Posts Tagged ‘IRA-LLC’

Self Directed IRA Inflation Reality Check

Sunday, June 3rd, 2012

We’ve discussed the fact the government uses completely misleading and bogus numbers for their economic metrics (e.g. unemployment, inflation, etc.). We have specifically commented on how the inflation figures that the White and the Fed tout are not representative of reality and what people feel or experience on a daily basis.

Because of the critical nature that inflation plays in Fed and government policy and the impact that it has on our economic environment, we wanted to give you  little more due diligence on the CPI and inflation. Before we go into too much detail we need to give credit where credit is due. Much of the information that we gathered was from http://www.hsdent.com. If you are not familiar with their work or their newsletter, we encourage you to check them out. Now, on with our discussion..

The Consumer Price index (CPI)

This is the generally recognized number that the government uses to tell us what things cost. The government clearly does some manipulation of the figures. One key item that they leave in is your housing cost. Since a large percentage of Americans own their home (65%), and since the home owner has no option of not paying their house payment, and that payments does not usually fluctuate much, if any, and it is a large percent of the monthly outlay, it tends to mask price movements of daily items (food, gas, entertainment, etc.). So, the folks at HS Dent have removed this value from the CPI.

One of the other interesting things the people at HS Dent have done is to take consumer spending and break it down by the age demographic. This type of break down helps deal with life style difference between the different age groups.

The findings

  • Finding 1 – The rises in tuition costs have increased by 114% since 2000. That hits people under 25 the hardest and stays with them for many years.
  • Finding 2 – Energy costs are up more than 110%. This impacts all demographics.
  • Finding 3 – Medical care costs are up 67% since 2000. This clearly impacts people 55 and older the most.
  • Finding 4 – When you compare the BLS’s numbers for these same categories over the same period, with their methodology, you find that the age related inflation rates are about 35% versus the HS Dent method which shows something like 37-42%. That is a major disconnect!

The importance of showing these age related inflation rates

What this analysis shows is that different consumers expenditures impact age groups differently. Depending on the group and the nature of the next government stimulus program you will see differing results and impacts which effects how people live and feel about the economy. What these values show is that the government QE programs and fiscal irresponsibility is really hitting the young and the old very hard. These two groups have very little economic resources to mitigate these inflationary impacts.

So, the likely outcome is that as a result of politics, you will see more programs targeting the middle age groups. More pressure will likely be placed on buffering the young and old at the expense of the more economically vibrant producers in the middle. So, rather than let the markets do their part, get government spending and programs under control, lets take more from the producers and successful people.

What does this mean for my self directed IRA portfolio?

For one, its clear that the government will not get out the business of telling us what to do. Secondly, its clear that due to a complete lack of political will on the part of career politicians, they will engage in more government programs designed to redistribute wealth in the most ignorant, politically motivated manner. This will likely lead to, more government, more government spending and more printing of money.

Ultimately , we are talking about a stagnant economy, with weak growth and high inflation. Its not a matter of if, but when. So, its best to be prepared by holding precious metals and real estate 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.

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.

What The Purchasing Manager Index Means To Your Self Directed IRA

Thursday, May 31st, 2012

The Chicago PMI dropped to 52.7 in May. This reading has dropped over the last three months. The index is at its lowest level since September 2009.

Readings above 50 suggest the economy is still expanding. However, as a general rule three straight monthly declines directly correspond to the onset of each of the last seven national recessions. This correlation usually translates into a recession within the next six-to-eight months.

This index is one of several indicators that have come out this month that shows a slowdown, predicts recessionary times. A recession will slow demand and cause contractions. This ultimately leads to loss of purchasing power over time, decreased spending. The likely result will be more printing or other government intervention. Meaning they are not going to get the deficit under control and there is a good chance of pushing more cheap money into the system.

Most investors will hedge against inflationary pressures and the market risk with hard assets such as precious metals. So, those of with a self directed IRA should check your allocations of metals. Those of you without a self directed IRA — Get One Today!

Self Directed IRA Real Estate Trends

Monday, May 28th, 2012

Real estate has and continues to be a key holding in a large percentage of self directed IRAs. We saw the activity level high in pre-2008 and now, we see that level coming back, but for different reasons. Below we will look at a couple of key metrics to give you an idea as to what is happening with investment and rental properties.

Apartment Absorption Rates

One of the key trends to watch and follow Apartment Absorption vs. Home ownership. The trend has been and is away from home ownership to apartment living. The following chart from Marcus & Millichap clearly shows this trend.

What we see is that there is a strong trend away from home ownership and into the apartment life. The importance of this trend is that as a current or potential real estate investor with your self directed IRA, the need for rental property is increasing. The psychology of people is shifting from home ownership to being a renter. The financial and economic drivers are pushing people to become renters. The bottom line is holding real estate in your self directed IRA could be profitable and wise.

Vacancy Rates

Vacancy rates across the country were at 5.2% at the end of 2011. That is a 40 basis point (0.40% – 5.6% to 5.2%) decline. That is very significant. Below is another graphic from Marcus & Millichap. Without diving into specifics, what you see are steep declines in vacancy rates across most of the major US Cities. This is just further support for increasing rental demands.

So, what does this tell you about holding rental or investment real estate in your self directed IRA? Our analysis says that the demand for rental property has been increasing and will continue to increase as more foreclosures are disposed. This will be compounded by the fact that the economy is and will continue to grow very slow which puts pressures on wages. This motivates and maintains renters.

Given the predicted slow economy, potential global recession, your portfolio needs to have a good compliment of tangible assets such as real estate and precious metals. This is why we continue to believe that now is still a good time to hold real estate in your 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.

Check Your Self Directed IRA – There May Be A 100% Chance of a Global Recession

Monday, May 28th, 2012

This past week on CNBC, economist Marc Faber stated that he believes that there is a 100% chance of a global recession over the next 12 months.

“I think we could have a global recession either in Q4 or early 2013.”

When asked what were the odds, Faber replied, “100%.”

Faber’s bearish market calls have been followed closely since 1987 when he warned his clients to cash out before Black Monday. If you want to know more about Marc Faber, he is the author of the Gloom, Boom, Doom report.

Faber points out that while many, maybe too many, people remained focused on Greece, Europe, et. al., they may be missing more critical, global slowdowns in place like China and India. Faber goes on to note that the HSBC Flash Purchasing Managers Index, slipped to 48.7 in May from 49.3 in April. That marks the seventh straight month that the index has been below 50, a level which indicates economic activity is contracting. Faber also noted the fact that stocks that are linked to wealthy consumers are showing weakness. Faber states:

“That suggests to me the economy is likely to weaken and the huge asset run is likely to come to an end with significant asset deflation.”

Faber goes on to state that he believes that we are looking to see a global recession as earlier as Q4 2012. Faber states:

“I think we could have a global recession either in Q4 or early 2013.” When asked what were the odds, Faber replied, “100%.”

When asked about what assets to allocate in your portfolio he recommends Cash (US Dollars) and Gold.

We understand the tendency to be biased by only looking for information that supports our beliefs and the desired outcome, but, by the same token you can’t fall into the normalcy bias trap. Here is a good description of normalcy bias:

The normalcy bias refers to an extreme mental state people enter when facing a disaster. It causes people to underestimate the both the possibility of a disaster occurring and also its possible effects. This often results in situations where people fail to adequately prepare for a disaster, and on a larger scale, the failure of the government to include the populace in its disaster preparations. The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred that it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before. People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.

With the bias as our premise, we should note that over the past few weeks we have cited numerous statistics, and facts along with supporting experts all of which point to the fact that we are looking at a recession on a global scale. Many of these same experts and opinions all point to hedging your self directed ira portfolio with precious metals.

So, you look at your self directed IRA and the price of gold and silver and you feel uneasy because of the recent sell off on metals. Go back and read our post from May 27, 2012. Your concerns about metals are unfounded. Now is the time to be a contrarian and look beyond the noise generated by the masses. Now is the time to assess your self directed IRA and determine if and how much of precious metals to place into your 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.