The Federal Reserve bumped up interest rates another 25 basis points this week. The target federal funds rate now stands at 1.75%.
“Well, OK,” you might be thinking. “But this is just a bunch of wonkish policy stuff. What’s it to me?”
In a nutshell, it means your debt is going to cost you more. And that’s not good in an America where household debt has spiraled to record levels.
Expectations that the Fed will continue and perhaps even quicken the pace of interest rates hikes have created headwinds for gold. But there another side to the rising interest rate phenomenon that a lot of people in the mainstream seem to be missing. According to a recent Bloomberg report, the prospect of a higher interest rate environment is feeding signs of financial stress among debt-laden consumers.
This doesn’t bode well for the US economy and could spur safe-haven demand for gold.
Could we be on the verge of a retail apocalypse?
February marked the third straight month of declining retail sales. Analysts had not expected another drop, but they got one nonetheless. Sales fell 0.1% in February. Analysts had expected an uptick of 0.3%.
This is not good news for a retail sector that is already teetering on the brink.
The SchiffGold Friday Gold Wrap podcast combines a succinct summary of the week’s precious metals news coupled with thoughtful analysis. You can subscribe to the podcast on iTunes.
China, Japan and some other countries have a nuclear option they could use in the pending trade war.
If deployed, it could serve as the pin that pops the stock market bubble. At the same time, it could put the US government in a nasty spot as it tries to fund its profligate spending and upward spiraling debt.
What is this nuclear option?
We’ve been talking a lot about the rising levels of debt – both government and household. Set in an environment of rising interest rates, this is a huge problem very few people seem concerned about.
We’ve been enjoying a big party and it’s about to come to an abrupt end.
During a podcast last month, Peter Schiff asked a key question: who is going to buy all of the debt necessary to finance the ballooning US deficit?
In his most recent analysis, Dan Kurtz at DK Analytics explores this question more in-depth and comes to generally the same conclusion.
The dollar has lost more than 8% of its value over the last year. That decline may accelerate as bond investors sell ahead of a huge expansion in Treasuries coming into the market. Interest rates will have to climb significantly. The price of bonds will drop. As Dan put it, where bonds go, stocks follow.
We’ve excerpted some key points from Dan’s report.
Stock markets have settled down after an awful couple of weeks earlier this month. On Feb. 5, the Dow Jones suffered its largest-ever drop in terms of points. It was down 1,600 at one point and ultimately lost 1,175.21 points, a 4.6% drop that day. At one point during that week, the Dow was off 10% in correction territory. But everything is calm now and most of the mainstream is once again feeling bullish and optimistic.
Peter Schiff spoke at the Vancouver Resource Investment Conference 2018 last month before the market tanked. But his message remains relevant in the aftermath of the plunge and the subsequent recovery because the dynamics in the market remain pretty much the same. Conditions are still ripe for a 1987-style market crash.
Investors have not been this optimistic…since 1987. They are even more optimistic than they were at the height of the technology bubble, the dot-com bubble, the new era. Of course, 1987 didn’t end well, right? We had a stock market crash, and there’s a lot about what’s happening today that reminds me about what was happening in ’87.”
The US dollar dropped to its lowest level in three years Friday.
Extending losses on Thursday, the dollar index against a basket of six currencies dropped to 88.253. This marks its lowest level since December 2014.
A Reuters report noted that “Traders’ confidence in the dollar has also been eroded by mounting worries over the United States’ twin budget and current account deficits.” Interestingly, just last month Peter Schiff said these twin deficits may ultimately doom the stock market.
Could the house of credit cards Americans have built be on the verge of collapse?
Earlier this week, the New York Fed released the latest data on US household debt, revealing it has grown to a record $13 trillion. Americans have been spending, but they’ve been putting a lot of it on plastic. Credit card balances grew by $24 billion in the last quarter of 2017 alone. Meanwhile, US consumers owe $1.22 trillion on vehicle loans. This can only go on for so long. And there are indications that the American credit card spending spree may be winding down.
Retail sales unexpectedly fell in January, recording their biggest drop in nearly a year.
