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The impossibility of bailout success and the guaranteed alternative success plan that depends on you November 7, 2008

Posted by Jeff Nabers in Health, Money, Personal Enjoyment, Personal Productivity, Precious Metals, Self Directed IRA/401k, real estate.
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This is a message of prosperity rather than doom and gloom. Read through to the end.

A tremendous amount of homeowners are facing foreclosure. CNN Money reports foreclosures are up over 70% from this time last year. Banks are failing left and right, but let’s just take a look at the bailout concept in the most direct and extreme fashion for purposes of illustration.

The largest bailout possible

Imagine that every single homeowner that has less than 30% equity in their house at today’s prices receives from the Fed a check payable to their mortgage company that will pay their balance down to bring their equity to 30%. There is no more of a direct way to address the foreclosure and housing problem. What would the result be?

  1. Equity doesn’t matter. People got into mortgage loans that have payments higher than their income will support, and rising food and energy prices are lowering the household budget for mortgage payments. You could lower interest rates to 0% (forget about the market chaos that would create for a moment) and many people still wouldn’t be able to afford their homes.
  2. Home prices would fall because many would use the 30% equity in hopes of being able to sell their home and buy a less expensive home. This would accelerate the downward pressure the median home price. Many families would return to renting after touching the hot stove of home ownership. Of course, they would be seeking affordable rent which would also put a downward pressure on median home prices.
  3. I can’t estimate how many trillions of dollars would have to be created by the Fed for those types of bailout checks to be written… but you can be certain it would have a HUGE direct impact in raising inflation to levels unseen in American history. Injecting new money into the economy makes all prices go up. In this scenario, Americans would literally not be able to afford to eat if they stayed in their home. Home prices would crash almost to zero because three bedrooms and two bathrooms would become less important than food. There would be much larger social problems because, with this magnitude of inflation, food would become so expensive that theft, robbery, and violence would be the only viable means of survival for some.

A direct, swift bailout to cure economic symptoms would create very difficult times.

The smallest bailout possible

The smallest bailout is one that (more…)

Turn Doom & Gloom into Personal Boom October 20, 2008

Posted by Jeff Nabers in Money, Personal Enjoyment, Precious Metals, Self Directed IRA/401k, real estate.
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There are 3 economies to pay attention to:

  1. Your Personal Economy. This is the one that really matters. The life you will share with your family and friends will be directly impacted by your finances.
  2. The People’s Economy. This is the wealth of communities of people. You could look at it in terms of the American public as a whole or separated into demographic or geographic categories.
  3. The Financial Institutions’ Economy. This is the wealth of the people who own banks and financial services companies.

Right now, the financial institutions’ economy is doing quite poorly as a result of foolish decisions. Financial services companies created and bought debt that was not repayable. They packaged investment products in a way so complex not even Warren Buffet could understand them. The Fed has decided to defer and worsen the consequences of their inflationary monetary policy… and now “the economy” is crumbling before our eyes… but which economy is it?

Although often not fulfilled, there is clear potential for your personal economy to be completely separate from the financial institutions’ economy. Your wealth can (more…)

The Collapse of the Dollar & How to Profit From It April 16, 2008

Posted by Jeff Nabers in Money, Precious Metals, Self Directed IRA/401k.
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I just got done interviewing John Rubino, co-author of The Collapse of the Dollar - Make a Fortune by Investing in Gold & Other Hard Assets, and it was quite interesting. Rubino stated that:

Over the last 7 years the stock market has dropped [as significantly] as it did during the Great Depression.

“WHAAAT?!!” you say. He explains that our perception of this strong bear market has been softened by the declining value of the dollar. In the spirit of comparing apples to apples, we must first consider that in the late 1920’s and early 1930’s the dollar was fixed to gold. So, in essence, the stock market’s decline was measured in gold. According to Rubino, you would see a depression-like chart if you were to measure the past few years of the stock market in gold.

The most convincing thing about his perspective is that he accurately predicted the burst of the housing bubble… in 2003. He forecasted that those who would suffer the most from the popping bubble would be homebuilders’ stocks, Fannie Mae & Freddie Mac, and real estate prices in “hot” (at the time) areas. He even went on to explain that the contributing factions would spill over into other parts of the economy including financial services companies, and banks themselves. At that time, the idea of one of the country’s largest investment banks (Bear Sterns) becoming insolvent sounds crazy, but Rubino warned us all with How to Profit from the Coming Housing Bust: Money-Making Strategies for the End of the Housing Bubble. In fact, if you would have followed his advice to the “T”, you would have profited immensely , provided that (more…)

Precious Metals for Keeps April 9, 2008

Posted by Jeff Nabers in Money, Precious Metals, Self Directed IRA/401k, Uncategorized.
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With gas prices and virtually every other cost of living rising, responding to the declining dollar is something we all have probably thought about by now. One option available to us all is precious metals: namely gold, silver, and platinum.

The trick with getting metals into a retirement plan is in the Internal Revenue Code section that deals with collectibles. Strangely enough, it’s not in section 4975 (which deals with prohibited transactions); it’s in 408 which deals with IRAs. Even more odd is the fact that one part of this section is applicable to self directed qualified plans (like a Solo 401k) with no reference to its applicability within the code sections for qualified plans. This is why tax attorneys have work to do.

In 408(m)(2), they prohibit investment into collectibles and further define collectibles to include any metals or coins. 408(m)(3) goes on to exclude certain coins and bullion from being defined as “collectibles” for the purposes of disallowed investments. It breaks these “certain coins and bullion” down into two categories. (A) is essentially American Eagle coins minted by the United States. (B) is bullion that that meets or exceeds the fineness required by regulated futures contracts if such bullion is in possession of a custodial account at a bank or trust company.

So when it comes to Self Directed IRAs and Solo 401(k)s, it appears that American Eagle coins are allowable for (more…)