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….

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.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

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

It turns out, investors have short memories.

If you have assets invested in the stock market, you might be feeling okay right about now.

Indeed, the stock market has rebounded smartly off the March lows.

The S&P 500 is still down on the year, but only a 3% decline – versus the stomach-wrenching 35% decline we lived through in March.

Do you believe the worst of the Covid-19 inspired stock market declines are behind us?

It feels easy to believe that right?

In fact, the jury is still out on whether this is a simply a bear market rally.

Nonetheless, it is all too common for investors to assume what has happened recently will continue to happen in the future.

Psychologists call this “recency bias.” It refers to the phenomenon where an individual more easily remembers recent events, compared to something that occurred in the past.

Simply put, the recency bias makes it easier for you to remember the recovery off the March lows than the sickening sell-off that began in February.

Here’s the rub. Investors often mistakenly rely on recency bias to make investing decisions.

It might not be wise to become too complacent about the stock market right now. It may be recency bias trying to trick you up.

Recent data shows that a lot of investors dumped stocks in February and March, during the stock market crash, and went to cash.

Assets in money market funds surged to a record-high $4.6 trillion recently, according to data from Refinitiv Lipper dating back to 1992.

If you are sitting on cash right now and feeling optimistic about the stock market. Consider how you may re-allocate those funds.

Major investment firms remain bullish on gold and are now advising high net worth clients to consider allocations to gold as a replacement (or partial replacement) for their bond allocation, given the paltry yields offered on U.S. Treasury securities today.

Don’t fall prey to this psychological investment trap. Don’t project recent experiences (the swift stock recovery) onto the future.

Right now, it may feel like it is smart to move back into a heavy weighting to equities. But, for investors who aren’t properly diversified, their portfolios could suffer – perhaps even dramatically – if trends change quickly.

When investors think about trading psychology, fear and greed usually pop to mind. However, there are deeper psychological biases at work – like the recency bias – that may impact how we think and act without even realizing it.

The lesson? Be cautious after big wins in the stock market.  This is a time to rely on objective allocation principles. Be aware just after a big recovery rally in stocks, you may be vulnerable to bad investment decisions.

Never before has it been more important to seek out objective, expert investment guidance. If you moved to cash in February and March, give us a call and we can talk through scenarios that could be appropriate for your long-term investing goals and risk tolerance levels.

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

How Long before We See Gold Hit $2,000?

Did you wonder what would happen to the economy once the second wave of Covid-19 hits in the fall?

It turns out the first wave still isn’t over. In fact, it’s getting worse. Covid-19 infections are spreading like wildfire in hot spot states.

Last week, the U.S. recorded a new all-time daily high of Covid-19 cases – at 40,000 in one day. The U.S. now has 2.4 million confirmed Covid-19 cases – and 122,370 deaths – more than any other country. Texas and Florida governors hit the pause button on their reopening plans as those states became the new hot spots.

Covid-19 is indeed reshaping our economy in ways we never could have imagined and it will be months or years before we understand the new landscape we now live in.

Because of Covid-19, Microsoft announced it is permanently closing all physical stores, while retail employees will continue to serve customers remotely and digitally. Hilton Hotels announced it laid off 22% of its corporate staff as business and personal travel could take months or years to return to its pre-Covid-19 levels.

Markets react

In the midst of this news, the stock market cratered last week as investors began to question the market’s swift recent recovery.

And, gold soared to a new 8-year high! With gold closing in on the $1,800 an ounce level, new all-time highs are within easy reach this year.

New economic data

Last week, the government reported a 4.2% drop in personal income in May. If consumers don’t have money, they can’t spend it. The recession isn’t over for millions of American. The latest jobless claims report saw another 1.48 million people file for unemployment insurance benefits.

Presidential election looms

Recent polls show Democratic contender Joe Biden beating out incumbent President Donald Trump. There are still several months before Election Day and sentiment may change. Yet, this looms as a major turning point for the country in 2020.

Early insights reveal expectations that a ‘clean sweep’ for Democrats would hold back the stock market. Why? In large part because that could pave the road for higher corporate taxes and a reversal of the sweeping tax cuts that were put into place under the current Administration. Expect election news to move front and center into daily headlines in the weeks ahead.

Wall Street Embraces Gold

Wall Street is turning to gold in 2020 like never before. From Goldman Sachs, to BofA Global Research, big firms are bullish on the prospects for gold ahead.

A June 24 BofA Global Research report was titled: “Another GOLDen breakout = Stay bullish”

The firm stated that gold is breaking out to the upside, which is in line with their “secular call a year ago targeting $2,114 -$2,296” an ounce.

How long before we see Gold $2,000?

With the country in the worst recession since the Great Depression, the Fed on a money printing binge, social unrest at the highest level in decades and a major President Election just months away, we could see gold hit $2,000 faster than you think.

U.S. dollar won’t be king forever

As the Fed continues to degrade the value of fiat money by printing trillions of new dollars just this year in an effort to stoke economic growth, it puts the future of the U.S. dollar’s supremacy at risk.

For now, we have the benefit of being the “reserve currency” of the world. At this pace of money printing, it is only a matter of time before the U.S. falls from that pedestal. The result won’t be pretty for America. We are talking the potential for sky high interest rates as foreign governments will no longer have any incentive to buy our government debt.

Mainstream money managers are talking about this now.

Scott Minerd, the chief investment officer of Guggenheim Investments, thinks investing in gold could help offset any concern about the status of the U.S. dollar as a global reserve currency, according to recent Bloomberg article.

“With the Fed going all-in on financing the government deficit, the U.S. dollar could be at risk to negative speculation of its status as the dominant global reserve currency,” Minerd said.

With so much uncertainty, it’s no surprise investors big and small, domestic and foreign, continue to turn to gold.

While gold is creeping quietly higher, now is your chance to add gold to your portfolio before it scales the $2,000 mark. Do you own enough gold to hedge, protect, preserve and grow your wealth for now and the future?

Wishing you a Happy Fourth of July!

David

We live in a historic period in which the US economy is experiencing a massive inflow of money. This tidal wave will have a meaningful impact on all investments, including gold. To understand why, one must first understand the M1 and M2 money supply.

The M1 money supply is a measure of currency in an economy. This category includes physical currency, demand deposits, negotiable order of withdraw accounts, and travelers’ checks. These are forms of currency that are highly liquid because they can be used almost immediately for a purchase.

In contrast, the M2 money supply represents the total amount of both the M1 supply and “near money” which includes less liquid assets like savings accounts, money market accounts, and certificates of deposit. The Federal Reserve has the power to influence the M2 money supply by using a variety of tools. For example, the Fed can change the reserve ratio which dictates the amount of reserves a bank must carry against total deposits. When the ratio drops banks are in a position to increase their lending which drives up the money supply. Additionally, the Fed can raise or lower the discount rate which influences the money supply because with a lower rate it becomes more affordable for banks to borrow more. The Fed can also purchase issued securities like Treasury bills from banks which will also increase the money supply.

In mid March of this year, the US saw a dramatic increase in the amount of M2 money in our economy. In fact, when compared to the same point in 2019, the M2 supply has increased approximately 12%, representing the largest jump in over a decade.

This increase has coincided with an increase in gold prices in recent months which is a phenomenon we have seen before. In 2011, gold reached a historic high of $1,900 an ounce just as the M2 money supply surged above 10 percent on a year-over-year basis. This heightened level of M2 money supply is likely to persist for the long-term given the Fed’s recent announcement that they plan to keep interest rates near zero until 2022.

However, the increase of M2 totals and the corresponding rise in gold prices is more than an economic factor.  It is also a psychological one because investors are witnessing the debasement of the US dollar. Debasement is the lowering in value of a currency as a result of a government printing more money. In these circumstances, investors often seek more stable forms of currency that will not be negatively impacted by the Fed’s stated goal of maintaining a low interest rate and thereby keeping the M2 money supply elevated.

In uncertain times investors look for more than a return, they look for consistency. As the value of the dollar comes under scrutiny in the US and abroad, investors are turning to gold as a store of value and a rare place to grow wealth as low interest rates reduce the earning potential of many other investments. 

Want to read more? Subscribe to the Blanchard Newsletter and get our tales from the vault, our favorite stories from around the world and the latest tangible assets news delivered to your inbox weekly.

No doubt, you’ve been both comforted and confused by the strong rebound in the stock market in recent weeks. You aren’t alone.

Speculators run the show these days.  And that only lasts so long before it falls apart. 

The Speculative Day Trading Mania of 2020

We are seeing a stock market mania and a bubble – while we are in a recession!

There is a reason for the massive disconnect in the stock market and the real economy.

Day traders.

Have you heard? A new crop of amateur traders have jumped onto the day trading bandwagon during the pandemic and helped drive the stock market up about 40% off its March low.

Ever since online brokerage firms moved to the $0 trading commission model back in October, new accounts opened by individual (retail) traders skyrocketed. The data backs this up.

The perfect storm

The Covid pandemic created a situation ripe for this new day trading mania.

Day trading surged in recent months as millions of Americans were deprived of their sports teams to watch (and bet on) and were stuck at home under shelter-in-place orders. The newly minted $0 trading fees lured thousands of new day traders into the stock market game.

Indeed, we have a recipe for a new speculative bubble. If you are remembering back to the Dot.com crash in 2000, you’ve got a good memory. Before it was over, the NASDAQ index crashed 78%.

The Robinhood traders

They call them the Robinhood traders, based off a new mobile phone trading app company that offers fractional shares. Sure, buy a piece of a stock for $1, $15 or whatever you’ve got.

In recent months, equity inflows are at seven times their pre-Covid levels, to nearly $3 billion a day, CNBC reported on June 11.

Warning: They have no idea what they are doing

This new breed of day traders is creating chaos in the stock market. Trading off apps on their cell phones. With no knowledge of markets, fundamentals, or valuations, these day traders are trading on whims, ticker symbols that sound familiar and have driven two companies in bankruptcy up over 300% in days.

Just a couple of weeks ago, an obscure Chinese online real estate company’s American depository shares (ADSs) skyrocketed 1,250% intraday before closing 400% higher. The reason?

The company name – FANGDD Network – was similar to the acronym FAANG, which refers to the high-flying technology stocks: Facebook, Apple, Amazon, Netflix and Google.

Yep. The day traders jumped on the bandwagon and bought an obscure Chinese company because they mistakenly assumed by the ticker that it related to U.S. tech stocks.

The speculators are running the stock market show right now.

Hint. This won’t end well.

Indeed, the recent 1,800 point sell-off in the Dow warned of what could lie ahead.

Retail investors are often called the “dumb” money, while institutional traders – Wall Street pros – are called the smart money.

What are smart money investors saying now?

The day trading boom pushed stock market euphoria to its highest levels in 18 years. Citi’s research team warned in early June, that the bank’s Panic/Euphoria model hit its highest euphoria reading since 2002. What does that imply? A 70% plus probability of a down market in the next 12 months, Citi’s chief U.S. equity strategist said.

Rely on Gold

Now is the time for you to prepare your portfolio!

Take advantage of the safety, security and diversification properties of physical gold. Gold is already up 15% this year, with smart money investors forecasting new all-time highs within a year.

Gold is your safety net in all types of storms. This new speculative bubble in stocks is looming like a black cloud on the horizon. The bubble will burst. They always do. Take out an insurance policy now to protect your wealth now by increasing your allocation to physical gold. Remember the NASDAQ fell 78% from 2000-2002. You can prepare now for whatever lies ahead.

Fed to the Rescue. Again.

You may have heard the saying, “Don’t Fight the Fed.”

Last week, the Fed once again turned fear into greed and boosted stocks with an unexpected announcement that it will start buying individual corporate bonds.

Whatever it takes. Yes, indeed.

No matter the future cost, the Fed valiantly continues to support the bubble in risky assets, known as the stock market.

No matter how far the stock market valuations differ from the underlying economic picture, the Fed is all in, willing to do whatever it takes to keep the stock market and liquidity train running.

Until they can’t.

Jeffrey Gundlach, founder and chief executive of DoubleLine Capital, warned recently about the inability of “Superman” Fed Chairman Jerome Powell to save the stock market.

Looking ahead, the billionaire money manager expects the stock market to fall from its “lofty” perch as he foresees corporate credit downgrades and a wave of white-collar layoffs ahead.

And, gold? Gundlach forecasts a move to new all-time highs for gold ahead.

Mixed Economic Signals

Fed Chairman Jerome Powell appeared before Congress last week in his semi-annual testimony and warned about the “potential longer-term damage” from permanent job losses and business closures due to the Covid pandemic.

In the midst of these dire warnings, May retail sales snapped back hard with a 17.7% gain last month. Chalk it up to major pent-up demand after consumers sheltered in place for months.

Looking ahead, capacity in some sectors, like eat-in dining, remains severely limited by social distancing requirements.

Also, the extra $600 in weekly unemployment insurance is set to end at the end of July, which could once again dampen retail sales.

People Are Still Getting Laid Off …

The number of people who lost their jobs last week and filed for unemployment benefits stands at almost twice as much as the 2008-09 recession. A total of 1.5 million people applied for unemployment benefits last week, plus another 760 thousand gig workers filed through a special Pandemic Unemployment Assistance program for unemployment compensation.

Over 2.2 million additional people were thrown out of work last week. And, no matter how many corporate bonds the Fed buys, those people still won’t have a regular paycheck.

Covid Cases Jump in Some States

In Texas, hospitalizations due to Covid jumped 11% last week, while the list of states reporting record-high daily cases hit nine. While economists talk about what the second wave could do to the economy, we still haven’t finished the first wave.

Meanwhile, November Presidential Election Looms

Polls last week revealed that Joe Biden edged ahead in the polls by more than 8% to President Donald Trump. Much could change over the next five months, but this remains a key flashpoint in 2020.

As social unrest hit the highest level in decades, a health crisis gripped our nation and a recession forced millions of Americans out of work. The November vote will be a significant election for the economy and the markets. Stay tuned.

Gold Stands Strong

In the midst of the recent stock market recovery off the March lows, it is useful to note that gold maintained its double-digit gains that emerged since the start of 2020.

Gold is up 14% year-to-date and stands at an 8-year high.

In the midst of the uncertainty and the stock market rebound, gold continues to perform well.

Indeed, last month the World Gold Council stated that “Gold is a clear complement to stocks, bonds and alternative assets for well-balanced US investor portfolios. As a store of wealth and a multi-faceted hedge, gold has outperformed many major asset classes while providing robust performance in both rising and falling markets.”

The WGC explained the four ways that holding gold can support your portfolio:

  1. Generate long-term returns
  2. Act as an effective diversifier and mitigate losses in times of market stress
  3. Provide liquidity with no credit risk
  4. Improve overall portfolio performance

Many economists and hedge fund managers warn that another leg down in the stock market is just around the corner. Consider using this time now to prepare and get ahead of the next selling phase with an increased allocation to gold.

Parting Words

Gold is money. Everything else is credit.     – J. P. Morgan

Best Wishes,

David

A wake-up call hit Wall Street last week.

The Dow plunged over 1,800 points in one day, or 6.9%, chalking up the worst day since March.

Rightly so, many have questioned the stock market’s near vertical rally in recent weeks, while the pandemic rages on and many businesses are a skeleton of their former selves.

Last Thursday, the excessive optimism collided with reality and stocks plunged.

Signs that coronavirus cases are surging in some states with new “hot spots” emerging in places like Arizona, Texas and Utah, triggered the sell-off. Confirmed Covid cases in the U.S. topped two million last week and over 113,000 people have died, according to Johns Hopkins University data.

The economy has reopened. And, government officials reveal there is little interest in closing it back down as cases surge. Yet, the virus has not been tamed.

This dose of reality, that the country and businesses aren’t going to suddenly ‘get back to normal,’ hit Wall Street investors head on last week.

Indeed there is incredible progress underway, with over 160,000 potential vaccines in the works for Covid. Even if a vaccine is approved within 6-12 months, there is not enough manufacturing capacity to quickly churn out the 400 million vaccines that would be needed to protect every American.

Progress is being made. But, there remains a long road ahead before our daily lives and the economy will return to normal.

It’s Official – We Are In a Recession

Last week, the National Bureau of Economic Research (NBER) told us what we already knew. The U.S. entered a recession in February.

That marked the end of the record-long 128-month expansion in U.S. history, going back to 1854 when record keeping began.

Last week’s quick plunge in the stock market revealed that investors are no longer confident that a “V” shaped recovery in the economy is likely.

The Covid pandemic is still with us, and will likely be an overhang on economic growth for the foreseeable future.

Fed Chief Powell Warns Of Long Road to Recovery

In a somber message to the country last week, Federal Reserve Chairman Jerome Powell predicted a slow recovery for the U.S. economy in the wake of the deepest recession since the Great Depression.

He expected unemployment to fall to 9.3 percent by the end of 2020, leaving millions of Americans still without a paycheck.

“My assumption is there will be a significant chunk … well into the millions of people, who don’t get to go back to their old job … and there may not be a job in that industry for them for some time,” Powell said last week.

Notably, the safety net created by Congress will disappear for many Americans on the low end of the income spectrum. In July, the extra $600 a week in unemployment benefits expires. Many economists are concerned that jobs will likely still be scarce at that time.

It’s the ripple effect that can hold the economy down.

Unemployed people can’t spend. That means businesses like day care centers, hair salons, gyms, restaurants will see less money coming in. Those businesses will suffer and can’t hire new workers, and may need to lay more employees off. Those unemployed people can’t pay their rent. Landlords then are put in a tight spot and may not be able to pay their mortgages. It’s a vicious cycle that spills over into every aspect of the economy.

Remember the dot.com bust?

Just because the stock market climbed in recent weeks doesn’t mean the economy is okay. To the contrary. It’s been excessive optimism and a whole new crop of day traders driving the stock market higher in recent weeks.

Indeed, as professional sports have shut down, day trading activity surged at low-cost, discount brokerages around the country. The usual sports betting set, looking for excitement,  turned to day trading as the country was under shelter-in-place orders.

In fact, the day-trading boom that helped drive stock-market euphoria to its highest level in 18 years, increases the odds the stock market will retreat once again within the next year, Citi told its clients in a research note on June 5.

No wonder, sound-minded investors are pouring money into gold this year, for safety, security and as a vehicle to preserve and protect their wealth.

Fed Pledged to Keep Interest Rates at Zero Through 2022

At last week’s Fed meeting, the central bank pledged to keep the benchmark fed funds rate at 0% – 0.25% through 2022.

Never before in history, has the Fed come out and stated that interest rates will be so low for so long. Monetary policy has reshaped the normal movement in the Treasury and interest rate markets.

Rates are being artificially suppressed at zero and will stay down for years.

Who does that hurt? Savers. Older Americans who need to reduce their risk profile on their portfolio as they age. Where can Americans safely park their assets? Certainly not in the stock market.

Gold is Up Nearly 15% in 2020

Throughout it all, Americans are rushing into the gold market seeking the safety and security of precious metals.

Huge demand for precious metals and the safety they provide drove premiums on New York gold futures up sharply in recent weeks and months. The result? Banks have been flying in tons of physical gold to New York to store the bullion in Comex vaults.

“Gold has reached America from all over the world,” said Allan Finn, commodities director at Malca-Amit, a company that transports gold securely. “The flows into New York are unprecedented,” he told the Wall Street Journal last week.

As the paper gold markets gyrate and see dislocations, it once again underscores the peace of mind, stability and security of owning your own tangible assets.

Physical gold ownership means you can hold your gold in your hands and store it safely in a home safe or a bank safe deposit box.

Indeed, there’s no substitute for physical gold ownership in today’s rapidly shifting digital world.

Best,

David