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

 

Fed Raises Interest Rates

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

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

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

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

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

No Relief in Sight

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

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

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

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

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

Recession Fears Increase

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

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

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

Gold Demand Increases

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

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

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

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

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

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

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

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

 

Interest Rates Cause Drop in Housing Demand

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

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

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

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

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

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

Fed Unlikely to Pivot on Rate Hikes

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

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

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

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

 

Black Friday – Boom or Bust?

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

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

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

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

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

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

Black Friday and the Stock Market

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

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

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

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

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

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

 

Prepare for a Recession

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

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

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

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

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

The Federal Reserve May Require a Recession

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

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

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

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

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

New Inflation Data Released

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

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

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

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

Stock Market Takes a Wild Swing

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

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

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

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

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

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

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

Fed Chair’s Comments Send Stocks Sliding

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

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

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

Heading Towards Recession

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

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

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

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

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

The GDP’s Deceptive Increase

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

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

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

Other Recession Indicators

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

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

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

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

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

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

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

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

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

Gold to Rise as the Dollar Fades

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

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

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

Challenges to the Dollar

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

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

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

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

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

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

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

IMF Forecasts Global Recession

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

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

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

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

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

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

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

The UN Also Issues a Warning

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

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

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

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

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

Majority of CEOs Anticipate a Recession

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

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

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

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

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

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

CFOs Surveyed About Peak Inflation and Recession

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

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

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

Recession Expectations

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

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

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

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

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

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

Social Security Trust Fund Running Out

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

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

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

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

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

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

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

Inflation, COLA and Taxes

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

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

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

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

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