfolds amidst an ongoing banking crisis. The potential for massive defaults could further disrupt bank stability. The need for a balanced portfolio is becoming vital in these uncertain times. As individuals seek ways to preserve their wealth, many are turning to gold as a means of safeguarding their financial security. A Gold IRA can protect your funds from the nation’s growing debt crisis. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:
1. https://www.cnn.com/2023/08/08/economy/us-household-credit-card-debt/index.html
2. https://www.cnn.com/2023/08/08/economy/us-household-credit-card-debt/index.html
3. https://www.foxbusiness.com/economy/credit-card-debt-hits-1-trillion-first-time-ever
4. https://www.foxbusiness.com/economy/credit-card-debt-hits-1-trillion-first-time-ever
5. https://www.foxbusiness.com/economy/credit-card-debt-hits-1-trillion-first-time-ever
6. https://www.cnn.com/2023/08/08/economy/us-household-credit-card-debt/index.html
7. https://finance.yahoo.com/news/elon-musk-warns-peoples-credit-150612177.html
8. https://finance.yahoo.com/news/elon-musk-warns-peoples-credit-150612177.html

• The “Buffet Indicator” is signaling that stocks are overvalued and due for a crash
• The crash could be caused by overvaluation, recession, and shrinking money supply
• Warren Buffet advises seeking safer long-term investments

Buffet Indicator Warning

As the Nasdaq saw remarkable gains exceeding 30%, and the S&P 500 has close to a 20% increase, an ominous warning emerged from the legendary investor Warren Buffett. His favorite market gauge, known as the “Buffett Indicator,” is flashing red signals. It is suggesting that stocks might be overvalued, and a potential crash is looming.¹

The indicator just hit 171%. It reflects the exuberance of investors betting on artificial intelligence, anticipated rate cuts, and a soft-landing scenario. Given Buffett’s endorsement of this gauge as “probably the best single measure” of stock valuations, his concerns have garnered attention. He is not alone in expressing caution about the stock market’s current state. As experts echo this warning, it becomes crucial to take appropriate measures to safeguard your retirement funds.

²

The indicator takes the total market capitalization of all actively traded US stocks. It then divides that figure by the official estimate for quarterly gross domestic product (GDP). Investors use it to compare the overall value of the stock market to the size of the national economy.

Buffet said stocks would be fairly valued at a 100% reading. You should aim at buying them at 70% or 80%. He warned it would be playing with fire to purchase them close to the 200% mark.

The gauge today is calculated using the Wilshire 5000 Total Market Index for the value of all traded stocks. The index jumped 22% this year. Market capitalization is now at $46.32 trillion.³ That was divided by the GDP estimate of $26.84 trillion from the Bureau of Economic Analysis. The result was a startling measure of 171%. The gauge proved accurate last year. It plummeted from over 210% in January 2022, to below 150% by September as stocks fell accordingly. ⁴

Reasons for a Crash

There are several reasons why the market could crash.

Overinflated valuations – as the Buffet Indicator show, stocks are expensive on an overall basis. Besides a period from 2020 to 2021, stocks haven’t been priced so high since the dot-com bubble in the early 2000s.

Recession forecasts – the Fed is saying a recession can be avoided and a ‘soft landing’ achieved. However, a recent Bloomberg survey found that 63% of economists still expect an economic downturn within the next 12 months. The stock market often begins to decline even before the economy does.⁵

Money supply – the M1 money supply includes all physical currency in circulation. The M2 money supply adds in deposits in savings or money market accounts. Since 1870, every single time the M2 money supply has fallen by 2% or more, a major economic downturn followed. In three cases, depressions occurred, including the Great Depression. As of now, the M2 money supply has dropped by more than 4%. If you believe history over economists, recession in on the way.

Warren Buffet and his namesake indicator aren’t alone in their negative forecast. John Hussman is President of Hussman Investment Trust and an asset-bubble expert. He thinks the S&P 500 risks a 64% collapse. This is due to extreme valuations and “unfavorable market internals.”

Hussman said stocks enjoyed an impressive rally in 2023. The S&P 500 has rallied 19% so far this year. That takes its gains since the end of 2008 – the year of the global financial crisis – to more than 400%. The price-earnings ratio of the index, one of the valuation metrics tracked by investors, has climbed to about 26 from last year’s lows near 19.⁶

Hussman attributes the rise to cooling inflation, fading recession fears, and growing interest in AI. He concludes a steep plunge in stocks is necessary to get market conditions back to normal. He summed up his prediction by saying, “Yes, this is a bubble in my view. Yes, I believe it will end in tears.”⁷

“Rich Dad, Poor Dad” author Robert Kiyosaki also warned about a collapsing market. He tweeted, “too many signs point to a severe stock market crash. If your future depends on stocks and bonds, please be careful, possibly ask for professional advice.” He continued, “Afraid depression coming.”⁸

What to Do

When it comes to protecting your financial future, forewarned is forearmed. Many are riding the current stock market wave, convinced good times are here again. But some of the world’s most preeminent investors are warning otherwise. Buffet says forget trying to time the market. He’s putting Berkshire Hathaway’s money in cash and long-term investments. The idea is to focus on the future. And one of the most secure long-term assets is physical gold. A Gold IRA from American Hartford Gold can protect the value of your portfolio from a crashing stock market. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.fool.com/investing/2023/07/16/reasons-stock-market-sink-2nd-half-warren-buffett/
2. https://www.fool.com/investing/2023/07/16/reasons-stock-market-sink-2nd-half-warren-buffett/
3. https://markets.businessinsider.com/news/stocks/warren-buffett-indicator-ai-tech-stock-market-outlook-forecast-crash-2023-7
4. https://markets.businessinsider.com/news/stocks/warren-buffett-indicator-ai-tech-stock-market-outlook-forecast-crash-2023-7
5. https://markets.businessinsider.com/news/stocks/warren-buffett-indicator-ai-tech-stock-market-outlook-forecast-crash-2023-7
6. https://markets.businessinsider.com/news/stocks/stock-market-crash-sp-500-64-percent-john-hussman-bubble-2023-7
7. https://markets.businessinsider.com/news/stocks/stock-market-crash-sp-500-64-percent-john-hussman-bubble-2023-7
8. https://markets.businessinsider.com/news/stocks/kiyosaki-rich-poor-dad-stock-market-outlook-crash-economy-depression-2023-7

• The Fed approves 11th rate hike since 2022
• Economy faces rate-driven recession risks
• Gold prices surge amid rate hike uncertainties

Fed Issues Another Interest Rate Increase

The Federal Reserve approved the 11th interest rate hike since March 2022. The benchmark borrowing rate is now at its highest level in twenty years. While investors are hoping it will be the last one for a long time, the Fed is making no such promises. Instead, the economy could soon be facing a rate-driven recession.

Last month, the Fed held interest rates steady in a range between 5% and 5.25%. That was the first pause after 10 increases raised them from near zero. The market has already priced in this latest hike. Wall Street is riding a wave of optimism despite warnings of more hikes from the central bank. The Dow Jones Industrial Average jumped more than 5% over the past month alone.¹

There is a growing consensus among investors that the Fed has gone far enough and could unnecessarily push the economy into recession. The annual inflation rate declined to 3% in June, down from 9.1% a year ago. Kathy Jones is the Chief Fixed Income Strategist at Charles Schwab. She said, “The Fed should be done already. They’re walking a difficult line here. To me, the decision would be, hey, we’ve done enough for now, and we can wait and see. But apparently the folks at the Fed think they need one more at least.”²

Federal Reserve officials obviously have a different opinion. Core inflation, which excludes volatile food and energy prices, posted its smallest monthly increase in more than two years in June. It rose less than .2% from the prior month. Fed officials have been counting on a slowdown in core inflation because goods and shelter prices are slowing sharply.

But overall hiring and economic activity has been too strong for central bank officials to support this being the last hike. The Fed is going to take a data-driven approach whether to continue raising interest rates. Officials want to see evidence that economic activity is slowing, even if inflation subsides somewhat faster than projected.

Fed Chair Powell said that the central bank is not yet fully confident that inflation is defeated. Even if rates don’t rise again, they will most likely stay elevated for a long while. Powell said, “We intend to keep policy restrictive until we’re confident inflation is coming down sustainably to our 2% target, and we’re prepared to further tighten if that’s appropriate.” Powell pointed out that core inflation is still running above 3%.³

Future Rate Hikes

Powell indicated that the central bank is willing to wait things out as it follows the latest data. “We have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute,” he said.⁴

The Fed will determine future rate increases meeting by meeting. Chair Powell said the FOMC gave no guidance on the potential for further rate increases at future meetings.

“We’re going to be going meeting by meeting and as we go into each meeting, we’re going to be asking ourselves the same questions. So, we haven’t made any decisions about any future meetings, including the pace at which we consider hiking, but we’re going to be assessing the need for further tightening that may be appropriate … to return inflation to 2% over time.”⁵

Fed Guided by History

Inflation is at its most severe levels since the 1980s. Back then, the Fed backed off the inflation fight too soon. As a result, the economy suffered through a stagflation of high prices and weak growth.

“The worst outcome for everyone, of course, would be not to deal with inflation now [and] not get it done. Whatever the short-term social costs of getting inflation under control, the longer-term social costs of failing to do so are greater and the historical record is very, very clear on that,” said Powell.⁶

Gold & Rates

In the middle of July, gold hit its highest price since May.

⁷

Traditionally, gold has an inverse correlation with the US dollar. As inflation recedes, investors expect a halt in rate hikes. As result, the dollar becomes less attractive for market participants. When this happens, people turn to assets like gold. Plus, news about a potential new gold-back currency created by the BRICS alliance, has also supported the demand for gold.

Gold growth may stall if there are more hikes. However, this only a near future consideration. It’s expected that towards the end of 2023 and in 2024, as the Fed’s rate cycle comes to an end and the US economy slows down, the dollar will weaken against other major currencies. This could potentially result in a growth of gold prices. Gold increases during times of recession according to historical data. With the future of rate hikes, and in turn, the economy, up in the air, those with retirement funds can investigate a Gold IRA from American Hartford Gold. It can protect your portfolio from the damage caused by interest rate increases. Contact us today at 800-462-0071 to learn more.

Notes:

1. https://www.cnbc.com/2023/07/25/heres-what-to-expect-from-the-federal-reserve-meeting-wednesday.html
2. https://www.cnbc.com/2023/07/25/heres-what-to-expect-from-the-federal-reserve-meeting-wednesday.html
3. https://www.cnbc.com/2023/07/26/live-updates-fed-decision-july-2023.html
4. https://www.cnbc.com/2023/07/26/live-updates-fed-decision-july-2023.html
5. https://www.cnbc.com/2023/07/26/live-updates-fed-decision-july-2023.html
6. https://www.cnbc.com/2023/07/26/live-updates-fed-decision-july-2023.html
7. https://www.kitco.com/commentaries/2023-07-25/Gold-reaches-its-2-month-high-before-the-Fed-Meeting-What-can-we-wait-for-after-that.html

• Almost $1 trillion in corporate debt defaults are predicted by Bank of America
• The bankruptcies are driven by record interest rates and a shrinking economy
• The surge in defaults can bring down stock prices and devalue retirement portfolios

Surging Debt Defaults

The growing threat of corporate debt defaults poses a significant risk to retirement funds. Experts are bracing for a tsunami of defaults as credit conditions tighten and companies struggle to manage heavy debt loads. The impact of rising interest rates and credit downgrades is already being felt. The number of troubled companies facing bankruptcy is swelling. The economic consequences could surpass those of previous financial crises. Fortunately, there are actions that can defend the value of retirement funds.

The credit crunch and impending recession could result in $1 trillion of corporate debt defaults according to Bank of America. They say a 15% corporate default rate is a distinct risk. B of A calculates that even an 8% default rate could translate into $920 billion of losses.¹

US corporate debt defaults in 2023 have already surpassed last year’s totals. Fifty-five American firms have defaulted on their debt so far. That’s a 53% increase from all of 2022. Moody’s Investors Service says global debt defaults could keep surging as financial conditions continue to tighten. The global default rate could reach 13.7%, surpassing the 2008 financial crisis. And Deutsche Bank see defaults hitting 11.3%. That is only slightly lower than the all-time-high seen during the Great Recession.²

³

“It’s safe to bet there will be more defaults,” says Mark Hootnick. He is the co-head of capital transformation and debt advisory at Solomon Partners. Until now, “we’ve been in an environment of incredibly lax credit, where, frankly, companies that shouldn’t be tapping the debt markets have been able to do so without limitations.”⁴

At the moment, troubled companies are being affected. Regional financial institution Silicon Valley Bank, retail chain Bed Bath & Beyond and regional sports network owner Diamond Sports are among the largest bankruptcy filings so far this year, according to S&P Global Market Intelligence. But experts expect even stable companies to run into trouble when it comes time to refinance due to high interest rates.

Causes of Corporate Debt Default

The debt defaults are caused by several factors. Companies are facing uncertain economic conditions and heavy debt loads. Refinancing that debt is becoming more challenging. High interest rates are making new debt very expensive. In addition, banks are tightening credit conditions since the collapse of Silicon Valley Bank. Companies are also facing downgrades to junk credit ratings, resulting in higher borrowing costs.

“Capital is much more expensive now,” said Mohsin Meghji, founding partner of restructuring and advisory firm M3 Partners. “Look at the cost of debt. You could reasonably get debt financing for 4% to 6% at any point on average over the last 15 years. Now that cost of debt has gone up to 9% to 13%.”⁵

Corporations shouldn’t expect debt relief anytime soon. The Federal Reserve indicated at least two more rate hikes this year. They aim to keep raising rates until their 2% inflation target is hit.

NY Fed US Recession Probability Index predicting 68% of recession by April 2024.⁶ Recession risk is fueled by continued rate hikes. The recent banking crisis also increased recession risks. Banks are taking losses on their dropping bond portfolios and steep deposit flight. Bank of America analysts say when the recession arrives doesn’t matter. Even if it doesn’t start until 2024, the default cycle will only be delayed, not canceled.

³

Dangers of Default

Rising corporate debt defaults present a significant risk to the global economy. The impact of rising interest rates is yet to be fully felt. While some companies may be able to navigate through the challenges with debt restructuring, not all will survive.

Corporate debt defaults most often lead to an increased desire to sell shares and a consequential drop in stock prices. The desire to sell is fueled by several reasons. Shareholders lose confidence in the stock as they perceive financial distress or mismanagement. And the indication of higher risk has investors demanding higher returns for holding the stock. This can lead to a decrease in the stock’s price to adjust for the increased risk. Additionally, credit rating downgrades and liquidity concerns add more selling pressure. These negative effects extend beyond the defaulting company. Overall market sentiment may also be impacted, causing broader declines in other companies’ stock prices.

Thus, it can be seen, corporate debt defaults can drive down stock prices. Retirement funds that are composed of securities are vulnerable to significant losses. To protect the value of such funds, their owners can diversify their holdings with safe haven assets. Precious metals such as gold can hold their value as bankruptcies pull down the stock market. A Gold IRA from American Hartford Gold is structured to protect portfolio value in the face of a growing debt crisis. Contact us today at 800-462-0071 to learn more about how to safeguard your future.

Notes:
1. https://markets.businessinsider.com/news/bonds/recession-credit-crunch-us-economy-debt-default-bank-of-america-2023-5?utm_medium=ingest&utm_source=markets
2. https://markets.businessinsider.com/news/bonds/corporate-debt-defaults-recession-credit-crunch-financial-crisis-default-rate-2023-7
3. https://www.reuters.com/markets/long-feared-corporate-debt-woes-start-hit-home-2023-07-18/
4. https://www.cnbc.com/2023/06/24/high-interest-rates-economic-uncertainty-boost-corporate-defaults.html
5. https://www.cnbc.com/2023/06/24/high-interest-rates-economic-uncertainty-boost-corporate-defaults.html
6. https://markets.businessinsider.com/news/bonds/recession-credit-crunch-us-economy-debt-default-bank-of-america-2023-5?utm_medium=ingest&utm_source=markets

• A former CIA advisor predicted that US Dollar hegemony will end on August 22nd
• On that date, the BRICS alliance will announce a rival gold-backed currency
• As the new currency is adopted, analysts predict the value of the dollar will plummet and gold will surge

End Date of US Dollar Supremacy Predicted

Before summer is over, US dollar supremacy will disintegrate. That is, according to James Rickards. He is an investment banker and former CIA and Defense Department advisor.
Rickards predicts that the status of the US dollar as the world’s reserve currency and medium for exchange will formally collapse on August 22nd. On that date, the BRICS alliance will announce the launch of their new currency, signaling the end of the American empire.

Rickards isn’t alone in his assessment. Many analysts have been speculating about a new global currency to challenge the US dollar’s role as the world’s reserve currency. In late March, Former Goldman Sachs chief economist Jim O’Neill said that the US dollar’s dominance is destabilizing global monetary policies. He added that a BRICS currency, challenging the U.S. dollar’s dominance, would bring stability to the global economy.

Reasons for Collapse

Rickards bases this prediction on several factors. One is the weaponization of the dollar against Russia amid the conflict in Ukraine. Other countries saw what happens if they run afoul of US policy. They want to take preemptive measures to avoid the impact of sanctions. By abandoning the dollar, the potency of sanctions is diluted.

A second factor is the United States’ $31 trillion national debt. Economists foresee a time where interest on the astronomical debt consumes the entire budget. The US would enter a ‘doom loop’ of endless borrowing at higher and higher interest rates. With no money to spend, the economy will collapse, and the dollar will become worthless.

And a third, most notable factor, is the BRICS group plan to enter the next phase of dedollarization – the launch of a rival currency.

“On August 22, about two-and-a-half months from today, the most significant development in international finance since 1971 will be unveiled,” Rickards wrote. He cites that date because it is when the BRICS Leaders Summit will unveil plans for substituting the dollar in global trade. Of note, August 22, 1971, was the day the US dropped the gold standard.¹

Rickards believes the rollout of a major new currency could weaken the role of the dollar. The US dollar would be displaced as the dominant trade and reserve currency. This change could occur within just a few years. The currency shift would affect world trade, direct foreign investment and investor portfolios in “dramatic and unforeseen ways.” Rickards warned the currency could set off an “unprecedented geopolitical shockwave.”

Who Are the BRICS?

At its core, the BRICS alliance consists of Brazil, Russia, India, China, and South Africa. Eight other countries have applied for membership. Twelve more have expressed interest in joining the bloc. Of note, Saudi Arabia is one of those countries. Saudi Arabia helped make the US dollar the supreme currency through the petrodollar system. Requiring oil to be traded exclusively in dollars cemented US dominance. With Russia and Saudi Arabia as BRICS members, two of the three largest energy producers with be aligned (the US is the other member of the energy Big Three). The new currency could seize the preeminent role in the energy trade and the benefits that go along with it.

The BRICS countries make up 30 percent of the world’s surface. They produce 50 percent of the globe’s wheat and rice. And they control 15 percent of the planet’s gold reserves. It accounts for 40 percent of the world population. Economically, the BRICS control almost a third of the world’s GDP.

In other words, the BRICS are a substantial and credible threat to Western hegemony. Their new currency has the resources and infrastructure to succeed. And as it is embraced by the globe, it will be able to eventually overthrow the dollar’s preeminence.

Rickards explains that the new currency must offer a safe store of value to be successful. For people to adopt it, the currency should rival the security found in the US bond market. To achieve this credibility, the BRICS are proposing to tie their currency to gold.

He sees “this entire turn of events—introduction of a new gold-backed currency, rapid adoption as a payment currency, and gradual use as a reserve asset currency—will begin on August 22, 2023, after years of development.” The dollar will be effectively removed from a large portion of global trade. Its value will decrease. The effects of which could result in collapsing stock prices, hyperinflation, and a shrinking economy. ²

Gold

The BRICS currency plan could spark a new bull market for gold. The Russian government confirmed the new currency will be backed by gold.

Gold has been playing an outsize role in the dedollarization movement since 2022. Central banks worldwide have been buying gold at a historic pace to diversify their reserves away from the US dollar, as seen below:

³

Analysts see a gold-backed currency as the next natural step in the new currency’s evolution. Many see China’s record gold purchases as an attempt to bring credibility to the yuan.

The global fiat money system could be in for a major disruptive shock. A gold-backed currency may lead to a sharp devaluation of many fiat currencies. As a result, it could catapult up goods prices on those fiat currencies.

The launch of a gold-back BRICS currency could fundamentally shift the entire global economic order. Uncertainty will increase as the dollar loses its dominant role. And assets denominated in dollars, like stocks and bonds, face a major devaluation. Retirement funds that aren’t diversified away from such assets are sitting on huge potential losses. For those who want to secure the value of their portfolios, now is the time to investigate gold. A Gold IRA from American Hartford Gold can protect the value of your funds and reap the rewards of a rising gold market. Learn more before August 22nd arrives. Call us today at 800-462-0071.

Notes:
1. https://mronline.org/2023/06/09/ex-cia-advisor-predicts-date-when-u-s-dollar-hegemony-will-collapse/
2. https://mronline.org/2023/06/09/ex-cia-advisor-predicts-date-when-u-s-dollar-hegemony-will-collapse/
3. https://sophisticatedinvestor.com/wp-content/uploads/2023/07/COMM-central-bank-demand-04062023.png

• Investment guru Jeremy Grantham warns there is a 70% chance of a stock market crash after the ‘superbubble’ bursts
• Stocks will drop to their true value after too much money in the system overinflated prices across sectors
• Precious metals can safeguard portfolio value and position you for post-crash buying opportunities

Superbubble Warning

Legendary investor Jeremy Grantham warns that the current stock market is on the verge of a major crash. According to Grantham, there is a 70% chance of a crash occurring within the next few years. He believes the market is experiencing a “superbubble” on the brink of implosion.¹

But what exactly is a superbubble? A market bubble occurs when prices are too high based on historical metrics. A superbubble takes this concept to an extreme level. It refers to a situation where excessive speculation sends asset prices to multiple times their true value.

Superbubbles have led to catastrophic market crashes in the past. These include the stock market crash of 1929, the 1970s economic downturn, and the dot-com bubble of 2000. The events resulted in drastic drops in stock prices, ranging from 50% to a staggering 90%.²

Reasons for Warning

A combination of factors is fueling this current superbubble. The primary cause was too much money being pumped into the financial system. This abundance of dollars flooded into various asset classes, commodities, bonds, and goods and services. Easy access to fiat currency over the past 15 years, especially since the 2008 financial crisis, created this liquidity. The response to the 2020 pandemic further accelerated this trend. Reckless government spending and central bank printing becoming the norm. As seen in the chart below:

³

Grantham had previously predicted the dot-com crash and the housing bubble implosion. He diagnosed a “superbubble” spanning stocks, housing, and commodities in January 2022. He declared last September that it was likely in its final stages, and a historic crash seemed imminent. The S&P 500 and Nasdaq ended the year deeply in the red — but have rallied 16% and 32% respectively this year. The recent AI-driven surge in the stock market is providing a boost. But Grantham argues that it won’t prevent the superbubble from bursting. It is only delaying the inevitable. He suggests that the S&P 500 could experience a brutal 44% drop from its current level.⁴

Grantham points out that there are striking similarities between the current situation and previous crashes. He thinks conditions resemble the ones in 1929 and 2000. He sees a dangerous mix of overvalued stocks, bonds, and housing, combining with a commodity shock and a hawkish Federal Reserve.

The collapse of a superbubble occurs in several stages. First, there is a setback, followed by a slight rally. Finally, the market reaches its low point as fundamentals break down. The S&P 500 exited the longest bear market since 1948 at the beginning of June. Some analysts, such as those from HSBC and UBS, are already predicting a painful second half of 2023. They see an economic downturn deflating the AI boom and exposing the vulnerabilities of the superbubble. UBS analysts noted equity prices can fall as they confront “slowing growth and stickier inflation.”⁵

Even though the stock market has experienced a rally in recent months, it doesn’t necessarily mean that the bear market is over. History has shown that bear markets can have temporary rallies before experiencing further downside.

How to Prepare

Considering these warnings, it’s crucial to be cautious and prepared for a potential market crash. Grantham himself has bet on bargain assets and positioned against expensive growth stocks. Some analysts see the upcoming downturn as a generational opportunity to make money. But it is vital to preserve your wealth to take advantage of buying opportunities.

In times of market uncertainty, assets like gold have often been considered safe havens. Looking back at previous crashes, gold prices experienced notable increases. That’s because investors sought safe-haven assets. For example, during the crash of 1929, gold prices rose by about 27.5% within a year. Similarly, during the dot-com bubble burst in 2000, gold prices increased by approximately 11%.

Based on his track record, Jeremy Grantham’s warnings should be heeded. Ultimately, the fate of the current superbubble rests on economic conditions, investor sentiment, and market dynamics. As the saying goes, “history doesn’t repeat itself, but it often rhymes.” By learning from past market crashes, you can navigate the uncertain waters and make informed decisions to safeguard your wealth. Now is the time to carefully evaluate your portfolio. Is it diversified and protected against risk and loss? To learn more how a Gold IRA from American Hartford Gold can secure against a bursting bubble, talk to us today at 800-462-0071.

Notes:
1. https://www.businessinsider.in/stock-market/news/the-stock-market-has-70-chance-of-crashing-in-a-few-years-according-to-legendary-investor-jeremy-grantham/articleshow/101492341.cms
2. https://www.moneyshow.com/articles/tradingidea-59462/explained-the-american-economy-is-now-a-super-bubble/#:~:text=A%20superbubble%20is%20when%20asset,due%20to%20extreme%20speculative%20conditions.
3. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
4. https://markets.businessinsider.com/news/stocks/jeremy-grantham-gmo-superbubble-ai-stocks-housing-market-bubble-crash-2023-7
5. https://www.foxbusiness.com/markets/us-stock-market-faces-more-challenges-second-half-2023-ubs-warns