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.
In the last 10 years we’ve seen historically low interest rates, round after round of quantitative easing, and liquidity injections. It seems miraculous that inflation hasn’t gotten out of hand.
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!
Gold is just as risky as investing in properties, as gold prices are just as volatile. At least with property you can hold onto them and know that the property will eventually recovery. With gold it is trying the buy gold at its lowest price and then selling it once the market has reached its maximum value. Not an exact science.
I heard on the grape vine that they are looking to recover gold from raw sewage, which will have an impact on prices. What your opinion on this?
Hi Antonio and thank you for the comment!
I disagree with you about your statement about the prices of gold. Gold rises in value in the long-term as the dollar decreases in value, and as long as the Federal Reserve continues to print money from thing air (quantitative easing), then we will continue to see the dollar drop in value and gold prices rise in value. As such, gold rises in value during times of inflation which is why it is a good hedge during turbulent financial times, as opposed to paper assets.
Property is a good investment as well. Precious metals and property are both tangible assets that tend to rise in value during hard economic times. You can invest in both property and precious metals in a self-directed IRA.
Also, I do not think recovering gold from raw sewage will do much to affect the prices as it will not be anything close to finding large amounts of gold in a newly discovered gold mine.
Thank you for dropping by with the comment!
Would it not just be right for me to finally start with my gold IRA investment because I fear that any form of inflation would definitely impart on my financial position in a very bad way. However, my savings isn’t that huge to the extent that I would want to invest in gold. But reading through this post, I felt that should in case this bubble should burst, then I might actually be in turmoil. Thanks for this information. I will share it out to my social platforms to get more people informed. Cheers
Hello RoDarrick and thank you for the comment! You can always begin investing in IRA physical gold once you have a savings of $5k. It just happens to be the best long-term investment you can make so even if it takes some time, it’s a good goal to have. Thank you for the encouraging comment! Cheers!
That’s a very interesting article, as I didn’t really know how these types of financial bubbles worked, and I regularly invest in the stock market (usually US tech companies).
You say that the stock market has been breaking records regularly for years…but has it really?
I’ve read that some experts expect this rise to continue due to certain companies being sure bankers, always striving to improve, therefore always rising (their market is always going to be a bull market). Do you agree with this angle?
Hello Chris and thank you for the comment and the inquiries. We generally don’t recommend investing in stocks or any paper assets but rather in precious metals and other tangible assets that can go in a self-directed IRA such as land, and oil & gas.
My take on the meteoric rise of stocks is mainly due to the easy money policies of Federal Reserve. I can’t say for sure if there will always be a bull market with stocks. Thank you for the comment and the inquiry!
If you’re an investor you should always take a look into other options and gold is definitely one of them. If you’re a younger person reading this you need to take heed to this information and even if it’s just a little bit at a time, start putting your money into hard-assets gold being the number one. I would sign-up for this newsletter now and start learning about the benefits of gold. I’m 56 and would have appreciated this advice when I was younger.
Hi Mark and thank you for the encouraging comment! It’s always better to start investing in physical gold sooner than later if you have the chance. Thank you for making that clear for us!
Gold and other precious metals are definitely great asset classes that act as an hedge against uncertainty and volatility in the market. I wasn’t familiar with Gold IRAs tough until now. My favorite hedge would probably still be around 10% of the portfolio invested in stable gold stocks. Thanks for the insights!
Hello Tony! We do not recommend investing in gold stocks as a way of investing in physical gold. Gold stocks are based on the performance of gold mining companies and can also be just as volatile as any other paper asset. Physical gold in IRA form is a completely different animal and will always be the same value as the spot price of gold. Thank you for the comment and the feedback!
I have got friends who invests in Gold, Unlike many stocks gold does not pay dividends. It depends how the fund invests in gold. An investment in gold held for less than a year could be taxed as a short term capital gain at ordinary income tax levels. In my opinion Gold can or would be better in the IRA than outside it.
Hello SeunJeremiah! Indeed, simply for the sake of taxes I would also rather invest in gold through a tax-exempt IRA than by reporting it myself and have to pay taxes. Thank you for pointing that out for us as well, too! A self-directed gold IRA is tax exempt from the IRS. It’s just one of the reasons to invest in IRA-approved physical gold. Thank you for the comment and the feedback!
I am a fan of the saying ‘Don’t hold all your eggs in one basket’. I believe that whether it caused by recent bubble or facing future economic crisis, gold investment is worth to make as addition to other type of investment. I think I never heard of Gold value drop significantly due to financial crisis (correct me if I’m wrong). But maybe I want to be a bit conservative here. Are you sure that no matter how bad the future bubble / crisis, Gold’s value will always stay on the top?
Hello Alblue and thank you for the comment, feedback and the inquiry! Yes, the value of gold will rise more as the financial situation looks more dire because of the fact that the US held onto the gold standard until Nixon went off it in 1971, and ever since then the US has been printing money based on nothing but debt which makes the US sink into debt even further so the dollar keeps dropping in value while gold and other precious metals, which have a limited supply, keep rising in value simultaneously. This is why gold will always rise in value in the long run. Thank you for dropping by with your comment and inquiry!
A very thorough explanation of inflation and its effect on the investment portfolio. I enjoyed reading about how bubbles work and how to safeguard your retirement income from bursting bubbles. This knowledge can help you to diversify your investment portfolio and choose your investment wisely. It was good to know how easy monetary policies can give rise to inflation. Can I open Gold IRA account from the UK?
Hello Anand! Unfortunately, you have to be a US resident in order to open a gold IRA account with any one of our gold IRA custodians. Thank you for asking, though!
Hi, David yeo.
Americans have faced much crisis in its history. The crisis that happened in 2006 – 2008 ( housing market Crush ) is one of them.
In your post, you clearly said that what is a safe and unsafe platform for investment.i liked your post thank you for such a nice blog.
Hello Harber and thank you for the encouraging comment!
Hello David Yeo,
this is good to know about the economic condition in the USA. I think it is very important in the world economy. By reading your article many people should encourage you to invest in Gold. I think many people like your post. Thanks for a nice review
Hello Snigdha and thank you for the encouraging comment! I do hope I can encourage many people to invest in physical gold. Thank you again!
Hi! I really found useful reading this explanation about how bubbles work. You’re right, I have noted a significant increase in house prices from 2013 to 2019.
As you have stated, some dangerous bubbles are getting ready to burst. And I appreciate this warning. I think the best way for me to get prepared will be purchasing gold each month in installments.
Hi Henry! If you go for buying gold each month in installments, make sure to get yourself a good vault at the bank! Thank you for the comment!
Hey, David, I just wanted to take a few moments and really say how much I appreciate the information you shared.
Not only was this incredibly insightful but it also connected all the dots for me. There definitely feels to be a reason for concern. I mean, up until now, I hadn’t realized that it was so bad with the inflated bubble when it comes to housing. But that makes so much sense as I have also noticed somewhat similar patterns locally to where I live.
Yeah, and that gigantic stock market bubble is not looking good either. 🙁
Thank you for sharing your awareness of the potential dangers. It made all the difference.
Cheers, and have a Great One!
Hello Matiss! Thank you for the encouraging comment and I’m glad you enjoyed my post and found it helpful! I hope you have a great one too! Cheers!
Wow, I had absolutely no knowledge of this.
You mentioned the reasons on how do bubbles happen but aren’t this a little too fast? Meaning, I was under the impression that we won’t have this anymore. Or if we will it will happen in some distant future like 20 years from now. Why is it happening so fast? Does greed facilitate it (to get that easy money so everyone can invest or something)?
It’s totally fine if you don’t find the time to reply. Still, this was an insanely eye-opening article. I didn’t know about a lot of the stuff you talked about but now I do. And it kind of scares the hell out of me.
I’ll most certainly be looking into some of your other articles.
Have a Wonderful Day, David!
Hello Rasa! Most of the problems in the economy are due to the easy money policies pushed by the government so that they can increase their debt and make more money from thin air. This continues to devalue the dollar and make bubbles everywhere. The bubbles bursting are most likely to happen at a closer time than 20 years from now but it will only happen over and over again for sure unless the government decides to change their policies on money and stop quantitative easing (basically making more money out of debt). Thank you very much for the feedback, Rasa! I hope you have a blessed day with many more to come as well!