It’s official. We are in a bear market.

We will look at what you should do in a bear market, why gold is the one-eyed man in a kingdom of the blind… and also on why gold hedge against inflation!

Bear market is the term used to describe when the equity markets are down 20% or more from their most recent all-time high. In this case, the S&P 500 index closed Monday at 3,749.91, with its previous high being 4,818.62.

Laura Veldkamp, a finance and economics professor at Columbia University, said that this is caused by interest rates being raised to fight runaway inflation and pandemic-related uncertainty fueling the stock slide as investors try to figure out the long-term repercussions that Covid-19 will have on the global economy.

What should investors do during a bear market?

Veldkamp says investors shouldn’t sell unless absolutely necessary. If you’re a young and you can tolerate it, just keep doing what you’re doing especially if you’ve been steadily investing in a diversified portfolio for years

Matt Stucky, senior portfolio manager at Northwestern Mutual Wealth Management, said that bear markets are historically fantastic opportunities to build wealth for longer-term investors.

The problem is if you are not diversified. It’s a good time to ask if you really are comfortable with that risk and if it’s likely to serve you well across many market cycles, not just during bull runs.

Start by asking yourself if you became too dependent on just one sector or a group of hot stocks. The past several years were remarkable for how much investors had riding on tech stocks. Even after the big plunge, the top five technology-driven stocks on the S&P 500 still make up more than 20% of the market capitalization-weighted index.

This is a good time to start investing in a hedge against inflation like gold. Gold has an inverse relationship with the market. When the market is down, gold goes up and that’s what you need right now, an asset completely removed from the market.

Central banks and billionaires are starting to hoard gold and with the rate we are going, we will soon have a gold shortage…

“Three Steps and a Stumble”

• “Three Steps and a Stumble”…

• Gold is the one-eyed man in the kingdom of the blind…

• You need to get real…

Dear Reader,

Stocks were up big last Monday, which will have the talking heads saying that everything’s fine again; it’s time to jump back into the market.

My advice is don’t fall for it.

With the Fed’s third rate hike in the rearview, more market downside is inevitable if you look at the historical record. There’s much more to come. Here’s why:

Last week’s hike was the third-consecutive hike. And that’s a very bad sign. It’s when the Fed raises interest rates three times in a row that things tend to get ugly.

The third-consecutive rate hike has a special meaning for the market. It’s an indication the Fed is serious about cooling the economy and withdrawing its easy-money stimulus. As a result, stocks tend to crash.

“Three Steps and a Stumble”

This is known on Wall Street as the “three steps and a stumble” rule. It was discovered by the economist Edson Gould in the 1970s.

He noticed that when the Federal Reserve hiked either interest rates, reserve requirements or margin requirements three times in a row, the stock market tended to roll over and crash.

And according to textbooks written on the subject, this pattern has preceded every single crash in history with only two possible exceptions that could be debated. It might have been a year too early for the 1929 crash and a little too late to call the exact top in 1978.

But this single indicator has a nearly 100% accuracy rating going all the way back to 1919.

The bottom line is practically every time the Fed has tried to raise interest rates, the market has crashed. Investors ignore that reality at their peril.

It’s important to keep in mind that while we may even see some “bear market rallies” like today’s, investors simply must plan on seeing a broader, deeper fall in the market.

Again, don’t be fooled by the mainstream coverage, the “buy the dips” narrative or anyone trying to call a bottom. It’s time to be cautious as this market pattern unfolds.

The Most Tightening in Over 40 Years

Last week’s rate hike was the first 0.75% hike since 1994.

At last week’s meeting, Jerome Powell made a forecast of likely interest rate increases for the remainder of 2022. He said investors should expect at least three more hikes of 0.50% and one of 0.25%.

He made it clear that these were the minimum increases to be expected and that actual increases could be 0.75%. In particular, Powell said an increase of 0.75% at the July meeting is definitely a possibility.

Taking Powell’s minimums on top of the current rate would put the fed funds target rate at 3.25–3.50% by year-end. It could easily be 4.0% or higher if two 0.75% increases are included in the mix.

Going from 0.0% to 4.0% in 10 months from March to December is the fastest set of rate increases since the Paul Volcker days in the late 1970s and early 1980s.

Powell also said the Fed’s reduction in its balance sheet (called quantitative tightening, QT) will continue as previously announced. That tempo is $80 billion per month, or just under $1 trillion per year.

That’s important because that reduction equates to another 1% hike in interest rates in terms of its impact on the economy. Putting that QT on top of the projected rate increases means the effect of monetary tightening will be close to a 5.0% rate increase in 10 months.

That’s also the steepest hike in interest rates since the 1980s. Rising interest rates are bad for gold, right? Well, not so fast.

Gold: One-Eyed Man in a Kingdom of the Blind

In all, gold rallied 3.8% in one month at a time when stocks were falling, bond prices were in retreat and real estate was showing signs of topping out. If gold was a one-eyed man in a kingdom of the blind, it was not the first time.

The cause of this rally can be captured in one word: inflation.

The slightly longer explanation is that real interest rates were falling. Still, inflation was the reason real interest rates were falling so the two explanations amount to the same thing in the current circumstances.

The immediate reaction to this explanation might be bafflement. The Fed is raising short-term interest rates aggressively and is embarking upon QT.

Intermediate-term rates are also on the rise. The yield to maturity on the 10-year Treasury note rose from 2.75% on May 30 to 3.30% as of today. If that sounds like a modest move, it’s not.

That’s an earthquake in Treasury-note land.

So if short-term rates and intermediate-term rates are both rising steeply, how can it be the case that real interest rates are falling? Again, the answer is inflation.

Get Real

All of the rates described above are nominal. They’re the actual interest rates you see on your trading screens or hear about on financial TV. They tell you something, but not the whole story.

To calculate real interest rates, you have to start with nominal rates and then subtract inflation. That’s where things get interesting.

The headline year-over-year increase in the consumer price index, CPI, for May was 8.6%, the highest since December 1981.

With the Fed’s target rate at 1.75% today, the real short-term interest rate is negative 6.85%. With 10-year note yields to maturity at 3.30%, the real intermediate rate is negative 5.3%.

Inflation takes interest rates through the looking glass. When high inflation rates are subtracted from low nominal rates the result is deeply negative real rates. And that’s an ideal environment for gold.

When one thinks of gold as a monetary asset (as I do), then the price analysis quickly moves to competing forms of money.

Money Isn’t Supposed to Offer Yield

Gold has no yield. It’s not supposed to because it’s the purest form of money: a kind always accepted and always in demand, but not issued by a bank or broker. A dollar bill doesn’t offer any yield either. When other forms of money have high real yields, gold struggles except to the extent it is held as a precautionary or safe-haven asset.

But when other forms of money have deeply negative real yields (as is the case today), gold shines. And gold can perform even better when the safe-haven aspect is contemporaneous with a high-inflation period that results in negative real yields.

So inflation and resulting negative real yields are at least part of the explanation for gold’s recent rally. The final question is whether these conditions will prevail long enough to sustain the rally in gold and possibly result in a new floor on the gold price at or above $1,900 per ounce.

Katie, Bar the Door

The answer is yes. Inflation may come down a bit in the months ahead, and interest rates will continue their climb (at least at the short end). But even if inflation fell to 6.0% (a tall order), the real short-term rate would still be significantly negative.

And that makes gold, with its real rate of 0.0%, very attractive.

Of course, that’s the benign scenario for the Fed and inflation. Another scenario says inflation could get even more out of control and the Fed could struggle to catch up so that real rates become even more negative than they are today.

In that case, it’s Katie, bar the door for gold prices. The $2,000 per ounce level will be in the rearview mirror.

Regards,

Michael Carlsson, founder of Gold Retired

P.S. You probably know that owning gold protects your money against inflation. But geopolitical uncertainty also creates an ideal environment for gold, as investors look for safe havens.

Meanwhile, governments around the world and large institutional investors are stocking up on gold. That’s why I recommend that you get your hands on some gold if you haven’t already.

When the panic hits, demand will explode and supplies will vanish.

We hope you have enjoyed this article.

Best firms to purchase gold (Top-3 List)

If you agree that now is a good time to own precious metals, then simply visit the Gold Retired website and check out our Top-3 List of The Best Gold Investment Companies + reviews + buying guide, and consider adding to your physical metal positions today no matter what budget you´re on!

In 2021, billionaires saw their share of wealth elevate at the highest rate on record. According to World Inequality Lab’s annual Report, their wealth increased from 1% in 1995 to 3% in 2021. Last year, billionaires amassed more wealth than ever before. Do you ever wonder: where do wealthy people invest their money? How do they make their fortunes grow?

In this article, we will explore the different investment options that are available to high-net-worth individuals. We will also take a look at how the rich get richer and find new opportunities to increase their wealth. So, if you’re curious about where the wealthy put their money, read on!

First thing is first, and just as a house need a stable ground, so does your finances. Now imagine how stable ground a skyskraper would need to not fall down in heavy wind…

Gold

Even though gold does not back the U.S. dollar or any other currency today, its importance to modern society cannot be overemphasized. To validate this point, one only needs to look at the role that gold plays in the global economy. Central banks and other financial organizations including the International Monetary Fund around the world hold large reserves of gold as a way to ensure the stability of their respective economies. institutional investors also see gold as a safe-haven asset that they can invest in during times of economic and political turmoil. These organizations are responsible for about one-fifth of the annual global gold demand.

“People view gold as emotional, but when they demythologize it, when they look at it for what it is and the opportunity it represents, they’re going to say, ‘We really should own some of that.’ The question will then change to ‘Where do we get the gold?’”

–Thomas Kaplan (over $2 billion invested in gold)

“I view gold as a currency, not a commodity. It’s importance as a currency will continue to increase as the major central banks around the world continue to print money.”

–John Paulson (over $4.6 billion invested in gold)

Gold Preserves wealth

Another reason wealthy people invest in gold is the fact that it is an excellent way to preserve wealth. Unlike paper money, gold does not get affected by inflation or other economic factors. For instance, in the 1970s, an ounce of gold equaled $35. If that time you had the chance to keep your gold or simply keep the $35, they would buy the same thing. However, today if you have an ounce of gold, it is worth around $2000. This means that gold preserved purchasing power much better than the dollar did.

A Hedge against the dollar

Wealthy people understand that the U.S. dollar is in a long-term decline. They also know that other fiat currencies are in even worse shape. This is why many wealthy people have turned to invest in gold and silver. Gold and silver are true original money, they have been used as a medium of exchange and store of value for thousands of years. And, unlike fiat currencies, they can not be created out of thin air by central banks. This makes them a very attractive investment for people who are looking to protect their wealth from currency depreciation.

Gold diversifying Investments

Wealthy people tend to invest a lot of their money in gold. This is because gold is a very stable investment, and it tends to go up in value over time. This means that if the stock market crashes, or if inflation starts to rise, gold will still be worth a lot of money. This makes it a very safe investment for wealthy people.

Gold as a Safe Haven

Gold is often seen as a safe-haven asset, meaning that it tends to maintain its value or even appreciate during times of economic turmoil. This is because investors view gold as a store of value that is not subject to the same type of volatility as stocks or other investments. For this reason, many wealthy individuals choose to invest a portion of their assets in gold.

When there is political tension like in the case of Russia Ukraine war, people start to worry about inflation and the safety of their money. This is when the demand for gold goes up, and the price of gold increases as a result of this. Wealthy, people invest their money where they can protect it or use it to escape the turmoil.

**See our Top-3 List of Gold & silver firms (+ buying guide)

Silver

This is also a precious metal like gold and is often used as an investment. Silver is abundant enough that it’s not as rare as gold, but still, its value is very high. It has amazing physical properties that make it very useful in industry. It’s also used in jewelry and coins. This makes it a good investment for those who want to invest in precious metals. Some of the wealthiest individuals such as Warren Buffet have a large portion of their wealth invested in silver. Like gold, the price of silver can be volatile, but it’s a good long-term investment.

Real Estate

Real estate is one of the most common investments for wealthy individuals. Why? For one, it’s a physical asset that can appreciate in value over time. And two, it provides a steady stream of income in the form of rent payments.

But investing in real estate isn’t as simple as buying a property and collecting rent checks. There’s a lot of work that goes into being a successful landlord, from screening tenants to maintaining the property. And of course, there’s always the risk that the property could lose value.

Still, for many wealthy investors, real estate is a core part of their portfolio. Many billionaires including Warren Buffett, Bill Gates, and Donald Trump have made a fortune investing in property. Larry Ellison has invested in real estate with a portfolio of over $1 billion.

Cryptocurrency

Cryptocurrency is now the trend when it comes to investing, and a lot of wealthy individuals are now putting their money into this. In 2017, the total market capitalization for cryptocurrency was around $600 billion and has grown even bigger.

“If you´re a true adventurer and you really want to throw the Hail Mary. you might want to take 10 percent and put it in Bitcoin and Ethereum”

– Mark Cuban (ABC´s Shark Tank investor, Owner of Dallas Mavericks)

“Three eras of currency: Commodity based, e.g. Gold. Politically based, e.g. Dollar. Math based, e.g. Bitcoin”

-Chris Dixon (co-founder of Hutch)

There are a lot of reasons why wealthy people are investing in cryptocurrency. For one, it’s a very volatile market, which means that there’s a potential for high returns. secondly, it’s a very new market, which means that there’s still a lot of room for growth. Lastly, it’s a very decentralized market, which makes it less susceptible to manipulation by governments or financial institutions. For instance Bitcoin, the most well-known cryptocurrency is not controlled by any government or financial institution. It has gained more than 1700% since January 2017. This makes it one of the best investments in recent years.

**How to invest in Bitcoin from your retirement account

Global Equities and Stock Funds

According to a study by Capgemini, nearly 60% of high net worth individuals invest in stocks and stock mutual funds. This should come as no surprise, as stocks have historically been one of the best-performing asset classes. However, keep in mind that billionaires are a different class from us. They can afford to take more risks. A 100% loss of investment will not threaten their financial security or their lifestyle. For the majority of us, it would be devastating.

**Get the best stock advice available from this resource

Where do rick people invest their money? – Conclusion

Generally, gold comes as the perfect investment for those who want to keep their money safe. It is a long-term investment, and it has proved its worth over time. Wealthy people tend to be diverse and for this reason, they also invest in other assets such as real estate, stocks, and bonds. This allows them to have a well-rounded portfolio that can offer stability and growth. Never put all eggs in the same basket, right?

So, in short: Where do rich people invest their money? They spread it out into different baskets!

Let´s finnish this article off with another quote from a super wealthy and true High-Net-Worth individual:

“With the same things that were done in 2000 and 2001, when it was temporarily solved with big expenditures and very aggressive monetary and fiscal policy, aside from lowering taxes, we should be directing more money to the real economy, not to the financial economy. The volatility of the markets is so great that more is won or lost in a single day than in five years of accumulated interest. And that’s not a good thing.”

-Carlos Slim (most likely the world’s richest man, net worth $55 billion)

I hope you found this short article to be helpful? Please share your own experience and opinions in the comment section below as it can help others! Also, if you got any questions about this I would be more than happy to answer them below!

I wish you the best and lots of success!

Michael, founder of Gold Retired