Students of Greek mythology will recognize the tragedy that surrounds the words that Cassandra speaks.

Cassandra of Troy, was a daughter of King Priam and Queen Hecuba in Greek methodology. Attracted by her breathtaking beauty, Apollo gave her the power of prophecy and foretelling the future in an attempt to seduce her. Strong willed and defiant at times, Cassandra rejected Apollo. As the story goes, Apollo spat in her mouth triggering a curse that no one would ever believe her prophecies.

Sadly today, the yield curve (or the spread between the 10-year note and 3-month note yield) has become a modern day Cassandra.

An inversion of the yield curve is the best predictor of recession for the last 50 years. It has inverted before every single recession with no false positives.

An inverted yield curve means that the long-term Treasuries have a lower yield than short-term debt instruments. 

Yet, economists and even Fed officials are questioning the predictive power of the yield curve.

They are falling into the dangerous trap of not listening to Cassandra. This has happened before.

In 2006, prior to the global financial crisis, the yield curve inverted. At that time, former Fed chairman Ben Bernanke argued the inverted yield curve may no longer be a strong recession indicator since bond markets have become global.

Well, the rest is history as the Great Recession soon followed.

Just as Apollo became lost in Cassandra’s beauty, Wall Street veterans have become entranced with the ever-growing U.S. economy. What could go wrong? Recession? No way, they say.

Don’t forget this juiced-up late stage expansion is fueled by one of the largest corporate tax cuts in history. The $1.8 trillion fiscal stimulus package passed last year is working. Here’s the rub. It only lasts so long. Congress can’t pass another tax cut next year and the economy will begin to run out of gas.

The yield curve hasn’t inverted yet. But, it is flattening noticeably. The 10-year note yield at 2.9% is still above the 3-month bill yield at 2.1%. But, it’s getting close.

As the Federal Reserve continues to hike interest rates, the inversion will become closer and closer. 

This is a foolproof recession predictor.

 In July 2000, the yield curve inverted. Not long after, the business cycle peaked, the Dot.Com stock market crash came and the recession started in March 2001. Then, the yield curve inverted in August 2006, and the Global Financial Crisis sparked a recession that began in December 2007. It has inverted before every recession back to 1953, when the data started.

It’s time to listen to Cassandra.

The yield curve is warning that the next recession is on the horizon, no matter how rosy the economy looks right now.

The S&P 500 lost roughly 50% of its value in the 2007-2009 bear market. Yes, 50%!

If you haven’t fully diversified your portfolio with tangible assets, the yield curve is warning that you should act now. Physical gold bullion typically surges sharply higher when stocks crash.

Owning physical gold is a simple strategy to protect your assets in the coming recession. Don’t make the mistake of discounting Cassandra’s warning. Ignore her at your own peril.

Want to relax and enjoy life for a change? Try becoming a zero.

A zero-beta asset is one that has no systematic risk.

Simply put, systematic risk is the risk that’s common to all investing. Therefore, it is sometimes called “undiversifiable risk.” You cannot escape it. If you want to play the game, you have to step on the field.

Except when you don’t.

Research from the University of Oklahoma shows that “gold bullion adds no systematic risk to an investor’s portfolio.” Therefore, it is a zero-beta asset. Beta is a number that reflects an asset’s risk compared to the general risk of the entire market.

An asset with a beta of 1 moves exactly as the market does. An asset with a beta of 1.1, for example, is 10% more volatile than the broader market. An asset with a beta of 90 is 10% less volatile than the total market. Beat is a useful number for investor because it tells you how much more, or less, volatile an asset is in comparison to simply “buying the market” with an S&P 500 index fund.

The researchers’ analysis shows that gold’s beta “is statistically indifferent from zero.” This finding means that the researchers believe that gold is not exposed to market volatility. As they explain, gold is “virtually uncorrelated with stock returns,” and “bears virtually no market risk, yet has a positive risk premium.”

That detail is important for anyone looking to minimize the total risk profile of their portfolio. Unfortunately, not nearly enough people realize that they need to reduce the risk within their portfolio.

In a recent article in the Wall Street Journal, author Jason Zweig explores how poorly most investors assess risk. We forget painful lessons. We dismiss important information when it doesn’t agree with our expectation. Perhaps our thinking hasn’t evolved fast enough to keep up with the relatively modern invention of money.

Harvard economics professor Andrei Shleifer explains that “The extent to which people’s expectations of future stock-market returns track the past 12 months of returns is astonishing.” Most investors don’t consider enough of the risks. At the same time, they overemphasize the rewards.

This irrationality has spread through the entire financial market. Other researchers, published in the Journal of Economic Perspectives, prove the existence of this irrationality by explaining that “asset markets exhibit trading volumes that are high, with individuals and asset managers trading aggressively, even when such trading results in high risk and low net returns.”

Just like systematic risk, there’s no escaping irrationality. You might be aware of it, but you cannot avoid it. To be irrational is to be human. However, you can minimize it with zero-beta assets.

As part of a diverse portfolio, zero-based assets like gold help investors get out from under an irrational market. Too many buy and sell transaction governed by emotion rather than logic. The equity bull market of today has become the longest in the history of investing. The work of economists and social psychologists shows us that these stock valuations reflect more than underlying value. They reflect exuberance.

Attention investors: school is in session!

It’s September and time for a fresh look at your portfolio.

The temperatures are cooling down. The days are getting shorter. The leaves will soon change colors. The kids are loading their backpacks with books, fresh notebooks and pencils. The back to school feeling extends well beyond the school yard and spills over into adult life too.

September offers investors the opportunity to revisit the basics—the ABC’s of investing. This is the perfect opportunity to review the basics and make adjustments to your long-term investments.

Getting Started

There are many reasons to invest in physical gold and silver.

1. When stocks fall, gold prices typically rise. Historically, during periods of severe stock market stress, gold has traded significantly higher.
2. Gold is a hedge against inflation. History shows that during inflationary periods, gold has climbed significantly in value.
3. Gold is a proven and safe store of value. Owning physical gold can preserve your future purchasing power if the value of paper money declines.

Portfolio Allocation

There are many ways to structure an investment portfolio. Some investors choose to lump 40-70% of a portfolio into stocks, a portion in bonds and from 10% to 20% in tangible assets like physical gold and silver.

How much is right for you? Only you know how well you want to sleep at night.

It always comes back to the question of risk. Stocks are the most risky asset. Bonds can temper that risk. Gold is the premium choice for wealth preservation and risk avoidance.

How does one invest in gold?

A great starting place for most investors is the 1 ounce Gold American Eagle which is .99999 fine and guaranteed for weight, content and purity by the United States Government. Each gold bullion coin carries a small premium over the spot price of gold – usually 3-4% – to cover its manufacture and handling, but that premium is a part of the return investors receive when they sell.

While the American Gold Eagle typically carries a slightly higher premium than other gold coins, such as the Chinese Panda, Canadian Maple Leaf and South African Krugerrand, it also returns a higher buy-back price when an investor is ready to sell.

Your Homework: Pull Up Your Statements

The recent rally in the U.S. stock market to all-time highs likely left you with more stock market exposure – and more risk – than you wanted or even realized.

If a bear market cycle in stocks emerges, that could wreak havoc on your long-term financial goals, before you have a chance to stop the bleeding.

Rebalancing now will bring your portfolio back into alignment with your goals and risk tolerance level.

What is rebalancing? Simply put, it is a strategy that investors can use to maintain their long-term desired investment allocations.

Key Benefits

• Rebalancing helps you control market risk.
• Rebalancing your portfolio may ultimately deliver higher returns than a portfolio that is not rebalanced.

Sell a Portion of your Stock Winners

Rebalancing your portfolio is as simple as selling a portion of your stock allocation and buying more tangible assets to bring you back to your original goals. Gold is at lower price levels that we saw earlier in the year and the U.S. dollar is stronger now.

Turn your “unrealized” profits in the stock market into real profits and store those gains in a physical gold and silver.

Want extra credit? Do it now.

Blanchard portfolio professionals can help you quickly and easily transition into physical gold.  Give us a call today and start building a portfolio that will let you sleep soundly at night no matter what next month or next year brings.

Class dismissed.

Getting in and out of the market at the right time is everything. The problem, however, is that the right time is never clear until it’s too late. Humans aren’t good at predicting outcomes.

In 2001 author Robert Zuccaro famously declared that the Dow Jones Industrial Index would reach 30,000 by 2008. Today, we still haven’t reached 30,000. Moreover, his prediction year of 2008 market one of the most disastrous declines in the history of the stock market.

Then, there was economist Ravi Batra whose 1987 publication, “The Great Depression of 1990” became a New York Times bestseller. Then, the 1990s ushered in an era of economic prosperity.

Predicting is a losing game.

Perhaps this is why so many fail to recognize opportunity. Science shows that we are far too confident in our decisions. But, research into psychological shortcomings like confirmation bias, gambler’s fallacy, and the ostrich effect all reveal how the brain short circuits our decision process.

Gold investors would be wise to take note of these errors. Many recent headlines lament falling gold prices. They take a cautionary and depressed tone. They warn of recent drops in value. However, they all miss a key takeaway: declining prices leave investors with upside potential.

Getting into the gold market now means enjoying a relatively low-cost basis. That is, investors who buy low have a greater chance to see their investment in gold appreciate over the long-term.

Large institutions know this fact well. Consider that “After nearly two decades as net sellers, central banks collectively are now net buyers of precious metals (mainly gold), contributing to a decrease in supply and an increase in demand,” according to Morgan Stanley.

However, if this central bank buying is reducing supply, then why isn’t the price going up at the moment. The answer is found in the hundreds of biases steering investors every which way.

The problem is that we’re not wired to view circumstances in a long-term context. For early humans, the long-term didn’t extend much further than the next harvest. Therefore, it’s not surprising to see why it’s difficult for investors to consider that gold has outperformed stocks and bonds.

In fact, investors only have to look back 15 years to see that gold has delivered an impressive 315%. This performance outpaces the Dow Jones Industrial Average which earned just 58% over the same period.

The key to investing in commodities like gold is to preserve a long-term perspective amid the noise of headlines, talking heads and the incessant voice within that urges us to act irrationally.

The slumbering dollar bears have come out of hibernation. The U.S. dollar has roared back to life in recent months, climbing a solid 10% since its February low.

In the most simplified terms, that means the dollar bill in your pocket is now worth $1.10.

Your $1.00 bill can now buy 10 cents more than it did six months ago. Hint: If you are thinking of traveling abroad, you’ll likely get more bang for your buck now than in February.

Why is the U.S. dollar climbing?

The world of foreign currency trading is a zero-sum game.

That means for every winner, there is a loser.

Right now, the U.S. dollar has roared back to dominance on the world stage. The U.S. economy looks better than economies of many other G-10 nations, so that tilts favor toward the dollar. When the Federal Reserve hikes interest rates that also strengthens the dollar.

Bullish interest rate differentials

Global money managers compare official interest rates that are attached to each currency.

Essentially, the Fed is “paying” investors more to hold the dollar. The Fed’s official interest rate currently stands at 2.00%, while the European Central Bank’s interest rate stands at zero percent.

If you are a foreign investor with some money to park someplace, which would you choose? A savings account that pays zero? Or a savings account that pays 2%.

Two percent may not sound like much. Yet, a whopping $5.3 trillion dollars trades each day in the forex markets, according to the Bank for International Settlements. Two percent can add up quick on big money.

What does this mean for gold?

Gold is priced in U.S. dollars on the world marketplace. As the dollar strengthens that typically pushes the “price” of gold lower. There tends to be an inverse correlation.

If you’ve been waiting to buy physical gold, consider this.

When the U.S. dollar is gaining in the world markets, consumers are gaining purchasing power.

The flip side is true as well. When the dollar is weakening, consumers are losing purchasing power.

In essence, the stronger dollar means you can buy 10% more gold right now!

If you’ve been waiting for the “right time” to buy gold, this is it. Don’t delay.

Beware: Cycles Change

While the dollar is strong now, that hasn’t always been the case.

From 2001 to the 2008 low, the U.S. dollar index plunged 26%. That’s a huge move, and a massive decrease in purchasing power for American consumers.

The value of paper money rises and fall, especially as central banks have flooded the world’s money supply in recent years. When the U.S. dollar declines in value that means you can purchase less with it.

Right now, you’ve got a chance to buy more with the mighty dollar!

Gold is the world’s first currency and can help maintain the true purchasing power of your assets that are held in bullion and coins.

See how gold much your dollars will buy now

1 Oz American Gold Eagle Coin

1 Oz American Silver Eagle Coin

We think you’ll be surprised.

Don’t worry about a financial doomsday, if it comes you’ll be sipping iced tea on the beach. Science proves it.

A chain of record-breaking gains in the equity market has made investors nervous. They’re asking “how much longer will this last?” In 2017 the Dow Jones Industrial Average saw 70 record closings. Meanwhile, the S&P 500 hit 69 record closes in the year.

In January of this year, the Dow surged 322 points to close above 26,000 for the first time. Investors are fearful that Newton was right. What goes up must come down. Way down. While no one can accurately predict the next crash or correction, most agree that stocks will come back to Earth. After all, we’re 10 years into the bull market.

So how does an investor reliably shield themselves? Researchers have learned that “empirical results show that gold is a safe haven for stocks.”

Their research shows that gold functions as a safe haven for approximately 15 days. Any seasoned investor knows how much can happen in 15 days. In fact, it took only one day for the Dow to fall more than 22% in 1987. However, for gold to behave as a true haven during periods of turmoil in the stock market, investors must remember a few essential rules.

They found that investors who “purchase gold only after an extreme negative shock occurred” didn’t receive any of the protection they needed. Buying late in the game only decreases the portfolio’s value.

Part of the researchers’ inspiration stems from prospect theory. The idea, created and developed by Nobel Prize winner Daniel Kahneman, argues that people value losses and gains in different ways. For this reason, the theory is sometimes called “loss-aversion.” The theory suggests that people will make different decisions about where to invest based on how that investment’s performance is presented.

If the investment is presented in a way that highlights periods of decline, then most avoid it. If the same performance is described with language highlighting the periods of positive performance, most investors will jump in.

Humans are tuned to how others “spin” it.  

During a boom period for equities, investors see plenty of positive spin. They see record-breaking years like 2017. They perceive the probability of a gain as something greater than what is really presented.

The study illustrates not only gold’s power but also the psychological biases governing our decisions. The more investors become aware of these biases, the more they can do to counteract them. These findings are significant for long-term investors because after a major negative stock return “the figures show a relatively constant gold price.”

You can’t control the market, but you can control your exposure to downside risk with safe-haven assets like gold held over the long-term. “The key characteristic of a safe haven asset is the fact that it is effective in extreme market conditions in contrast to a hedge that is only effective on average but not necessarily in times of market turmoil,” write the researchers.

Get that iced tea ready!