Last week you saw U.S. investors fleeing domestic stocks at a pace so fast it was a near record. At the same time money that flowed into safe haven Treasuries reached a decade long high not seen since the Global Financial Crisis. While economists are still saying that all is going strong with the American economy, clearly the smart-money investors are not buying the financial media’s continuing hype and euphoria.
You should be concerned about your investment and retirement accounts given this latest revelation. When geopolitical and economic concerns rise to the surface you need gold in your portfolio’s corner. Gold offers insurance and protection during market turbulence like no other historically proven asset. It is a good time to consider investing in some bullion gold. You might also start thinking about the Gold IRA rollover rules and regulations.
Spooked Investors Flee the Markets At a Near-Record Pace
This past week saw money fleeing U.S. ETFs and stock funds to the tune of $24.2 billion. This was good enough to be the third largest exit from the financial markets in all of United States’ history. Meanwhile the $30 billion that exited from global stock funds was an even greater milestone of second greatest amount of all time. The only instance that exceeded this was the Global Financial Crisis, per strategists of Bank of America Merrill Lynch.
United States’ stock market outflows were the largest besides the volatile February stock market correction and the Global Financial Crisis. U.S. bonds also saw some safe haven inflows of $700 million as this was happening. Bank of America Merrill Lynch Chief Investment Strategist Michael Hartnett shared their reasoning for the latest extreme volatility:
“That nervousness, the losses people were experiencing in non-U.S. markets with the trade wars has probably led to what you’re seeing in the markets in the last week or so — a big unwind of positioning, a flight to quality.”
Bank of America Merrill Lynch re-stated the obvious by claiming that the “pervasive euphoria” from early in the year has evaporated. This chart below shows their private clients’ exposure to Treasury bills and how quickly it is rising:
Hartnett and the other strategists there saw conditions that were much like those in 1998. At this time you saw a late in the cycle worldwide credit event that began with emerging markets. They reminded of the market collapse and forced deleveraging liquidation that happened to global markets because of the failure of Long Term Capital Management and the Asian currency crisis. The S&P 500 declined starkly by 22 percent while the Nasdaq dropped 33 percent in 1998 from the months of July to October. During that same time, bank stocks dropped by an average 43 percent.
Similar conditions are happening in emerging markets today. The emerging market debt fund experienced its tenth straight outflow in as many weeks. A full $3.2 billion departed. The equities in the emerging markets also saw a $3.1 billion loss. This was the seventh week in which outflows occurred over the past eight weeks.
Bank of America Merrill Lynch concludes their assessment with a reminder. Some of the key market events for the year 2018 so far have centered around the interest rate increases by the Federal Reserve, emerging markets collapsing (as in Argentina and Turkey), and the United States breaking away from the other global economies. Besides these events they highlighted, there is also the expanding trade war upsetting investors.
Trade War With Europe Starting to Intensify Unsettles Investors
Part of the story with the increasing volatility and departure of money from the markets has to do with the expanding trade war. You can not overestimate the impact that this is having on the psychology of global investors. They have become as used to expanding free trade as they have to the global cheap and easy money fixes provided by the major central banks. The EU has just fired the latest salvo in the ongoing trade war through information obtained by Britain’s Financial Times.
The Financial Times reported this past week that the U.S. may soon suffer from a retaliation round of tariffs that amount to even $300 billion. This hinges on whether or not the U.S. moves forward with its planned tariffs on cars made in Europe. The Financial Times obtained a copy of a statement written out to the United States Department of Commerce. In it the EU tipped its hand on its concrete plans to retaliate against potential new American duties on EU cars. European leaders have become increasingly convinced that President Trump’s administration will erect a new round of tariff barriers on their cars.
The same document submission from the EU raised the point that car brands owned by European companies equate to a full one-quarter of American car manufacturing (like BMWs built in the U.S.). They reminded that these are primarily export-driven car sales, so tariffs would cause markets to fragment. It would also increase car prices for American buyers and quite possibly cause significant numbers of domestic jobs to disappear.
American Concerns Over the Trade Deficit Could Lead to Significant Repercussions
President Trump told Fox News his thoughts on a potential trade escalation with the EU. He referred to the trade deficits between the United States and other nations with his statement that:
The European Union could be “possibly as bad as China, just smaller… It is terrible what they do to us… Take a look a the car situation, they send their Mercedes in, we can’t send our cars in.”
Yet the economic and stock market repercussions of these events could be in the near future, and savvy investors know it. Brussels has warned that the U.S. investigation as to whether or not foreign manufactured cars and car parts constitute a risk to national security has the potential to tip the growing trade war with China into a no-holds-barred global trade war. They intimated that this will severely injure the American auto sector that entails over four million American jobs.
The European Union’s frustration with the controversial trade policy led them to state in their document that this decision:
“…could result in yet another disregard of international law” by the United States. This would “damage further the reputation” of the States as these tariffs will not be acceptable to the global community.
U.S. car makers have taken notice of potential damages these tariffs will have on their business too. General Motors warned last Friday that the tariffs on European Union vehicles will cause the price of their cars to increase by thousands of dollars, decrease the company’s ability to compete globally, and cost American workers their jobs.
Germany’s luxury car manufacturer BMW is another major company which produces vehicles in the United States. The firm exports fully 70 percent of all of its vehicles from its biggest manufacturing plant located in South Carolina. They have pledged to slash jobs and investment there (and at other U.S.-based plants) if the country moves forward with its tariffs on EU cars.
Finally global car manufacturers have issued warnings of how much such U.S. tariffs on car imports into America will impact prices in the U.S. They claim that the prices for their imported vehicles to America will rise by $6,000 each vehicle. It will also cause the prices of U.S. domestically produced vehicles to rise.
Gold Is The Safe Haven to Turn To For Portfolio Protection
It is easy to see what a mess the world markets and economy are headed for now. The markets are right to be spooked, but you do not have to be personally nervous. Today is the day to learn how to invest in gold. You already know why to invest in gold.