It’s no secret that first quarter growth was lousy. Many analysts, however, see the economy bouncing back in the second quarter. If the Fed plans to stay on its current course of rate hikes (which it appears to be doing), the central bank must also assume that economic activity will be stronger in Q2.
What if these assumptions prove to be false?
Q1 GDP came in at a skinny rate of just .7%, and estimates appear to be looking for growth of around 2.5% in Q2. Such estimates could, however, prove to be way off-and the consumer may hold the key to a potentially significant letdown in activity.
The consumer is showing signs of strain, and that strain could potentially put a huge dent into second quarter production. The distress on the part of consumers can be seen in numerous places. Sales of tech gadgets like iPhones are slowing, auto sales are slowing and delinquent loans are on the rise to name a few.
Credit seems to be deteriorating-and rapidly-and such deterioration could potentially affect not only the economy but also the Fed’s plans for further tightening as well. The central bank may have to really reexamine its plans-and rates could stay low for a long time to come.
Consider this for a moment: Following the financial crises of 2008, do you think it’s plausible that banks and lending institutions are quicker to reign credit in? Do you think they learned some serious lessons in 2008? And what happens if credit does become constrained? A credit crunch could potentially act as a major drag on economic activity.
What could this potentially mean for markets?
It could mean lower stocks, lower yields, a lower dollar index and higher gold.
The potential for significant moves in these markets cannot be understated. Stocks have been moving higher for nearly a decade, while gold is well below its all-time highs from several years ago.
Consumer weakness could be a major catalyst for a significant shift in market dynamics and appetite for risk.
If stocks reverse course and head lower, and the yield on the ten year note were to decline and hit 1.5% or even lower, investors would quite possibly find themselves desperately looking for perceived safety with the potential for yield.
In other words, a whole ton of capital could potentially make its way into physical metals like gold and silver.
If you do not already have an allocation in these key assets, now may be the ideal time to get going. Adding physical gold and silver to your portfolio has never been easier, and may potentially provide a meaningful hedge against a major economic slowdown and corresponding decline in equities.
Speak with an Advantage Gold account executive today about the potential benefits of gold or silver ownership. Our precious metals professionals are here to answer your questions, and can even show you how to buy physical gold or silver using your IRA account.
Don’t wait for the next major credit bubble to burst before taking action. Explore your options for gold and silver ownership today. Call Advantage Gold at 1-800-341-8584 to get started.Tags: advantage gold, consumer, credit crunch, debt, dollar index, GDP growth, gold