We’re in backward world.
Some of you may recognize it.
Asset prices are rising because the Federal Reserve keeps reducing interest rates and injecting stimulus. They’re hoping that will solve the health crisis.
Read that again.
Does it make sense to think that throwing money at a virus will make it go away?
The only way it would is if the money goes to health care. Which it isn’t.
Today, the fed funds rate is close to zero. Many of you can’t rely on your bank to generate income to live on like your parents may have.
You have to own stocks.
But, there’s another place you should look as well.
Here’s a chart of the price of gold:
Gold Surged to $1,713 an Ounce
Since mid-August of 2018, it’s up more than $500 an ounce.
That’s more than 45%. It’s 15 times more than the S&P 500 Index’s 3% return over the same stretch.
And gold will reward those confident enough to invest in it going forward.
The Problem With Central Banks
The fact that global central banks are slashing interest rates again is proof that they can’t achieve their goals.
But what was the purpose of cutting rates in the first place?
The U.S. central bank said it was to get us out of the jam we got into in the late 2000s. The so-called financial crisis.
Do you remember the narrative back then?
We’ll cut rates to nurse the financial system back to health.
Then, when we have achieved that? Once we are humming again … we’ll raise rates to more normal levels.
We were on the way to doing this.
From late 2015 to 2018, the Federal Reserve raised rates eight times. Rates rose to almost half their historical average.
Then, it changed course.
Fed Chairman Jerome Powell told the world in December 2018 that he would stop raising rates. In June 2019, he said he would consider cutting rates. He followed that with five rate cuts.
In so doing, he admitted the Fed is unable to achieve its original goal.
What This Means for Your Investments
You won’t hear Powell say this. But individuals — and especially retirees, for whom higher Fed funds rates matter the most — must find another way to achieve returns.
It’s important that you know this. If any of you are clinging to the past, this will help you be a better investor.
What do I mean? Let me explain…
If you’re over 50, do you remember when your parents retired? They may have earned 5% or more on their certificates of deposit (CDs) at their bank.
If they had $1,000,000 saved, they could earn $50,000 a year in interest. At their bank.
You don’t have that luxury.
It’s like the Fed slapped you in the face and then acted like it didn’t.
That’s how many retirees today feel. Slapped in the face with low — or no — interest rates.
I’m not rubbing it in. I’m being realistic.
Low Interest Rates Aren’t Going Away
I know many of you didn’t want to be in this situation.
I wish you didn’t have to be here either.
But you are.
In the late 2000s, Fed Chairman Ben Bernanke and his peers decided this for you.
You’ve done it now for more than a decade. And you’ll have to navigate this backward world for longer.
Don’t fret.
At Banyan Hill, we’re here to give you ideas on how to replace that lost income.
You Can Buy Gold and Silver at a Discount
One way to protect yourself is by buying precious metals.
The government is printing money to pay its bills. Current estimates show the Fed will print $3.5 trillion (with a “t”) to cover its deficit this year.
But there are currencies that it can’t debase: gold and silver.
And there’s an easy way to buy them: the Sprott Physical Gold and Silver Trust (NYSE: CEF).
Believe it or not, as of Wednesday’s close, you can buy CEF at a discount:
(Source: Sprott.com)
Right now, your cost for one unit is less than the value of the precious metals it controls.
That’s a great deal. You have to pay a steep premium these days to buy gold or silver at a coin shop.
We can’t know how much more money the Fed will print. It just looks likely it will.
Protect yourself now by investing in gold and silver.
Good investing,
Editor, Profit Line