The converging forces of price inflation and economic contraction continue to weigh on asset markets.

The Dow Jones Industrials was beaten by 1,000 points on Wednesday and is heading for its eighth straight weekly loss.

Meanwhile, precious metals markets are finally finding a footing. After falling for four consecutive weeks, gold and silver are moving higher in trading this week.

Markets see big swings as new recession warnings flash. Big box retailers reported disappointing sales figures this week while major investment banks downgraded their economic outlook. Analysts from Bank of America, Morgan Stanley and Wells Fargo are warning of an impending recession and a possible stock market crash.

Here is the comment from financial advisor Steven Van Meter:

Steven Van Meter: First it was Bank of America calling for a crash, now it’s Morgan Stanley. Let’s check that. Well, Morgan Stanley is warning that the ingredients for a global recession are on the table and markets must grapple with the possibility of an economic slowdown. With inflation at the highest level in 40 years, the Federal Reserve taking increasingly aggressive measures to cool consumer demand and prices, the risk of a global recession is rising, according to the Morgan economist Stanley.

Now Wells Fargo says a recession is inevitable. Wells Fargo CEO Charlie Scharf said Tuesday there was no doubt the United States was headed for an economic downturn. The Federal Reserve has hiked rates twice this year and plans to continue to do so, as part of its bid to cool the economy and rein in runaway inflation.
If the stock market and the economy continue to deteriorate, the Federal Reserve will not be able to follow through on its ambitious rate hike plans. It may even have to backtrack and try to reliquefy the financial system in the event of a hard landing.

Of course, Fed Chairman Jay Powell assures us that the economy remains strong. Just two weeks ago, we shared a quote from Powell saying there is nothing to suggest the economy is near or vulnerable to a recession.

Some of America’s top economists and CEOs would disagree. It would be the same for millions of stock market investors who see their portfolios shrink. And so would millions of Americans who are forced to cut spending to make ends meet.

If a recession does indeed set in in the coming months, it wouldn’t be the first time the Fed got its economic forecast completely wrong.

Whether Powell actually thinks the economy is still in good shape is another question. He may feel compelled to lie about it to try to avoid causing panic.

However, informed investors do not base their decisions on the declarations of the authorities. They position themselves for both recession risk and inflation risk.

This might be the toughest environment ever faced by an investor who didn’t experience the stagflation period of the late 1970s.

During stagflation, there is no safe haven in conventional financial markets. Stocks lose value as corporate profit margins are squeezed. And bonds lose out to inflation.

Some investors will seek refuge in other asset classes like real estate and cryptocurrencies. But the housing market is now facing an affordability crisis due to rapid price increases and soaring mortgage rates. By some measures, a median-priced home has never been less affordable relative to household incomes.

Existing home sales have now declined for three months in a row. Some analysts believe that prices will also have to fall.

As for cryptos, this asset class has suffered a collapse of more than $1 trillion in value in recent months.

Last week, turmoil hit the so-called stablecoin market when a high-profile coin turned out to be anything but stable. In a bizarre sequence of events, the supply of Terra and Luna tokens hyperinflated, causing their prices to plummet. Some billionaires and hedge funds have been caught up in the disaster.

Bitcoin enthusiasts insist that nothing like this could happen to the biggest and best-known cryptocurrency. But ultimately, no digital asset can be guaranteed to hold its value over time.

Durable assets that have intrinsic utility will always have value. But during a recession, economically sensitive commodities such as base metals and crude oil can suffer from demand destruction.

The durable assets least correlated to the economic cycle are precious metals. Demand for gold and silver often increases during broader downturns as investors seek safe havens.

Although gold and silver have underperformed broad commodity indices so far during this massive inflation spurt, they will likely start to outperform as the economy slumps and the stagflation will set in.