Return On Investment-3 banks fold this week

“I am more interested on the return of my money than a return on my money.” Mark Twain

Three more banks imploded this week:

Ocala National Bank, Ocala, FL

Suburban Federal Savings Bank, Crofton, MD

MagnetBank, Salt Lake City, UT

This makes nine for 2009. These are small banks. But the Big Banks are still not out of the woods yet. As much as the government would like to believe otherwise. Regional Credit Unions that feed the local Credit Unions got a large loan (“bailout”) this week too. This was not covered in the media. Interesting, there was a silent run on Credit Unions and no one covered it.

What should you do?

If you have not already, take some cash and keep it at home. This is in case of a short “bank holiday”. Then, split your cash savings between at least two, if not three different banks. Make sure the amount is well below the FDIC insurance limit, which has recently been raised to $250,000. Even though that is high, the imploded banks this year had depositors with accounts over the limit. That means they lost all the money in that account, not just the difference. Right now, accounts at imploded banks are pretty much getting covered no matter what. That will change as more and more banks close. Chose account types that are covered by the FDIC and short-term, like 6-month CDs.

I suggest splitting your cash between a local bank, a regional bank, and a national bank with a brick and mortar building near you. And don’t forget the cash at home for the “bank holiday”. Another thing that could happen is that you will be limited on the amount of money you can transfer out of a bank or they might “hold” a deposit from out of state or an individual. This a regular practice in some banks already. Keep this in mind if you have large purchases coming up.

Follow this same outline for your business accounts as well.

Some economists are calling for 40% of the banks in the US imploding or “getting acquired by another bank” before this is all over.

A picture is worth a thousand words

This speaks for itself….

Please don’t miss the thin blue line that has gone straight up in the last 6 months.

This is called a “hockey stick”. It’s great if you own gold or silver, bad if you own dollars.

A hyperinflationary depression is in your future. The US Government is creating a huge amount of money. There is no way that they can drain this amount of money out of the system. This money will find its way into prices very soon. To make matters worse, every other country on the globe is doing the same thing.

Secure your investments….now.

How other cultures save money

Yes, most other countries in the world, save and invest money, even the lower classes. In the US, we borrow money to live.

A few interesting things about world wide physical gold sales (including coins, jewelry, and bars).

1. India’s demand for gold has declined (in 2008).
2. China’s demand for gold has increased, surpassing India.
3. The US Mint (and other national mints) are limiting the type of gold coins for sale and rationing out to dealers what they do produce.
4. US Mint raised their premium for gold coins to dealers. It now costs the dealers more above the market price of gold to purchase coins.

My comments:

India is a nation that buys gold jewelry for special occasions, like weddings. When the price of gold is really low, they will purchase gold jewelry as an added investment/saving vehicle. Gold in India is not cheap right now as their currency has lost purchasing power. They have no extra money to invest in anything.

Conclusion: India is experiencing economic uncertainty and many lower classes can not afford the luxuries. And the middle classes are cutting back.

China is a country of savers. They save over 40% of their income. They are prospering as nation, but the average Chinese still has this saving mindset. Save and save by buying gold. China has a long history of saving in gold. Gold is a consistent store of value. It is movable. They consider gold, like the early nineteenth century average US citizen considered bonds. It’s something you don’t sell, ever, you pass it along to the next generation.

The Chinese may be buying more “stuff”, but they are still saving more of their income than almost any other nation globally. If the Chinese have any type of economic panic, they will buy more gold, not less and they will not sell it. 

Conclusion: China is buying gold as a way to hold and preserve savings. 

In the US demand for gold coins is up. In the fall of 2008, coins had a 30% premium on the secondary market, if you could find them. Now the US Mint is cutting back on types of coins in production and raising the prices that dealers can buy them for. These two items will make gold coins even harder to find and purchase in the future in the US. I don’t think this is an accident.

If US citizens can not store their wealth in physical gold, they will buy ETFs (in US Dollars) and other investment vehicles in US Dollars. If the US Dollar loses value, the only option for an individual living in the US to product their wealth is to buy actual gold and silver. In other countries is is much easier to purchase other more reliable currencies than the local one, usually the US Dollar, or precious metals. Most banks in every other country will hold savings in one or many currencies.

It is not so easy in the US and it is getting harder. By the time the Dollar really takes a dive, it will be impossible. Unless….you already have it.

Gold Backwardation

In December, the price of gold entered backwardation for 48 hours. This is a big word.

It means several things:

Investors are not willing to part with their physical gold requests for delivery or actual metal in their possession for a gain.

Real long term investors are buying physical gold because they think:

• The global fiat currencies will not survive or severely hamper their wealth and business in the long term.
• They don’t believe there is near enough physical gold to cover the paper gold market and don’t want to be unable at a future date to get physical gold, no matter what the price.

This is NOT covered in the media and investing books. The global fiat currency system will implode (and that includes the US Dollar). SOME websites are communicating these unprecedented movements in the markets and what it means.

Smart global investors are quietly buying and holding physical gold.

It is like storing tanks and tanks of gasoline at low prices to run your car, when there is NO gas available at any price.

If gold is too much for your pocketbook, buy silver.

Resources (some parts you have to pay for):

http://www.kirbyanalytics.com/

http://news.goldseek.com/GoldSeek/1228499200.php

20-year Gold Bull Market

I read Jim Sinclair’s Mineset every day. It is an excellent reference for long term precious metals investing. This is one of the sites I really like, as Jim’s mission is to educate you, not sell you.

I learned most of what I know about Elliott Wave Analysis and Fibonacci from this site. Check out the archives if you like.

I have referred in past posts to the 20-year gold bull market we are in. I am using precious metals as a long term investment vehicle to preserve wealth against inflation and a falling dollar.

Two-thirds of my precious metal investments I buy on dips and hold. The other third I buy on the low of the large waves and sell on the high of the large waves. This allows me time to save more of my income and purchase at the bottom of the next wave down.

Here’s the latest major wave breakdown from Jim:

Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $3,500 to $2,500 (a 29% decline);
Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE).

The time frame for each wave is questionable. But as I said we are in year 10 of a 20-year bull market.

I am sure someone with more knowledge of the minor waves could comment, but I am more interested in looking for the major turns. That way I don’t have to watch the ticker all the time, but still make a return on investment. With all the volatility in the market, I don’t like to be dizzy.

Today a reader did a very nice graph with all the “french curve” possibilities for gold. Jim’s website is: www.jsmineset.com

401Ks and IRAs

As you have probably figured out I am suspicious of 401K and IRA savings programs as a source of primary retirement income.

Here are some reasons why:

If you still have 10-20 years to retire, your taxes will be higher (way higher) in the future. Better to pay those taxes now.

If you are in the US, your only option is to invest in assets dominated by US Dollars. The US Dollar will continue to lose value and implode all together. At the very least we are facing hyper-inflation in the next 2-10 years.

The fees take 80% of your profits (with the compounding effect) over the average 20-year span of a 401K or IRA. Compounding doesn’t work well if you keep taking money out for fees or anything else.

401Ks were set up to be a supplement to traditional pension plans. They are not structured to stand alone.

You are limited in how to take out money. Not flexible for you or your financial needs AND if all the baby boomers are forced to liquidate part of their investments over the same period of time, markets are destined to fall. If markets do fall at the time you need your money, you will be forced to sell at a loss. This is what is happening now to retirees.

Most people are not schooled in investing. Relying on the fund manager or broker who is paid whether you lose money or not is just foolish. If you lost 40% of the value of your 401K, your fund manager got the same amount of salary as last year, maybe more.

If the government decides to “confiscate” anything in the future, it will probably be 401Ks and IRAs. They will bring it under the social security system when it becomes completely insolvent when the interest on borrowed funds is too much to pay. They will call this “nationalization” and it will be “to protect” your retirement investments.

What to do in face of these major problems in the private retirement system:

Don’t take out your money. There is a huge tax penalty. Reorganize what you have as best as you can. Put the percentage of your 401K that you are comfortable with in Gold, Silver, and Oil ETFs. If you have an IRA, you may be able to invest in physical precious metals.

Stop putting money into your 401K and put the same amount of money into investments that preserve  purchasing power of the dollar. Such things include physical gold and silver. Commodities for the long term (5-10 years). CDs in non-US dollar currencies, especially, the Euro, Swiss Franc, and Canadian Dollar. Mainland Asian currencies if you can invest outside of the US. This is your new retirement account. But it’s really a long term wealth/saving preservation account. Over the next 10 years (or longer) wealth will not grow, it will need to be preserved. That is your objective.

Learn about cycles and trends in the things you are investing. There are lots of honest websites out there that teach and not sell. Avoid CNN. You don’t need to be a day-trader, but you do need to understand about basic trends and how to spot changes in trends. We are in the middle of a 20-year precious metals/commodities bull market.

Know when you are going to get out of an investment before you get into one. Factor in taxes and future inflation or deflation. Know the cycles so you can enter an investment at a low point and exit at a high point. Decide on an investment from true percentage gained not dollar amount.

Create a living trust to put these new investments to protect against future liabilities.

Take possession of your investments. If a stock, get a certificate (if you can). If a metal, hold the physical metals in a safe location. Have the shortest distance between you and your investment as possible. Do not allow a brokerage to hold your account. If you must, do it for a short period of time, or a small percentage of your overall savings.

Oh, and if you are living off a pension plan or plan to, forget it. By March of this year, pension funds will be “nationalized” because they are broke. Your payments will be reduced, or your payments will not buy what you need (inflation), or you will get an IOU from the government.

Do not fear, educate yourself and prepare, now. If you are not listening today, you will after March 2009. This will be a long crisis. Reorganize your financial matters now, not later.

The years ahead

In studying several economists, there are 3 cycles that are ending around the same time. It is causing some of the financial issues we are seeing now, but will cause these issues to intensify in the next few years.

We should see a “dead cat bounce” in the financial markets through to March 2009. Then a steady decline until June of 2011. International monetary issues should still be in the forefront until 2015.

In relation to the DOW number, I am not saying that it will go down as a number. It may go up, but because of inflation and the loss of purchasing power of the US dollar (see references in past posts), the VALUE will be down.

So, if you need to use your stock investments or retirement funds to live on before 2015, it’s time to make some changes. My past posts have suggested those possible changes.

As I have stated before, if you have all your savings in the stock market, adjusted for inflation and the loss on the dollar, you have LOST money since 1999, even before 2008.

The unemployment numbers came out today for December and readjusted October and November numbers, bringing the official employment to 7.5%. According to John Williams at Shadowstats.com, with the statistic gimmicks taken out, we are at 17.5%. For reference the 1970’s recession was 15% and the 1930’s depression was 30%.

Be prepared for things to change quickly. The tools you have learned in the past 20 years will need to be modified. The next twenty years will not be the same as the past twenty years. If you accept this, then you will be ahead of everyone else. If you don’t, you will not understand why doing the same thing you have always done is not working.

I highly suggest going through Chris Martenson’s The Crash Course. It is free online and will help you understand the three main cycles that are coming to a close all in the same time frame. Cycles need not be feared, just acknowledged. The course is over 3 hours long, but can be divided up into the chapter headings, most not more than 5-15 minutes long.

http://www.chrismartenson.com/