Monday Morning Wrap Up
A message from David Beahm
President and CEO
Coronavirus Tidal Wave Still Gaining Strength
Like a massive tidal wave, the coronavirus continues to splash and hit every aspect of our lives.
The tsunami that is COVID-19 is still gaining strength out in the ocean. This wave has not yet fully hit the shores of America yet. Yes, we are seeing early impact waves which have now touched all 50 U.S. states.
Yet, we still have not yet experienced the full force of this devastating pandemic.
Millions of Americans are trapped at home under shelter in place orders in hopes of slowing the acceleration of the coronavirus pandemic. The historic health crisis quickly morphed into an economic crisis on both the deeply personal level of people who lost their jobs and paychecks to the national and global economy, which is now forecast to see the deepest global recession in 40 years.
We don't know when we will turn the corner and stop the spread of the virus in America or how long-lasting the economic and financial damage will be. Last week we saw the first hard economic data on the damage from the early waves crashing into our economy. It was sobering.
Early Economic Damage – Jobless Claims Hit Record Level
The number of Americans filing for unemployment insurance skyrocketed to a never seen before 3.2 million. In just one week over 3 million Americans lost their jobs. To put that number in perspective that is five times as large as the peak during the 2008-2009 Great Recession. The previous one-week record was 700,000.
The unemployment rate is expected to soar above 10% by April or May. Economists warn that once the economy reopens, it is unlikely to reverse all these losses. Unemployment could remain high for years.
We are probably in a recession right now, Fed Chairman Powell said recently.
The longest economic expansion in U.S. history abruptly ended in the first quarter of 2020. And, economists have been piling on with forecasts for devastating declines from 15% or more in second quarter GDP. Yes, the Federal Reserve and U.S. government have gone all-out to stem the economic damage from this pandemic with a historic $2 trillion fiscal stimulus deal signed last week and the central bank's pledge to print as much money as the economy needs to maintain liquidity. But, that leads us to the $64,000 question.
How Fast Can the Economy Recover?
I'm sorry to say that a $21 trillion economy like ours can't be turned around that quickly.
Think of the U.S. economy like a fully loaded tanker ship.
It's not as nimble as a small speedboat and can't turn around on a dime. Metaphorically speaking, currently the tanker has hit an iceberg and is stranded. The Fed and the government are trying to prevent it from sinking.
Not everyone can telecommute from their job and over 3 million people stopped getting a paycheck last week. For a certain swath of American citizens, that means they can't buy groceries or pay their rent.
Can Government Limit the Fallout?
They are trying. Last week, President Trump signed a massive $2 trillion stimulus package following Congressional passage. This marks the largest emergency aid package in U.S. history ever.
The package includes direct payments to middle and low-income Americans, expanded unemployment insurance benefits, loans to small businesses and corporations and funding for hospitals, who are desperately strained during this health crisis.
The government and the Fed's recent actions are impressive.
Yet, they won't prevent a massive blow to the economy in the second quarter, which could extend into the third quarter as well.
With Americans ordered to stay at home, many can't work or spend. The package will ease the financial pain for those most at risk, enabling them to pay their rent and buy groceries. But, that's just a short-term fix, not a long-term solution.
Last Week in the Markets
Gold shined last week soaring within a few dollars of the 2020 price high. The bull market in gold is going strong and just getting started.
Like most asset classes during this crisis, gold has been impacted by fast-moving dynamics, including an initial short-lived retreat as gold owners sold precious metals in order to pay back margin calls as the stock market crashed.
Gold continues to play an essential role in investor's portfolios providing a source of liquidity in crises and an opportunity to preserve and protect and grow your wealth in a time of rampant fiat currency debasement, skyrocketing government debt and negative interest rates.
Gold is a hard currency, a tangible asset that you can hold in your hand. No central bank has the ability to print more gold and debase its value. This rally in gold is just getting started. Count on it.
Beware the Bear Market Bounce in Stocks
Many Americans saw stomach-turning news when checking their stock market accounts in recent weeks. The stock market is officially in a bear with over a 30% decline registered in the S&P 500 from the peak in Feb. 19. Oh, that all-time stock market high in mid-February seems like so long ago.
Last week saw a modest gain in the S&P 500 off the recent low. Traders like to call what we saw last week a 'dead cat bounce.' That refers to a brief bounce-back in the stock market after a major decline, right before stocks start tanking again.
The stock market gained in appreciation of the government's $2 trillion stimulus package and the Fed's all-out promise to print as much money as needed. While it's a short-term salve, it doesn't solve our current economic problems.
In fact, it only creates new problems for the future.
Rising U.S. debt levels already plagued our economy in recent months before this crisis hit.
The U.S. national debt stands at a record and rising $23 trillion. This latest fiscal stimulus package means our debt gets bigger fast. For perspective, the national debt stood at $19.9 trillion when President Trump was inaugurated, climbing 16% since the last presidential election. With the pandemic looming, the government has no choice but to step in. But, there will be a future cost.
Creating New U.S. Dollars at Light Speed
The Fed has announced its intention to do “whatever it takes” in its role as lender of last resort.
In the past three weeks alone, the Fed's balance sheet exploded by more than $1 trillion, hitting $5.2 trillion last week. In just one week, the Fed bought almost $350 billion of Treasury securities, loaned $50 billion in banks through the discount window, gave out $28 billion through the primary dealer credit facility and another $31 billion to the money market mutual fund loan facility.
And, how did the Fed do all that? It printed new money.
What Could Lie Ahead?
The stimulus packages financed by the central bank is a house of cards. Eventually it will fall down. What could this mean for the future?
Inflation. Hyperinflation. Sky high interest rates in the future as America faces difficulty selling our bonds to pay interest on unsustainable debt.
The results of more government debt and unlimited Federal Reserve money printing continue our country on the unsustainable path of fiat currency degradation.
What exactly is the value of the printed piece of paper that says: "Federal Reserve Note. This note is legal tender for all debts public and private." It's becoming more and more worthless every day. Never mind the level of the U.S. dollar index. What matters is your future purchasing power with the dollars you own today.
Create more of anything and the value goes down. It's simple supply and demand.
Gold Shines in This Environment
It's no surprise that investors around the world have been adding physical gold to their portfolios at a furious pace in recent weeks.
It's business as usual here at Blanchard and we are busier than ever. Unlike other dealers, we even have some products available to ship immediately.
Spot gold soared sharply higher toward the $1,670 an ounce level last week, within just a few dollars of the 2020 high seen at about $1,680 an ounce.
The bull trend in gold is strong and just getting started.
The government can print money to buy bonds to fund the $2 trillion fiscal package. While they can't stand aside and do nothing, they are putting at risk the economic future of our country with these actions and the new problems they will create.
That's why we are seeing so many investors turn to the safety of physical gold right now.
Over the past 45 years, we have helped clients invest in tangible assets like physical gold and numismatic rarities to protect and grow their wealth. It is our honor to help investors and collectors implement these essential diversification strategies to help them meet their financial goals. If you have any questions during these uncertain times, Blanchard has answers. We are here for you.
We have products available now and there is no minimum order.
I truly hope that you and your loved ones are healthy and well. Stay safe.
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