by Lauren Brown | Oct 26, 2024 | gold
If you’re thinking about investing in gold or silver, especially for your retirement, Augusta Precious Metals is a company that often comes up. They’ve been around since 2012, and they focus mainly on helping people set up and manage precious metals IRAs. They’re all about making sure you’re well-informed before diving into investing.
Who is Augusta Precious Metals?
- Company: Augusta Precious Metals
- Company address: 8484 Wilshire Blvd #515, Beverly Hills, CA 90211
- Company’s phone: (844) 615-4484
- Company’s URL: www.augustapm.com
- Products sold: gold and silver (coins and bars).
- Retirement accounts supported: IRA, 401k, SEP, TSP, and more.
Augusta Precious Metals is a gold investment company that specializes in accounts that are known as precious metal IRAs (see this article to learn more about these accounts). The team behind the company leads with a clear focus on integrity and customer service.
Management Team (Augusta Precious Metals)
Who are the key members of the company?
- Isaac Nuriani – Founder & CEO
As founder of the company, Isaac Nuriani is also its current CEO. With a background in economics, he established the company with a vision to help people diversify their retirement portfolios through precious metals. Nuriani emphasizes educating investors and maintaining transparency, aiming to build long-term relationships based on trust and reliability.
- Devlyn Steele – Director of Education
Devlyn Steele plays a crucial role in the company by leading the educational efforts. With over a decade of experience in financial services, Steele is responsible for helping customers understand the market dynamics and benefits of investing in gold and silver. He’s often the face behind the company’s webinars and educational videos, breaking down complex financial topics into understandable insights.
- Howard Smith – Chief Financial Officer (CFO)
Howard Smith brings extensive experience to the company in the areas of corporate finance and operations. His focus is on ensuring Augusta maintains a solid financial structure while effectively managing costs and operations. This focus aligns with the company’s mission to provide clear and transparent fee structures to its customers.
Overview of Augusta’s Reputation & Reviews
Here’s a quick overview of the ratings and reviews the company has received from its customers:
What Augusta Offers
- Gold & Silver IRAs: This is their bread and butter. They help you roll over your existing retirement accounts (like a 401k) into IRAs backed by physical gold or silver.
- Buying Direct: You can also buy gold or silver directly with cash if you just want to hold onto physical metals.
- Education: One of their key selling points is the way they prioritize educating you about investing in precious metals. They’ve got guides, videos, and even one-on-one webinars.
The Good Stuff
- Focus on Education 📚: Augusta puts a big emphasis on making sure you understand what you’re investing in. They offer in-depth resources and straightforward explanations – keeping you well-informed at every step. Devlyn Steel conducts educational conferences with new investors to explain everything they need to know about their potential gold investment.
- Transparent Fees 💡: No one likes hidden fees, and Augusta seems to get that. They’re pretty upfront about what you’ll be paying, which is super important when you’re dealing with Gold IRAs that have storage and management costs.
- Dedicated Support 👥: You get a personal representative to guide you through the whole process, and a lot of people seem to appreciate having a single point of contact for all their questions.
- Solid Ratings ⭐: They’ve got good ratings across the board from places like the Better Business Bureau (BBB) and Business Consumer Alliance (BCA). This usually means customers trust them and encounter fair treatment.
- Buyback Option: If you ever want to sell your gold or silver, they offer a buyback program, which could be helpful if you need to cash out.
The Not-So-Great Parts
- High Minimum Investment 💰: They require you to invest at least $50,000 to get started, which can be a deal-breaker if you’re not looking to invest a large amount.
- Higher Fees on Premium Coins: Augusta sells both standard and premium bullion coins and bars. Premium coins come at higher premiums (obviously) so be aware of that.
- Limited Options: Augusta focuses only on gold and silver, so if you’re hoping to diversify with other metals like platinum or palladium, you’re out of luck.
- Delivery Delays 📦: During periods of high demand, there have been a few reports of delays in getting physical metals delivered. Not a huge issue, but something to keep in mind if quick access to your assets is important to you.
What About the Fees?
- Setup & Custodial Fees: They’re pretty clear about their fees for setting up and managing your Gold IRA. Still, it’s always a good idea to double-check with them directly.
- Storage Fees: Since your gold or silver is stored securely, there are annual storage fees. They use segregated storage, keeping your assets separate and giving you extra peace of mind.
What Do Customers Say?
- Positive Feedback 👍: Most reviews talk about how transparent and knowledgeable the staff are, and how much they appreciate the company’s educational approach. People feel more confident and well-prepared in their investment decisions.
- Negative Feedback 👎: The main complaints are about the high minimum investment and occasional delivery delays. While these aren’t widespread, some customers mention the issue.
Bottom Line
If you’re looking for a company to help you diversify your retirement savings with gold or silver, Augusta Precious Metals has a good reputation. They’re big on transparency and education, which can be reassuring if you’re new to this kind of investment. Just keep in mind that they have a high minimum investment requirement, and their focus is strictly on gold and silver.
Before making any big decisions, it’s always smart to think about your goals and budget. And, if you’re unsure, a chat with a financial advisor might help you figure out if this fits into your overall strategy.
Augusta Precious Metals – FAQ
1. Is Augusta Precious Metals Legitimate?
Yes, Augusta Precious Metals is a legitimate company with physical offices and thousands of customers. They have a solid reputation for customer education and, perhaps more importantly, transparency. The Better Business Bureau (BBB) as well as the Business Consumer Alliance (BCA) both reflect high ratings for the company which is also ranked well by TrustLink.
2. Pros and Cons of Augusta Precious Metals
- Pros: Strong focus on customer education, transparent fee structure, highly rated customer service, and positive customer feedback.
- Cons: High minimum investment requirement ($50,000), higher premiums on certain coins, limited range of precious metals (primarily gold and silver), and occasional delivery delays reported.
3. What Are the Fees and Prices for a “Augusta Precious Metals IRA?”
Just like any gold dealer, Augusta charges premiums/spreads on the coins and bars you purchase from them. These spreads can range from 5% to 30% (or more!). The exact cost depends on both the rarity and type of coin. Ask about the breakdown of their fees based on the coins and bars you are interested in. Also, when you open an Augusta Gold IRA, there are fees for account setup, storage, and custodial services. You may obtain a waiver on these fees, depending on whether they have a promo when you call them. These annual fees vary but are generally a flat yearly rate ranging between $200 and $300, so it’s essential to confirm with a company representative. Augusta is known for its clear and upfront fee structure, so there are no hidden surprises.
4. Is There a Minimum for Investment with Augusta Precious Metals?
Yes. The minimum investment for an IRA account with Augusta Precious Metals is typically (around) $50,000.
5. Are There Common Complaints With Augusta Precious Metals?
The most common complaints relate to the high minimum investment amount and occasional delays in delivering physical metals during high-demand periods. Some customers also wish for a broader selection of precious metals beyond gold and silver.
6. Is There Free Shipping With Augusta Precious Metals?
Yes, Augusta often provides free shipping for precious metals purchases, particularly for IRA accounts. It’s a good idea to confirm this detail with a representative as promotions can vary.
7. Does Augusta Precious Metals Have A Refund Policy?
Augusta offers a buyback program, allowing customers to sell their metals back at a competitive rate. However, refund policies can depend on market conditions and specific agreements, so it’s essential to discuss this with them directly, BEFORE you place a purchase or open a Gold IRA account.
8. How Does Augusta Precious Metals Compare to Goldco or American Harfford?
Augusta, American Hartford and Goldco all offer Gold and Silver IRAs with a focus on portfolio diversification. Augusta is known for its educational approach and transparency, while Goldco gets recognition for its broad range of products and personalized services. Your investment needs and preferences will dictate your choice. We recommend you contact all of them and compare their prices and offerings.
9. Is There a Lawsuit Against Augusta Precious Metals?
There are no significant public records or updates on lawsuits specifically against Augusta Precious Metals. However, investors should always perform their due diligence and review the company’s history and customer feedback.
10. How Do I Set Up a (Gold or Silver) IRA through Augusta Precious Metals?
To set up an IRA, you’ll need to speak with an Augusta representative who will guide you through the rollover process. They will help you move funds from your existing retirement accounts into a self-directed IRA AND aid in selecting the type of precious metals to hold.
11. Joe Montana and Augusta Precious Metals – How Are They Related?
Joe Montana, the legendary NFL quarterback, is a paid brand ambassador for Augusta Precious Metals. He reportedly became a customer after his financial advisors recommended Augusta, and he has since publicly endorsed the company.
12. Does Augusta Precious Metals Offer Promo Codes or Discounts?
Occasionally, Augusta may offer promotions or discounts on services, but these can vary. Speak to a representative directly about any ongoing promotions.
13. Is it Safe to Invest With Augusta Precious Metals?
Augusta emphasizes security and transparency in its dealings. It’s important to work with a trusted company when dealing with Gold IRA accounts. See this notice from the CFTC to learn more about some of the scams that unscrupulous gold companies have been using to lure investors. They have a compliance department and offer insured and segregated storage options for their precious metals and are generally a trusted name in the industry.
14. How Many Years Has Augusta Precious Metals Been Operating?
Augusta Precious Metals has been operating since 2012, focusing on providing secure and transparent precious metals investment options.
To learn more about Augusta, we recommend that you request their free gold kit.
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by Amine Rahal | Oct 10, 2024 | gold
Are you thinking of investing in gold and silver to diversify your portfolio against market uncertainty and geopolitical instability? We’ve got you covered. On this page, we will review ten top-rated gold investment companies in America. Now, we recommend speaking to a few different companies before making an investment decision, as they all have different strengths, weaknesses, and fees! Also, we encourage you to speak to your financial advisor prior to making an investment decision.
Noble is one of the top-rated precious metal firms in America and has a wide selection of gold coins and bars. They also are the only firm to offer Texas-based secure storage for metals. Noble specializes in helping IRA and 401k owners diversify their portfolios with gold and silver. Colin Plume, the CEO, is a veteran in the precious metal industry and puts a special focus on client education.
To learn more about Noble:
#2. Augusta Precious Metals
Augusta Precious Metals is a selective gold investment company that has high-profile clients like NFL Hall of Famer Joe Montana. Augusta doesn’t believe that gold and silver are for everyone and can help you determine if the investment is suitable for you. They created a free report that goes over the most common gold dealer scams to watch out for. They also have a free gold and silver conference for new customers interested in learning more about whether gold and silver are right for them.
To learn more about Augusta:
#3. Birch Gold Group
- www.birchgold.com
- 1-877-749-7738
- Iowa
- Minimum investment: $10,000
- CEO: Laith Alsarraf
- Gold IRAs Approved? Yes
Birch Gold Group has secured the likes of Ben Shapiro and Ron Paul as their celebrity spokespeople. They offer a variety of storage options for those interested in investing in gold and silver through a retirement account.
To learn more about Birch Gold:
#4. American Hartford Gold Group
- www.americanhartfordgold.com
- 1-800-462-0071
- California
- Minimum investment: $5,000 (cash investment)
- CEO: Sanford Mann
- Gold IRAs Approved? Yes
American Hartford has an impressive 5-star rating on Google Reviews. Just like Augusta or GoldCo, American Hartford sells mainly premium coins, which command higher markups. They also offer standard bullion for IRA/401k account holders interested in the lowest premiums over the spot price.
To learn more about American Hartford:
#5. Advantage Gold
- www.advantagegold.com
- 1-888-501-9001
- Texas
- Minimum investment: $5,000
- CEO: Kirill Zagalsky
- Gold IRAs Approved? Yes
You have probably heard their commercial on Fox News. Adam Barratta, CEO of Advantage Gold, says he focuses on client education without paying any celebrities or spokespeople to back the brand. Advantage Gold does have great ratings across the board.
To learn more about Advantage Gold:
#6. Rosland Capital
- www.roslandcapital.com
- 1-866-942-2962
- California
- Minimum investment: $2,000
- CEO: Marin Aleksov
- Gold IRAs Approved? Yes
A veteran in the gold industry, Rosland Capital has helped thousands of investors purchase precious metals. Marin Aleksov founded the company back in 2008. Marin has been featured on several TV and radio programs as well as in publications such as TheStreet, CBS News, and the Los Angeles Times.
To learn more about Rosland Capital:
#7. American Bullion
- www.americanbullion.com
- 1-800-465-3472
- California
- Minimum investment: $10,000
- CEO: Nevtan Akcora
- Gold IRAs Approved? Yes
Another veteran in the industry, American Bullion is a well-known name in the world of gold IRAs. Former US Mint Director Rhett Jeppson became the company’s spokesperson in 2018.
To learn more about American Bullion:
#8. Gold Alliance
- www.goldalliance.com
- 1-888-642-3314
- Nevada
- Minimum investment: $20,000
- CEO: Joseph Sherman
- Gold IRAs Approved? Yes
Gold Alliance is one of those rare gold investment companies that is NOT located in California. Joseph Sherman, CEO of the company, told us that their main focus was to offer the best possible customer support experience.
To learn more about Gold Alliance:
#9. Monex
- www.monex.com
- 1-800-444-8317
- California
- Minimum investment: $10,000
- CEO: Louis Carabini
- Gold IRAs Approved? Yes
Monex is one of the oldest names in the gold industry. The company has been operating since the 1960s! Monex is mainly a gold coin dealer offering precious metal IRA investments.
To learn more about Monex:
#10. Goldco
- www.goldco.com
- 1-855-465-3472
- California
- Minimum investment: $10,000
- CEO: Trevor Gerszt
- Gold IRAs Approved? Yes
Celebrity spokesman Sean Hannity has been selected to represent GoldCo, replacing Chuck Norris who was the previous celebrity ambassador. This company offers all types of gold and silver coins for IRA and 401k account owners. Keep in mind that this company focuses on premium coins that come at a higher cost than standard bullion coins.
To learn more about Goldco:
Gold Investment Companies Comparison Table
We recommend that you contact 2-3 different companies before making an investment decision. Compare pricing, support, and other elements that you care about. Also, before you invest in gold, make sure you understand this asset class. Gold doesn’t pay dividends or interest. It’s also not as easy to liquidate as stocks or bonds. Inquire about the buyback program from the company you decide to invest with, as that’s likely the easiest way to liquidate/sell your gold. No matter what, we recommend speaking to a trusted financial advisor before you make any investment decision.
If you are looking for a gold IRA company that isn’t listed here, check out Gold IRA Guide’s Best Gold IRA Companies page to see a more extensive list of companies reviewed.
What to look for in a gold investment company?
- Reviews and Ratings? You wouldn’t eat at a 2-star rated restaurant, so why would you work with a gold investment company that has a low rating? Reviews and ratings are a great indicator of the company’s professionalism and customer service.
- Premiums and markups on coins/bars? Ask about the prices and fees associated with your gold investment. You’re obviously going to pay above the spot price, but how much above the spot rate? It’s worth knowing before making a purchase. Different coins come at different prices.
- 401k and IRA account support? If you are plan to invest using a retirement plan, such as a 401k, IRA, TSP, 403b or other, you need to ask the gold company you plan to purchase from if they help facilititate this process for you and help when it comes to paperwork and storage. Some companies do while others don’t.
- What types of coins and bars are available? What gold and silver coins and bars are for sale? If you’re an investor, you likely want the highest purity (99.99%+ pure) gold and silver coins or bars. Collectors care about things like shine, luster, rarity, year and other factors. If you’re an investor, make sure you are getting the highest purity first and foremost. You will be paying higher premiums for “rare” coins.
- Sales experience and transparency. How are the salespeople? Are they pushy and aggressive? That’s a red flag. If they are suggesting you buy high-priced collectible coins without listening to your objectives, it’s also a red flag. It’s a good sign, though, if they are taking the time to answer your questions while explaining how the entire process works. Also, are they transparent about all fees and costs? You don’t want any surprises. You want to know upfront what all the fees will be.
Gold Investment FAQ
What is a gold investment company?
A gold investment company is a dealer that works directly with investors to help them allocate a portion of their investment portfolio to precious metals like gold and silver. Investment companies are different from local gold dealers because dealers have physical stores that cater to the general public. On the other hand, gold investment companies generally have a minimum investment amount and won’t work with a client that only wants to buy a couple of coins.
Are there fees or costs associated with gold investments?
The main costs and fees are the price of the gold and silver coins/bars you will be buying. What percent over spot are you paying for your gold bullion? That’s a question to ask the company you plan to work with. If you plan to store your gold in a secure vault, you also need to inquire about storage costs, which can be either a flat annual fee or a percent of the total value of gold.
What are the risks of investing in gold?
As with any other investment, investing in gold is not without risk. The asset comes with its own set of unique risks that any potential investor should consider.
The risks of investing in gold include:
- Price volatility: Gold prices can be highly unpredictable. These prices are influenced by various factors, including changes in global economic conditions, interest rates, currency fluctuations, and geopolitical events. This volatility means that while gold can offer significant gains, it can also result in substantial losses, especially in the short term.
- Opportunity cost: Unlike stocks or bonds, gold does not generate dividends or interest. By investing in gold, investors may miss out on returns they could have earned from other assets – assets that provide regular income. Gold is often considered a safe-haven asset, but its performance may lag during periods of strong economic growth when other investments are outperforming.
- Storage and security: Physical gold, such as bars or coins, requires safe storage, which may involve additional costs for secure vaults or insurance. Storing gold at home poses security risks and could lead to theft or loss. Really! And you don’t need us to tell you that is not ideal.
- Liquidity risk: While gold is generally easy to sell, there can be times when finding a buyer at a fair price becomes challenging. This is particularly true during periods of market stress.
Gold can act as a hedge against economic uncertainty. And, perhaps more importantly, inflation. While this is true, weighing these risks and diversifying investments is crucial to balance potential returns and risk exposure.
Is it better to invest in gold bars &/or gold coins?
This is up to each individual. Standard bullion coins like the American Gold Eagle or the Canadian Gold Maple Leaf are safe bets because they are recognized worldwide and have legal tender. However, generally speaking, gold bars command lower premiums since they are the closest thing to the raw material and require very minimal craftsmanship. Gold coins come with different designs and varying degrees of shine/luster/general quality. When you buy proof bullion coins, for instance, expect to pay much higher premiums than standard bullion coins. That’s because proof coins are stuck twice instead of once and have a higher degree of shine and luster.
What percent of my portfolio should be allocated to gold and silver?
This is a question only your financial advisor can help you answer. Some celebrity investors, like Kevin O’Leary, believe in a 5% gold allocation. Ray Dalio and Tony Robbins believe in an 8% gold allocation (as per their jointly designed All Seasons Portfolio). Each investor makes this decision based on their objectives and market outlook. Do your due diligence and your own research to determine what gold allocation is right for you. It’s important to remember that gold doesn’t pay any dividends or interest. Also, it comes with its own risks just like any other investment.
Should I store my gold at home or at a vault?
This question comes up often from our readers. Storing a large quantity of gold at home is generally risky. We always recommend storing your gold in a secure vault close to you. Offshore gold storage can also be an option if you want to store your gold in a different jurisdiction to minimize confiscation risk.
Should I use my IRA or 401k to invest in gold?
Using an existing retirement account such as an IRA or 401k might be a smarter way to invest in gold since you can avoid penalties. You can also invest in gold tax-free while working with a company that can handle the entire gold IRA rollover process for you. Those concerned about retirement account diversification should look into gold IRA companies to learn more.
Amine Rahal
Amine is an entrepreneur, investor and financial writer that covers the US economy, inflation, alternative investments, cryptocurrencies and more. He has been involved in the space for over a decade.
Lauren Brown
Lauren has over 13 years of experience in wealth management and financial planning. She is a CFA charterholder and holds a Bachelor’s degree in Finance. Lauren has worked with several asset management firms, offering wealth advisory and portfolio management services to high-net-worth clients.
by Sarah Bauder | Dec 10, 2019 | gold
Considering that precious metals such as gold have enjoyed a bullish market, there’s no better time than now to invest. An easy way for investors to keep abreast of the price of the glittering metal is with a gold calculator. The question that arises is gold and inflation. In this article, 4 experts discuss whether gold is a good inflation hedge.
Gold Might Be A Valuable Addition To A Portfolio, But Not Because It Is A Good Hedge Against Anything
“In times of economic uncertainty, many advisors suggest gold as a hedge, especially against inflation. In other words, the expectation is that holding gold in the portfolio will compensate for other assets declining in value. Luckily, we don’t need to leave this question to opinion. Instead, we can answer it based on quantifiable facts.
The Federal Reserve Bank of St. Louis maintains a site nicknamed FRED, providing time series of almost any aspect of the U.S. economy. As a measure of inflation, we can use the Consumer Price Index for All Urban Consumers.
By dividing the gold fixing price by the consumer price index, we can inflation-adjust the gold price. With the data available on FRED, we can do so back to 1968. If gold was a good hedge against inflation, we should see the resulting chart continuously trend up.
Unfortunately, this is not what we see. Instead, we can identify the following course periods:
– from 1968 to 1980, gold was by far outperforming inflation
– after 1980, gold prices fell by 75%, and it took until 2011 for prices to recover
– from 2011 to 2015, inflation-adjusted gold prices fell by 30%
– since 2015, gold prices have been mostly flat
Interpreting these results, we find that over the 50-years from 1968 to 2019, gold prices rose about six times faster than inflation. This single finding supports the idea of gold being a good hedge against inflation. However, there have been long periods of underperformance: for about half the time throughout the past 50 years, gold prices were not only lagging inflation but declining at high rates.
In summary, we believe that gold might be a valuable addition to a portfolio, but not because it is a good hedge against anything. Instead, gold can have a place in an investor’s portfolio because its price is mostly uncorrelated to any other economic factor. However, investors considering gold should have a long investment horizon, and only allocate a small percentage of their funds to gold.”
Felix Bertram, Owner, Investment Adviser Representative, Bertram Solutions LLC
Since The US Dollar Is Based On Gold, That Makes Gold A Good Inflation Hedge
“Since the US dollar is based on gold, that makes gold a good inflation hedge because if the US starts printing too much money and dollars lose their value, anyone who has gold will retain its value even if the dollar becomes worthless from over-printing and inflation.”
Stacy Caprio, Deal Scoop
Gold Isn’t A Hedge Against Inflation
“Gold isn’t a hedge against inflation. It’s a hedge against volatility.
Gold peaked in the early 1980s and then declined for many years. Inflation grew while the price of gold fell. When the price of gold reached its nadir, the stock market was booming in the late 1990s. Then, as the markets corrected in the early 2000s, gold began its ascent. The price of gold seems to do well when people are not making money in financial markets and not when inflation is actually rising.”
Holmes Osborne, CFA, Osborne Global Investors
You Never Really Know What Is Going To Be An Inflation Hedge Until After The Event
“Up until 2007 the gold price largely tracked the increase in Federal Debt, but since then the relationship has largely broken. Initially, the gold price outperformed the increase in US debt, but more recently, it seems to have underperformed.
The million-dollar question being why? And will all this money printing lead to inflation.
With bonds yields being so low, invariably negative, you’d expect inflation. But it’s not happening. One would also expect gold to do well – let’s say, better than it has. But that clearly has not happened.
But is that about to change?
At Mines & Money last week I spoke with a portfolio manager at a US pension Fund. Although I know he’s always been an advocate of gold, he told me that more and more fund managers were looking at the yellow metal. Increasingly viewing it as a “safe haven asset”.
This does not seem to have fed into the gold market yet, but that doesn’t mean it won’t. Time to take a look at the history books.
Appreciate they 1970’s was a long time ago, but if you compare the bull market back then, with the one we’re in now, two things really jump out at you.
Firstly, how the gold price over the past 20 years or so has largely mirrored what happened in the 1970’s and secondly, if the gold price were to take off AND history was to repeat itself, the gold price could go A LOT HIGHER.
Right now, with the increasing debt and general uncertainty in the World across the World, do you think it’s ridiculous to have at least 1% of your wealth in gold? I don’t
You never really know what is going to be an inflation hedge until after the event. But right now, I think gold should be part of a solution – not THE solution. Because I don’t think there is A solution.”
Simon Popple, Brookville Capital
Taking into account the current uncertainties and volatility apropos of the global economy, gold is a good addition to a diversified portfolio. For those US investors interested in investing in gold with an IRA, have a look at the top Gold IRA companies. In addition, for those who already own gold and are considering storing it offshore, have a look at the top companies for your offshore gold investment.
by Ryan Barnes | Mar 25, 2015 | CPI, Definitions, gold, Inflation
The U.S. economy got a little economic boost today with a stronger-than-expected CPI reading for February, and a strong Purchasing Manager’s Index (PMI) that continued to project GDP growth.
Headline CPI and core CPI both came in 0.2% higher than January, as slight price hikes at the pump for refined products balanced out a general breather in the declines in some of the base commodities. The headline numbers had been tracking negative for the past three months, which everyone was pretty much ok with chalking up to crude oil. Just so long as GDP growth came in respectably, there wasn’t any reason to panic.
But core CPI (ex-food and energy costs) was already lagging behind Fed goals of around 2%, and already in the midst of sending deflationary ripples up the global goods chain, into…well, just about everything.
Muddled Waters for First Rate Hike
It’s created a tense chess match between investors and the Fed the past few weeks. It started just after the stellar (as in +295,000) February jobs report last month, when the consensus started to form that the Fed would have to act sooner rather than later in creating a interest rate normalization cycle.
The key first step of that cycle is getting us off the floor of zero percent rates – a stance that doesn’t befit a growing economy and presents what Yellen herself has called an “asymmetrical risk”.
U.S. Definitely Growing…But How Much?
Just as soon as we seemed to have some headway into a summer rate increase, nearly every economic indicator in the U.S. started been printing well below analyst estimates. In fact, the depth of our misses has hit a multi-year high, according to Bloomberg analysis:
In light of this reversal, both investors and the Fed have had to take stock of things. First quarter GDP estimates continue to be ratcheted down – from the 2.5% – 3.0% level I highlighted last month (a number that was freshly lowered at the time) to an average Q1 GDP estimate of about 1.5% today.
Cranky Markets are Volatile Markets
It’s why we’ve seen a spike in volatility around every asset class – fixed income, forex, commodities, and equities have all been bumping around trying to align their compass to the next clear trend line. Would the Fed remove “patient” in the March FOMC meeting? Was September the new June (for the first rate hike)? Was 2015 off the table entirely?
Answering these questions is challenging enough in isolation, but it’s been exacerbated by the stunning rise the the USD index, which alters true price action in commodities and long bonds. The surging U.S. dollar is a de facto rate hike. It lowers the cost of imports dramatically (a deflationary force), and it makes our exports more expensive overseas.
And while the realities of pricier U.S. exports certainly hurt some companies more than others, the simple fact is that close to 50% of the total revenues of the S&P 500 member companies is derived in a currency other than the U.S. dollar.
2014, Part Deux?
It’s quite astonishing how much the first quarter of this year is looking like the first quarter of last year. Tick by tick, indicator by indicator, we seem to be replicating that market environment.
This time last year we were watching interest rates hit new lows, but convinced the party had to end any moment – inflation was coming, and we needed to position ourselves away from fixed income and into equities, gold, and other commodities. Fixed income turned out to deliver stronger returns than even equities did.
GDP looked to be on track for a good start to the year, but then a bout of really bad whether caused us to actually contract as an economy in Q1. Most of the top analysts said “don’t worry, we’ll be strong in the back half of the year”, and sure enough we were. The U.S. turned in over 4.5% growth in the next two quarters.
Looking around today, it’s much the same setup – so far. The key differences between then and now are this:
1) the unemployment rate is lower than last year; we have clearly moved close enough to full unemployment in the Fed’s eyes that it’s no longer an impediment to a rate increase. That box is checked off.
2) the USD is much stronger (10-20% or more) against every major global currency. As I’ve discussed, this move alone is the equivalent of a 25-50 bps rate hike.
In fact, if the dollar hadn’t been zooming so hard the past six months, there’s a chance the Fed would’ve put a token 25bp hike out there last week. Instead, Yellen reminded us that the Fed isn’t there to make things easy for investors, saying the Fed “can’t provide and shouldn’t provide” certainly to markets when it comes to the timing of rate hikes.
We don’t seem to be in any danger of that.
