Market News

The Uniquely American Appeal of the $3 Indian Princess

Market News | August 12, 2020
In 1854 the U.S. Mint’s chief engraver, James B. Longacre, reached a milestone in his career. For the first time, he would choose the design for a piece of currency: in this case the three-dollar gold coin. Much of the currency up to that point favored designs that referenced the Romans and the Greeks. However,…

Monday Morning Wrap Up – August 10, 2020

Ask an Expert | August 10, 2020
That didn’t take long. As the historic precious metals rally in 2020 continues, gold hit a major milestone last week at the $2,000 per ounce level – and kept on going! Spot gold traded as high as $2,059.90 last week as the coronavirus pandemic created the perfect playbook for gold and silver to perform strongly….

Could Covid Kill the Penny?

Featured | August 6, 2020
See a penny pick it up –and all day you’ll have good luck! Remember that old rhyme? It could become a relic – along with the penny if some cost cutters get their way. The Covid-19 pandemic has created a nationwide coin shortage. Shoppers are relying on debit and credit cards to avoid touching cash,…

Monday Morning Wrap Up – August 3, 2020

Featured | August 3, 2020
Last week was one for the history books. After nine-years, gold surged to a new all-time record high – trading up to $1,977.50 as the Covid pandemic rages on, the economic data crumbles and the U.S. dollar crashes lower. The GDP report was a bitter pill to swallow – even though we knew it was…

Goldman Sachs Warns Dollar Could Lose Reserve Status

Featured | July 30, 2020
The U.S. Stands at a Dangerous Tipping Point. As gold spiked to a new all-time record high this week at $1,960 an ounce, Wall Street investment bank Goldman Sachs warned the U.S. was at risk of losing the dollar reserve currency status. Soaring U.S. government debt, rising political uncertainty and social unrest dominate our times….

That didn’t take long.

As the historic precious metals rally in 2020 continues, gold hit a major milestone last week at the $2,000 per ounce level – and kept on going!

Spot gold traded as high as $2,059.90 last week as the coronavirus pandemic created the perfect playbook for gold and silver to perform strongly.

Global central banks and governments continue to flood the economy with stimulus and cash which has lifted demand for tangible assets like bullion. With official Fed interest rates at zero – holding gold and silver is more appealing than ever. After all, there are really no interest-bearing assets for gold to compete with in today’s environment.

Interest Rates Plunge, Is Negative Next?

In fact, U.S. 30-year fixed mortgage rates plunged to an all-time record low at 2.88% last week.

That marked the eighth time since the coronavirus recession began that mortgage rates sank to a new low. This has sparked a flood of refinancing for existing home owners – if they have a job and can qualify under the financial industry’s tighter underwriting procedures in the midst of the pandemic. Banks are not eager to extend credit to consumers in the midst of the high unemployment rate and uncertain economic outlook.

The 10-year Treasury yield flirted with all-time record lows at 0.514% last week. Buy a 10-year note – and earn 0.514% interest?  Not very appealing indeed.

Negative interest rates have never existed in the U.S.

There are some experts who warn this could still happen here.

Negative interest rates in the US “are still possible,” according to a research note published last week by DataTrek co-founder Nicholas Colas. Indeed, earlier in 2020, President Trump called on the Fed to implement negative interest rates in the United States, so that the government can take advantage of low borrowing rates.

Wondering how that would work – and what it would mean for you?

If interest rates go negative – that means that banks charge you – the account holder – a fee to hold and store your money in their bank. It’s no wonder investments in gold are soaring this year.

U.S. – China Tensions Continue to Escalate

Last week, the Trump Administration struck back against Chinese technology companies.

The president implemented an executive order that would effectively ban TikTok and WeChat in the U.S. In China, WeChat is the primary chat app for consumers and also a major tool for payments, shopping and business transactions – with an estimated 1 billion users there.

It is similar to platforms like Venmo, Apple Pay or PayPal, here in the United States.

However, the parent company of WeChat includes a massive array of companies including video games studios, music companies and social media apps.

The rising U.S. – China tensions have fueled massive gold buying in Asia.

Precious metals sales surged 70% this year at Emperio Group, a retail store for precious metals in Hong Kong. Customers there are buying buying gold bars and coins because of low interest rates on bank deposits, while others are worried about U.S.-China tensions, the Wall Street Journal reported.

U.S. Starts Trade War with Canada

It’s not just China that the U.S. is wrestling with. Last week, President Trump said he will impose a 10% tariff on “non-alloyed unwrought aluminum” imports from Canada starting this month.  Canada stated that it would retaliate fully and that the government intends to impose countermeasures on U.S. products that will total CAD 3.6 billion.

Jobs Data Shows Progress – But a Drop in the Bucket Really

Last week, the U.S. Labor Department reported that 1.8 million new jobs were added to the economy in July. Sounds positive right? Remember, the U.S. economy is still down 13 million jobs since the pandemic began, with the overall unemployment rate still in double digits at 10.2%. Bottom line? The labor market remains in a recession and on shaky ground.

Precious Metals – Top Performing Asset Classes in 2020

The global rush into precious metals is monumental. Even as the stock market edges higher, investors remain skittish about the economy, geopolitical tensions, the upcoming U.S. presidential election and the long-term damage to the U.S. dollar from the Fed’s massive money printing scheme.

In the midst of the Covid crisis, gold and silver are the second and third top performing asset class this year.

What’s first? Surprisingly, lumber with a 60% gain in 2020. Chalk that up to scarcity and supply issues in a thinly traded market during the pandemic.

Behind lumber, silver is the second best performing asset class with a 52% gain year-to-date. Gold is turning in a remarkable 30% gain year-to-date.

The big question on everyone’s mind is will gold prices keep rising?

Here’s what Edmund Moy, previous director of the U.S. Mint said last week: It took three years after the start of the previous financial crisis for gold prices to peak. This crisis is far from over!

Goldman Sachs and Wells Fargo Investment Institute see gold gains to $2,300. In April, Bank of America Corp. raised its 18-month gold-price target to $3,000 an ounce – in its well named “The Fed Can’t Print Gold” research report.

Will Silver Outperform Gold Ahead?

While gold has been in the spotlight, silver is on a record run too this year.

In fact, July represented one of the best months for silver on record, and its highest monthly gain since 1979.

Silver bullion coin demand is robust in 2020, up over 60 percent to-date this year.

Notably, the gold: silver ratio — the quantity of silver ounces needed to buy an ounce of gold –peaked at 127:1 on March 18 and now stands at 72:1, a decrease of 43 percent.

Over the medium term, Bank of America sees potential for silver to rally to the $50 an ounce level.

Given the strong rally in gold – to a major milestone at $2,000 an ounce – a breather wouldn’t be a surprise. Markets don’t go straight up or down forever. Markets need time to consolidate and catch their breath.

Gold has hit a new all-time high – many think silver will be next.

Silver still trades well below its all-time high – at nearly $50.00 an ounce in late 1979.

The gold-silver ratio still reveals that silver is historically undervalued to gold – Readings above 65 signal that silver is severely undervalued and is a strong buy signal for the metal.

Look for silver to move into a leadership role in the next few months – as the next wave of this historic precious metals rally continues to unfold.

Just as you buy gold to diversify your stock portfolio, it is wise to diversify your tangible assets allocation. How much silver do you own? There’s a lot of runway between current prices and the all-time high in silver. Check out the historical price chart of silver here.

Until next week!

Best,

David

Last week was one for the history books.

After nine-years, gold surged to a new all-time record high – trading up to $1,977.50 as the Covid pandemic rages on, the economic data crumbles and the U.S. dollar crashes lower.

The GDP report was a bitter pill to swallow – even though we knew it was coming.

The 2Q GDP report revealed that U.S. economic growth plunged 32.9% in the second quarter. That marks the largest drop on record, in history.

The economic damage will take years to unwind, according to Capital Economics. Indeed, as many as 4 million small businesses could be lost entirely in 2020, according to the Wall Street Journal.

In the midst of the health and economic crisis, gold climbed 10% in July, cementing its best monthly gain in eight years. Bigger picture, gold is up 27% year to date.

The rally in gold is being complemented by a dramatic surge in silver prices as well. Silver is now up 33% year to date – as precious metals prove to be a safe-haven in this crisis.

Fed reveals its impotence

At a Federal Reserve meeting last week, the central bank revealed its impotence in the midst of this crisis. Having already printed trillions of new dollars since the start of 2020, the Fed appears to be out of bullets to help the economy.

Indeed, many – including Goldman Sachs – now warn that the Fed’s actions are debasing our currency, which leaves us at risk of losing the reserve currency status of the world.

Since the Covid crisis began, central banks around the world, led by the U.S. Fed, have pumped massive amounts of liquidity into the global economy.

However – it is becoming clear that trillions of new printed dollars aren’t what will revive the U.S. economy.

Instead, in order to revive the economy – the U.S. must gain control over the Covid pandemic.

The Fed stated that looking ahead, a fair amount of economic uncertainty exists and that the “path of the economy will depend significantly on the course of the virus.”

The Fed kept interest rates at 0%, at its latest meeting and is expected to maintain that level for the next several years.

Stimulus Ahead?

The extra $600 per week in emergency unemployment benefits expired last week. While Congress has been debating a new round of emergency stimulus, talks are on-going.

With Congress scheduled to go into recess August 10 through Labor Day, there is growing concern the next stimulus package will stall and not get passed before the policymaker’s vacation.

The Presidential Vote

Looming large for the United States, the presidential election is a few months away – and will continue to take up a greater share of headlines. The nation is preparing for a potentially turbulent election cycle as public confidence in the electoral process may be eroding.

Last week President Trump floated the idea of postponing the Nov. 3 election.

Investors should plan and prepare for stock market turbulence into year-end – as the on-going health crisis, the election and on-going debasement in the dollar loom large.

Hurricane seasons heats up

As the hurricane season begins to heat up on the Atlantic coast, Tropical Storm Isaias threatens Florida. Just as the Covid-19 pandemic has altered so many aspects of our lives – hurricane prep is complicated by the virus. Florida authorities are challenged with how to prepare shelters where citizens can seek refuge from storms if needed – while safely social distancing and staying healthy.

If you are in a hurricane prone area, take the time now to prepare your emergency supplies and your family escape plan.

Last Word

Gold posts its highest weekly close on record – now what?  

“Still bullish and still buy dips,” says a July 29 BofA Global Research report.

Have a good week!

Best,

David

The U.S. Stands at a Dangerous Tipping Point.

As gold spiked to a new all-time record high this week at $1,960 an ounce, Wall Street investment bank Goldman Sachs warned the U.S. was at risk of losing the dollar reserve currency status.

Soaring U.S. government debt, rising political uncertainty and social unrest dominate our times. Meanwhile, our government policies have cheapened the value of our money.

The U.S. dollar’s century-long reign over the world economy faces a looming threat as China’s renminbi strives to become its successor.

These are not fringe or conspiracy concerns – but are being put forth by some of the brightest and most successful minds in our country today – and are helping gold soar to new all-time highs.

“Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” wrote Goldman strategists including Jeffrey Currie. There are now, they said, “real concerns around the longevity of the U.S. dollar as a reserve currency.” – Bloomberg, July 28, 2020.

Print money and spend. Print money and spend. The U.S. has been able to get away with this economic model for decades as the U.S. dollar has the benefit of acting as the world’s reserve currency.

Yet, many warn the U.S. is blatantly mismanaging its finances and its currency – as we allow our government debt to skyrocket to an all-time high at $26.5 trillion (up from $19 trillion four years ago), run a zero-percent interest rate policy and continue to print trillions of new dollars at an astonishing pace.

“In the 1960s, French Finance Minister Valéry Giscard d’Estaing complained that the dominance of the U.S. dollar gave the United States an “exorbitant privilege” to borrow cheaply from the rest of the world and live beyond its means. ” – Foreign Affairs, July 28, 2020

View from Sydney

Sometimes it’s useful to look at what’s happening here in our country – from an outsider’s view. Here’s how the Australian newspaper, The Sydney Morning Herald, described the situation:

“What’s occurring is a loss of faith in the US economy, its political system, its competency and in its commitment to the post-war role it has played in the world’s affairs. America’s squandering of its global leadership and its rapidly deteriorating public finances provide no reason for the rest of the world to maintain the faith [in its economy].- July 29, 2020

Countries use U.S. dollars for world trade – for now.

Other countries around the world need U.S. dollars in order to conduct foreign trade. So, they buy dollars. For example, if Brazil wants to buy BMWs from Germany – they need to conduct that transaction in U.S. dollars. The vast majority of world trade is invoiced in US dollars. For now.

This gives our nation a tremendous financial advantage and has allowed our government to finance $26.5 trillion of debt at ultra-low interest rates.

Losing dollar reserve status would be death knell for US.

Just think what would happen if no one needed to buy dollars or U.S. death any more. We could no longer finance debt at 0%.

What would that mean for you and me?

Soaring inflation, soaring interest rates, plunging values in the dollar.

It’s no surprise in this environment, gold is soaring to new all-time highs. Gold, is the ultimate safe-haven, the currency of last resort, and a hedge against inflation due to limited physical supply.

America is a debtor nation with $26.5 trillion in debt – and that’s before the new pandemic stimulus package Congress is debating now. 

While policymakers in Washington debate the next round of pandemic stimulus – it’s worth remembering they are rolling the dice with our nation’s future with every new dollar they choose to print. They are printing new money to fund these emergency packages – and putting our future at grave risk.

Indeed, we are living in historically fraught times.

“According to Deutsche Bank, Germany’s biggest lender, a reelection victory by President Donald Trump could threaten the U.S. dollar’s century-long reign as the world’s de facto reserve currency.

In a July 1 report, Deutsche Bank foreign-exchange analysts wrote that Trump, a Republican, has shaken up “policy orthodoxies and institutions” during this term. In contrast, former Vice President Joe Biden, the presumptive Democratic nominee, would likely pursue “policies that are more predictable and mainstream, with traditional U.S. alliances valued.” Yahoo Finance. July 6, 2020.

Are we witnessing the fall of the U.S. Empire?

Billionaire money manager Ray Dalio recently wrote about the typical cycle behind empire’s rises and declines. What is at the top? “Debt Bubble and Big Wealth Gap.” What lies ahead in this cycle? Debt bust and economic downturn. Printing money and credit. Revolutions and wars. Debt and political restructuring.

“We first saw the Dutch and then the British rise to become the richest and most powerful reserve currency empire and then decline into relative insignificance in cycles that were driven by timeless and universal cause/effect relationships.  We ended with the British Empire declining in the first half of the 20th century.  That brought us up to World War II, after which the British Empire was replaced by the US Empire.” Ray Dalio, July 16, 2020

This week Goldman boosted its 12-month gold forecast from $2,000 to $2,300. Do you own enough?

We understand these are troubling issues. If you’d like to discuss the current economic environment, call your Blanchard portfolio manager today. We are here for you –and can provide advice on how you can protect your financial security for you and your loved ones now and for the future.

We live in confusing times. The outlook for a COVID vaccine has never been more promising. Yet, the number of new cases in the US has never been more dire. This dichotomy has people reeling because they are rightfully frightened while guardedly optimistic.

Consider the tone Pfizer CEO Albert Bourla struck earlier this month when he remarked on the company’s progress towards a vaccine stating, “until now I was thinking if we have a vaccine. Now I’m discussing when we’re going to have a vaccine.” The question of when has never been more pertinent as the total number of known cases in the US reached 4 million in recent days. Meanwhile, new cases worldwide have increased by 35% since the end of June.

The unprecedented nature of the pandemic is powerful enough and pervasive enough to fundamentally change the way people perceive risk. As a result, investors are taking a more defensive stance. This retreat from risk might explain why more investors are embracing gold as part of their portfolio. Recently, gold traded above $1,900 an ounce for the first time since 2011. The increased interest in gold as a mainstay of a well diversified portfolio is evident not only in climbing prices but in the “fear index” created by the Chicago Board Options Exchange (CBOE).

The fear index, formally called the “Volatility Index,” illustrates the market’s expectation of volatility for the next 30 days. Over the last three months the fear index has experienced many intense fluctuations. These dramatic changes are an indication of the angst underpinning many investment decisions. It is no surprise that “a third of Americans now show signs of clinical anxiety” according to research published in The Washington Post.

This anxiety is evident in financial decisions which, in times like these, send even the most stalwart investors to the edge. While this phenomenon is evident in everyday observations, formal research shows that “extreme emotional responses are apparently counter productive from the perspective of trading performance,” according to MIT research. The researchers also concluded that emotions like fear are harmful because they are powerful enough to override higher-level thinking by “short-circuiting” complex decision-making. Today, we are seeing plenty of short-circuiting in the market as investors retreat from their long-term investment strategies in favor of behaviors that offer a sense of short-lived calm.

The effect of this behavior becomes outsized as more investors give in to the impulsiveness often caused by uncertainty. Moreover, it is unlikely that we will see this behavior abate anytime soon. While pharmaceutical companies like Moderna, AstraZeneca, and Pfizer are optimistic about their vaccines, they are hesitant to pinpoint a date for availability. In the meantime, gold continues to fulfill a critical need for investors. Analysts like Eily Ong at Bloomberg Intelligence believe gold could continue its climb well into 2021 “amid rising geopolitical risks in a lower-for-longer interest-rate environment.”

Perhaps the most reassuring aspect of a gold investment is the fact that much of its value is based on its rarity and universally agreed upon value. There is no capricious board of directors, short-sighted CEOs, or fickle managers who can fall victim to the emotionally-driven decisions that are inherent to human psychology.

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Falling dollar helps gold shoot above $1,900 an ounce.

The U.S. dollar fell five days in a row last week.

While paper money fell in value, gold and silver leapt sharply higher last week – fueled by a new Cold War with the U.S. and China, expectations for another trillion dollar government stimulus bill (paid for by newly printed dollars) and interest rates stuck at zero.

The historic 2020 bull market in precious metals is on fire.

The months-long rally in precious metals has more room to run with firms like Goldman Sachs and Citibank projecting more gains ahead. Last week’s gains in gold were the first time the metal traded above $1,900 since 2011.

Silver has surged a remarkable 26% higher since the year began, while gold is up 23%. Upside price targets in gold are seen at $2,300 an ounce and silver at $25.00 an ounce.

A new “Cold War” is building between the U.S and China.

Last week, Secretary of State Mike Pompeo put forth a grave speech to the nation and world. In his speech, titled “Communist China and the Free World’s Future,” he declared the failure of 50 years of engagement with China. And, Pompeo called for free societies to stand up to Beijing.

The United States shuttered the doors on the Chinese consulate in Houston. Soon after, Beijing lashed out and closed the U.S. consulate in Chengdu – which was considered to be the most valuable diplomatic output for gathering information on China’s far west region.

Pompeo’s speech pits East against West.

Sadly for Americans, we are the debtor nation. China is the rich nation that buys our Treasury securities to fund our nation’s gargantuan debt.

The politics could have immense economic consequences on American’s pocketbooks in the future. If China loses appetite to continue to buy our Treasury debt, the outcome would be double-digit interest rates and worse.

Senate Banking Committee approves Judy Shelton.

Last week, the Senate Banking Committee moved forward Judy Shelton’s nomination to the Federal Reserve’s policy making board.

President Trump nominated Shelton, a proponent of returning to the gold standard. However, she has faced widespread criticism from economists across the country. She is viewed by some as unqualified for the job.

The next stop for Shelton’s path to the Fed is a confirmation vote on the Senate floor, where Republicans hold a majority 53-47. Stay tuned.

The week ahead

The major market moving event this week – is the Federal Reserve’s policy making meeting on Wednesday, alongside Fed Chair Jerome Powell’s press briefing.

Wall Street awaits the Fed’s current views on the health of the U.S. economy and how monetary policy will support the fledging recovery.

Also due out this week is the first look at the second quarter Gross Domestic Product economic activity – the report is released on Thursday. Wells Fargo expects a 35% annualized contraction. That would represent more than three times the previous, largest decline on record, which was a negative 10% reading in the first quarter of 1958.

Parting thoughts: the danger of ‘free money’

As the U.S. government prepares to pass another trillion dollar stimulus package, it’s instructive and disturbing to consider how ‘dependent’ the U.S. economy has become on government bailouts, new money-printing and zero percent interest rates.

Here’s what Ruchir Sharma, chief global strategist at Morgan Stanley warned last week in the Wall Street Journal:

“The mantra of government officials is that these efforts are not only necessary but also will carry no cost or consequences. They believe that they can easily borrow to pay for it all because the last four decades of easy money have brought interest rates to near or less than zero: Money is free.”

“This is a dangerous form of denial… All of this leads to low productivity—the prime contributor to the slowdown in economic growth and a shrinking of the pie for everyone…At the same time, easy money has juiced up the value of stocks, bonds and other financial assets.”

Can the government indeed be the solution for all our economic woes?

In this world, protecting your wealth and future with hard assets like gold and silver has become more important than ever.

Have a good week!

David

Uncertainty has long been the default outlook of investors. The present, however, represents both uncertainty and volatility not commonly seen in the markets. COVID-19 cases continue to climb, geopolitical events develop on an hourly basis, and markets are wavering. These factors, which are likely to remain in flux over the next six months, have investors confused. In times like these, it is often useful to examine the most influential characteristics of the present to understand the future.

When it comes to the future of gold in H2 of 2020 investors must consider how competing assets are poised to perform because gold performance is driven, in part, by the relative attractiveness of fixed-income instruments and equities.

For example, consider one of the most popular fixed-income securities, the U.S. Treasury. Today, benchmark 10-year Treasuries offer a slim yield of only 0.621%. At this level, Treasuries are not far from their all-time low of 0.569%. As a result, investors, even those seeking safety, have little reason to seek out this kind of fixed-income solution. Moreover, as Barron’s recently reported, “in real terms, the Treasury inflation-protected securities 10-year yield has fallen to negative 0.81%, a hair from its nadir of negative 0.85% reached on Dec. 5, 2012.”

This under-performance might prompt investors to look elsewhere, like stocks. However, there are emergent problems here as well. While equities appear to be a rare bright spot for investors today a deeper analysis reveals problems. Some have touted the resilience of the S&P 500 which is about flat for the year. This performance, while not remarkable, does seem to indicate the market has held its value despite a crippling pandemic. The problem is that the index’s ability to retain its strength appears dependent on high valuations. At the moment, S&P 500 valuations, as measured by price to earnings ratios, are nearing levels seen during the dot-com bubble. For many investors it is worrying that a flat YTD performance demands such high prices.

The potential price appreciation of gold in H2 of 2020, however, is not entirely reliant on the dimming prospects among equities and fixed-income investments. Gold has proven it can command higher prices based on its own merits. That is, gold outperformed all major assets in the first six months of the year. The NASDAQ, US cash, EAFE stocks, oil, and EM stocks all under-performed in comparison to a 16.8% gain in US-dollar terms in the value of gold during H1 of 2020.

As the future unfolds gold continues to be an attractive investment for several reasons. First, the problems plaguing fixed-income and equities are unlikely to abate in the next six months. They are systemic. Second, positive price momentum seen in the first half of the year appears supportive of continued growth. Third, the pervasive sense of heightened uncertainty as seen by a volatility index that is running approximately double what it was pre-pandemic, indicates that other investors will support gold’s upward trajectory as more flock to the safe haven investment.   

Silver Climbs 68% since Mid-March Low

Precious metals are on a tear this summer.

Silver soared as high as $19.44 last week, and continues to climb today, cementing a 68% gain off the mid-March low.

The rotation toward silver is evident in the precious metals arena, as silver has now outpaced recent gains in the S&P 500 and even gold.

Investors are piling into silver as an alternative to Treasury bonds and even gold.

Industrial demand for silver is growing amid factory re-openings in the U.S., China and elsewhere around the globe. Silver is a critical component in industry and is widely used in solar panels, medical equipment, consumer electronics, car engines and more. Because of the industrial demand, silver demand – and prices – typically rise as economic activity picks up, which is a key differentiator from gold.

Near-term, silver bulls are eyeing the psychologically significant $20.00 an ounce level, with gains easily forecast beyond there.

The gold-silver ratio remains historically wide spread at 94 – which signals that silver remains extremely undervalued compared to gold.

Expect dramatic catch up in the months ahead by silver.

Meanwhile, the gold market has stabilized above the $1,800 an ounce level as modest price weakness quickly sees strong buying action enter the marketplace. Analysts and Wall Street firms remain extremely optimistic on the outlook for gold – with a run through the all-time high just above the $1,900 an ounce level seen potentially even before year-end.

Consumers Losing Confidence…

Last week, we saw the University of Michigan’s consumer confidence index fall to 73.2 in July, down from 78.1. Our take? That’s an indication that the surge in new coronavirus infections across much of the country is worrying consumers.

Backward Looking Government Data Provides Hope, But…

The June retail sales number came in better-than-expected at 7.5%.

Consumers were out buying essentials like clothing, furniture, electronics and sporting goods last month, while online retailers and groceries saw marginal declines.

Looking ahead, August retail sales faces challenges once those $600 weekly unemployment checks expire at the end of this month.

“Economic data out this week point to a historic recovery. But, with coronavirus cases on the rise across the country, concerns are growing that these gains may be short-lived,” wrote Beth Ann Bovino, U.S. Chief Economist at S&P Global Ratings. “Retail has nearly reached its pre-pandemic point, in part because of government assistance, but consumer sentiment data already shows fears of the rising number of COVID-19 cases,” she added.

Kicking the Can down the Road

The U.S. budget deficit hit $3 trillion in the 12 months through June, the Wall Street Journal reported last week. The culprit? Soaring stimulus spending, while tax revenues plunged. That gap could widen even further if Congress moves ahead with another round of emergency spending.

How will our country ever pay its debt? The Federal Reserve’s money printing policies are becoming a crutch for our country. These actions only devalue our fiat money now and in the future.

The Fight Continues

The fight against rising Covid-19 infections continues with new requirements nationwide from some of the largest retail stores. Walmart, Starbucks, Target, CVS and a slew of other major retailers now require shoppers to wear masks while shopping in their stores. What will the fall months bring as seasonal influenza enters into the mix. The health crisis has not yet been tamed.

Looking Ahead

We are just weeks away from August and September – historically and seasonally – the worst months of the year for the stock market. Covid-19 is still spreading. Many cities and states are slowing or reversing the reopening plans.

Is your portfolio ready for what lies ahead?

Gold and silver are proving to be shining safe havens in the midst of this historical health and economic crisis. And, recent news reveals that money market funds may not be as safe as you think. Until next week…

Take care,

David

Suggested Reading:

In April – we let our clients and readers know that the bull market in silver was beginning. There’s still more to go. Don’t miss out on the next leg up in silver.

Special Report: The Long Bear Market in Silver – Part One

Special Report: The Long Bear Market in Silver – Part Two

Gold: One of 2020’s Top Performing Asset Classes

All eyes are on the gold market.

Gold closed higher for the fifth week in a row, cementing its spot as one of 2020’s best performing asset classes.

Gold is up 17% this year and closed above the $1,800 an ounce level last week. Silver wasn’t going to be left behind – and it also closed higher last week above the $19 an ounce level.

The trend for gold points UP – and new all-time highs above $1,900 (scored in 2011) are just around the corner.

This year, gold has already hit new all-time highs in 16 currencies, including Gold/euro, Gold/British Pound, Gold/Japanese Yen, Gold/Australian dollar, Gold/Canadian dollar, Gold, Chinese Yuan, Gold/New Zealand dollar.

Yes indeed. Gold $2,000 here we come.

There are No Easy or Quick Fixes for This

There’s no getting around it.

We heard a bunch of bad news last week – as major companies warned of massive job losses ahead. 

Iconic Brooks Brothers filed for bankruptcy last week after over 200 years in business.

United Airlines warned it may need to fire 45% of its workforce. That follows American Airlines statements suggesting it may have 20,000 more workers than it needs.

In the banking sector, Wells Fargo, the largest U.S. bank employer, is readying to cut “tens of thousands” of jobs in 2020, Bloomberg reported.

There are no easy or quick fixes. It will take at least 10 years for the labor market to recover from the Covid pandemic, according to the most recent data from the Congressional Budget Office (CBO).

While government officials state there is no appetite to force another shut-down, the pandemic continues to accelerate with a new single day Covid case high. Sadly, last week, Florida, Texas, California and Arizona saw their Covid daily death tolls hit record highs, according to Hopkins data.

What lies ahead for our country? The pandemic is spreading fast in Sunbelt states. Will Covid fizzle out on its own soon – or will the United States health crisis grow doubly worse once the seasonal flu season kicks in during the fall months?

The scary truth is that no one knows. If the health crisis continues to accelerate in the months ahead, another lockdown or shelter in place is one of the biggest risks to our economy ahead.

Waiting for the next shoe to drop?

The stock market is on edge, trading sideways last week in a holding pattern.

It’s only a matter of time before the stock market adjusts to the economic reality seen across the country with over 40 million Americans filing for unemployment benefits since the pandemic began just a few short months ago.

Businesses are shedding workers, because their profit and revenues are diving. A full 40% of companies in the S&P 500 pulled their earnings guidance because of the virus. There are real risks ahead.

Another new bullish forecast for gold

We have been asked whether we still like gold at these levels. The short answer is a resounding “yes” – a July 6 Wells Fargo Investment Institute.

In fact, the Wells Fargo Investment Institute issued its 2021 year-end target for gold at $2,200-$2,300!

“In our opinion, gold has a host of drivers working in its favor, and believe that gold is on its way to new highs,” the Wells Fargo Investment Institute report said.

The last word

Any portfolio disruptions you’ve seen this year due to the stock market volatility have been mitigated if you are holding gold now. Gold is in an uptrend, climbing – with more room to run. We are seeing clients increase exposure to gold now – as investors want to capture more portfolio protection and asset growth in these uncertain times.

If you have questions, we are here to help.

Warm regards,

David

If you are parking your sidelined cash in a money market fund, caveat emptor.

That’s Latin, of course, for let the buyer beware.

Long thought to be a safe harbor in turbulent times, money market funds are showing their true stripes these days. Few investors read the fine print on their investment company’s website or obscure SEC documents, so we are detailing current issues you need to understand here.

Long gone are the days when you can earn even 1% on a money market fund.

Today, the national average for a money market yield is 0.09%.

In fact, business is so bad in the money fund industry, Fidelity liquidated and closed two of its prime money market funds this month (June 2020).

A little history – breaking the buck

Investors’ park cash in money market funds that they want to keep safe. Investors believe that these accounts are secure, safe and can’t lose money.

Yet, that is not true.

Money market funds seek to keep the net asset value (NAV) at $1. There is a phrase called, “breaking the buck,” which means if the NAV falls below $1, investors will lose money.

In the midst of the 2008 financial crisis, a major money market fund – The Primary Fund, which had about $65 billion in assets – broke the buck. Initially, The Primary Fund reported that, until further notice, it would delay paying redemptions to customers for up to seven days, as permitted under mutual fund law. Source (NY Times)

Eventually, because the value of investments fell (the fund held a lot of debt from bankrupt Lehman Brothers) – it was forced to liquidate and investors in that money market fund only received 97 cents for each dollar invested.

What is going on with money markets?

The current zero interest rate environment and the specter of negative interest rates is making these funds even more risky now.

A money market fund generally holds investment-grade short-term government bonds that mature somewhere between 30 and 90 days. Some money market funds also hold triple A–rated corporate debt.

What happens when interest rates are zero or negative?

They lose money.

It’s important to remember that money market funds are not insured against loss by the FDIC. Here’s what the Consumer Financial Protection Bureau (CFPB) says:

“Money market funds are offered by investment companies and others. Money market funds are not insured by the FDIC or the NCUA, which means you could possibly lose money investing in a money market fund.” (Source: CFPB)

What will happen to your money?

Major investment companies are addressing the issue of negative interest rates and the impact on money markets funds on their websites – if you look for it.  That shows that investors are asking questions about this – and the funds are tacitly acknowledging that that negative rates may cause a run on the funds.

Will you be able to withdraw your funds with these restrictions in place?

You may need to wait up to 10 business days to withdraw your funds from a money market fund and pay a “liquidity fee” to get it.  And, these accounts have ‘broken the buck’ in the past – which means you may get back less than you initially deposited.

 Charles Schwab notes it is permitted to impose a liquidity fee up to 2% on redemptions.

Here’s the info straight from the SEC’s documents:

“The SEC also is adopting amendments that will give the boards of directors of money market funds new tools to stem heavy redemptions by giving them discretion to impose a liquidity fee if a fund’s weekly liquidity level falls below the required regulatory threshold, and giving them discretion to suspend redemptions temporarily, i.e., to “gate” funds, under the same circumstances. These amendments will require all non-government money market funds to impose a liquidity fee if the fund’s weekly liquidity level falls below a designated threshold.” (Source: SEC rules).

Negative rates could cause a run on money market funds, which could send these funds spiraling lower fast.

Here’s the hard truth.

  • You aren’t making any money holding funds in a money market fund (0.09% interest rate).
  • The NAV of your money market fund could go below $1.
  • You may have to pay up to a 2% liquidity fee to get your money back.
  • You may have to wait up to 10 days to get your money back.

Where can investors park assets to ride out the pandemic in safety?

Gold and silver.

  • Gold and silver are a tangible assets.
  • They are highly liquid. Gold and silver can be quickly sold for cash on the spot – in any country around the world. Gold is one of the most liquid financial assets in the world.
  • Gold is rising in value. In fact, gold is up 16% year to date!
  • It is non-correlated to stocks – when stocks go down, gold rises.

Consider increasing your allocation to gold now.  Get asset preservation, liquidity and rising value all in one golden package.

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Gold Surges above $1,800 for First Time Since 2011

Gold traded above the $1,800 an ounce level last week for the first time since 2011. The summer gold rally is hot and getting hotter.

As the economy continues to reopen, store clerks are reminding shoppers to put on their face masks. People are waiting for the next elevator. Hand sanitizer is available at almost every establishment you enter.

Yet Texas, California and Florida continue to reveal a swift increase in the number of confirmed Covid-19 infections. Over 57,000 new Covid cases, a record high number, were reported in the U.S. on July 3 as the number of new daily cases accelerates and points higher.

The new wave of infections prompted California to order 19 counties to partially close down some activities. On the East Coast, New Jersey and New York City delayed the resumption of indoor dining at restaurants.

Hopes for a “V” shaped economic recovery are being dashed as some states are now back tracking on economic activity plans.

How to Interpret June Jobs Data

Last week, the June employment report came in better than expected with 4.8 million new jobs created. The unemployment rate fell to 11.1% from 13.3% the previous month.

While that sounds promising, at the same time, another 1.4 million Americans lost their jobs last week and applied for unemployment benefits.

The bottom line – is that the economic data is “noisy” right now.

The stock market is down, the stock market is up. Lock-downs shutter businesses, some are reopening on a smaller scale. Others are getting closed once again. One economic report looks good, another reveals the depth of the crisis.

Here’s the hard truth; it might take years for all of the jobs that were lost to fully recover. In fact, during the 10 recessions since 1950, it took an average of 30 months for lost jobs to finally come back, LPL Financial said recently.

 “As good as the recent economic data has been, we want to make it clear, it could still take years for the economy to fully come back,” explained LPL Financial Senior Market Strategist Ryan Detrick. “Think of it like building a house. You get all the big stuff done early, then some of the small things take so much longer to finish; I’m looking at you crown molding.”

Fed Meeting Minutes Reveal How Little They Really Know

Last week the Fed released its minutes from the early June Federal Open Market Committee (FOMC) meeting. What do we find?

A lot of uncertainty.

In fact, the Fed meeting minutes referenced “uncertain” or “uncertainty” 45 different times in the 13-page report.

Yes, really.

The Fed minutes also revealed that the central bankers remain fairly pessimistic on the economic outlook ahead as “voluntary social distancing, precautionary saving, and lower levels of employment and income” are likely to weigh on recovery prospects in the medium term.

In the News…U.S. Dollar at Risk

Billionaire hedge-fund manager Ray Dalio highlighted the shift towards “storeholds of wealth” like gold in an interview with Bloomberg last week.

Dalio, not afraid to speak the truth, stated that the Federal Reserve is boosting markets, and even more worrisome, the U.S. dollar could lose its appeal in the world marketplace.

“The economy and the markets are driven by the central banks in coordination with the central government,” Dalio told Bloomberg.

He warned that if any viable alternative to the U.S. dollar emerges, investors will dump U.S. Treasury bonds, which offer zero return, and pile into the new alternative.

“That would be terrible for the United States,” Dalio continued. “It would be probably the biggest disruptor not only to the markets but to the whole world geopolitical system.”

Sadly, given the size of our U.S. government debt ($22.8 trillion and rising every day) and the massive money creation by the Federal Reserve – make this a “when” not “if” scenario for our country.

Will this disruption come in 1, 5, 10, or 20 years? No one knows.

But, when it does, foreigners will pull out the U.S. dollar, sell U.S. Treasuries, pull out of the American stock market – leaving the U.S. nothing but $22.8 trillion in debt (likely much more by then) with no one willing to buy our bonds to finance the debt anymore. That will mean interest rates – probably at the highest levels ever seen in the United States – double digit for sure. And, a massive devaluation of the U.S. dollar.

It’s no wonder that bank after bank on Wall Street are turning more and more bullish on gold by the day.

More Bullish Forecasts for Gold

Another U.S. investment bank recently jumped on the bandwagon of bullish price forecasts for gold – Citi analysts have now increased their 3-month forecast for gold to $1,825 an ounce.

Goldman Sachs calls for Gold $2,000

Goldman Sachs forecasts gold to hit $2,000 within 12-months.

China Power Rising

On the global front last week, China’s power is rising – as it boldly passed a National Security Law for Hong Kong, which threatens the end of the ‘one country, two systems’ promised 23 years ago on the handover from Great Britain to China.

China’s rising power and ambition stretches far beyond Hong Kong with economic ramifications that will likely become the biggest challenge for our country in the decade ahead.

Preparing Your Asset Allocation for the Next Stage of the Covid Crisis

The second half of 2020 ushers in a U.S. presidential election, a potential “second wave” of Covid in the fall, once the seasonal influenza season begins, and a whole host of geopolitical challenges as China continues to force its way onto the world stage in a stronger way.

If you’ve been considering increasing your allocation to gold, the argument has never been stronger. Move to the safety of gold, an asset that will preserve, protect and grow your wealth today, tomorrow and for generations to come.

Best,

David