Archive for September, 2012

Inflation Outlook Update & Its Impact on Self Directed IRAs

Sunday, September 30th, 2012

The Fed just recently announced that it will continue investing/printing $40B per month until the jobs picture improves. Two points about this :

1. This is confirmation that the programs and policies of the Fed and the current administration have not worked.

2. The basic prescription is that we should all continue to be punished for not spending more and therefore, the government is going to make us all take on more debt per person, via government printing, until our attitudes improve.

We believe that this approach falls into the the old adage of the definition of insanity is doing the same thing over and over again expecting a different result. That’s what the Fed and the administration are doing. They are going to continue to engage in the same practices of printing money and deficit spending thinking that at some point its going to work, even though it has not worked to date. For those of you who would argue that there has been improvement, I will contend that the improvement is in spite of government intervention and the fact that the Fed is engaging in a new, more aggressive program because of their actual statement of a very poor jobs market it evidence and an admission that it is not working.

What this means for inflation

To date, the Fed continues to report that inflation is in check and well within reasonable boundaries. We contend that inflation is not in check and is not within reasonable boundaries. Our reasoning is that the Fed continues to incorrectly factor the cost of energy into their equation. Secondly, they are ignoring the fact that many people are now working for lesser salaries than they were in 2008. Thirdly, most families net worth has shrunk by 10-20% of the pre-2008 levels. Fourthly, most peoples incomes are not even growing at the rate of inflation, and lastly, most people cannot invest and make 1-2% of of savings per year.

This all boils down to the fact that inflation is higher than the Fed tells us and peoples incomes are shrinking or not growing. This all has the affect of making goods and services more expensive for the average consumer. Therefore, we do have real inflation.

The coming flood and potential for hyperinflation

The Government has created $16T of debt. The government wants to spend another $40B per month. The government wants to continue printing and forcing money into the economy because things are not improving. At some point this money will start working its way into the economy and there is a lot of it. Once that starts happening, people will start holding that money in the form of debt and spending. This will lead us to think that happy days are here again. That spending activity will translate into price inflation for goods and services as all of these excess Fed dollars start chasing fewer goods and services. Its simple math and economics to see that prices could and will likely result in hyper inflationary levels.

Self Directed IRA recommendation

We foresee continued inflationary pressure on prices in the near and long term. Most of this price inflation will likely take hold mid 2013 and into 2014. We are already seeing the spike in gold and silver in response to the latest fed actions.

We see the prices for real estate to continue to stabilize. As the excess Fed dollars and low interest rates start to finally take effect, we think you will see more price stability and maybe higher than expected price increases in real estate.

We continue to see sluggishness in the job market, despite the Fed printing. 25% of the work force is not working. They have aged. They have not developed new skills. These structural disconnects will make it difficult to get people back to work and the ones that do, will not necessarily be coming back into high paying jobs like the pre-2008 levels. This will continue to make these people more oriented towards being savers and renters as there has been a permanent mind shift in the American public as a result of this recession.

Our recommendations

1. Continue to invest and hold precious metals in your Self Directed IRA.

2. Real estate will continue to look attractive for rental income and price appreciation may take hold. Its not clear to what extent price appreciation could materialize. You should be looking for real estate investment opportunities with your Self Directed IRA.

3. Private lending will continue to be a good opportunity for Self Directed IRAs. Despite the flood of Fed dollars, price inflation will be problematic for people, and they will continue to be under financial pressure due to be held in lower paying jobs with higher inflation. They will struggle to get lending from institutions. However, these same people will be more conservative than pre-2008. There will be good lending opportunities if you look, and qualify the right candidates.

Overall inflation risk is high. Hard asset investing in Self Directed IRAs is still critical to your overall portfolio strategy.

Disclaimer: The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.

Why Gold Went Up Now With The Feds QE3 – What This Means For Self Directed IRAs

Sunday, September 23rd, 2012

This past week the Fed announced that it would engaged in a continuous stimulus program from now through 2015 due to the continued weak and anemic labor market. The Fed committed to a monthly outlay of $40B to purchase mortgage backed securities. the theory here being that this will help stimulate housing and subsequently the labor market.

We’ve been hearing and talking about QE3 all summer. Despite the fact that we all knew and understood that QE3 was coming, gold moved sideways in the $1500 to $1600 territory, for weeks. Now, just before QE3 is announced, gold spikes up past $1700 and into the $1750 range.

What’s going on here?

Not to be one to engage in conspiracy theories, buts its almost as if there is insider information being passed around. We’ve known for weeks there would be some sort of Fed action. We did not have any really significant economic news, yet, gold is up suddenly.

Its our theory that there are insiders that do get a glimpse as to what is coming. More specifically, such inside information clearly bodes well for metals.

Self Directed IRA Actions

Metals have definitely shown the next new bull leg. QE is here to stay. The government has not fixed one single problem in our country. The American electorate can’t clearly see that their current president has not delivered, yet the think that they may still want to vote for him despite his inability to deliver tangible results. Based upon this the risk is on. We see nothing positive coming from the government and maybe not the presidential election. Dr. Ben is printing like mad. the dollar will continue to be debased and lose value. Inflation will continue to creep into our lives.

We still have a buy and hold action for gold and silver in your self directed IRA. We recommend holding physical gold and silver for the ultimate hedge and protection with your self directed IRA.

US Trade Policy And Its Impact On Self Directed IRAs

Sunday, September 9th, 2012

As you listen to the political theater that came from both political party campaigns, these last two weeks, you can’t help but ask the question “where are your real solutions?”.

We hear both candidates talking about jobs. But really? You, the government can create jobs in the private sector? We never heard one single solution or set of tasks or activities that either candidate would implement that they could tangibly demonstrate could or would create jobs and prosperity. In fact, if we look to the current administrations track record, their attempts at creating jobs have failed miserably.

Now, lets consider US trade policy by this administration as well as those of Bush and Clinton. We now have what we consider a free trade policy. The argument put forth by the Clinton administration was that we need to have a policy that opens doors to foreign markets. This allows US manufacturers to sell their goods into those markets. This also provides cheaper goods back to the US consumer. The theory being that the US companies will hire more US workers to support their operations in foreign markets, as well as dropping the costs of goods in the US markets. Sounds like a win-win scenario.

However, the reality does not seem to support the theory. What we have actually seen happen is that the US has, since the Clinton era, ran massive trade deficits. The American worker’s wages have not kept pace with inflation. We saw a major economic bust right at the end of the Clinton administration. We’ve seen American manufacturing move offshore, and we have not created net new jobs.

Why is this happening?

We’re not here to beat the drum for American jobs, protectionism, or some socialistic economy. What we are pointing out is that what our government’s trade policy has accomplished or failed to accomplish. What we managed to accomplish is that we opened up our doors to cheap goods from from foreign countries. Foreign countries have the access to the same technology, education, information, and capital as we do in America. The only variable between us and the foreign country is the cost of labor. That clearly gives them a competitive advantage that we do not have here.

We hear the President proclaiming that we are going to bring back American manufacturing, and American jobs, but the reality is that those jobs are never going to come back with our current policies. We have deliberately implemented a trade policy that puts us on an unequal footing with 3rd world countries. How would you ever expect us to be competitive with someone that make less than 10% of what an American worker makes? the short answer is you won’t. My personal experience from a prior life in manufacturing management and consulting is that America has moved manufacturing offshore, closed US plants all in an effort to reduce cost. American companies were and are in a competitive dog fight with foreign goods. The US based companies more often than not have shareholders and are driven to earn a profit for their shareholders. That’s their reason for existing. So, its only natural that these companies look for lower labor costs in order to keep their goods price competitive with the foreign goods being imported.

The heart of the problem

The crux of the issue lies in how we define the purpose of an economy. Are we here to serve the economy, or does it serve our society? The second part of the issue is are economies suppose to serve their society or country or nation, or do nations, and societies not matter and its just one big global pot?

Let’s deal with the second question, first. If we value the concept of nations, countries, regions as being the highest level of our society or community, then the economy would be defined relative to that construct. If, however, you really say that we live in a global community, then the country is out the window, and there really is no economy or purpose for it. What we have is a free for all, and policy, borders, and countries do not matter. Therefore, you have to compete directly with the person making $2 per day living in a dirt floor hut.

The answer to the first question is that the economy is designed to deliver wealth and prosperity to its participants. Therefore, if you live in the US, then the US economy is designed to improve the lives and prosperity of Americans, not the Chinese, or Indians.

So, if you buy into the precept that the United States economy is here to serve the people of the United States and the objective is to improve the overall wealth and prosperity of American, then you have to have trade policies designed to do just that. Today, we do not have such policies and we are not going to see jobs and economic prosperity and improvement with the current policies of our government.

What does this mean for self directed IRAs

Ok, so we may have gone the long way around the barn, but the issue is clear. The political theater that you see come from the President or Mitt Romney are just that — theater. There are not any solutions being put forth, and there is no indication that either party or candidate will implement anything that will address our economic woes. This is why you have seen massive QE from the Fed and why the price of metals will continue to increase. The printing of money is the only way that the government can deal with our problems. Its because of this that we still recommend that people maintain a good, healthy position in precious metals held in their self directed IRA.

We are also advocating that you continue to look for self directed IRA investments that get you away from the markets and into hard tangible assets such as real estate or investing in small businesses that you know and understand or have some control over.

Disclaimer: The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.