The Looming Recession And The Self Directed IRA

The Fed is meeting to discuss new policies and strategies to deal with the looming recession. Their options are few and cannot always make up for bad government policy. We need to briefly look at some of these issues to see how this may affect your self directed IRA and your overall self directed IRA portfolio.

Jobs – The current economic numbers shows that we are not creating enough new jobs as evidenced by the April and May jobs numbers. June, July and August are not likely to be much better as many companies experience flat or down business activity in the summer months.

We are see slowing economic growth, which drives down worker productivity. This has the effect of preventing new hiring of workers and if the low productivity goes on for too long, it ultimately results in layoffs.

Retail Sales – Retail sales slipped in April and May. This is another clear sign that consumers are pulling back on spending due to concerns about what lies ahead economically.

Manufacturing – Manufacturing has been one of the bright spots in the economy. However, orders for manufacturers have fallen for the last two months and factory output fell in May.

Europe – Europe is clearly in deep trouble. They have massive debt, and some countries like Spain and Greece are seeing much higher borrowing rates. The entire EU is going to be in recession for some time. Much of the money in the EU has left and been invested in the dollar via treasuries. The EU is not going to be a consumer of US goods and services. This has an overall dampening effect on our exports and GDP. Translation – we are going to be selling less stuff to other countries.

Fed Policy – The Fed has already pulled a lot of levers and used a lot of tools. They are likely to engage in some more quantitative easing (QE). However, we know from prior QEs here and in Europe, each subsequent round of printing has a lesser impact or effectiveness. Fed policy can dampen inflation when the economy overheats and lift borrowing and home sales a bit when it falters, but it can’t instigate faster growth when the President and Congress fail to address chronic problems.

Government Policy and Inaction – Demand for U.S. products is being diminished by large trade deficits on oil and consumer goods with China. The President warned China that the US would take action if the Chinese did not abandon the cheap yuan policy. The president has not taken action.

Additionally, the President and Congress, have placed insane restrictions and bans on drilling in the Gulf, off the Atlantic and Pacific Coasts, and in Alaska are reducing U.S. production 4 million barrels a day and doubling imports.

At the end of the day Fed policy can’t compensate for these government missteps.

Other Economic Reforms – Most of the new rules and provisions for reform such as Dodd-Frank are in place. These supposed reforms have allowed the biggest banks to control 60 percent of U.S. bank deposits. Wall Street banks continue to run gamble, but won’t gamble on loans to regional banks or small and medium sized businesses. The interpretation is that trading securities creates millions in salaries and bonuses, but traditional lending does not. This is one reason that more fed printing or QE will not work. All of that money ends up sitting in the banks and not in the hands of the consumer.

The US is looking too much like Greece and Spain. These are economically dangerous contemporaries. The markets may like thinking or actually hearing of new Fed QE action. However, it not likely to do anything.

So, we are still calling for people to keep some portion of their self directed IRAs invested in hard assets such as precious metals and real estate. Because at the end of the day, we are not going to be able to rely on the government, the Fed and the Banks to help us build and protect our retirement portfolios.

As always, consult with your financial or tax advisor before making investment decisions with your self directed IRA.