Jamie Dimon has just issued another ominous warning that you should pay close attention to now. This past weekend, the long-time banking guru and mogul of JP Morgan Chase Bank came out with a startling pronouncement for the near-term future of United States’ interest rates. He argued that five percent interest rates are a real possibility for the country before long.
Keep in mind that this is the man who has correctly predicted financial and economic trends in the United States for many years. He is an internationally respected banking titan in finance. His far ranging, annual shareholder letters are widely followed like those of Warren Buffet.
You might call Jamie Dimon the voice and head of the country’s so-called “too big too fail” banking cartel. Whether you love or despise the man for the things that he has said and the positions that he has taken in the past on a host of topics, he deserves your ear.
Consider that he previously warned investors to prepare themselves for four percent U.S. yields. At the time, people were laughing at the suggestion that interest rates in the U.S. might ever return to a level that was last seen just over a decade ago. Then came the U.S. Treasury yields’ spike that popped up over three percent.
Investors became seriously alarmed as they watched the yields in growing fear. Not surprisingly, no one is laughing at his interest rate forecasts anymore. Now he has their complete and undivided attention on the issue.
On Saturday, Morgan gave a widely ranging interview at the Aspen Institute’s 25th Annual Summer Celebration Gala. This is where he tried to prepare you, stock and bond market investors, and the country as a whole for five percent plus bond yields. Dimon warned everyone:
“I think rates should be four percent today. You better be prepared to deal with rates five percent or higher. It’s a higher probability than most people think.”
Once again, it was only a about ten years ago that the rates were at four to five percent, as this graph below clearly shows:
For the moment, the three percent interest rate level is still giving 10 year Treasury yields significant resistance. Last week it again powered through this critical level for the fourth separate time in 2018. This continues to happen even with economic growth hovering over four percent, an unemployment rate under four percent, and a dramatic increase in the government’s borrowing levels. The three percent resistance line will not hold forever.
Dimon warned you and other investors to steel yourself for these higher interest rates the first time back in May. He cited examples of inflation as solid reasons that the Federal Reserve would increase the U.S. interest rates quicker than most people expected.
He also warned you about the growing and alarming debt financing of the U.S. Treasury. Now he is out sounding the alarm a second time. Consider yourself twice warned. Take measures to protect yourself while you still can.
Is Your Retirement Portfolio Protected from A Spike in U.S. Interest Rates to Over Five Percent?
While it might not be hard for you personally to pay rising interest costs as U.S. rates increase, this is not the real danger of dramatically increasing rates. Nor is the accompanying bond value crash that could accompany a sudden spike in rates. The real peril is to the finances of the U.S. government. Washington simply can not pay the interest on $21 trillion in debt with an even mild interest rate increase to¬†the more historically typical level of from¬ five to six percent. It would put Federal government interest payments at over $1 trillion per year before long.¬ The federal government’s budget will be consumed by interest payments on the debt at these still-reasonable seeming interest rate levels.
Fortunately there is an answer that does not involve you staying up all night trying to figure out how in the world you will protect your retirement portfolio after interest rates ruin the national government’s finances and crush the stock and bond markets at the same time. The solution is gold.¬† The yellow metal has won its thousands of years old reputation as¬† the world’s only historically proven safe haven asset. This storied tradition goes nearly all the way back to the beginning of recorded human history. Gold can similarly protect your personal retirement account value as well as it always has throughout the millennia.
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