RF's Financial News

RF's Financial News

Sunday, February 24, 2013

This Week in Barrons - 2-24-2013


This Week in Barrons – 2-17-2013

Turning your 401K into Gold?

For a minute – let’s talk about the future of your 401K, IRA, or other tax-sheltered account(s).  Could our government initiate a Government sponsored retirement account program?  Absolutely.  Currently Americans have about $8 Trillion in various retirement accounts, and more than $16 Trillion if you include 401K's, IRA's, Roth accounts, and Bond holdings.  $16 Trillion just happens to match the amount of short-term debt the US finds itself in.  What if our government ‘told’ everyone to use a portion (half or more) of their retirement account(s) to purchase government bonds earning 3%?  What if our government went directly to the institutions that are holding our 401k’s, and told ‘them’ that Bill # _______ has been passed and all Americans have to invest half of their tax-sheltered account dollars into a new Government Retirement program.  (FYI: Argentina, Ireland and others have already enacted such a program.)

Is there a way to protect your retirement funds by using physical gold or silver?  Yes there is, and here is how it works.  Let’s assume you have an IRA with $50,000 in it, and you don't like the risk of the stock market, or the pathetic returns offered by savings and money market accounts.  You can transfer that IRA money into a special Precious Metals IRA Account and use the $50,000 to buy physical gold or silver bullion.  The funds would need to be spent by your IRA custodian to purchase the bullion on your behalf.  The bullion would then be stored in a secure vault in a US-based depository under your name.  That bullion will sit there, on the shelf, in that vault, with your name on it, until you choose to take a disbursement from your IRA.  That disbursement will of course be governed by all the normal rules on eligibility (including age, qualified expenses, etc.).

The good news is that if things ever get really bad and you'd like to take physical possession of your gold/silver, you can tell the depository to ship you your coins/bars (subject to any appropriate penalties and take an early distribution).  It's just like taking a cash distribution from your IRA, except instead of getting a check in the mail; the metal is shipped directly from the depository straight to your door within a couple days of your request.

For IRA's:
-       You must store the metals in a third party depository until you take a disbursement from your IRA.
-       You can create and fund a new IRA, or rollover an existing IRA.
-       These are treated like traditional IRA's, except your tax liability and distribution rules are different because you've already paid taxes on the money.

For 401k’s:
-       If you have an old 401k from a previous company, you can roll that over into an IRA and put the money into precious metals.
-       If you are self-employed, you can have a self-directed 401k that allows you to put your money into gold and silver, and you aren't required to store the metal at a depository (you can store the metal yourself).
-       If you have an active 401k and you are not self-employed, chances are you do NOT have the ability to hold precious metals.  The choices then become a bit draconian.  You can liquidate the 401K, pay the penalty and taxes, and then start an IRA, or simply continue to hold it as is.

But if the government comes for our 401K's, won’t they come for our precious metals as well?  I don’t think so.  Unlike the 1930's when the U.S. confiscated everyone's gold, I think that personal ownership is so low now, that they won't bother.  Most people have a 401K and that's where they would look first.  An IRA that's holding metal instead of cash will be (at the very least) safe at first. 

The questions are:
-       What custodian will you use for the precious metals IRA?  There are only a handful of IRA custodians that are legally able to allow for precious metal IRA's.
-       Who will you purchase the metal from?
-       And which depository will you want to use to hold your metal.  I would recommend the Dakota Depository.  They are more of a smaller business but do have state-of-the-art security.  

In terms of someone to call to guide you through all of this:  Cornerstone Bullion – www.cornerstonebullioin.com.  I would suggest that if you're considering doing a metal backed IRA or self employed 401K, call Cornerstone Bullion at:  1-800-558-4671. 

The Market:
Financially speaking:
-       Wal-Mart is blaming declining February sales on the re-instatement of the 2% hike in payroll taxes and a delay in tax refunds.  Either way, when sales are down at Wal-Mart, it means that people aren’t buying, and that's bad news for the economy.
-       2013 is proving to be a tough year for housing.  U.S. housing starts fell 8.5% in January, and homebuilder confidence declined in February – for the first time in 10 months.
-       Gas is now $4 a gallon (if not higher).  When it costs $70 to fill your tank, that's $30 many people aren’t spending on pizza.  It also raises costs and cuts margins for a whole lot of businesses.  High gas prices have led every sell-off in the S&P 500 over the past five years.
-       Finally we have the Elliot Wave scenario.  Ralph Nestor Elliot was a market psychologist and theorist who died in 1948.  His theory is that John Q. Public buys and sells stocks on market psychology, and psychology runs in waves.  Unfortunately most average investors finally buy in, right before the top.  Currently, we are peaking in the fifth wave – and following each wave is a very significant sell-off going back over 50 years.

This week we saw:  FED to the Rescue!  On Wednesday we got the minutes of the last Federal Reserve meeting and in those minutes they talked about how great the economy was doing, how great housing was doing, and all of a sudden investors got nervous.  Everybody wanted to sell, and sell quickly.  Why?  If the Fed stops printing money, and handing out tens of billions of dollars to the banks, everyone knows the game is over and the market will crash.  So, down we went.  Ahh, but on Friday the FED came to the rescue.

CNBC had one of the FED heads on, and he said: “Not to fear folks, the loose monetary policy is going to be in place for a long time and you can all go back to partaking of the punch bowl".  So instead of a correction, we bounced right back up and all the wires were abuzz with bullish analysts.  As long as the FED is willing to pump $85 Billion or more a month into the system, this market cannot crash. 



But it gets better.  According to the FED, they're not happy doling out $85 Billion to the 18 Primary dealer banks, they just announced a new "pilot" program to allow more banks to participate.  NEW YORK-The Federal Reserve Bank of New York is launching a pilot program with small broker-dealers in an effort to examine options for further broadening access to monetary policy operations. The limited, one-year pilot program will allow no more than five small firms to participate solely as counterparties in outright purchases and sales of U.S. Treasury securities for the System Open Market Account (SOMA) portfolio. The Treasury Operations Counterparty Pilot Program is being launched as a way for the New York Fed to continue to explore the effectiveness and feasibility of expanding operations to a broader range of counterparties.

Therefore, the FED is not pulling back from the stimulus; they're setting up to create more of it, and dole it out in more places. 
So there is no reason the DOW can't hit levels we cannot believe, and all of it based upon money printed out of thin air. 



So what’s the opportunity?  We have just seen them beat gold and silver senseless, and that's a buying opportunity to me.  I see the gold miners getting more ‘dislike’ than at any time I can remember; therefore, I’m beginning to scale into the GDXJ (a junior miners ETF).  And, I'm ‘this close’ to buying more physical silver.

In stocks, if they can manage 2 closes above 14,025, then I think that this tape is buyable.  Until that happens, being "too long" could be wrong. 



Tips:

The past week we sold out of SLB (-3.00) and some PRLB (+3.00).  
I still like the 3D printer space as a long-term hold:
-       3D Systems (DDD) on a pullback – maybe $55 (currently $56.50).
-       Stratasys (SSYS) on a pullback – maybe $58 (currently $67.40).

My current short-term holds are:
-       SPN – in at 25.09 (currently 26.20) – stop at entry
-       PTEN – in at 19.78 (currently 23.30) – stop at 22.50
-       MS in at 18.50 (currently 23.60) – stop at 22.00
-       SPY in at 141.97 (currently 151.90) – stop at 150.00
-       SIL – in at 24.51 (currently 18.63) – no stop yet
-       GLD (ETF for Gold) – in at 158.28, (currently 153.01) – no stop ($1,572.40 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 27.83) – no stop ($28.46 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! 

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