- Another Potentially Larger Issue
- What’s The Incentive?
- Could This Be The Next Shoe to Drop?
- The Nature of Sequels
- It Makes Sense – Doesn’t It?
Please note that Moving Markets is now going to be published on a monthly basis.
China: Economic Growth Slowest in 13 Years
A Reuters News Service story reported that China is experiencing the slowest growth in well over a decade.[i] This from the article (emphasis added):
Risks are rising that China’s economic growth will slide further in the second quarter after weekend data showed unexpected weakness in May trade and domestic activity struggling to pick up.
Evidence has mounted in recent weeks that China’s economic growth is fast losing momentum but Premier Li Keqiang tried to strike a reassuring note, saying the economy was generally stable and that growth was within a “relatively high and reasonable range”.
China’s economy grew at its slowest pace for 13 years in 2012 and so far this year economic data has surprised on the downside, bringing warnings from some analysts that the country could miss its growth target of 7.5 percent for this year.
“Growth remains unconvincing and the momentum seems to have lost pace in May,” Louis Kuijs, an economist at RBS, said in a note. “The short-term growth outlook remains subject to risks and we may well end up revising down our growth forecast for 2013 further.”
Exports posted their lowest annual growth rate in almost a year in May at 1 percent, exposing a more realistic picture of trade following a crackdown by authorities on currency speculation disguised as export trades to skirt capital controls, which had created double-digit rises in export growth every month this year even as world growth stuttered.
May exports to both the United States and the European Union – China’s top two markets – both fell from a year earlier for the third month running.
Imports fell 0.3 percent against expectations for a 6 percent rise as the volume of many commodity shipments fell from a year earlier.
The volume of major metals imports, including copper and alumina, fell at double-digit rates. Coal imports fell sharply.
“The trade data reflects the sluggish domestic and overseas demand, signaling a slower-than-expected recovery in the second quarter,” said Shen Lan, an economist at Standard Chartered bank in Shanghai.
A government factory survey of purchasing managers and a similar poll sponsored by HSBC, both issued earlier this month, showed export orders falling in May, suggesting the outlook remained grim.
Inflation, bank-lending growth and investment were below expectations in May, while factory output and retail sales rose around the same pace as in April.
Consumer inflation in China slowed to the slowest pace in three months; perhaps an early sign of deflation entering the picture.
This economic slowdown that China and the rest of the world is experiencing is quite predictable. In the case of China, municipalities have humongous debt levels which will tend to be deflationary. China also has a demographic problem: an aging population.[ii] CNBC reported recently (emphasis added):
China, the manufacturing hub of the world, is in danger of losing that title.
Its population is aging fast as its one-child policy, begun in the 1970s, begins to bite. This, in turn, could lead to a huge labor shortfall by 2050, according to experts.
China’s workforce, those between the ages of 15 and 64, is expected to start contracting beginning in 2015. The number of new entrants into the workforce is already falling and will decline by 30 percent in 2020 compared to 2010, according to Beijing-based research firm GK Dragonomics.
“In the case of China, you have a shrinking number of people in the young adult workforce, shrinking numbers of children feeding into this force, and a growing number of the aging workforce,” Judith Banister, senior demographer at Javelin Investments in Beijing, said.
In 2010, there were 110 million people 65 and above in China; by 2030, the number will increase by more than 100 million, according to the United Nations. By 2050, more than a quarter of the population will be over 65.
In an article published in the China Economic Quarterly earlier this year, Wang Feng, director of Brookings-Tsinghua Center for Public Policy in Beijing, likens China’s demographic structure to a bullet train racing into the unknown.
“Profound demographic changes in China are redrawing the parameters of the country’s future,” Wang wrote.
Over the past two decades, China has experienced what experts call “a demographic window of opportunity.” UN data show the country’s working age population grew from 66 percent of China’s total population in 1990 to more than 72 percent in 2010 — fueling the nation’s economic rise, when it grew at an average rate of nearly 10 percent annually.
China’s working age population is expected to decline to 61 percent of the total population by 2050, according to the UN.
A one-child policy introduced in 1977 and rolled out nationwide two years later has contributed to falling birth rates, while life expectancy has gone up.
China’s labor force will soon begin a significant contraction. That will increase the cost of labor and make China a less competitive location for manufacturing. But, there’s another potentially larger issue here. An older population consumes less.
While that is not as detrimental to China as it is to the US, it’s still a significant factor. According to The World Bank, 34% of China’s GDP is from household consumption as compared to 72% in the U.S.[iii] As China’s population ages and as labor costs increase, China’s GDP growth will slow.
But it’s important to keep these factors in context. The growth rate of the Chinese economy is slowing from double digit percentage increases annually to single digits.
Will New IRA or 401(k) Rules Affect You? Part One
While I have written about President Obama’s proposed limits on the amount that you can contribute to an IRA or other retirement account in the past, I wanted to expand on this thought. Recently, I have had conversations with many, many folks who are concerned about the rules regarding IRA’s or other retirement account changing. As you might expect, all these folks were concerned about the rules changing so they were not as favorable to the taxpayer.
I am republishing what I wrote previously here:
President Obama’s budget, according to a Bloomberg article published recently, will limit investment levels in IRA’s and other retirement accounts to $3 million. To be fair, the details of the proposal are not clear, but the fact that the idea of retirement account investment limits are even being discussed should be very alarming to everyone.[iv] This from the article:
President Barack Obama’s budget proposal would cap multimillion-dollar tax-favored retirement accounts like the one held by Mitt Romney, his Republican rival in 2012.
Obama’s budget plan, to be unveiled April 10, would prohibit taxpayers from accumulating more than $3 million in an individual retirement account. That proposal would generate $9 billion in revenue for the Treasury over the next decade, according to a White House statement released today.
“Under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving,” the statement said.
The most prominent taxpayer with a multimillion-dollar IRA is Romney, the 2012 Republican presidential nominee and co- founder of Bain Capital LLC. Romney disclosed in public filings during the campaign that his retirement account held between $18.1 million and $87.4 million. At one point, the maximum exceeded $100 million.
IRAs have evolved from a retirement-planning technique into an estate-planning tool for some wealthy families because tax laws allow the accounts to be passed on to heirs, said Ed Slott, an IRA specialist and certified public accountant based in Rockville Centre, New York.
“Over the last election it hit a critical mass when a lot of people found out that Romney had $100 million in his IRA,” Slott said. “People thought, how on earth did that happen? I think that was the tipping point.”
The Romney campaign didn’t explain how he amassed that much money in an IRA when contribution limits are much lower. Most taxpayers can contribute a maximum of $5,500 for 2013. Older workers, self-employed workers and those who save through 401(k)-style plans have higher caps and can roll those accounts into IRAs.
One possibility is that Romney included Bain investments valued at close to nothing that later grew exponentially. The value would increase tax-free in the retirement account and would be subject to taxation at ordinary income tax rates when taken out.
Democratic lawmakers, including Representatives Sander Levin of Michigan and George Miller of California, asked the Treasury Department last August to answer questions about large IRAs and to make policy recommendations.
The administration’s statement didn’t explain in detail how the proposal would work. The cap would apply to the total of all of an individual’s tax-favored retirement accounts.
First, let me talk about how Mr. Romney could accumulate that much money in a retirement account. As the article states, contribution limits to a retirement account are determined by the IRS and may increase year to year. While the article correctly states that IRA contribution limits are $5,500 this year, it fails to point out the other types of retirement accounts that allow much larger contributions. For example, a plan like a defined benefit plan allows for contributions large enough to fund a specific level of pension income at retirement. If a company were to adopt one of these types of plans, contributions to the plan are made for each plan participant with older participants potentially getting a larger contribution than a younger plan participant due to the fact that the contribution will have a shorter time in which to grow. For example, a 50 year old who will be collecting $2,000 per month at retirement might require a larger plan contribution than a 30 year old who will be collecting the same $2,000 per month at the same retirement age. Presumably, the contribution made for the 30 year old will have longer to grow than the contribution made for the 50 year old. If these plans are terminated, the plan balance allocated to a plan participant can be rolled to an IRA account. It’s likely that Mr. Romney had a plan along these lines and, as the article states, it’s also almost a certainty that the investments in the plan grew exponentially.
Here is what the article doesn’t state. The IRS owns about 40% Mr. Romney’s retirement account. In spite of the fact that during the election much hype surrounded the fact that Mr. Romney paid a tax rate on his income in the 15% range due to much of the income being from capital gains and dividends, that will all change for Mr. Romney when he reached the age of 70 ½. At that point, Mr. Romney will be required to take required minimum distributions from his retirement plan. Assuming a balance of $100 million in his IRA at that point, Mr. Romney’s required minimum distribution from the plan would be between $3.5 and $4 million. That distribution would be taxed at ordinary income tax rates, currently 39.6%.
The very important point here is that as an IRA account grows for the investor, it also grows for the IRS. And, assuming tax rates in the future are higher, the IRS’ share can even grow disproportionately to the share of the investor.
Second, the CPA quoted in the article states that IRA’s are an estate planning tool because tax law allows the accounts to be passed to heirs. While that is true, when the heir inherits an IRA, required minimum distributions begin IMMEDIATEY based on the heir’s age and remaining life expectancy at that time. In this case, as in the case of an IRA owner reaching the age of 70 ½, income taxes are paid on distributions and are taxed at ordinary income tax rates. In the case of wealthy families, that tax rate is once again 39.6% under current law; and that’s before state income taxes if applicable. While heirs inheriting IRA’s can further defer the income taxes due, the income taxes can’t be avoided. Assuming the inherited IRA continues to grow, total taxes paid on the IRA may actually be significantly higher over time than if taxes were paid on the account at the death of the original IRA owner.
This idea of capping retirement account investments will, in my view, ultimately REDUCE the total tax revenue generated by IRA’s and other retirement accounts. As a retirement account grows for the investor, it also grows for the IRS. Distributions from an IRA are taxed at the highest income tax rates in the code. That being the case, why would the government want to limit the level of investment in an IRA? It’s certainly not for tax reasons; more tax revenue is ultimately generated by a large growing IRA than one that is smaller. My view is that this proposal is purely political, intended to create another reason for the have not’s to hate the haves.
Third, the article states that the proposal would generate $9 billion in tax revenues over the next decade. The accountant that made that calculation would probably have to take his shoes off to count to 20. This will be a net tax revenue loser for reasons that I’ve already stated.
Fourth, note the White House statement quoted in the article, “Under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.” This is simply farcical. Here we go again, the government helping us determine what is reasonable.
Finally, if this IRA limit becomes law, it will have unintended consequences. Charitable contributions will decline. Wealthy individuals with charitable intent typically leave their IRA’s to charity rather than their heirs. An IRA is the least efficient asset to own from a tax perspective and when an IRA is left to charity, the entire balance goes to the charity and no income taxes are paid. I can cite many, many times through the years that both wealthy and middle class clients have left their IRA’s to their church or charity for this fact alone.
Another unintended consequence of this notion should it become law is that retirement plans at employers may cease to exist in the same numbers that they do today making it harder for the ever-shrinking middle class to conveniently save for retirement. A business owner who sponsors a retirement plan may terminate the plan when her IRA limit is reached making a company sponsored plan unavailable to many workers. After all, if the business owner can’t contribute, what is the incentive to keep the plan?
Prior to this article being published, I was of the opinion that folks saving for retirement should consider accumulating assets outside a retirement account. Given the current tax trends and fiscal condition of the US, why would anyone want a joint account with the IRS considering that if future tax rates are higher than today, the IRS’ share grows?
Will New IRA or 401(k) Rules Affect You? Part Two
The recently established Consumer Financial Protection Bureau has been kicking around whether it has the authority to “help” Americans manage the money they’ve collectively accumulated in a retirement account.[v] This from an article published by Bloomberg (emphasis added):
The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.
“That’s one of the things we’ve been exploring and are interested in in terms of whether and what authority we have,” bureau director Richard Cordray said in an interview. He didn’t provide additional details.
While it is unclear as to how this ‘help’ would manifest itself, it may make many IRA or 401(k) account holders nervous. I talked about this in my book of two years ago “Economic Consequences.”[vi] Here is an excerpt:
In some cases, it may even make sense to use retirement account assets to eliminate your debt, although you should look at the consequences of doing so with a qualified professional before making any decision.
Why might I suggest you consider such a thing?
I believe that it’s possible that at some point, given the unfunded liabilities of Social Security and the many underfunded pensions around the country that the entire retirement income system gets a major overhaul. That overhaul could potentially include government takeover or control of individual retirement accounts. Before you dismiss my thought as being radical or not possible, consider what has already occurred around the world.
In December of 2010, the country of Hungary effectively confiscated $14 billion in private pensions. The Hungarian citizens had a choice; either remit your retirement savings account to the state or be disqualified for a public pension but still be required to make the required contribution for the pension.
The Bulgarian government had a similar idea to gain control over $300 billion of private retirement savings. After some of the unions protested, the government implemented only 20% of the original plan but still effectively confiscated private retirement savings accounts.
The country of Poland had a less dramatic development. The country’s plan allowed savers to keep the retirement savings accumulated so far but require that a percentage of future private savings go to the state run Social Security program.
In the country of Ireland, in 2001, the country established the National Pension Reserve Fund to support the pensions of Irish retirees in the years 2025 through 20503. Problem is in March of 2009, the Irish government seized 4 billion Euros from the fund to bailout the Irish banks and in November 2010, the 2.5 billion Euros remaining in the fund was used to help fund the bailout of the rest of the country.
In November of 2010, the French Parliament voted to earmark 33 billion Euros from the National Reserve Pension Fund to reduce short term pension deficits. This move uses retirement savings intended to be used in the years 2020 – 2040 in the years 2011 – 2024.
In 2001, the country of Argentina confiscated $2.3 billion of retirement savings by forcing private pensions to transfer assets to a state bank in exchange for treasury bills.
You may be thinking that nothing similar could ever happen here, after all those countries are not the USA. If you’re thinking that, to be fair, you may be right.
But, to quote an old cliché’, I would never say never.
Who ever thought that the bondholders of General Motors would have had to take junior positions to the union during GM’s bankruptcy? 10 years ago, every analyst would have said not possible, yet it happened.
Who would have every thought that the US Government would have shelled out $182.5 billion for an 80% share in AIG when the total value of the outstanding stock at the time was less than $4 billion? It happened.
An article in “Investor’s Business Daily” on February 17, 2010 written by Newt Gingrich and Peter Ferrara reported that the Treasury and Labor Departments were seeking public comment on the conversion of 401(k) and IRA accounts into annuities or other steady payment streams7. In other words, according to the article, “the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit during your retirement years.”
“US News and World Report” reported in 2008 that Theresa Ghilarducci, a professor at the New School of Social Research, was invited to testify about her idea to eliminate the preferential tax treatment of 401(k), IRA and other retirement accounts before a subcommittee8. Ms. Ghilarducci’s plan would replace 401(k) plans with government sponsored “guaranteed retirement accounts” for every worker. The government would deposit $600 every year, indexed for inflation, into the guaranteed retirement account. Each worker would have to save 5% of pay into the accounts and the government would pay the worker a 3% return on the investment account. Congressman Jim McDermott commented at the time that “the savings rate isn’t going up for the investment of $80 billion [in 401(k) tax breaks], we have to start to think about whether or not we want to continue to invest that $80 billion for a policy that’s not generating what we now say it should.”
Ghilarducci was featured in a “Money” magazine article in 2008. In the article she makes some comments that should scare anyone who is using a 401(k) or IRA to save for retirement, “People aren’t saving any more because of them; those who use 401(k)s and IRAs are moving money they’d already be saving from taxed to nontaxable accounts. The 401(k) doesn’t even make top-paid people save consistently. The only answer, and this is after 25 years of looking at it, is to make people save: a mandatory, universal savings plan on top of Social Security.”
Could this be the next shoe to drop? Could we have a new politician run retirement system on top of a financially strapped Social Security system?
Maybe not. But, when you look at the level of the “official” national debt, it’s at about $14.3 trillion10. Considering that according to the Investment Company Institute there were total assets in IRA’s and 401(k)’s of about $6 trillion at the end of 200811 and total retirement account assets of $15.6 trillion at the end of the third quarter of 2009 (this total includes 401(k)’s, IRA’s and all other retirement plans); that may be a target that’s too tempting for some politicians to resist.
After mandating that everyone buy health insurance or face a government penalty in the recently passed healthcare package, will the government mandate retirement savings next for the entire population and in the process take over the existing, private retirement savings plans?
Again, maybe not. But, I believe that the possibility exists.
We’ve discussed, the current unfunded liabilities of the Social Security system are significant but what we have not yet discussed is that just last year, in 2010, the cash flows from the Social Security system went negative for the first time meaning that the payroll taxes collected for the program were not enough to cover the benefits paid out. While I can’t guarantee or accurately predict what might happen in the future, I think, based on the evidence, it makes sense to at least consider using retirement account balances to eliminate debt even though there will be tax consequences.
To quote another old cliché’, a bird in the hand might be worth two in the bush.
I’d add this one thought for your consideration.
An article in the PPG Gazette, reported on a news release issued by the US Department of Labor on August 26, 2010. The news release issued an agenda for hearings that the Department of Labor was having with The Department of Treasury. These hearings took place September 14 and 15 and were innocuously titled, “Lifetime Income Options for Retirement Plans”. Admittedly, this article is more of an op-ed than article, but it raises some thought-provoking points. One of them being that in congressional hearings held in 2008 on the same topic an idea was discussed that would replace seized retirement account assets with something called Treasury Retirement Bonds. These Treasury Retirement Bonds would be worth more than the assets that were in the retirement account at the time the assets in the retirement account were seized in order to make the process more tolerable for investors. The article also points out that should this occur, you’ll never hear terms like seizure used, instead the policymakers would probably use terms like retirement protection legislation in order to sell the program to the public and, like many things that the government implements, a plan like this would likely be incremental as well. The article also states that these retirement accounts would potentially pay an income at retirement to the retiree with that income stopping at the retirees’ death possible leaving nothing for the retiree’s heirs similar to the way that Social Security accounts now function.
Housing Bubble Take Two?
The housing bubble and subsequent bust of 7 years ago might seem like a distant memory given the stories of rapidly increasing housing prices and bidding wars and fights over properties. Is the housing market fully recovered? Or, is this just a repeat of the last bubble?
“The New York Times” ran a story that discussed this.[vii] Here’s an excerpt (emphasis added):
Bidding wars sound almost quaint. These days, the only way for would-be buyers to secure a home, it often seems, is to offer all cash and be ready to do so within hours, not days.
The bursting of last decade’s housing bubble feels like ancient history here, where first-time home buyers are competing with investors to get into single-family homes with prices approaching $1 million.
“It’s everyone from a kid out of law school to an investor from China, walking around with thousands to spend,” said Kameron Eliassian, a Los Angeles real estate agent. “I don’t know where it’s coming from, and I don’t care. Just show me proof that it’s there, and we’re good.”
After saving money for years, waiting for the residential real estate market to hit bottom, buyers all over the country appear eager to get back in, lured by low interest rates and the prospect of a good deal.
But with the number of homes for sale at historically low levels and large investors purchasing thousands of properties, buyers are facing a radically changed market and prices are quickly rising.
The percentage of homes bought with cash has shot up in many markets across the nation. Nearly a third of all homes purchased in Los Angeles during the first quarter of this year went for all cash, compared with just 7 percent in 2007. In Miami, 65 percent of homes sold were for cash deals, compared with 16 percent six years ago.
The prices on all-cash deals are also rising significantly. In Los Angeles, the median price on an all-cash home this year is about $351,000, compared with $230,000 in 2009. Over the same period, the median price over all increased to $410,000, up $85,000. In fact, last month, home prices in Southern California hit their highest level in the last five years.
All-cash buyers, typically investors eager to renovate and quickly resell or rent out homes, are making it more difficult for first-time buyers, who typically rely on mortgage loans that can take weeks or months to materialize. More California homes have been flipped in the last year than in any year since 2005.
Bubbles can be identified when irrational activity exists. This article describes prices increases and bidding wars that could only be described as irrational in my opinion.
While shadow inventory is falling and houses in many parts of the country are selling like beer at a NASCAR race, I’d proceed with caution. It’s probably a good time to sell a house but not such a great time to buy one. If the Federal Reserve stopped buying mortgage backed securities each month at their current frantic pace and the US Government was suddenly not involved in the mortgage business, I believe the housing market would look a lot different than it does presently.
Look for a sequel to the first housing collapse in the future. The only good news is that the sequel will probably be less dramatic and less interesting than the first. But, that’s the nature of sequels.
Trash Collectors in Charge of Public Safety?
In an economic winter season, events occur that might have seemed to be downright ridiculous during any other economic season, in particular garbage men and letter carriers helping to patrol neighborhoods.[viii] This from CBS News San Francisco (emphasis added):
The shorthanded Antioch Police Department is enlisting the help of local garbage collectors and letter carriers to spot crime on city streets.
Employees of the local trash collector, Republic Services Inc., as well as U.S. Postal Service employees have been given tips on how to act as effective witnesses to crimes. The program, dubbed “We’re Looking Out For You” aims to add some experience eyeballs looking out for the city’s 105,000 residents.
As part of the training, drivers received a list of questions designed to help them identity criminal activity, as well as a laminated copy of the police department’s non-emergency phone number.
“It’s a huge resource multiplier for us,” said Lt. T. Brooks of the Antioch Police Department. “These are people who are actively engaged in the community and are actively participating in making Antioch a safer place.”
The police department isn’t encouraging anyone to take crime fighting into their own hands, but simply to keep an eye out for activities that seem out of the ordinary along their route.
When you think about this idea, it makes sense doesn’t it?
Too bad it takes an economic winter season to help local politicians gain perspective.
Core Economic Beliefs Driving Investment Philosophy
In 1925, a Russian economist by the name of Nikolai Kondratieff published a book titled “The Major Economic Cycles”. In it Mr. Kondratieff stated his view that capitalist economies move in boom and bust cycles with each full cycle repeating itself every 60 to 80 years. Some present day economists building on Kondratieff’s work have defined these “Kondratieff Waves” as 4 sub cycles, naming the sub cycles after the 4 seasons of the year; spring, summer, autumn and winter. We believe, after a study of economic history, that Mr. Kondratieff’s cycle theory is accurate.
The Spring Cycle
During spring, an economy experiences a gradual increase in business and employment. Consumer confidence gradually increases. Consumer prices begin a gradual increase compared to levels seen during the previous cycle (the winter cycle). Stock prices rise and reach a peak at the end of the spring cycle. Interest rates begin to rise from historically low levels and credit gradually expands. At the beginning of the spring cycle overall debt levels are low. (In our view, this most recently represents the time frame of 1949-1966)
The Summer Cycle
During summer, an economy sees an increase in the money supply which leads to inflation. Gold prices reach a significant peak at the end of the summer period. Interest rates rise rapidly and peak at the end of the summer. Stocks are under pressure and decline through the period reaching a low at the end of the summer cycle. (In our view, this most recently represents the time frame of 1967-1982)
The Autumn Cycle
During autumn, money is plentiful and gold prices fall reaching a gold bear market low by the end of the autumn season. During autumn there is a massive stock bull market and much speculation. Financial fraud is prevalent and real estate prices rise significantly due to speculation. Debt levels are astronomical. Consumer confidence is at an all time high due to high stock prices, high real estate prices and plentiful jobs. (In our view, this most recently represents the time frame of 1983 – 2000)
The Winter Cycle
During winter, an economy experiences a crippling credit crisis and money becomes scarce. Financial institutions are in trouble. Unprecedented levels of bankruptcy at the personal, corporate and government levels. There is a credit crunch and interest rates rise. There is an international monetary crisis. There are pension funding problems and the price of gold and gold related equities rise. (In our view, we have been in the winter cycle since 2001)
Investing Overview and Premise
In 1999, economist and financial commentator, Harry Browne, wrote a book titled “Fail Safe Investing”. In his book, Browne presented his idea as to what an ideal portfolio should look like given that economic conditions cycle and as these cycles occur, certain asset classes can be adversely affected while other asset classes might benefit.
In his book, Browne concluded that the best kept secret in the investing world is that almost nothing turns out as expected. We agree. While each season of the economic cycle may be easy to see from an historical perspective, it may be difficult to determine with precision the beginning of one cycle ‘season’ and the end of the prior cycle ‘season’.
Browne designed a very simple portfolio strategy designed to protect and grow assets in each of the four economic cycles:
- 25% invested in Cash. In a tight money environment, cash can be a profitable asset to own. In periods of deflation, cash can gain in purchasing power as prices fall.
- 25% invested in Growth Stocks. In prosperous times, growth stocks can perform nicely while stocks may not perform as well in periods of inflation, deflation and tight money.
- 25% invested in Gold. In an inflationary environment, gold can protect purchasing power.
- 25% invested in Government Bonds. In a deflationary environment, as interest rates fall, bonds can perform nicely. In more prosperous times, bonds can also perform well.
While we agree with Browne’s approach given our belief that evidence suggests that economies cycle, we have modified Browne’s approach due to our belief in the use of exit strategies and our interpretation of current world macro-economic conditions. We believe that our modification of Browne’s original strategy will produce enhanced results. For thoughts on incorporating this strategy into your portfolio or your 401(k) plan, request an Exit Strategy Analysis below.
Exit Strategy Analysis™ Evaluation
If you would like to receive a complimentary Exit Strategy Analysis™ on each of the holdings in your portfolio, visit www.ExitStrategyAnalysis.com and complete the form there. An Exit Strategy Analysis™ is a second opinion on the holdings in your portfolio; however, unlike many second opinions, you will learn at what price you may wish to exit your holding in order to potentially protect profits or limit losses
Additionally, at your option, your Exit Strategy Analysis™ could include the following:
- How to potentially maximize your retirement income
- How to potentially diversify currencies
- A complimentary copy of the book Economic Consequences: Can You Survive, Even Prosper from the Results of 100 Years of Bad Money Decisions?
After obtaining some preliminary information from you, you will receive your completed Exit Strategy Analysis™.
Request your complimentary Exit Strategy Analysis™ now by visiting www.ExitStrategyAnalysis.com!
Advisory services offered through USA Wealth Management. Any information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed. This entry may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be considered a guarantee. No investment strategy can guarantee a profit. Investing in market related securities involves a risk of principal loss. Prior to making any investment decision, the services of an appropriate professionals should be obtained in order to understand the risks, costs, and benefits associated with a particular investment.
[i] Langi Chiang and Jonathan Standing. “China’s economy stumbles in May, growth seen sliding in Q2.” www.Reuters.com June 9, 2013. http://www.reuters.com/article/2013/06/09/us-china-economy-idUSBRE9580GE20130609
[ii] Deirdre Wang Morris. “China’s Aging Populations Threatens Its Manufacturing Might.” www.CNBC.com October 24, 2012. http://www.cnbc.com/id/49498720
[iii] Source: http://data.worldbank.org/indicator/NE.CON.PETC.ZS
[iv] Richard Rubin and Margaret Collins. “Obama’s budge would cap Romney-sized retirement accounts.” Bloomberg. April 5, 2013. http://www.bloomberg.com/news/2013-04-05/obama-budget-calls-for-cap-on-romney-sized-iras.html
[v] Carter Dougherty. “Retirement Savings Accounts Draw U.S. Consumer Bureau Attention.” Bloomberg. January 18, 2013. http://www.bloomberg.com/news/2013-01-18/retirement-savings-accounts-draw-u-s-consumer-bureau-attention.html
[vi] Dennis Tubbergen. Economic Consequences: Can you survive, even prosper, from results of 100 years of bad money decisions? Grand Rapids, Michigan: Dennis Tubbergen, 2011. Print.
[vii] Jennifer Medina and Katharine Q. Seelye. “As Home Sales Heat Up Again, Buyers Must Resort to Cold Cash.” The New York Times. June 8, 2013. http://www.nytimes.com/2013/06/09/us/cash-is-fueling-quick-home-sales.html?_r=1&
[viii] Anonymous. “Shorthanded Antioch Police Ask Mail Carriers, Garbage Collectors to Help Spot Crime.” CBS San Francisco Bay Area. June 10, 2013. http://sanfrancisco.cbslocal.com/2013/06/10/shorthanded-antioch-police-ask-mail-carriers-garbage-collectors-to-help-spot-crime/