{"id":47644,"date":"2014-02-20T12:28:14","date_gmt":"2014-02-20T17:28:14","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=47644"},"modified":"2014-02-19T20:29:26","modified_gmt":"2014-02-20T01:29:26","slug":"lay-land","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2014\/02\/20\/lay-land\/","title":{"rendered":"The Lay of the Land"},"content":{"rendered":"<h4><span style=\"font-size: small;\">Guest Post By Dennis Miller<\/span><\/h4>\n<p>Building your nest egg and managing it successfully takes more work than it did six years ago, but it isn\u2019t a Sisyphean task. You\u00a0<em>can<\/em>\u00a0build a portfolio that will last the rest of your life.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=741&amp;code=PIP&amp;editorial=the-lay-of-the-land\" height=\"1\" width=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>Waiting for the political class to come to its senses is futile.<\/p>\n<p>In 2008,\u00a0Bloomberg\u00a0reported:<\/p>\n<p style=\"margin-left: .5in;\">\u201cThe S&amp;P 500 slid 60.66 points \u2026 extending its 2008 tumble to 32 percent in the market\u2019s worst yearly slump since 1937. The Dow Jones Industrial Average dropped 508.39, or 5.1 percent, to 9,447.11, giving it a 29 percent retreat in 2008 that would also be the worst in 71 years.\u201d<\/p>\n<p>Cut to the Fed\u2019s economic rescue mission: anyone considering retirement found himself in bizarre world. Traditional, conservative investment options were wiped off the map. Millions of investors had no choice but to make drastically riskier investments and hope for the best. Which begs the question: Who was the Fed rescuing? Certainly not seniors and savers!<\/p>\n<p>The recent book by John Mauldin and Jonathan Tepper,\u00a0<a href=\"http:\/\/www.millersmoney.com\/go\/vzpjy-2\/PIP\" target=\"_blank\"><em>Code Red: How to Protect Your Savings from the Coming Crisis<\/em><\/a>, confirmed my suspicion: the government forced us into this position by design. The authors write:<\/p>\n<p style=\"margin-left: .5in;\">\u201cNegative real rates act like a tax on savings. Inflation eats away at your money, and is in effect a tax by the (unelected!) central bankers on your hard-earned money. \u2026 Negative real rates force savers and investors to seek out riskier and riskier investments merely to tread water. \u2026 In fact, Bernanke openly acknowledges that his low interest-rate policy is designed to get savers and investors to take more chances with riskier investments. The fact that this is precisely the wrong thing for retirees and savers seems to be lost in their pursuit of market and economic gains.\u201d<\/p>\n<p>No wonder the stock market came back so quickly! Where else were seniors and savers going to go? Zero-interest-rate policy (ZIRP) means the yield on our safe CDs or Treasury bonds is negative, when inflation is factored in: we\u2019re becoming poorer every day.\u00a0<em>Code Red<\/em>\u00a0tells us, \u201cIn a ZIRP world \u2026 savers are screwed.\u201d<\/p>\n<p>Hey, we get the point; we live it every day. There\u2019s seemingly nowhere to go for ultra-safe yield. No matter how hard the government propaganda machine tries to convince us that happy days are here again, we know better.<\/p>\n<p>The Federal Reserve has been telling us what to expect for the next several years.<\/p>\n<p>In November 2013,\u00a0Bloomberg\u00a0reported:<\/p>\n<p style=\"margin-left: .5in;\">\u201cFederal Reserve Chairman Ben S. Bernanke said the Fed will probably hold down its target interest rate long after ending $85 billion in monthly bond buying, and possibly after unemployment falls below 6.5 percent.\u201d<\/p>\n<p>We are the targets. We are tired of inflation confiscating our life savings and damaging our standard of living. Our very economic survival requires a proactive stance.<\/p>\n<p>Pushed by the Fed\u2019s low-interest-rate policy, investors have poured billions into the stock and bond markets, creating a bubble.<\/p>\n<p>The market is not trading on fundamentals. Savvy investors know the market is on thin ice, and as each passing month brings more treasury debt being bought by the Federal Reserve &#8211; , the ice gets thinner. But what is the alternative? Hope we are smart enough to get out ahead of everyone else when the bubble bursts? It\u2019s as though the market has a hair trigger.<\/p>\n<p>Look what happened when, in the summer of 2013, Chairman Bernanke hinted at \u201ctapering.\u201d<\/p>\n<p>ShareCast tells us\u00a0(emphasis in original):<\/p>\n<p style=\"margin-left: .5in;\">\u201cAmerica\u2019s three key US equity benchmarks ended the trading day firmly lower\u2026 after Federal Reserve Chairman Ben Bernanke signaled that the central bank could taper its quantitative easing program\u2026<\/p>\n<p style=\"margin-left: .5in;\">The\u00a0<strong>Dow Jones Industrial Average contracted by 206 basis points<\/strong>\u00a0to end the day at 15,112 while the\u00a0<strong>Nasdaq Composite slid 39 basis points<\/strong>\u00a0to 3,443 and the\u00a0<strong>S&amp;P 500 dropped by 23 basis points<\/strong>\u00a0to 1,629.\u201d<\/p>\n<p>Talk about a hair trigger! He barely got those words out of his mouth before the market tanked. But this became a blessing for those who choose to look at reality.\u00a0 The Federal Reserve has now resorted to a much softer message in order to calm the markets.\u00a0 While they have decreased their rate of tapering, the fact remains they are still buying up $780 billion in US debt.\u00a0 Many pundits are already predicting that, by mid summer, the Fed will pause their tapering as they realize the economy is not as strong as they may think.\u00a0 We are a long way from having the market trade on business fundamentals.<\/p>\n<h3>How to Win in the New World Order<\/h3>\n<p>Some pundits suggest riding it out with a portfolio of the biggest, safest worldwide companies. After all, these companies have stayed in business through good and bad times\u00a0<em>and<\/em>\u00a0continued to pay their dividends. However, in a strong outgoing tide, even the best companies can take a beating.<\/p>\n<p>If Bernanke\u2019s comments can spook the market so easily, how can we expect investors to \u201chang in there\u201d when the real bubble bursts? Can we count on a downturn of only 32%, as it was in 2008? Or will it be worse? Can we count on the market recovering in five short years? How long can investors hang on, hoping their stocks will come back?<\/p>\n<p>The Dow peaked in September 1929 and didn\u2019t fully recover until November 1954. Hang on for 25 years? Maybe younger folks can do that, but it\u2019s much too risky for baby boomers and retirees.<\/p>\n<p>Here\u2019s my take-home statement: there is a better way.<\/p>\n<h3>The Lay of the Land<\/h3>\n<p>Let\u2019s quickly review potential ways to invest.<\/p>\n<ul>\n<li>Fixed-income investments alone will not do the job. Why tie up money for the long term when those investments are guaranteed to lag behind inflation?<\/li>\n<li>Bonds have appreciated tremendously as interest rates tumbled. Should interest rates rise\u2014which they will\u2014our interest income will be overshadowed by losses in the share prices of the bonds in the aftermarket. Then we would have to hold the long-term bonds at below market interest rates or sell them at a loss; I\u2019m not in love with either option.<\/li>\n<li>The stock market is trading less on fundamentals and more on stimulus; it\u2019s in a bubble and could easily collapse, and quickly. When everyone decides it\u2019s time to head for the exits and beat the other guy, the computer trading platforms will not only put in sell orders, but also take massive short positions.<\/li>\n<\/ul>\n<p>Margin debt is now at an all-time high; margin calls will trigger, and brokers will automatically sell from clients\u2019 accounts to bring their margin back into balance. With computer trading, this could all happen in a matter of minutes\u2026 if not seconds.<\/p>\n<p>Here\u2019s how\u00a0<em>Code Red<\/em>\u00a0sums it up:<\/p>\n<p>\u201cIf the government benefits from stealth taxes (meaning inflation), then who is the loser? \u2026 The biggest losers are savers and older people who rely on savings. Try retiring at 60 at today\u2019s interest rates and watch as your buying power slowly erodes as you get older. It is down close to 25% in just ten years. But your taxes and fixed expenses will have gone up! \u2026 The Fed is not going to change its policy to help retirees and pension funds, so older people are left to fend for themselves. \u2026<\/p>\n<p>When central bankers give us words to describe their financial policies, they tell us exactly what they want their words to mean, but rarely do they tell us exactly the truth in plain English.\u00a0<strong>They think we can\u2019t handle the truth.<\/strong>\u201d<\/p>\n<h3>Who Is Screwed?<\/h3>\n<p>Three groups will be hurt. The first group will be those who don\u2019t realize that the old ways of doing things no longer work and actually make things worse. Regular readers are familiar with the old \u201c100 minus your age\u201d rule. If you were 65, then 65% of your portfolio went in CDs and Treasuries, or so the story went. Try that today and watch your buying power vaporize by the hidden inflation tax!<\/p>\n<p>The second group is those who go all in to the market. Their rationale is that stocks have outperformed other investment classes over the long term. This group will fly high while the Fed keeps them propped up, but will be taking huge risks when everyone tries to get out at the same time. With retirement money, you shouldn\u2019t bet the farm hoping the market will recover quickly.<\/p>\n<p>And finally, the third group is anyone who doesn\u2019t see the writing on the wall and fails to take immediate, appropriate action. Unfortunately, this includes a lot of people.<\/p>\n<h3>So What Can Income Investors Do?<\/h3>\n<p>There are a number of solid investments out there that offer good return, with a minimal amount of risk exposure and that won\u2019t move because of an arbitrary statement by the Fed. It\u2019s not always easy to find them, but there is hope for people wondering what to do now that all of the old adages about retirement investing are no longer true.<\/p>\n<p>There are three important facets of a strong portfolio: income, opportunities and safety measures. <a href=\"http:\/\/www.millersmoney.com\/go\/vzpnz-2\/PIP\" target=\"_blank\"><em>Miller&#8217;s Money Forever<\/em><\/a> helps guide you through the better points of finance, and helps replace that income lost in our zero-interest-rate world \u2013 with minimal risk.<\/p>\n<p>Pre-crash, if an investor bought a CD at the prevailing rate, and then interest rates rose during that period, he would not lament his loss in net asset value. He would be satisfied with the interest, and when his CD matured, he would buy another one at the current rate. So why do we look at bond funds, see our net asset value go down, and worry? Because most bond funds are always busy selling, baking in those losses along the way.<\/p>\n<p>This is where the value of one of the <a href=\"http:\/\/www.millersmoney.com\/go\/vzpr2-2\/PIP\" target=\"_blank\">best analyst teams in the world<\/a> comes into focus. We focus on our subscribers\u2019 income-investing needs, and I challenge our analysts to find safe, decent-yielding, fixed-income products that will not trade in tandem with the steroid-induced stock market\u2014or alternatively, ones that will come back to life quickly if they do get knocked down with the market. They recently showed me seven different types of investments that met my criteria and still withstood our <a href=\"http:\/\/www.millersmoney.com\/go\/vzpc3-2\/PIP\" target=\"_blank\">Five-Point Balancing Test<\/a>.<\/p>\n<p>My peers are of having holes blown in their retirement plans. While nuclear-bomb-shelter safe may be impossible, we still want a bulletproof plan.<\/p>\n<p>This is what we\u2019ve done at<em> Money Forever<\/em>: built a bulletproof, income-generating portfolio that will stand up to almost anything the market can throw at it.<\/p>\n<p>It is time to evolve and learn about the vast market of income investments safe enough for even the most risk-wary retirees. Some investors may want to shoot for the moon, but we spent the bulk of our adult lives building our nest eggs; it\u2019s time to let them work for us and enjoy retirement stress-free. <a href=\"http:\/\/www.millersmoney.com\/go\/vzpf4-2\/PIP\" target=\"_blank\">Learn how to get in, now<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Guest Post By Dennis Miller Building your nest egg and managing it successfully takes more work than it did six years ago, but it isn\u2019t a Sisyphean task. You\u00a0can\u00a0build a portfolio that will last the rest of your life. Waiting for the political class to come to its senses is futile. In 2008,\u00a0Bloomberg\u00a0reported: \u201cThe S&amp;P &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/forex-news\/2014\/02\/20\/lay-land\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;The Lay of the Land&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-47644","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/47644","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=47644"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/47644\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=47644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=47644"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=47644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}