This week Ben Bernanke was in front of congress being asked if he was going to be engaging in QE3 or some other form of intervention. In true political avoidance tactics, Bernanke basically replied by stating that the Fed stood at the ready should conditions warrant. He pointed out that the Fed still does have a number of tools at its disposal.
So, the markets clearly saw this as a clear indication that the Fed would not be engaging in its usual money manipulations in the short term. However, how long will this last? There is likely to be pressure from continued government spending and movements into the US dollar.
Government spending – There has been little sign to show that the government will make any drastic changes in their operations, mind set, and therefore spending. Its not likely that the mandatory tax increases and spending cuts that are looming in January will take full effect. It is likely that the government will engage in a lot of political rhetoric and the media will hype the pending fiscal cliff. This in turn will have negative effects on the markets, which may force the Fed’s hand to take action. Additionally, if the government’s spending is not curbed, companies that are buying the treasury bonds, in the absence of the Fed buying these bonds, will reach a point where they won’t continue doing so without bidding up interest rates. At that point, you are likely to see more Fed intervention under whatever program name they decide.
Movement into the dollar – despite the fact that the dollar is very worthless, its still perceived to be better than the alternative currencies out there. This has the effect of strengthening the dollar which will eventually lead to an increase in the dollars value relative to other currencies. The downside to this is that this makes exports more expensive which dampens exports and has a negative impact on the economy. At some point, there is likely to be pressure to cheapen the dollar (currency manipulation) and the Fed is likely to be forced to take action.
So what will the options be?
We believe that the only options will be, ultimately, for the Fed to continue its intervention programs. It has no choice. The government and the Fed have shown time and again that they are committed to protecting the banks and preventing deflation. They have also shown that they have no interest or intention for allowing the former free markets to balance themselves out. So, printing, easing, etc. it is.
Timing is hard to say. We believe that we will see some type of intervention over the next 6 months. The Europeans are in a very bad place. There are already calls for the US to step in and and assist in some way. The current low interest environment has not had the desired results – meaning no one is borrowing. Jobs are not coming back. Consumer spending is not recovering. Housing is not recovering. There is a presidential election going on. There will be definite pressure building sooner rather than later. It is most likley that the Fed will be foreced to make some move over the next 6 months or less.
What does this mean for my self directed IRA?
It seems likely that more currency manipulation will be forthcoming over the next several months. We should note that gold has held fairly well through all of this especially in comparison to other commodities. Imagine what could happen if all of those treasury investors decided to even put a small percentage of their holdings into metals?
The average baby boomer cannot make a decent rate of return on their earnings. They are being forced to invest in more risky assets just to get some earnings. Many may have to consider metals as a safe haven for wealth preservation. Some are looking at real estate for investment income. This is sometimes in the form of actual property ownership or in other cases deeds of trusts or other lending arrangements.
The point here is that there is nothing new on the horizon that would suggest that the nations and the US specifically, has figured anything out other than to continue manipulating currency. In the end you likely need to have some portion of your retirement portfolio held in a self directed IRA.
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.