Posts Tagged ‘self directed 401k’

Sovereign Responsibility And The Self Directed IRA

Friday, July 6th, 2012

We recently came across a very interesting, joint project between Mike Walker, former US Comptroller, and some graduate students from Standford. This particular project was to analyze the basic policies and fiscal practices of the world’s major countries. The list is interesting and has definite implications for self directed IRA investors.

This project was designed to assess and measure:

  • Fiscal Space – how much debt is too much
  • Fiscal Path – projected levels of future debt
  • Fiscal Governance – a score for a country’s fiscal rules, fiscal transparency, and fiscal enforceability

The following table is the result of their research.

Source: Stanford Institute For Economic Research (click here to view the report)

What is interesting about this table is the fact that the US is so low – #28 out of 34. The other interesting fact is the company that the US is keeping such as Italy, Ireland, Japan, Greece, Portugal, Spain. Every single one of these countries have been in the news and are all in some sort of fiscal or economic crisis. Not good company to be keeping, but we are there none the less.

Our interpretation of the data

What this data is suggesting is that the US is not and has not shown sound fiscal policy or financial management, and there is not a overall plan or strategy to deal with the economic problems confronting the US. This is a wake up call for everyone in the US to start seeing our country for what it is: A run away, out of control spend thrift, nation with ZERO plans for making any changes.

Implications For The Citizens of the United States

The implications of this study accompanied with the other associated data we have presented in other postings is that our government will continue to print. This printing will eventually lead to inflation. Consumer spending and jobs will not be coming back any time soon. The US dollar will weaken and fall despite any short term improvements due to other currencies being so dismal.

This is a call for people to review their self directed IRAs, meet with competent advisors and invest in precious metals and real estate or other hard assets not linked to US Government.

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.

The Low-Zero Yield Play And The Self Directed IRA

Friday, July 6th, 2012
The Fed has continued to promote and enforce a low interest rate environment for the past several years. The purpose of such a policy is to promote and incentivize consumers and small businesses to borrow. When these groups (2/3rds of the GDP) have cash, they spend or invest it in business expansion, homes, durable goods, equipment, etc.

The basic theory is fine, and seems logical, but the reality has been quite the opposite with very negative effects. First of all how many people or businesses do you know that have been able to get a loan recently? My guess is few to none. Secondly, when interest rates reach such a low level, how much incentive is there for people with cash to invest in government treasuries when the economy is in such dire straits? The answer is that people with idle capital (cash), look at projects, the project’s risk-reward ratio, and the the general state of the economy. The end result is that they see risk in the project and they see interest rates as non-existent, so they just sit on their cash waiting for the right opportunity.

Now let’s look at the person at, in or nearing retirement. As you approach and enter retirement you start looking for the safest, highest yielding investments. However, in today‘s low/no interest environment, these people cannot find adequate returns. So, they end up sitting on cash.

The net result of our current low-zero interest rate environment is that rather than motivate and drive increase investment and economic activity, it tends to have the opposite effect. When the Fed states for the fourth time that they are going hold down rates, that sends a clear message that even though we think the economy is getting better, its not really strong enough to make us feel good. The net result is apprehension and avoidance by the average business, consumer or investor, therefore, I’ll sit on my cash for now.

Ultimately the Fed will continue to print money and push it into the money supply to prevent deflation. This has a inflationary impact at some point.

So, how does this impact my self directed IRA?
At the end of day, the current low-zero interest rate environment will be inflationary. This will push up prices and loss of purchasing power. This is a perfect environment in which to hold 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.

Hyperinflation Around The Corner – Look At Your Self Directed IRA

Friday, June 22nd, 2012

We’ve recently seen the data that supports that the economy is not recovering, and in fact appears to be sinking back into recession. We’ve also seen that the Fed is going to continue to engage in operation twist, but as we’ve pointed out that’s likely to have little to no impact.

There is a confluence of factors that are coming into play that are pointing to potential hyperinflation in the near future. In fact that near future could be in the 2014 time frame. If this is the case, then you will want to re-evaluate all of your investments and look at how you should be best utilizing your self directed IRA in order to weather this coming storm.

The following are some of these factors or drivers that may be leading to hyperinflation:

Economic Deterioration – The economy is far weaker than the politician know or will tell you. The US economy has never recovered from the 2006/2007-to-2009 crashes.

Deterioration of the budget deficit – The US budget deficit is not getting better and in fact, the unfunded liabilities are clearing getting worse and the the government has not done one, single positive thing in three to four years to even stop the bleeding. The ObamaCare program could drive $10 Trillion in unfunded debt. That may not come about. That, plus consideration of accounting for Freddie Mac and Fannie Mae and otherwise normal annual transactions, could push the reporting of total  U.S. obligations from $80 trillion in 2011, into the $120 trillion range for 2012, which would be roughly eight-times the level of U.S. GDP.

Renewed printing and support of the financial system – Operation twist will continue. The real concern is that if the system continues teetering, the Fed will be forced to monetize more debt in order to prop up the banking system. This is more fuel for the fire, and this will have the effect of pushing people/countries away from the US dollar. This would lead to a much weaker dollar.

The loss of the US Dollar as the reserve currency for the world – Despite the recent influx of countries grabbing US Dollars, the long term movement has and is away from using the dollar as the worlds reserve currency. This will continue to erode the dollar over time and depending on other events that can come sooner rather than later.

The actions  taken by the Fed and the  government in 2007 and after, and the impact from the economic downturn, the movement away from dollar selling along dollar debasement have created the perfect storm. We were already facing inflation in the future, but our circumstances have likely moved timing for a U.S. hyperinflation to 2014 from 2018.

For those living in a U.S. dollar-denominated world, physical gold remains the primary hedge against the ultimate dollar crisis, along with physical silver and assets outside the U.S. dollar and in stronger major currencies such as the Swiss franc, Australian dollar and Canadian dollar.

With this in mind, you should consider reviewing your self directed IRA investments and making sure that you position yourself accordingly.

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.

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.

The US Outlook And Your Self Directed IRA

Sunday, June 17th, 2012

Despite the many negative macro economic factors that are negatively impacting the US and the US recovery, the US is in relatively better shape than other countries. This may sound contradictory to some of our prior blog postings, but its not when we compare the US to other countries. So, we thought we would highlight the outlook for the US and how this may impact your investment decisions with your self directed IRA.

Some of the positives are:

  • Cheap energy: Natural gas is at $2.30 per MMBtu. The helps make the generation of  electricity cheaper. Crude oil running around $82 per barrel. That is relatively cheap and helps keep oil based goods and services cheaper which is good for the economy.
  • IRAQ and Afghanistan are dwindling down. The helps reduce government spending and printing.
  • Bernanke will keep printing. We believe that there is a great benefit to banks to keep the interest rates low. We also believe that with the falling prices (deflationary), the Fed will continue to print  and keep rates low.
  • The dollar is stronger than its competition. Despite the fact that the Fed wants a weaker, cheaper dollar,  when compared to a weak Europe, unmanageable Japanese government debt and the Chinese money stimulus, the US Dollar is more attractive than most other currencies which has been drawing investors into the Dollar.
  • US stocks earnings are still positive.  P/E ratios are attractive when compared to the negative real return of government bonds. Predictions are that US corps will continue to show good ratios which will attract investors.
  • Weakness in Japan and China makes the US relatively more attractive. This is a complex topic, but China and Japan are seeing significant weakness and they are the kings of central bank planning and control which keeps markets out of balance.

How You Should Position Your Self Directed IRA

The crisis in Europe will cause a loss in confidence in the Euro. The dollar is likely to rise against the Euro (goods become more expensive for the Europeans to purchase from the US) which will be the most of any other currency. This will mean that the Europeans will be consuming less of US goods and services. The dollar will rise less against the Japanese yen and the Chinese renminbi, but rise it will.

Here some some specific ideas for self directed IRA investing:

  1. Precious Metals In Your Self Directed IRA- A rising dollar is bad for commodities because they become more expensive. This would generally mean that gold would be negatively impacted. However, because of the ongoing printing in the US, Europe and China, we think that this will outweigh the downward pressures on gold from the strengthening dollar. We are still recommending that you continue to hold some precious metals in your self directed IRA. Consult your financial advisor as to an appropriate allocation of metals.
  2. Real Estate In Your Self Directed IRA – The real estate market looks to continue to stabilize. There are some potential shocks still looming out there. However, a strengthening dollar is likely to have the effect of making real estate hold prices and in some markets, you may see price increases. We believe that we are still in for tough times ahead and that people are not going to see significant increases in their earnings power, nor are they going to be making home purchases due to the banks lending standards. This still bodes well for rental real estate being held in your self directed IRA, and we recommend that people continue to look for good rental opportunities for their self directed IRA.
  3. Trust Deeds In Your Self Directed IRA – There will continue to be pressure on working people due to their purchasing power degrading. Real estate prices may stabilize, but are not likely to see enough price appreciation to help people under water. There will continue to be private lending opportunities for holding deeds of trust in your self directed IRA. We recommend that you continue to look for the right type of borrower. You will find people under some stress, but have a job with a regular paycheck. These are great opportunities for 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.