Potential Recession: Investing in Resilient Assets

By Doug Young – 10 September 2023

Introduction

The American economy faces a potential shock as the trillions of dollars in free money distributed during the global health crisis are rapidly being spent. This development raises concerns about the diminishing level of consumer spending, which serves as a key driver of economic growth.

According to recent research, American households held less than $190 billion in excess savings by June, indicating a significant decline. The Federal Reserve has expressed alarm over the potential consequences if Americans’ excess savings continue to dwindle.

The Depletion of Excess Savings

A recent blog post by the Federal Reserve highlighted a study that reported Americans’ excess savings amounted to $500 billion in March 2023, compared to a peak of $2.1 trillion in August 2021 during the height of the global health crisis.

Warnings of Economic Recession

J.P. Morgan CEO, Jamie Dimon, has warned that the anticipated depletion of excess savings could potentially derail the economy, leading to a mild or severe recession. Conversely, some analysts have revised their economic forecasts, suggesting that a recession may be avoided. Nonetheless, the possibility of an economic downturn remains uncertain and subject to ongoing developments.

Federal Reserve’s Outlook

The recently published minutes from the Federal Reserve’s July policy meeting revealed that officials continue to identify significant upward risks to inflation. As a result, they remain open to the idea of implementing further rate hikes. Additionally, policymakers anticipate a slowdown in consumption due to the declining level of excess savings. These factors contribute to a cautious outlook for the economy.

Consumer Spending and Debt Pressures

Chief Economist at LPL Financial, Jeffrey Roche, attributes the economy’s resilience thus far to two factors:

Firstly, consumers have had substantial excess savings and secondly, they have been willing to use credit to support their spending. There are indications however that both excess savings and consumers’ willingness to spend on credit might be on the decline.

The Federal Reserve Bank of New York recently released a study revealing that households are more indebted today than at any time in history. This includes credit card debt, exacerbated by the fact that overdue credit card debt is currently at an 11-year high.

At the same time, as student loan borrowers prepare to resume payments after a temporary pause, personal debt is increasing as challenges in saving intensify.

Potential Recession: Summary

The American economy now stands at a critical juncture as excess savings approach depletion, and consumer willingness to spend on credit shows signs of decline. With the economy experiencing the highest inflation and fastest rate increases in four decades, careful management becomes crucial.

The Federal Reserve’s warning about the diminishing stock of excess savings highlights the need for prudent economic strategies.

Shifting Towards Recession-Resistant Assets

In this backdrop there are many reasons for Americans to safeguard their investment portfolios against potential downturns.

One effective strategy gaining traction is the allocation of a portion of their assets into recession-resistant options, such as physical precious metals. Here are 4 reasons why now might be the perfect time to consider this investment shift.

Time tested

In times of economic uncertainty, traditional investment avenues can often prove volatile and vulnerable. Gold and silver have proven to be recession-proof investments time and time again. For individuals looking for stability amid economic downturns, they are a dependable option due to their intrinsic value and historic performance.

Hedge against inflation

The capacity of physical precious metals to serve as an inflation hedge is one of their main benefits. The value of paper money typically decreases when the economy is under inflationary pressure. In such scenarios, physical precious metals have historically retained their value and even appreciated, providing a protective shield for investors.

By diversifying their portfolios with these assets, investors can minimize the impact of inflation on their wealth

Liquidity

The recognition and liquidity of physical precious metals on a worldwide scale are further strong reasons to think about investing in them.

Gold and silver have universal appeal and are simple to buy and sell anywhere in the world. This means that these assets may be easily turned into cash or utilized as a medium of exchange during periods of economic hardship when other investments might be less accessible or desired. This adaptability gives a well-rounded investing portfolio an additional degree of security.

Value over time retained

Physical precious metals outshine many investment alternatives in terms of long-term wealth preservation. These assets have a track record of retaining their value over the long term, even during economic downturns.

Gold and silver are excellent choices for those looking to preserve their investment for future generations, due to their stability and durability.

Conclusion

In today’s precarious economic climate, it’s important for Americans to consider proactively safeguarding their investment portfolios. Shifting a percentage of their assets into recession-resistant alternatives, such as physical precious metals, is well worth considering.

Gold IRAs are designed for that purpose.