Posts Tagged ‘Self Directed Retirement’

Inflation Outlook Update & Its Impact on Self Directed IRAs

Sunday, September 30th, 2012

The Fed just recently announced that it will continue investing/printing $40B per month until the jobs picture improves. Two points about this :

1. This is confirmation that the programs and policies of the Fed and the current administration have not worked.

2. The basic prescription is that we should all continue to be punished for not spending more and therefore, the government is going to make us all take on more debt per person, via government printing, until our attitudes improve.

We believe that this approach falls into the the old adage of the definition of insanity is doing the same thing over and over again expecting a different result. That’s what the Fed and the administration are doing. They are going to continue to engage in the same practices of printing money and deficit spending thinking that at some point its going to work, even though it has not worked to date. For those of you who would argue that there has been improvement, I will contend that the improvement is in spite of government intervention and the fact that the Fed is engaging in a new, more aggressive program because of their actual statement of a very poor jobs market it evidence and an admission that it is not working.

What this means for inflation

To date, the Fed continues to report that inflation is in check and well within reasonable boundaries. We contend that inflation is not in check and is not within reasonable boundaries. Our reasoning is that the Fed continues to incorrectly factor the cost of energy into their equation. Secondly, they are ignoring the fact that many people are now working for lesser salaries than they were in 2008. Thirdly, most families net worth has shrunk by 10-20% of the pre-2008 levels. Fourthly, most peoples incomes are not even growing at the rate of inflation, and lastly, most people cannot invest and make 1-2% of of savings per year.

This all boils down to the fact that inflation is higher than the Fed tells us and peoples incomes are shrinking or not growing. This all has the affect of making goods and services more expensive for the average consumer. Therefore, we do have real inflation.

The coming flood and potential for hyperinflation

The Government has created $16T of debt. The government wants to spend another $40B per month. The government wants to continue printing and forcing money into the economy because things are not improving. At some point this money will start working its way into the economy and there is a lot of it. Once that starts happening, people will start holding that money in the form of debt and spending. This will lead us to think that happy days are here again. That spending activity will translate into price inflation for goods and services as all of these excess Fed dollars start chasing fewer goods and services. Its simple math and economics to see that prices could and will likely result in hyper inflationary levels.

Self Directed IRA recommendation

We foresee continued inflationary pressure on prices in the near and long term. Most of this price inflation will likely take hold mid 2013 and into 2014. We are already seeing the spike in gold and silver in response to the latest fed actions.

We see the prices for real estate to continue to stabilize. As the excess Fed dollars and low interest rates start to finally take effect, we think you will see more price stability and maybe higher than expected price increases in real estate.

We continue to see sluggishness in the job market, despite the Fed printing. 25% of the work force is not working. They have aged. They have not developed new skills. These structural disconnects will make it difficult to get people back to work and the ones that do, will not necessarily be coming back into high paying jobs like the pre-2008 levels. This will continue to make these people more oriented towards being savers and renters as there has been a permanent mind shift in the American public as a result of this recession.

Our recommendations

1. Continue to invest and hold precious metals in your Self Directed IRA.

2. Real estate will continue to look attractive for rental income and price appreciation may take hold. Its not clear to what extent price appreciation could materialize. You should be looking for real estate investment opportunities with your Self Directed IRA.

3. Private lending will continue to be a good opportunity for Self Directed IRAs. Despite the flood of Fed dollars, price inflation will be problematic for people, and they will continue to be under financial pressure due to be held in lower paying jobs with higher inflation. They will struggle to get lending from institutions. However, these same people will be more conservative than pre-2008. There will be good lending opportunities if you look, and qualify the right candidates.

Overall inflation risk is high. Hard asset investing in Self Directed IRAs is still critical to your overall portfolio strategy.

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 Obamacare Means To Your Self Directed IRA

Saturday, July 14th, 2012

As most of you probably know by now the US Supreme court ruled that Obamacare was constitutional as a TAX!

Now as some of may recall, the administration portrayed this entire program as something that could and should be regulated under the commerce clause of the constitution, but it clearly, was not, definitely was not a TAX.

Well the White house solicitor argued to the Chief justices that it was a tax and the Supreme Court ruled that as a tax it was totally acceptable.

What are the numbers behind Obamacare

  • While the new law will increase the number of Americans with insurance coverage, it falls significantly short of universal coverage. By 2019, roughly 21 million Americans will still be uninsured.
  • The legislation will cost far more than advertised, more than $2.7 trillion over 10 years of full implementation, and will add more than $823 billion to the national debt over the program’s first 10 years.
  • Most American workers and businesses will see little or no change in their skyrocketing insurance costs, while millions of others, including younger and healthier workers and those who buy insurance on their own through the nongroup market will actually see their premiums go up faster as a result of this legislation.
  • The new law will increase taxes by more than $569 billion between now and 2019, and the burdens it places on business will significantly reduce economic growth and employment.
  • While the law contains few direct provisions for rationing care, it nonetheless sets the stage for government rationing and interference with how doctors practice medicine.
  • Millions of Americans who are happy with their current health insurance will not be able to keep it.

The list goes on, but suffice it to say that we as the American people were mislead and this legislation and decision will NOT address our current economic problems with deficits and jobs. In fact this legislation negatively impacts the economy.

Under what scenario would the government arrive at a conclusion that implementing the largest tax increase in the history of the US be a good, economic stimulus? The answer is that it is not. It’s the opposite.

Regardless of your political views and your preference for president, you have to reconcile the fact that the government has just agreed to implement a new social program, for which it does not have the money to pay for. This is clearly more evidence to support that the government and the president are not interested in helping the average American, and that they are not willing to make the tough decisions as it relates to spending and budget deficits.

What Does This Mean For Self Directed IRAs

This new decision is a clear sign that the government will be incurring more debt and spending in the future. This coupled with the Fed’s recent comments about jobs not materializing and that they stand at the ready to print paints a picture or more printing, more debts and potentially hyperinflation.

We continue to support the idea that you should be positioning your self directed IRA into precious metals and possibly other hard assets such as real estate.

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 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.

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.