Posts Tagged ‘IRA custodian’

The Looming Recession And The Self Directed IRA

Tuesday, June 19th, 2012

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.

Gold, Hyperinflation And Your Self Directed IRA

Monday, June 18th, 2012

Will or would gold hold up under a hyperinflation scenario?

This may sound like some sort of scifi, Ayn Rand scenario, but that’s what the people of the Weimar Republic of post WWI Germany thought and yet lived through. The people of Germany had to withstand price increases that doubled every 28 hours or 20 billion times over where they started. Then you’ll say “well that was a long time ago and we are more modern and sophisticated than they were”. Well if we are soooo sophisticated and advanced, then how did we get into the WORST recession and economic environment since the Great Depression? The answer is that we have not learned our lessons and in some ways we’ve forgotten the lessons of our ancestors.

What is hyperinflation?

Hyperinflation is defined by a 50% or more price increase in a single month. Hyperinflation generally has one root cause – too much money (i.e. the money supply greatly increases). This scenario typically occurs when a government engages in too much spending, creating deficits to such unsustainable levels that investors lose confidence in the government. Sounds a little familiar.

There have been 29 incidences of hyperinflation since 1919 (Weimar) which is about once every three years. So, this fact countermands the statement that we’ve moved beyond this problem. We have not. What actually ends up happening in the US is anyone’s guess, but the obvious strategy is that people should be considering hard assets such as precious metals and real estate.

What you should be doing with your self directed IRA

Given the simple fact that our government continues to spend, create deficits, print money  (i.e. put more money into circulation), it only seems to make sense to hedge your portfolio with metals and real the estate. The real question is not if you should do this, but how much of these asset classes you should be holding in your self directed IRA.

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.

Silver Supply And How This Affects Your Self Directed IRA

Tuesday, June 5th, 2012

We’ve been looking at the fundamentals of silver and the most recent market prices in an effort to try and make sense of the low prices we are seeing for silver. We’ve posted a couple of recent article about putting silver in your self directed IRA and if the time is right. What we want to do in this article is look at the basic, fundamental macro economic issue that affect silver supplies and ultimately silver prices.

All Paper Currencies Fail And Gold And Silver Still Hang Around

Mankind has returned to the safety and stability of gold and silver time and time again. Unlike paper based, fiat currencies, gold and silver represent a store of value and something that people have placed value in for thousands of years. All fiat currencies known to man have failed 100% of the time. So, let’s put this in perspective: 100% of the time, gold and silver have represented a store of wealth and value and they have never failed. 100% of the time, all paper based currencies issued by governments have failed. So, which one would you bet on over the long haul?

Silver Supply Metrics

According to the USGS, 17 billion ounces of known silver supply remain in the ground globally–the troy ounces of silver equivalent of the 530,000 metric tons. Today, silver is primarily obtained as a byproduct from lead and zinc mines, copper mines, and gold mines, in descending order of production volume. The poly-metallic deposits account for more than two-thirds of U.S. and worldwide silver resources.

Accordingly, more mining for base metals also drives silver supply. According to the book The Visual Miscellaneum, David McCandless estimated remaining world supplies of lead at 14 years, and zinc at only 10 years.

Lead and zinc poly-metallic mines make the biggest annual contribution to silver supply, and that supply is just 15 years or so from complete exhaustion!

McCandless puts remaining world supply for silver and gold resources at only 14 years.

Because of this current and projected scarcity of supply, some metals exporting countries are adopting policies of retaining their silver mining production rather than exporting it. A good case in point is, according to CPM group’s 2012 Gold Yearbook, in January, Kazakhstan ended 1.2 million ounces of annual gold exports, choosing to buy its own domestic mine output in an effort to build up gold holdings.

The Marginal Utility Factor Of Silver and Gold

Gold and silver are exchangeable globally as money.  The third, fourth, and fifth unit is just as valuable to the holder as the first unit. Therefore, the marginal utility of silver and gold decline at a slower rate than any other commodity. This characteristic of silver and gold exists because they are considered money, and therefore, demand for them will always be far greater than any supply.

The Perfect Storm: Marginal Utility, Limited Supply, Fiat Currencies

So, we now see that silver is in limited supply (14 years), that all currencies fail, and that silver is considered currency. It does not take a big leap to see that during the near term of our lifetimes we are looking at a situation where it becomes obvious to the masses that we are in short supply of silver relative to the demand as a direct result of government policies (a/k/a printing and deficit spending). With this in mind it would seem that prudent investors would allocate some portion of their self directed IRA portfolio to silver.

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.

Should You Plan On Adding Silver To Your Self Directed IRA?

Tuesday, June 5th, 2012

We’ve been watching the price and price movement of metals. We specifically have been looking at silver and trying to determine why silver has not bounced back a little. As a general statement, the gold silver ratio is lower than average, and that alone usually means some correction may be coming. Over the last week or so gold has bounced back and found some support levels above $1600. However, silver has not moved up correspondingly. So, this begs the question of should we be looking at silver to make a move to the upside?

Let’s consider some facts to see if maybe silver might be a good self directed IRA investment:

Silver Appears To Be Oversold

The people over at Casey Research have out together a 60 day price oscillator that is designed to detect over bought and over sold points. In reviewing their current metrics they show silver to be at one of its relatively lowest points in the last decade. There have been about 4 or 5 other points in this bull market where silver has reached such a low price point. As a general statement, when silver hits these low, over sold points, it bounces back. The question then is when will that bounce happen?

The Recovery Timeline For Silver

The average decline of the three prior corrections, where silver lost a third or more of its value, was 42.1%, and the average recovery time was 98 weeks and 4 days. If we extrapolate the same ratio of recovery time to percentage decline to the current correction, it would take 108 weeks and 3 days to return to the previous high of $48.70. Calculating from the previous peak of April 28, 2011, we wouldn’t break into new highs until May 26, 2013.

So, May 2013 sounds like a long way off, but is it? Keep in mind that one large, significant European meltdown, major banking default (which are happening in Spain), or some other event could send the metals through the roof. Remember, we are all using fiat currency that has nothing more than our belief in the Federal government as its sole basis for value, and they keep that perpetuated through money printing.

Actions

We believe that its not if, but when will silver bounces back to new highs. Remember silver is a commodity and it is used in all types of electronics. Also remember that there is not a lot of cheap silver left to be mined. If you don’t have any metals in your self directed ira portfolio, then you should consider doing so. If you do not have silver in your self directed IRA metals portfolio then you should consider doing so.

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.

Self Directed IRA Economic Update – How About That Jobs Number!

Sunday, June 3rd, 2012

This past week we saw one of the fingers of instability give away in the form of a very poor jobs numbers. To be specific, there were only 69,000 new jobs added last month. This number came in at about 1/2 of the recent average and expectations. As you can see from the chart below, the monthly change numbers are showing a trend to the down side.

This weak jobs number is confirmed by Economic Cycle Research Institute’s “Weekly Leading Indicator” or WLI index. The index turned down from being slightly positive to a neutral and heading negative. This indicator measures future economic activity over the next 2 months. The last time this number turned negative was April 2011 when we had another major sell off in the markets.

Since the supposed recovery has been fueled by quantitative easing (QE2 a/k/a printing money), a continued weakness in the WLI suggests that the effects of printing are wearing off. This was inevitable. And now that we have a really poor jobs number, we are seeing correlation and confirmation of the weakness signals that the economy has been and is slowing.

What Does This Mean?

For one, it means that the Fed is going to continue to scrutinize this jobs figure along with other metrics. The White House was probably caught with their pants down around their ankles on this jobs numbers and rest assured that there will be corresponding pressure placed upon the Fed to take action. The Fed is not likely to knee jerk over this number. They will most likely continue to watch over the next 1-2 months. If the WLI and jobs related data continue to bear out what we are currently seeing, then they are most likely to engage in QE3 (print some more money).

What Does This Mean Regarding My Self Directed IRA?

First of all if you have a self directed IRA, you’ve  made a wise decision to properly diversify your portfolio. In regards to this new data, it would seem that metals would be a wise choice for the next several months to a year until we start seeing readings that would indicate a new direction. Even though we don’t see real estate prices coming back any time soon, real estate can be a very good choice in many markets for the right type of investor. We don’t necessarily think you will see price appreciation in your real estate portfolio anytime soon, but we do believe that you will continue to see strong rental demand and good cash flow on the right properties.

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.