No one has a crystal ball and no one is 100% accurate in trying to predict the US economy. However, as wrong as people may be at a detailed level, its not too hard to see larger, more macro trends with some good level of predictability and accuracy. As such, we are seeing 2013 as a less than stellar year. Its not our desire to be a permabear and naysayer. We want to see the US grow and prosper as much or more than anyone. But, we have to look at the facts, figures, and trends and call them as we see them. What follows is our current view of how the economy is going to play out in 2013 and how these trends will likely impact your investment decisions with your self directed IRA.
What are the key drivers for our less than optimistic outlook for 2013
- The two political parties (democrats and republicans) will continue to operate in a total dysfunctional manner.
- The Fed will continue to print, debase, and artificially drive down interest rates
- The government will continue to tax and spend
- The president believes in taking from productive citizens and disincentivizing commerce and capitalism
- The government and many Americans believe that the government actually is a creator or wealth and prosperity and therefore a positive driver in the economy
1. Government dysfunction
The two political parties see themselves as fundamentally different. However, the facts don’t support that perspective. We are now at a point where both parties are agreeing to increase taxes on Americans, despite the fact that the government has seen record revenues over the last years, and despite the fact that government spending is up over 70% over the last 10-15 years. yet, they claim they need more money, and both parties are agreeing. Yet, no one seems to be able to address the elephant in the room which is too much government and too much spending. The push is towards more government in our lives, more rules and this ultimately leads to more spending (a/k/a more deficits).
At the end of the day the two parties are all about keeping their jobs, and not making any sacrifices. This just goes to prove how little difference there actually is in the two parties. the end result is not addressing our debts and deficits.
2. The Fed has committed to more printing until attitudes improve
The Fed just announced that it would continue providing fiscal stimulus for the foreseeable future. It has even increased its $40B per month treasury purchased to $80B per month. They have also announced that they will maintain low interest rates for the next 1-2 years.
The issue that we see is that this is extremely inflationary. First of all, the printing (purchases in the market), just continues to push more and more cash into the money supply. The cash in the system is at all time historically high levels. At some point, these excess funds will find their way back into the consumer’s hands. This will result in a lot of dollars chasing too few goods, which puts upward pressure on prices. We already have seen inflation rates in excess of 6% (our real number versus the governments artificially low number).
If we continue to see all of these excess dollars circulating in conjunction with very low interest rates, you are likely to compound the inflationary risk. the Feds only tools for tamping this down is to increase interest rates to really high levels. That only impacts the lending process and home prices. They still have the challenge of gracefully calling back all of these dollars.
The bottom line is that we see significant inflation risks, which will have the effect of pushing up costs, prices for goods, services, and homes.
3. The Government will continue to tax and spend
The government debt is at all time, historic highs. The government is committed to be at 25-27% of GDP – all time high versus historical levels of 20%. One in every six Americans is on some sort of government financial assistance. 47M Americans are using food stamp – up from 25M just 4 years ago (refer to the chart below courtesy of http://www.trivisonno.com/food-stamps-charts).
Its clear that the government will continue to need more tax revenue which can only come from the producers in our economy. With more and more people on government assistance, the pool of tax payers continues to shrink. This places and enormous burden on the producers which at some point, which we believe we have reached, the government burdens dampen economic growth, and further act as a disincentive for producers to produce more and for those on government assistance to get off of the assistance. Its a double negative and the net result is reduced, slow or negative GDP and growth.
To further support the point, the President and Congress has just agreed to extract $1.4 trillion in tax revenue form Americans. We are already at $16T in debt and are now projected to hit $20T+ over the next few years. Nowhere in the process did the powers that be drill down on any real spending cuts. The moral of the story is that bigger government is here to stay, and this monster needs more of our money for support and re-distribution to others.
Self Directed IRA Recommendations
Real Estate – We still advocate that real estate is a good bet for 2013.
- Real estate is a hard, tangible asset.
- Its tough for the federal government to manipulate the real estate market
- Even in bad times, people still need a place to live.
- Government intervention will likely result in price inflation
- Government intervention will likely continue to push people to be renters vs. owners
Given these factors, we see direct ownership of rental real estate to be positive. We also see great opportunities in private lending through deeds of trusts.
We continue to be bullish on metals in 2013. We advocate holding physical metals in your self directed IRA. We recommend silver eagles and gold eagles. The market has not necessarily been kind to metals of late. Many are still calling for the fall in metals prices, but they ignore the fundamentals. the price of gold and especially silver, is still not in correct ratio to historic ratios when you look at the overall costs of key items such as oil and real estate. Secondly, the naysayers continue to discount and ignore the inflationary impacts of the government and Fed actions.
Given these drivers and conditions we are still recommending holding metals in your account in proper proportion to your specific situation and needs.
Private placement offering
This asset class is somewhat broad, but we need to address it. Certain specific industries can be interesting. In general, there are big movements towards crowd funding and the funding of small businesses. This is a hot area right now, but you need to use caution and perform due diligence and allocate funds in a direct proportion to your risk level. There are a number of private offerings that deal with real estate which can be interesting and can be good investments. However, the devil is in the detail of what the partners do and how they do it.
Oil and gas offerings are still attractive. Energy prices may fluctuate a bit, but the overall macro trend is towards higher energy costs. This makes the profitability of a venture more likely. Here again, due diligence is very key when looking to invest your self directed IRA.
We see great opportunities in 2013 for self directed IRA investors. We believe that most people should strongly consider allocation a portion of their portfolio to a self directed IRA so as to move away from the influences of the government and Wall Street, plus take advantage of some of the return opportunities that will present themselves.