January, 2010

Financial Advice — 2 Comments
13
Jan 10

#1 Recommendations on how to protect yourself and your assets

I was sitting in a restaurant in Toluca Lake, California munching on a field of greens salad with gorganzola cheese, candied pecans and a rasberry vinigrette dressing. My Kobe burger had just been served when my cell phone did its thing.

Bruce Wiseman

Author & Writer Bruce Wiseman

I tried not to glance at the phone because the Kobe burger beckoned. But I did. The incoming number was from the San Francisco Bay area,  where my oldest daughter lives, and while it wasn’t her number, I answered the call in case she was trying to reach me.

The call was from James Dines. I was floored. I left Mr. Kobe at the table and walked outside the restaurant so that I could hear better.

….

Last year I wrote a series of articles on the financial crisis. By way of friend, Michael Baybak, one of the articles found its way into the hands of Jim Dines, who is one of the world’s preiminent investment strategists.

Mr. Dines had some very kind things to say about the article. We subsequently exchanged some further communication but haven’t spoken for some months. Yesterday, I received a copy of Dine’s new book GOLDBUG! Which details his investment strategies and predictions covering more than three decades. Preorder GOLDBUG here!

Mr. James Dines

Over the years, James Dines has been branded as “The Original Gold Bug” and while I would in no way compare myself, as Dines has devoted his entire professional life to studing these markets, modesty aside, I could easily be labeled a “Silver Bug” as I have been a promoter of investing in silver for almost as long as Dines has promoted gold (though Dines is a strong silver advocate as well).

The simple truth is that both markets have done handsomely. A quick look back at the last decade shows generous appreciation in both.

On January 10th of 2000, the price of an ounce of gold was $281.70 per ounce. As I write this, it is trading at $1153.40 per ounce.

On January 10th of 2000. Silver was trading at $5.15 an ounce. It is currently trading at $18.75 an ounce.

Do I expect precious metals prices to continue to rise? I do. How high? I don’t know. But the bull market in precious metals is still in play, though I expect silver to experience the most gains.

Having said that, please note the following: I have no crystal ball, and these predictions and $3.55 will get you a Grande decafe latte at Starbucks. Markets change, and sooner or later, this one will too. For now, the future looks bright for precious metals. That’s my opinion. But no guarantees.

While the metals markets have been kind, and I think will continue to be so for some time, there are real concerns with the banking sector as well as with a government truly drunk with the power of the purse.

Let’s take the banking sector first.

NEXT – PREVIOUS – PRESENT


#1 Recommendations on how to protect yourself and your assets

#2 Banking

#3 Money Market Accounts

Financial Advice — 2 Comments
13
Jan 10

#2 BANKING

BANKING

An AP wire story issued last month said, “Regulators on Friday shut down two big California banks as well as banks in Alabama, Florida, Georgia, Michigan and Illinois, bring to 140 the number of U.S. banks brought down this year by the weak economy and mounting loan defaults.”

You don’t have to be a rocket scientist to figure this out folks: in 2005, 0 banks failed; in 2006, 0 banks failed; in 2007, 3 banks failed; in 2008, 25 banks failed and 140 failed in 2009.

Let me be kind, that is an ugly graph and it says something about the banking system. The FDIC is broke – they are going to have to get their “insurance” money from uncle.

Yes, there is coverage for up to $250,000 per account (and sometimes more depending on who’s on the account with you), but if you are in a business where immediate access to your cash flow is critical to your operations, you need to be in a healthy bank. (And if you are carrying balances in excess of $250,000 in one account, shift some of that money elsewhere so that you are covered.

Please check the health of your bank. You can do that at www.bankrate.com. Go to the section on the first page that says “Safe and Sound Ratings.” They have a service there that ranks banks with 1 to 5 stars. If your bank has 4 or 5 stars, you should be fine; if it has 1 or 2 stars, you should move banks. If it has 3 stars, you are in somewhat of a grey zone frankly. You shouldn’t be immediate danger, but keep an eye on the ratings or move.

That’s one way to get an initial overview of the bank’s health. That said, the ratings at bankrate.com just take a snapshot of how the bank looks right now. What it doesn’t do, which is a huge omission, is it doesn’t look at the trend. Is this bank getting better or worse? What condition are they in compared to last year and the year before? Are their delinquent loans growing or getting smaller?

Growing loan delinquencies are important considerations these days and unfortunately the bankrate analysis doesn’t take these factors into consideration. If your bank is a 4 or 5 star bank, it’s probably not a concern, but a 3 star bank with a deteriorating trend is reason to consider moving your money.

If you have a 3 star bank and want a professional look at your bank’s balance sheet (or just want an experienced eye), I do this as a service. As many of you know, I have been a senior credit officer for two banks in California and can take an educated look for you. I charge for this service: $175 per bank and $225 if you also want me to find and recommend an alternative.

I know, it would be nice if I could do it for free, but it takes considerable time for me to do these reviews and then send you my findings.

NEXT – PREVIOUS – PRESENT

#1 Recommendations on how to protect yourself and your assets

#2 Banking

#3 Money Market Accounts

Financial Advice — 1 Comment
13
Jan 10

#3 Money Market Accounts

MONEY MARKET ACCOUNTS

Last year, a group of international bankers called The Group of Thirty, met and issued some recommendations about money market accounts.

On the surface, The Group of Thirty is just an “informal” group of very senior finance people who make recommendations about global banking and finance. But a close look finds it made up of the usual suspects – predators from the Bank for International Settlements, The U.S. Federal Reserve Bank, Goldman Sachs, the International Monetary Fund and others of like kind.

One of their recommendations was that money market accounts should be changed so that there are “…no explicit or implicit assurances to investors that funds can be withdrawn on demand.”

This means that if the institution considers that withdrawals are occurring at an unsafe rate, the money market fund could deny you access to your funds.

It is no surprise at all then that the Security and Exchange Commission recently proposed a rule change that would allow money market funds to suspend redemptions if the board of directors deemed it advisable. The “advisable” is a litany of banker speak, but the bottom line is that not only are money market accounts not federally insured (which has been the case) but now there are conditions under which your deposits are no longer liquid.

Money market accounts are currently paying about .61% of 1% interest. They aren’t insured and, should the rule pass, carry no guarantee instant liquidity.

Move the money to a savings about (under $250,000 and in a well rated bank).

And if your mutual fund has your liquid cash in a money market fund, have them move it to a well rated insured institution.

RETIREMENT ACCOUNTS

About a year and a half ago, I wrote an article entitled, Protecting Your Assets.

The point of that article was,

Which brings us to the point of this article, which is that when the government finishes their spending binge, and wakes up to their eye-watering fiscal hangover, they will turn inward with a vengeance, seeking to filch money from every nook and cranny of the U.S. population.

The article also said in part:

Testimony before the House Committee on Education a few months ago suggested that personal retirement accounts (IRAs and 401Ks) should be converted into government-controlled accounts called Guaranteed Retirement Accounts (GRAs). They would be managed by that bastion of fiscal propriety the Social Security Administration.

California Democrat George Miller’s House Committee on Education and Labor heard a proposal from Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York, to eliminate tax breaks for 401(k) and similar retirement accounts such as IRAs and convert them into Guaranteed Retirement Accounts managed by the Social Security Administration.

Why should we not be surprised then at the January 8, 2010 article in Business Week which reveals the plan by the U.S. Department of the Treasury and Department of Labor to protect you by converting your 401Ks and IRA into annuities that have a steady payment stream?

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) accounts and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

These people are snorting Karl Marx.

My article also quotes the Casey Report from a year ago:

Your government considers you a national resource to be exploited. If you don’t get your money out of the country before the government gets your money out of you, you’re an idiot, and you’re going to get what you deserve.

—The Casey Report, January 2009

This regulation hasn’t passed yet, but I hope you can see that there is serious intent to make it so. I strongly recommend that you get with your CPA and or tax advisor and at least run the numbers on what would it mean for you to liquidate those retirement accounts.

I am NOT recommending that you just up and do that. There are significant tax consequences to such moves. But I also want you to be aware that Uncle is looking at gaining control over these assets, and you should undertake an informed analysis of your options before such regulations go into place (should they carry through on their plan).

There is more to this chapter as well as some additional options in the article which is now part of an e-book I have just published. And while it is self serving commercial, I do recommend you buy it and read it.

The book, Crisis by Design has entire chapter of recommendations on how to protect yourself and your assets in these extremely challenging times in the worlds of finance and investment. The book is available at www.behindthewizardscurtain.com.

SOLUTIONS SUMMARY

1- Check out your bank’s safety at www.bankrate.com. If you want a professional analysis of your bank or recommendations for an alternative, contact me at this email address – Bruce@brucewiseman.net

2- Transfer money market assets to bank savings accounts.

3- Consult with your CPA on the advantages and disadvantages of liquidating your retirement account/s should the government move to convert your retirement assets to some kind of “steady payment” annuity.

4-Go to www.behindthewizardscurtain.com and get a copy of CRISIS BY DESIGN. Yes, it’s a commercial, but I wouldn’t have written the book and wouldn’t urge you to read it, if I didn’t think it was important and that it would help you to flourish and prosper.

Have an OUTRAGEOUS 2010.

Bruce

Bruce@brucewiseman.net

www.BruceWiseman.net