Posts Tagged ‘self directed iras’

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.

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.

Is It Time For Rental Property In Your Self-Directed IRA

Saturday, May 5th, 2012

The housing crisis and global economic shock has and will forever change the psyche of the average American for decades to come. No longer is the thought of renting seen as a shortcoming for not striving or attaining the American dream. Renting is now a necessity for many and a financial practicality.

Home ownership is down from 69% in 2006 (the peak for all history) to 65.4% today. Much of this is due to foreclosures. But, we also see that by late 2011, according to Moodys, it was cheaper to rent versus own in 72% of the American metro areas. Additionally, building starts for structures with 5 or more units were up 60% in 2011 versus single family starts of 16.7%.

Its simple math to see that for many people renting saves them money and prevents them from getting into financial trouble. Hence, you see a major migration towards renting versus owning. We should not forget the fact that some people just cannot get a loan no matter what these days.

We Need Renters. In order to be a more healthy economy, we need people who can rent. Renters obviously generate income for the property owners, but more importantly, renters are more mobile and flexible. If you are an unemployed construction worker in Las Vegas (12% unemployment), that rents, its much easier for you to pick up and go to North Dakota (3% unemployment), to get a job. This is good for the economy as renting allows the skills and needs to easily find each other in the market place.

So, what does this mean for your self directed IRA? This all adds up to an opportunity to hold real estate in your self directed IRA. The demand for rental property is up significantly. The mind set for the average American will be that renting is OK, and financially wise. Property prices are way down (I know, you still have to be careful). These are all positive signs that maybe its time to take the initiative and secure rental properties in your self directed IRA.