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(Kitco News) - The ongoing banking crisis has increased the likelihood and the severity of a recession, according to Peter Grandich, founder of Peter Grandich and Company.
“The banking crisis probably led to more of a potential recession than we might have had otherwise, if SVB and Credit Suisse and those things never happened,” Grandich said. “But now that it's happened, it's put a damper on things.”
Grandich spoke with Kitco News journalist Ernest Hoffman on March 27. Grandich added that while he doesn’t expect a broad systemic meltdown, the crisis could have been averted altogether.
“I don't think it's 2008,” he said. “Then, it was the major banks who just went to town on people that should have never owned mortgages, across the board and across the world. This is probably more focused and if SVB had better management and handled it directly, we might not even have it to the level that it had. But now that it's happened, it's put a damper on things.”
Grandich believes the impact of the banking crisis will be concentrated on regional U.S. banks, and small to medium-sized businesses will be the ones to suffer, due to tighter financial regulation.
“The reason that's important is [that] small to midsize businesses don't deal with the major firms," said Grandich. "They deal with regional [and] local banks, from real estate to business loans. So that will probably put a damper on the economy.”
He sees the roots of the current banking crisis, and the broader debt crisis, in the Federal Reserve’s decades-long run of loose monetary policy which led to the growth of unprecedented cheap credit.
“The Fed had the pedal to the metal, Kool-Aid for everybody,” Grandich said. “When things started to change, they said, ‘well, there's really no inflation.’ And there was. And then they said, ‘it's only transitory.’ And then suddenly, they found themselves way behind the curve, and they had to hit the brakes. They had no choice.”
“Unfortunately, we've had multiple decades of cheap credit expansion that helped accelerate the markets, and it made people get into investments in a way that they might have not been if things were tighter like they are now.”
When it comes to the medium-term forecast, Grandich doesn’t mince words. “America has entered its worst-ever social, political, and economic era,” he said. “It's going to be far more challenging to make money in the stock market than it was the last 20 or 30 years.”
He believes that emerging markets which relied on investment supported by cheap money will also suffer.
“There's two things that are dead, globalization and the great credit expansion in the world,” Grandich said. “It'll be more challenging for certain countries that were very dependent on flows because a market was really strong. I don't see any major country where I want to run and put a lot of money in at this time.”
Grandich sees gold as an excellent investment in the current environment, and not just as a safe haven or a hedge against inflation.
“I personally have believed since the low $1600s that gold can make money from capital appreciation. It is going to go to new highs in my view, and therefore it has a substantial upside still, where I don't see that in general equities. Right now, gold should be first a hedge, and then also I believe it can be played for capital appreciation.”
Grandich is now looking past the banking and debt crises toward the next major challenge for the economy, one whose implications could be felt for many years to come.
“The retirement crisis is the next big crisis in the United States,” he said. “Almost 75% of Americans now are working paycheck to paycheck, and they had to, in the last year or two, resort to using credit cards just to get necessities because of the inflation costs. So they haven't had any opportunity, and are not likely to have an opportunity, to save for retirement, to reach an adequate level of what they think retirement should be.”
To hear Grandich’s views on the U.S. dollar and China, and to learn which technical pattern shows potential for gold prices to hit $3000, watch the above video.
