Friday, May 17, 2013

The Sell-Off In The Precious Metals and Mining Stocks Is Just Plain Silly Now

Currently, I don't think it's possible for the media reporting and investor sentiment to get any more negative toward gold. But quite frankly, given the extreme negative sentiment, in addition to the numerous other contrarian indicators I've outlined in previous articles, I have never in my life seen a market set up technically for a big bull move as gold/silver and the mining stocks are now.  - Dave Kranzler, Seeking Alpha:  LINK
Let's be clear here, if I thought the fundamentals of the global financial system were improving in a way that was negative for gold, I would go short gold and load up on stocks and junk bonds.  No question about that.  When I came out of business school in 1991, I was one of two top-10 b-school grads who went into junk bonds. That's 2 people out of about 5000 grads.  No one was interested in junk bonds in 1991.  But I had examined the fundamentals and determined that it was still a valid form of corporate finance.  Recall, Drexel had just collapsed and everyone was screaming that junk bonds were dead.  In fact, 1992 marked the start of a new bull market in junk bonds.

The key to understanding relative value is not found in charts, "technical" indicators, CNBC, Bloomberg News, any Wall Street research, Barron's, chat board, etc.  Realistic and honest assessment and study of fundamentals is nowhere to be found in any of those sources.  None.  Zero.

The key to understanding value is doing your own research, which includes knowing where to look to find the best possible information available.  Since 2002, when I first really understood just how corrupted and doomed the U.S. financial and political system is, I have yet to run into anyone, and I mean anyone, who can answer this simple proposition:
Please tell me - I'm all ears and open mind - how the U.S. Government can possibly start reducing and eventually balance the amount of money of that it takes in vs. the amount of money that it spends - not just on a cash-in/cash-out basis but include the rapidly growing future liability payments connected with Federal pensions, social security and all the legacy entitlement programs.  Then tell me how it can accomplish this feat plus start to reduce the enormous load of Government debt.
Remember, back in 2002 the U.S. Treasury debt outstanding was only about $6 trillion, about 60% of GDP.   Now, it's close to $17 trillion now - about 108% of GDP -  and the economy, inflation-adjusted, has not grown at all since then, especially in relation to the amount of growth in overall debt in system and in relation to the trillions in wealth being consumed by the Government.  Furthermore, the spending deficits were measured in the low $100's of billions.  Every year since and including 2009 the deficit has been over one trillion dollars.  See any trend here?  And notwithstanding the deceptive headlines recently proclaiming that the deficit will smaller this year, the truth is - the cold hard fact - that the Treasury has issued $100 billion of new debt for the first 7 months of this fiscal year - $700 billion.  The trend is still the friend of my fundamental analysis.

Every single time I've presented anyone with that proposition, I get nothing but blank stares.  No can map a solution.  Not only that, but since 2002, the systemic predicament in the U.S. has gotten inexorably worse every single year, especially when you peel away all the deceitful reporting designed to hide the interminably growing problem.   When someone can tell me how the above proposition will not only be accomplished but will be put into definitive action, then I will sell all my gold, silver and mining stocks, go short gold and load up on real estate, stocks and risky bonds.

For this reason - the reason that the fundamentals supporting a significantly higher price of gold than the current manipulated price - gold remains not only the best store of wealth but also, because it is tremendously undervalued in relation to the fundamentals, but the best possible investment.

Have a great weekend and remember:  sit tight and be right.

38 comments:

  1. "Please tell me - I'm all ears and open mind - how the U.S. Government can possibly start reducing and eventually balance the amount of money of that it takes in vs. the amount of money that it spends - not just on a cash-in/cash-out basis but include the rapidly growing future liability payments connected with Federal pensions, social security and all the legacy entitlement programs. Then tell me how it can accomplish this feat plus start to reduce the enormous load of Government debt."

    TPTB hope to accomplish this by creating a nominal "boom" through credit creation fueled inflation. Problem is, as Steve Keen and others have pointed out, credit creation requires both a willing lender and a credit worthy (in the eyes of the lender) borrower. Those two groups are not really intersecting much these days. The Z1 reports show that the only increase in credit is on the gov't balance sheet. Not to mention the massive increase in excess reserves. Meanwhile, the Fed continues to make the gov't deficit possible with treasury purchases and helps the financial sector shore up its balance sheets by purchasing crappy assets from them, ZIRP, etc. Of course, they are riding the tiger and can't get off, so they hold on by continuing the same policies and occasionally apply the spurs to make it run faster.

    ReplyDelete
  2. The Gold bull run may be a mixed blessing in comparison to everything else falling apart.

    http://www.leap2020.eu/GEAB-N-75-is-available-Systemic-crisis-2013-with-record-stock-exchange-highs-the-planet-s-imminent-plunge-into_a14093.html

    ReplyDelete
  3. This is a good interview from a American Human Rights lawyer about the US sponsored Saudi insurgents (Wahhabi) eating the heart of young Syrian soldier. This video has been widely played on Middle Eastern TV networks. Although not very significant in the US, in the Middle East showing foreigners eating the hearts of your young soldiers in a war has a solidifying rallying effect on public opinion, perhaps Americans with their diatribe of exceptional-ism on the basis of their wonderful democracy don't understand that.

    Franklin Lamb says that there will be "major changes in the Middle East within the next couple months but then in the next eighteen months we will see who is left in the [Persian] Gulf and what is the position of the Syrian Arab Republic".

    The end game has always been the war on Saudi bank accounts. When the BIS clean out the Saudi's and the Gulf States the US will be able to rectify it's overseas currency accounts without all this dire collapse of the dollar claptrap. Jim Willie for instance always talks about Saudi plots on the US$ whereas the real plot is the one on Saudi Arabian off-shore acounts.

    I have to say for all your attack on Armstrong who I never liked, he's looking right about the low in the gold. To be honest with you I don't think all this nonsense about Sinclair getting him out of prison early is at all true. As I understand it George Bush's cousin sent Armstrong down and I don't believe that unless Armstrong joined the program Prescott Walker would have signed the papers to let him out.

    An Englishman who worked in Switzerland started giving inside dirt in the 1990's about the gold cartel and was deported to New York where he still visited by his daughter in jail. He has never been tried or charged as I understand it. When I last read about him several years ago his daughter said the would never get out because the BIS had done for him. Maybe he's been released, but I doubt it and didn't get into Prescott Walker's face the way Armstrong did.

    http://www.presstv.ir/detail/2013/05/17/304039/syria-to-get-rid-of-absolute-terrorism/

    ReplyDelete
  4. Dave, why don't you cut some position or at least cover your position with some shorts on PMs. I know the fundamentals are extremely bullish for gold and silver. However, in my opinion, we are going to see more downside momentum. There seem to be a lot of stop-loss orders below $22 and $1300. Since the cartel's intention is to depress PM prices, it will definitely crush those levels to trigger more stop loss orders. You can add back your position at a lower level in my humble opinion.

    ReplyDelete
    Replies
    1. Too much Armegeddon talk about the metals. In 31 years of studying/researching/trading/investing in all the markets, I've NEVER seen anything like the degree and intensity of bearishness surrounding the metals right now. It's insane.

      We trade in and out of hedge positions every day. Our fund has outperformed the benchmark index we use by 200 basis points on a CAGR basis, after all fees and expensed, over the 4 years it's been in operation.

      Delete
  5. I love your blog Dave, so I'm not being snarky. The US could eliminate it's debt as well as meet all future liability payments by killing off 80% of the developing world and using the remaining population as slaves. Don't think for a second they haven't discussed this, in fact it would seem to be the plan.

    ReplyDelete
    Replies
    1. Thanks for the feeback. I've told many people that what is happening right now could end up like the setting in "The Road." Great book if you haven't read it.

      Note: Russia is building a massive and powerful naval fleet as I write this in the Mediterranean/Persian Gulf.

      Delete
  6. Dave,

    Thanks for the reality based encouragement. I'm usually tuned into the Sci-fi channels such as CNBC, FOX, CNN, MSNBC, ABC, NBC, CBS, and the VIEW. Nothing like the smell of a landfill in the morning. It just smells like ... napalm headed our way.

    Robert Duvall

    ReplyDelete
    Replies
    1. Agree. Shit is about to fly in a big way.

      Delete
  7. Dave, thanks for this post. It gives me some hope. I am depressed like no other. I can't believe how much money I've lost in the mining shares, along with my PM average prices, especially silver, down substantially. I kept onto my mining shares thinking they can't go any lower and think that I can't sell at the low but they continue to be hammered. Should have bailed months ago. Hard to think I'll ever break even. I'll take getting half back in years at this point. It's so much that it's almost funny, just as you said. I can't take much more. I got into this sector to protect my wealth, and I lose it. Oh the irony. Thanks for your post. Gives me some hope... Sorry for the vent, but no one I know is in this sector so have to vent here I guess!

    ReplyDelete
    Replies
    1. There's a lot of us in the same boat. I bought some silver to offset my distrust in the US Dollar - which, if you would have bailed out of PM's, it wouldn't make your position any better. You could play on the FEDs Stock Market carousel but A LOT OF PEOPLE are going to lose their *** when it comes down. Only those who have inside info will be able to bail out in time.

      To me, everything that used to represent wealth is absolutely worthless but PM's do have a historic record of retaining value compared with anything else.

      Delete
  8. The dollar is a reserve currency hence they can print as many dollars as they want. The negative effects are inherited by the world who hold dollars in their reserve. So debt is a non issue.

    ReplyDelete
    Replies
    1. The US dollar is a "temporary" reserve currency. Russia, China, Brazil and a host of other nations are working their way OUT of the current system. That's why all the binge buying of Physical PM's - to back up their own currency. We'll be pasting the US dollars on our walls soon (like Germany did in the Great Depression of the 1930's).

      Delete
  9. Hi Dave -

    I am new to your blog. Question. How does one fundamentally value gold or silver?

    Does it have to do with a minimum backing of the currency?

    I assume for GSR/looking at historical ratios, but am not sure.

    Thanks for your time answering.

    ReplyDelete
  10. Afghan Mineral Treasures Stay Buried, Hostages To Uncertainty

    For years, reports have suggested that Afghanistan is sitting on massive deposits of copper, gold, iron and rare earth minerals valued up to $3 trillion. This provides hope for a future economy that would not have to rely so heavily on foreign donations.

    But with an uncertain political, regulatory and security environment, international investors are hesitant. And it could be many years before Afghanistan begins extracting its mineral wealth.

    The Afghan Geological Survey office in Kabul is one of the few agencies in the country that measure up to international standards. Here, a U.S. government task force is helping train and advise Afghan geologists in processing samples from potential mining sites.

    http://www.npr.org/blogs/parallels/2013/05/18/184775139/Afghan-Mineral-Treasures-Stay-Buried-Hostage-To-Uncertainty

    ReplyDelete
  11. Why I own gold and why I hope I'm smart enough to to buy more.

    http://www.acting-man.com/?p=23392

    ReplyDelete
    Replies
    1. "I also believe that the gold price is under attack by the US government, federal reserve, and other big financial institutions, in order to protect the US dollar and our fiat money system.

      If that’s the case, once their manipulation fails, and the price of gold starts to rise steeply, won’t they just step in and effectively nationalize it, as they did in ’33? They’re happy to let us take losses when the price drops, but are they really going to let us profit when it finally rises?

      Naturally, they’ll call us evil speculators who are driving down the US and its currency, as did Roosevelt in ’33 and Nixon in ’71 as they engineered previous defaults."

      That's a very good link.

      Delete
  12. Dave –

    I appreciate the way in which you express your perspective, and it is particularly useful for spreading the word to those who don't already share it, and/or are confused by the paper PM manipulation.

    What are your thoughts on possible/probable eventual efforts by the U.S. to confiscate or raise taxes considerably on PM sales? I am highly skeptical of the former, but could imagine the latter. The one dissonant part of that discussion, to my mind is in the U.S., a high percentage of private gold ownership is concentrated amongst the very rich, and it would therefore seem unlikely to me that those who essentially 'run the show' would put a significant portion of their wealth at risk. Yes, they could, in theory, sell just prior to a steep rise in taxes (a la Cyprus and bank deposits), but it still strikes me as a tough question to answer.

    Thanks for your insights.

    ReplyDelete
    Replies
    1. If you own your gold privately and sell it privately, it's not a taxable event. They won't confiscate the gold. I'm pretty confident of that. There's too many people who would revolt.

      Delete
  13. This is an very important commentary from Steve St Angelo, of the SRSrocco report.

    During the first two months of January and February 2013, the uSA exported 130 metric tonnes of gold from USA soil. The USA produces 240 tonnes of gold per year and thus over these two months in question, 40 tonnes was produced by all USA mines. I went back to my last commentary in February where I reported that 40.68 tonnes of gold stood for the February delivery month. January saw 3.01 tonnes of gold standing for delivery. In January the USA mint produced 150,000 oz of gold or 4.66 tonnes. In February, 80,000 oz were minted or 2.48 tonnes.

    Thus in summary;

    January gold standing for delivery: Feb gold standing for delivery:

    3.01 tonnes 40.68 tonnes

    January Mint sales: Feb Mint sales:

    4.66 tones 2.48 tonnes


    Totals for January totals for February totals for both months:


    7.67 tonnes 43.16 tonnes 50.83 tonnes


    Thus Jan and February, on the demand side, had a total of 50.83 tonnes of gold delivered upon plus mint sales.

    The mines produced 40 tonnes of gold.

    And yet they exported 130 tonnes?

    We thus have 130 tonnes of exported gold + 50.83 tonnes of gold demand from the Mints and Comex and we still have demand from jewellers. The supply: only 40 tonnes.

    Thus, without jewellery demand, we must have a supply of 140 tonnes of gold coming from the official sector i.e. Fort Knox.

    This is a crime scene!!

    http://harveyorgan.blogspot.com/2013/05/usa-exports-of-gold-in-janfeb-equal-to.html

    Pretty amazing price can go down don't you think?

    ReplyDelete
  14. i do think dave is spot on with all but one major flaw. if the majority of people in the states believe the media hype that we are in a recovery, which they do, you are going to see continued stock participation with gold and silver going south. sort of similar to high school when rumors spread making the truth real for the person that was the butt of the comments. think of japan...its economy was to be doomed years ago. its still refusing to fall and the stock market there is actually going higher. the question isn't about the truth. the question is how strong is the bully in the room? we are up against the hulk on raging steroids!! warren got on tv in 2010 and said don't fight the fed. wish i had listened

    ReplyDelete
    Replies
    1. Au contraire. I don't know anyone who buys into the hype or stock market except a couple of financial advisors who work for big firms. I have one guy who is selling 1/2 his stock portfolio next week and putting part of the proceeds into my fund. Everyone besides the advisors I chat with professionally and socially are completely freaked out because of what the stock market is doing and the ones who follow the metals completely get it that the paper market is not the real market.

      Delete
  15. Eric King interviewed Hedge Fund Manager Bill Kaye. It is one of the most important and timely interviews I've heard anywhere, including Jim Sinclair. You will not get a more clear and honest explanation of what’s going on than this. Bill's comments echo what Dave is saying here. Give him a listen.

    ===========


    William Kaye: Founder, Vice Chairman and Senior Managing Director of the Pacific Alliance Group of Companies - PACG was established in 1991 in Hong Kong. Mr. Kaye is the Managing Partner of the Greater Asian Hedge Fund, as well as its predecessor, the Asian Hedge Fund, LP (1992-98). Both funds have exhibited a consistent history of absolute and relative outperformance that has been recognized by independent rating organizations. Prior to founding PAG, Mr. Kaye was Manager of the Arbitrage Department (1984-1990) and a Member of the Board of Directors (1986-1990) of PaineWebber Incorporated in New York. Mr. Kaye joined Paine Webber (PW) in 1978, leaving the Mergers & Acquisitions Department of Goldman, Sachs & Co, and successfully built PW's Arbitrage Department into an industry leader.

    Part I: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/5/14_William_Kaye_files/William%20Kaye%205%3A14%3A2013.mp3

    Part II: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/5/15_William_Kaye__Part_II_files/William%20Kaye%205%3A15%3A2013.mp3

    ReplyDelete
  16. Washington Signals Dollar Deep Concerns — Paul Craig Roberts

    If the dollar were not the reserve currency, Washington would not be able to finance its wars or continue to run large trade and budget deficits. Therefore, protecting the exchange value of the dollar is Washington’s prime concern if it is to remain a superpower.

    The threats to the dollar are alternative monies–currencies that are not being created in enormous quantities, gold and silver, and Bitcoins, a digital currency.

    The Bitcoin threat was eliminated on May 17 when the Gestapo Department of Homeland Security seized Bitcoin’s accounts. The excuse was that Bitcoin had failed to register in keeping with the US Treasury’s anti-money laundering requirements.

    Washington has stifled the threat from other currencies by convincing other large currencies to out-print the dollar. Japan has complied, and the European Central Bank, though somewhat constrained by Germany, has entered the printing mode in order to bail out the private banks endangered by the “sovereign debt crisis.”

    That leaves gold and silver. The enormous increase in the prices of gold and silver over the last decade convinced Washington that there are a number of miscreants who do not trust the dollar and whose numbers must not be permitted to increase.

    The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar’s exchange rate to other currencies be valid? If the dollar’s exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.

    The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts.

    http://www.paulcraigroberts.org/2013/05/18/washington-signals-dollar-deep-concerns-paul-craig-roberts/

    ReplyDelete
  17. Financial repression.....................via the cartel/fed/banksters....

    Power is not a means; it is an end. One does not establish a dictatorship in order to safeguard a revolution; one makes the revolution in order to establish the dictatorship. The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?"

    "The real power, the power we have to fight for night and day, is not power over things, but over men." He paused, and for a moment assumed again his air of a schoolmaster questioning a promising pupil: "How does one man assert his power over another, Winston?"

    Winston thought. "By making him suffer," he said. <<--GOLD ADVOCATES-->>


    "Exactly. By making him suffer. Obedience is not enough. Unless he is suffering, how can you be sure that he is obeying your will and not his own? Power is in inflicting pain and humiliation. Power is in tearing human minds to pieces and putting them together again in new shapes of your own choosing. Do you begin to see, then, what kind of world we are creating?

    1984

    It seems to be working.

    ReplyDelete
  18. Anyone here thinking of a dude named Birinyi, who early 2011 was calling (CNBS I think) for a hyper blowout in the $SPX of 2800+ by Sept/2013?
    Caused by a dollar collapse, he says.

    BTW, notice something very big is lying here--why/how is market going up like no tomorrow even as $ bottomed end April and has gained 3 points?

    He's still behind, haven't looked for an update, but looking at the chart he had up on air, SPX was to be 1700 by end of 2012, and about 2000 now.
    So his forecast is coming into line by the day.

    ReplyDelete
  19. Why is HKMex closing for good tomorrow May 20?
    They're going to get paper settlement only.

    ReplyDelete
    Replies
    1. Silver Halted 4 Times Overnight Amid Flash Crash

      While we have become used to the almost daily trading-halts in Japanese government bonds, when the CME reports that Silver trading was halted four times overnight, it is increasingly clear that this market is anything but 'normal':

      *SILVER TRADING WAS HALTED FOUR TIMES OVERNIGHT, CME GROUP SAYS
      *SILVER TRADING WAS STOPPED FOUR TIMES IN 20-SECOND HALTS
      *SILVER TRADING WAS HALTED IN `STOP-LOGIC EVENTS', CME SAYS

      Yet somehow, amid all this 'extreme' volatility in 'safe' collateral assets, we still do not hear of funds blowing up (yet). While central bankers would seem to disagree, there really is no stability without volatility and the more that vol is suppressed, the more extreme the inevitable 'event'.

      http://www.zerohedge.com/news/2013-05-20/silver-halted-4-times-overnight-amid-flash-crash

      India Finance Minister Begs Citizens To Stop Buying Gold

      While the overnight collapse in precious metals has been notably retraced, the media is unable to take its eyes off the ball that the status quo is shaking focusing on the demise and what that must mean for the future. Well, it seems, the Indian finance minister is very clear. Speaking in New Delhi P. Chidambaram explained his lack of surprise at the increase in gold imports in April (as physical demand exploded amid falling paper prices) adding:

      *CHIDAMBARAM APPEALS TO PEOPLE TO CONTAIN PASSION FOR GOLD, and
      *CHIDAMBARAM: MORE STEPS PLANNED TO CURB GOLD IMPORTS IF NEEDED

      So China/Hong Kong is importing near record amounts of the precious metal into reserves and India is not only seeing demand but enough to warrant further government intervention... makes perfect sense that (paper) prices should be falling - or are the planners plans backfiring once again? As we noted here, as long as the price suppression of paper gold prices continues, don't expect any notable changes to these demand trends.

      http://www.zerohedge.com/news/2013-05-20/india-finance-minister-begs-citizens-stop-buying-gold

      Delete
  20. Someone said it best when asked how to best value gold and he said, "How much is the last parachute worth on a plane that's going down.". Keep stackin. I'm down huge on all metals investments as I started late but I'm adding more physical and miners this week. when you truly see who's been in control of this place you won't ever question your metals buys ever again. load the proverbial boat and duck. thanks dave

    ReplyDelete
  21. Dave, some in the sector, including ones I have followed for years, are saying to get out of mining stocks. They say the current prices will destroy 80 to 90% in the next year and it is such a bear market that financing is impossible, and naked shorting will continue to destroy them. I see from your blog posts that you have a different take on the mining stocks, at least the ones in your fund. Do you see only the best surviving? I have always wondered if this was part of their plan.... destroy them, bankrupt them, so the banks now own them. I am down a ton in my stocks, and the low has to be near with how much they have gone down, but the people saying to get are scaring me because they have been so right over the last few years. I appreciate your thoughts.

    ReplyDelete
    Replies
    1. Anon

      Please check out this link. Some succor :-)


      http://bullmarketthinking.com/gold-bug-hedge-funds-collectively-report-over-183mm-in-new-call-option-positions-on-miners/

      Another Anon

      Delete
  22. A baby downstairs to the store to buy drinks. The shopkeeper gave him a bottle of, then the child says no money.buy rs goldThe shopkeeper is angrily threatened:"Don't have the money to your mother!" The child was frightened out of bottle caps are off the ground. Pick up a see: come again a bottle of! So the bottle cap, gave it to the owner, walked happily.buy wow goldLeave the owner to choose a suitable text book with a clueless look on his face.

    ReplyDelete
  23. The pundits of physical gold and silver who are condemning the precious metals are doing so based on purely - paper - prices.
    Yet a very telling dynamic , one that has "there's your sign" written all over it,is about to take place;

    The Hong Kong Exchange this week is cashing out on their paper for metal responsibilities.

    That's huge !!!

    They (HKE) must know something that most if not all of the sheeple back here in the U.S.and who believe in what all of the mainstream media feeds them , don't know.

    Follow the money...in this case the actual physical gold and silver.
    Look at what the B.R.I.C. nations have been doing since their creation.
    LOADING UP ON THE PHYSICAL !

    A big reason as to why the Hong Kong Exchange is caving to the extent that they are.
    Cash is trash ~ paper gold and silver is worse , buy physical!

    ReplyDelete
  24. Coming to a Climax with Gold at $7,000 per Ounce


    It’s a vault run. . . Wealthy investors are asking for their gold, and some are finding out it’s not there.” Jim Willie, who holds a PhD in statistics, says things are getting worse. Dr. Willie contends, “Back in 2011 and 2012, you had an important event every three of four months. Now, it’s every two or three weeks. So, the mean time between failures is rapidly declining.” Dr. Willie goes on to predict, “Before, they were talking about stress tests. Now, they realize that all of them in the past were a fraud. So, they are talking about ‘bail-ins’ because they are expecting failures.” Dr. Willie contends, “It’s all coming to a climax where gold is going to be central with a gold-trade central bank and gold priced at $7,000 per ounce.”

    http://youtu.be/LSjpbWdZzYQ

    he's been wrong but I like the vault run term....

    ReplyDelete
  25. Amateur investors tap 401(k)s to buy homes

    In order to get in on hot housing markets, amateur investors are buying up homes and taking risky measures -- like tapping their retirement accounts -- to fund the deals.

    "We're seeing many people cash out 401(k)s or IRAs because they want to take advantage of the market," said Sean Galaris of financial services firm LM Funding, based in New York and Miami. "This new scenario involves people losing significant personal funds since they are financing real estate through retirement accounts, savings and life insurance."

    Galaris should know. His company buys delinquent fee accounts from condo associations and collects the debts. Many of the condo owners he collects from either resort to tapping their 401(k)s or IRAs when they come up short or have already used up those funds to buy the property in the first place.

    Lori McDermott, an insurance broker from West Seneca, N.Y., took out a $50,000 loan against her 401(k) for a downpayment on a home in Sarasota, Fla., last December. A short sale, McDermott got the place for $225,000 -- a steal considering the seller owed $465,000 on the mortgage.

    But still, it's a risk. If McDermott loses her job or quits, then any unpaid part of the loan will be subject to income tax and possibly a 10% early withdrawal penalty.

    "The decision to take money from your 401(k) is not for everyone," said McDermott. At the age of 48, she has already had five arterial stents implanted. "Having heart disease put me in a position where I was scrambling for life insurance," she said. " I looked elsewhere to create a legacy: real estate."

    Adam Bergman, a tax attorney for IRA Financial Group in New York, gets several calls a day from clients like McDermott looking to invest their retirement funds in real estate.

    "Our average client has retirement accounts of about $150,000 and is looking to buy one or two properties," he said. "After 2008, they didn't trust Wall Street. They wanted hard assets."

    After deducting all the fees, taxes, maintenance and other costs, "They're lucky to get a 2% return," he said.

    And that's if all goes well with the rental. It often does not. Investments in rental properties can quickly sour if, say, a tenant stops paying rent for a few months or if a condo or homeowners association imposes special assessments to pay for major repairs.

    "When that happens, investors may not have the wherewithal to pay their monthly common charges and property taxes," said Galaris. "A whole lot of the people in the markets are not experts."

    http://finance.yahoo.com/news/amateur-investors-tap-401-k-100900883.html?

    ReplyDelete
  26. Argentina mulls opening its banks to money launderers

    Have some dirty money you need to launder? You may want to consider Argentina as an option. Lawmakers there are considering a measure that would give amnesty to anyone who wants to pull undeclared cash out of tax havens and deposit it in Argentinian banks.

    The government of President Cristina Kirchner is behind the proposal, saying the country needs to do something drastic in order to prop up its investment-starved economy—especially its stalled energy and construction sectors. The idea has a certain logic. Currency pressure in the country is so intense that the black market exchange rate is double the official rate of about 5.2 pesos per US dollar, and even the most upstanding of Argentines stash their money anywhere but banks as a hedge against inflation. Foreign reserves have fallen by nearly a quarter in the last two years to $40 billion, the lowest level since Kirchner took office. With an election coming up in October, Kirchner, her popularity already plummeting, can’t afford further devaluation.

    But the proposal has wide-ranging implications, including making Argentina a magnet for global money-laundering. If passed, the amnesty would last at least three months. During that window, banks would issue tax-free energy bonds and certificates of deposit to invest in construction or real estate—without asking where the cash came from.

    http://qz.com/85576/argentina-mulls-opening-its-banks-to-money-launderers/

    ReplyDelete
  27. During the late sixties and seventies I worked in mining exploration and so participated as much as my
    limited funds would allow in TSX penny mining market. For those not aware those were the days when
    junior mining companies with gold in their name went from pennies to mega bucks. It didn't matter if the
    company properties were nothing but moose pasture because the frenzy to own gold mining shares
    drove share prices from a nickel or dime to 30 and 40 dollars. Several companies share price topped
    out at hundreds of dollars. To the best of my knowledge none of the many companies I followed ever
    became a producing mine. I relate this story because I believe we are on the cusp of a similar
    situation developing soon. The only difference I see between now and the seventies is that back then
    buying was mainly North American and today the entire world population are potential buyers and thus
    when this thing gets going I expect buying to be even more frantic. The best advice I can give is just
    sit tight my friends and wait this manipulation out. The payoff will be unbelievable.

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    1. Great point. I read a Jim Dines letter back in 2001 and his thesis regarding the dynamic that would propel the juniors is exactly as you lay it out.

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