Lear Capital Commercial Pushes Mysterious Asset, but is it the One Asset to Rule Them All?

There’s a new Lear Capital commercial I’ve been hearing a lot on the radio lately. I find it compelling because Lear Capital makes great use of the element of mystery in this commercial to sell a specific asset. The mystery of course is: what asset? For all the talk of this asset in the Lear Capital commercial – they never say what the asset is!

Here is an example of how they discuss this asset in the  Lear Capital commercial:

This asset is up over 100% since 2008 and Morgan Stanly predicts it could rise another 30% for 2012!

Is your curiosity whetted?

If not, the ad department at Lear Capital does their best to do so.

This one asset is not a stock, and not a bond… Call Lear Capital to learn more about this one asset that has returned 18% per year for 11 years… Call Lear Capital to get a special report and video on this “special investment”

This “special asset” is of course gold. Lear Capital is a gold dealer and they’ve been aggressively pushing the precious metal for some time now. I have to say that they do a good job of piquing interest where other gold dealers usually resort to all out fear to sell gold. This Lear Capital commercial doesn’t avoid the fear angle altogether though. They have plenty of elements targeting uncertainty (and rightly so).

Tired of losing money in the bank? …Artificially low interest rates and high uncertainty have helped this one asset out perform all other investments. You can continue to live with market volatility or invest in a secure asset that’s kept its value.

This  Lear Capital commercial certainly does their best to make gold seem like the “One asset to rule them all.” Over the past 10 years, it has been, but there’s still that line about gold being a “secure asset that’s kept its value” that implies it won’t lose value.

If there’s a bubble in gold, then a lot of people are going to lose a lot of money. The question of course is whether gold is a bubble.

To answer that, you have to consider what has been driving the rise in gold prices, and whether those factors will continue.

What is driving the price of gold?

Gold is typically used as an inflation hedge, and there has certainly been a lot of concern over inflation in the past few years, but prior to the numerous rounds of government “stimulus” and quantitative easing, fear of inflation was not the reason for gold’s rise. Uncertainty was. The War on Terror and general threat of terrorism created great uncertainty in the early half of the 2000′s.

Since the financial crisis though, the fear and uncertainty have revolved around the so called debt bomb of massive public debt and devaluation of the dollar due to the many “stimulus” programs.

What does the future hold for gold – has anything changed?

As an investor in gold, I think you need to ask yourself whether these factors are likely to persist, increase or abate. Is the U.S. government likely to significantly reduce its spending and reign in the deficit? The increase in national debt of 50% in the last 4 years suggests this is not likely.

Another factor at play here is the U. S. dollar as the reserve currency. While this is true, the U. S. government will be able to “monetize” its debt – that is decrease the value of the dollar through inflation and pay the debt down with less valuable dollars.

But what if the dollar is no longer the currency of the world?

Interest rates on the debt would spike and the U. S. government would no longer be able to print its way out of its debt obligation. Think Greece, Spain, Portugal, Italy and all the other bankrupt nations in Europe.

Don’t think it can happen? Check out Is the yuan the new dollar? from MSN Money. China would love to supplant the U. S. currency with its own. If that happens, the price of gold would probably rise greatly.

Is buying gold the right move? I don’t know. I’m no expert, but there certainly seems to be enough reason to at least hold some gold.

Given the reasons outlined above, conventional wisdom would suggest that gold is a necessity to preserve your wealth. Then again, conventional wisdom is often wrong in the end.

Related Posts:

• Rosland Capital – U. S. Gold Eagle Coins in Your IRA.
• U.S. Debt Comparisons (infographic).
• How (and Why) I Added Gold to my IRA.
• To Buy or to Sell Gold?
• How to Survive (and Possibly Thrive during) Stagflation.

How (and Why) I Added Gold to my IRA.

Why invest in gold?

Photo by covilha

Gold is a well known hedge against inflation, uncertainty and a falling dollar. Since this pretty much sums up the environment we’ve been living in for the past decade, it’s easy to see why the value of gold has been on the rise. But that’s past performance and as we all know, past performance is no guarantee of future results. So is gold still a good investment?

I’m not going to pretend to know the answer to where gold is going in the future, but here are some things to consider. Quite frankly, they are no small part of why I was convinced to invest in gold in my IRA a few months back when the price dipped.

Budget busting entitlement programs.

Unfunded entitlement programs will force future income earners (you, your children and grandchildren) to keep less of their income after taxes, thereby shrinking available wealth.

U.S. funding for future promises lags by trillions:

“The government added $5.3 trillion in new financial obligations in 2010… that brings to a record $61.6 trillion the total of financial promises not paid for.”

The United States credit rating is in jeopardy.

Fitch may cut rating:

“Fitch said it would first place ratings on “watch negative” if lawmakers failed to enact an increase in the debt ceiling by August 2, when the Treasury will have run out of extraordinary measures to avoid a default.”

This could lead to the U. S. paying a higher interest rate on its debt, which means more tax revenue goes toward the interest payments of past over-spending, leaving less for current spending. The result, of course, is higher taxes, lower incomes and less wealth.

Inflation. Hyperinflation. Deflation.

Inflation and deflation have a big impact on the value of your wealth. After all, if you have $1,000 in the bank, but each dollar goes down in value (inflation) to .70 cents, then your $1,000 is now the same as $700 before inflation. Gold on the other hand, holds its value and can even rise in value during inflationary times which makes it the perfect place to store your wealth.

Some people think The Time to Prepare for Hyper-Inflation is BEFORE It EXPLODES , while others only see Hyperinflation Nonsense in Multiple Places

I happen to believe that an ounce of prevention can spare much pain and with gold trading in the $1,500 to $1,600 an ounce range it may seem like a costly ounce of prevention, but I’d still ratherbe prepared for stagflation or inflation or even deflation.

The trick isn’t so much in figuring out whether we’re going to experience inflation, hyperinflation, deflation or stagflation because any one of these situations will keep the demand for gold high, and keep the price high.

In the end, the one major risk to the price of gold is a sound fiscal policy in Washington D. C., a balanced budget and a robust economy.

I believe these factors are years away, and so is any big drop in the price of gold.

How to hold gold in an IRA or 401(k).

You basically have two choices when it comes to investing in gold in your IRA or 401(k):

1) Physical gold
2) Gold stock

I suppose you could add mining stocks and other precious metal related stocks, but that’s moving away from gold a bit too much, and I’m sure there are those who would say that even a gold index ETF is too far removed from gold. That’s a debate for another time..

Buying physical gold.

It’s possible to hold gold in IRAs (traditional and Roth), simplified employee pension (SEP) and simplified incentive match plans for employees (SIMPLE). Most IRA plans do not allow for this option though, so the first thing you’ll want to do is check with the custodian of your IRA and see if they allow holding physical gold in your account.

If your current IRA does not offer the option to buy gold coins and bullion, you’ll need to open a gold and silver IRA.

Why I chose paper.

My IRA does not offer gold coins and bullion, and I have chosen not to open a new gold and silver IRA. Instead, I invested in the PowerShares DB Precious Metals (DBP). Here’s why….

Fees

Gold and silver IRA’s have more fees than traditional IRA’s because of added regulatory overhead. The IRS stipulates that the gold must be stored at an approved depository. This depository is a separate entity from the IRA custodian, and the require a fee for storage.

The IRS also requires that Gold coins be 99.5% pure gold, and must be approved by the IRS and be legal tender to qualify.

This is all good, because you want some assurance you’re not dealing with some fly-by-night con-artist who’s going to sell you some gold plated junk.

But this does limit the field of qualified vendors. Here are some of the most popular qualified gold coin providers:

• American Gold Eagle
• Perth Mint Lunar series (from Australia)
• Kangaroo-Nuggets (from Australia)
• Canadian Gold Maple Leaf
• Austrian Philharmonics coins

The way this breaks down is that you end up paying for two services:

• The custodial service
• The depository service

The custodian (IRA administrator) usually charges a fixed annual fee or a percentage of the IRA’s value. The depository will also charge its own fee. Transaction fees may be applied to each contribution you make to your IRA.

Simplicity

I’m a big fan of keeping things as simple as possible, and to be honest I don’t really need another retirement account to keep track of.

I’m very happy with my Fidelity account. I can invest in Mutual funds with no transaction costs, and no load. I can invest in ETF’s like DBP for $7 a trade. It’s all good. I don’t need the hassle of another, specialized IRA for gold.

Liquidity and yield

Physical gold is great for holding value, and in times of uncertainty, appreciating in value. But gold pays no dividends. When times are stable or prosperous and relatively peaceful (think mid to late 1990′s) gold doesn’t do much. In fact, you’re lucky if you don’t lose value in that kind of environment.

Buying gold in a tax deferred account doesn’t get you the same tax advantage that holding interest generating assets does.

The big reason I chose paper is that it’s far more liquid than physical gold.

Gold bugs will tell you that the real deal is far better than paper, because if the excrement really hits the fan, your paper is worthless while physical gold still holds value.

I am of the opinion that in those kinds of scenarios, where the entire monetary system of the western world collapses, bullets will be the new currency, not a shiny metal with no real industrial use.

Why I chose PowerShares DB Precious Metals

I wanted an ETF or mutual fund because it would be easier (and quicker) to sell than physical gold if the price of gold starts to drop. I can also hold those shares in my existing IRA, which means less fees, and more flexibility.

In the end, I chose the PowerShares DB Precious metals ETF over the SPDR Gold Shares (GLD) ETF because I wanted more diversification. I was watching the price of silver rocket ever higher at a rate greater than gold, and wasn’t prepared to make a call on one or the other. I also wanted to get some exposure to other metals which are precious but have industrial uses, like platinum. So, DBP was a basket of indexes that track multiple precious metals, which should give a smoother ride than focuses purely on gold (or silver).

Related Posts:

• Rosland Capital – U. S. Gold Eagle Coins in Your IRA.
• To Buy or to Sell Gold?
• How to Survive (and Possibly Thrive during) Stagflation.
• Conversion to Roth IRA Still Possible for 2011.
• Are You on Track to Retire Comfortably?

To Buy or to Sell Gold?

The recession was officially triggered with the crash of the real estate market, but it spread to all industries, and has cast a black cloud that is not letting up anytime soon. Although it bodes no well for virtually any industries, “A weakened dollar is gold’s best friend,” says Tim Middleton, a financial reporter for MSN.

When the FDIC tries to stabilize the economy, it inevitably leads to inflation. Inflation means a weakened dollar, and a great rise in gold prices. Middleton maintains that as long as investors worry about stocks, inflation, and the government’s response, gold will continue to rise, as investors look to the one commodity that guarantees security. This way of thinking is confirmed by gold’s record highs during the last few years.

Leading analysts are recommending gold investment as the obvious choice, as it continues to hit record highs. However, in the long run, gold is a volatile asset that has low returns. Some are of the opinion that the stock market and the economy are on their way back. If this is the case, gold will drop very far, very fast.

The high gold prices do not only influence stock market investors, they can also be taken advantage of by your everyday consumer. Many are learning, sometimes the hard way, that it is essential to put away some money every month for a rainy day. The money may be stored in a CD, low risk investment, or even under the mattress. Some say that now is a great time to invest in gold. As the prices rise, investors who merely wish to have their money secure may even see the values rise. Those of this school of thought say that gold is the answer to a secure investment that has room for growth.

Others say that now is a bad time to buy, when prices are high, and investors should instead sell gold at a high profit. Inflation and the state of the economy has opened up a whole new market of those willing to buy gold, whether online, to a jeweler, or to private investors. It is advisable, however, to learn a little bit about the industry before getting cash for gold, because it is easy for scammers to rip off an unknowing client.

Although gold is the primary precious metal that is being traded, all precious metals follow the trends of gold, albeit on a smaller scale. Therefore, it’s a great time to sell platinum, a very precious metal, which is worth even more than gold. Silver, bronze, copper, and other metals are also very valuable now. Just ask any silver store. The prices have skyrocketed.

There are many opinions of what the best actions to take are right now, in regards to gold. If inflation continues to rise, gold will prove a secure asset that is a smart investment. However, if inflation is tame and smart fiscal policy strengthen the dollar, then the price of gold will plummet, possibly for a long time. Time will tell which way we go.

Related Posts:

• How (and Why) I Added Gold to my IRA.
• Lear Capital Commercial Pushes Mysterious Asset, but is it the One Asset to Rule Them All?
• Five Common Debt Solutions.
• 11 Things to Consider When Choosing an Online Bank.
• How to Get Your Tax Refund Now!

How to Survive (and Possibly Thrive during) Stagflation.

Stagflation. The dreaded “S” word. Stagflation is loosely defined as an economic environment in which inflation is rising, while economic growth (or wage growth) is stagnant or declining. It’s often characterized by high unemployment, and rising prices (high inflation) – the worst of both worlds.

Stagflation, 70′s style.

Most people who are familiar with the term stagflation will no doubt think of the 1970′s when they hear the word. The 1970′s in America was defined by stagflation, and oil shocks.

There is a common belief among many that stagflation in the 1970′s was caused by oil shocks – rapid spikes in oil price, caused by the OPEC nations, and as this article points out:

In desperation, President Jimmy Carter (1977-1981) tried to combat economic weakness and unemployment by increasing government spending, and he established voluntary wage and price guidelines to control inflation. Both were largely unsuccessful.

Others argue that the very reason those efforts were unsuccessful was because they were in fact the cause of much of the problem. Lutz Kilian points out that 1970′s stagflation was caused by poor monetary policy. Oil shocks didn’t help the situation any, but neither did they cause it.

Increasing government spending, lax monetary policy and rising oil prices… sound familiar?

Stagflation, 21st century style.

Despite Ben Bernenke’s claims to the contrary, real inflation has risen quite sharply over the past year. Gasoline prices alone have risen over 10%, food prices aren’t far behind.

Up until now, Bernenke and company have focused only on “core inflation” which excludes “volatile” areas of spending like food and gas. The problem is that while these expenses are volatile and prone to high degrees of fluctuation, they also happen to be things that people need to buy.

It’s one thing to exclude volatile spikes in situations like 2007-2008, when fuel prices spiked, but then receded. However, when real inflation takes hold, the core inflation numbers become misleading at best, and insulting to the general public at worst. As I write this, inflation by some counts is closer to 10% than the official 2.6%.

Everybody knows they’re paying more for food and fuel, so Bernenke only loses credibility with the general populace when he comes out with statements about inflation being “mild” or “tame.”

The Federal Reserve’s liquidity policy is spurring inflation and even leading some states to seek alternative currency.

John Boland, financial adviser at Maple Capital Management sees inflation as high as 6% by the end of 2011 – and that’s the “official number”, not counting food and gas prices!

Some have sounded the alarm over hyperinflation, but personal incomes are flat , at best and declining at worst. This coupled with high unemployment seems to suggest either depression or stagflation.

It looks to me like we have a little of both: depression in the things we want, inflation in the things we need. Things like cell phones, televisions and computers are getting cheaper while food, gas and clothing are getting more expensive.

So, the stage looks set for a potential encore presentation of 70′s style stagflation. How do you survive stagflation and can you possibly thrive during such a time?

Thriving through stagflation

Looking back at the 1970′s makes it pretty clear that very, very few people got rich after accounting for inflation. In fact, it was considered a victory just to keep pace with inflation and not lose “too much” of your wealth.

The average American was much worse off by the time stagflation ended in the early 1980′s.

Here are some of the ways people were able to maintain their savings, if not prosper at least a little.

Investing

Bonds

Seeking Alpha sums up investing in bonds during stagflation like so:

“During the last stagflation, bonds were called “certificates of confiscation” by many professionals in fixed income. It paid to have your fixed income assets as short as possible.”

Because inflation results in each dollar being worth less than previously and a bond is an agreement to pay back a debt today in tomorrow’s dollars, the bond holder is paid back in dollars worth less than he lent. In effect, having his wealth confiscated.

Treasuries are pretty much in the same boat as traditional bonds here, although you can now buy TIPS (Treasury Inflation-Protected Securities). TIPS didn’t exist in the 1970′s, and they were created as a means to protect the value of your savings from inflation. You can learn more about TIPS and buy TIPS at TreasuryDirect.com. Of course, TIPS are indexed to the official government inflation rate and as we’ve seen above, that’s much lower than the real rate. So your savings are still likely to lose value if held in TIPS.

If you have an investment account, you can also buy shares of the iShares Barclays TIPS Bond (TIP) ETF.

If you do hold bonds, keep your domestic bond duration to maturity short. You may also want to diversify into foreign currency bonds.

Some short-term bond ETFs you could use are the Vanguard Short-Term Bond ETF (BSV) and the iShares Barclays 1-3 Year Credit Bond (CSJ). Similarly, there are a number of International bond fund ETFs to choose from as well.

Stocks

When it comes to picking stocks for inflationary or stagflationary times, pricing power is all important. Pricing power simply refers to a company’s ability to raise prices to maintain profit, and not lose sales in the process.

These are the kinds of companies that produce things people need, or are most reluctant to give up. Think: utilities, energy, healthcare and consumer staples.

Commodities

Gold, silver, oil precious metals and agriculture all tend to rise with inflation.

Most commodities have already risen due to anticipated spikes in inflation with excess government spending and have continued to rise with inflation. Precious metals, for example, are probably not likely to be a money maker this late in the game, but they may be one of the few wealth preserving investments this time around.

Other commodities, like oil and agriculture are less of a pure inflation hedge and probably make sense as long term holdings even without high inflation.

You can buy gold coins, and coffee futures on there own, but you can also invest in broad indexes of these and more through ETFs. This provides added diversification, and will let you capture most of the gains with a bit less risk.

To be clear, ETFs that focus on one type of holding are not really diversified. For example, the ETF GLD is focused solely on gold, while DBP is a broader index in the precious metals category. DBP will reward you for gold rising as well as silver and copper, and punish you less if silver takes a tumble but gold and copper remain stable.

There are also a number of good mutual funds for investing in sector stocks, bonds and commodities. I recommend anyone who is interested in those take a look at the fund on Morningstar and find a highly rated (4 or 5 star) fund.

Housing

Traditionally, housing is a go-to place for protecting your money and riding out inflationary waves. Unfortunately, the bursting of the housing bubble has made it difficult to ride that wave this time around. It’s likely to take along time before housing prices begin to rise enough to alleviate inflation, much less keep up with it.

Real estate will likely be sitting this round of inflation out, so people should buy a house only if it makes sense for them to do so – i.e.: it fits their lifestyle and long term goals – not as an investment.

Cash is king

Cash is king when interest rates rise. This will likely be the case toward the end of this inflation cycle, as it was at the end of the last bought of stagflation. In the late 1970′s – 1982, money market accounts were fairly new and proved to be one of the few safe havens.

The problem is that the Fed has kept rates so low, that your savings will actually lose value in a money market now. Eventually though, even the Fed will have to recognize inflation has risen too far too fast and will be forced to do something about it. What they do is raise rates. Quite possibly, very quickly and quite high. This is bad news for people with variable rate debt (mortgages and credit cards) but great news for people with cash on hand to stash in a money market account.

The trick of course is to make it to these final stages with enough money left to preserve in a money market account.

What if I’m wrong?

Whenever I play fortune teller and try to predict the future, I always ask myself: What if I’m wrong?

I’m no expert, but I do know enough to know I don’t know it all and that puts me ahead of many so called experts. So, here’s what you should do if I’m wrong about my views and opinions on stagflation over the next few years:

DIVERSIFY.

That’s what I plan on doing with my money.

Life is full of “what-if”‘s, the only way to get through those moments is to plan for as many possibilities as we can. I still have much of my portfolio in more traditional growth stocks and bonds. I’m not “all in” on gold. I’m simply leaning more toward the types of investments outline in this article so that in the event that these predictions come true, at least in part, I will be in a position to be less negatively impacted.

As I said, I’m no expert and you should speak with a financial planner before making any big decisions. Gold looks great and oil seems like a no brainer, but their prices have been bid up in anticipation of inflation and you may get caught buying high at this point.

I just think you should be aware of the specter of stagflation as being just as possible as rampant inflation or the “gold bubble” bursting.

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• Minimalism vs. Simplicity – Are You Missing the Point?
• Robert Kiyosaki Plays Loose With His Math in Financial I.Q.
• How (and Why) I Added Gold to my IRA.
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