We all remember when the housing crisis came to a head in 2008. Beginning in 2006 through 2007, the housing market bubble burst and home values soon plummeted. Well, the current housing market looks very similar to the way it did before the crash.
The Dow Jones is reaching record-breaking levels again and recently broke the 27,000 level a few weeks ago. Since 2009, mere months after the financial crisis, the stock market began its meteoric rise and hasn’t slowed down since.
How do economists feel about the current financial picture in the US? Many are afraid and are warning about an impending crash similar to the Great Recession. They feel that the easy monetary policies in the US are creating serious inflation.
But is that really the truth? In a word: no. When you look at inflation in the prices of assets, you’ll see that it has risen substantially. This is what constitutes a “bubble” or the technical term being asset price inflation.
Here’s the thing about bubbles: they eventually pop. And when they pop, they tend to crush the stock market, the housing market, and asset prices too.
Have you considered the toll another busted bubble will have on your portfolio? Gold IRA investments are a different animal altogether. They are designed to withstand bursting bubbles. There’s no better time than now to consider the stability of your portfolio prior to the next major crisis.
Official Real Estate Inflation Estimates Seem Tame Compared to the Truth
The current consumer price index leads us to believe that inflation numbers are tame. But this isn’t necessarily true when you look at it from a different perspective. There’s asset inflation pushing home prices higher.
Some analysts believe the US financial situation looks like an “everything bubble.” By this they mean that multiple bubbles in the stock market, housing market, and elsewhere could burst at any time.
Other analysts are even convinced that we’re experiencing huge inflation. Wolf Richter of Wall Street Report believes the increase in asset prices is leading to dangerous inflation. To begin with, he feels it has the potential to lead to a banking crisis. But the overall outcome will lead to a major financial crisis felt throughout the world.
Why does he feel this way? He feels this way because we are highly leveraged in many areas. Some of the most prominent leveraged areas include:
- commercial real estate
- residential real estate
- student loans
- and more
This situation is very similar to the one we saw in 2006-2007 when the housing market crashed. So if you haven’t taken steps to protect your portfolio with a gold IRA, now would be the ideal time to do so.
How Do Bubbles Work?
Simply put, bubbles work in a very specific and particular way. They tend to go something like this:
- policymakers and the Federal Reserve create easy money policies
- this results in an inflated bubble
- prices increase while income stays the same
- prices increase without any significant reason for the additional “value”
As an example, let’s look at an inflated bubble in terms of housing. In 2013, the going rate for a single family house in a neighborhood was $150,000. Now in 2019, the same house is now worth $250,000. This additional value comes from inflation. The homeowner didn’t do anything extra special to increase the value of their home.
It’s estimated that home prices have inflated by 42% in the United States from January 2013 to December 2018. And in certain metro areas, price increases due to inflation are even much higher. Ultimately, the easy money policies from the Fed have created this nasty level of inflation. A gold IRA safe haven seems more and more appealing.
The Gigantic Stock Market Bubble That Nobody’s Talking About
Are stocks in a bubble state? It’s harder to figure this one out in truth. But if you look at the stock market on the whole, you’ll see that it’s breaking records regularly for years.
It’s different when evaluating American companies versus houses. Companies will expand due to increased earnings and risen revenues. A great way to evaluate them is to use the price to earnings ratio a.k.a. P/E ratio. This provides a clearer understanding of asset price inflation and stocks.
To make it simple, know that the P/E ratio average of the S&P 500 in 2012 was less than 15. The current P/E ratio on the same S&P 500 stocks is now 23.
What does this tell us? It tells us that roughly half the stock market gains are due to asset price inflation. This is very serious and scary and it needs to be treated as such.
How Will Bursting Stock Market Bubbles Impact Banks?
Bursting stock market bubbles are particularly dangerous because they are so overleveraged. If the stock market bubble suddenly pops, banks are going to experience major financial trouble. Yields are also going to decline when this happens and investors earn less income due to taking on greater risk.
Wolf Richter believes that heavy borrower defaults will lead to banks taking big losses. Borrower collateral is no longer worth as much and its value isn’t big enough to cover their debt. And before you know it, you’ll be hearing things like the banks are too big to fail again. Certain measures then must be taken to prop up the US financial system. Clearly, this is a huge problem that can have a deleterious impact on your gold IRA portfolio.
Hedge Your Bets and Enter a Safe Haven by Investing in Gold
The inflation monster is rearing its ugly head and it doesn’t plan to go away anytime soon. The US economy may appear to be stable according to many of today’s talking heads. But the truth is very different. Inflation is definitely here and some dangerous bubbles are getting ready to burst.
You can let inflation destroy your retirement portfolio. Or you can take steps to protect yourself from this monster. Buying gold in a precious metals IRA is the perfect way to hedge your bets. For thousands of years people have used it as the most accepted currency across the world and that isn’t changing anytime soon.
No matter what, begin investing in your gold IRA sooner rather than later to protect yourself from the inflation monster. You’ll be glad you did once one or more of these bubbles finally burst.
Do you have any questions on why the recent bubble should encourage you to invest in a gold IRA? Ask below!