Longboat Retirement Solutions LLC

Why Asset Allocation Doesn’t Matter In The Long Run June 27, 2015


Part Three: Self Directed Retirement Questions May 19, 2015

This is the third installment in the Self Directed Retirement Questions, Answered.

These are questions I’ve been asked, my answers to those questions, and some commentary.

Question:  What is the difference between a Self Directed IRA and a Solo 401k?

Answer:  A Self Directed IRA requires a Custodian.  Custodians are generally banks and investment houses.  These Custodians charge fees to baby sit your money and tell you where you can and cannot invest your savings.  An SDIRA is far better than a standard IRA, but it can still have high management fees, hoops to jump through, and limitations in what you can invest in.

A Solo 401k, which is designed for the self employed, enables you to invest in anything that the IRS allows.  You become the Custodian; therefore you don’t have any filters on your investments (within the framework of the IRS’s allowed investments).  You basically don’t have to ask permission to use your own savings as you see fit.  Since it is a 401k, you can also borrow up to 50% of the value, up to $50,000.  And again, you don’t have to ask permission or fill out piles of paperwork to take out a loan.  You draw up the terms, put the terms in your safe, write a check from your 401k to you, and then just make the monthly payments to your 401k.  Because you are making payments to your 401k, the interest is essentially free – you are paying yourself!  A Solo 401k also enables you to contribute as the employee and the employer; in other words you can contribute over $50,000 a year to your retirement account – or over $100,000 if your spouse is a partner in the business.  This is a BIG deal.

My thoughts on the two different approaches boils down to this:

If you can, go with the Solo 401k.


Sitting on The Fence May 9, 2015

Do you consider yourself a market timer?

Are you a market maker?

Do you know when the next market crash will happen?

Can you call the peak?

Do you have insider information regarding when Goldman Sachs will pull the carpet from under the U.S. stock market?

Is Janet Yellen your cousin?  Does she give you tips?

If your answer is no to all of these questions, then why aren’t you taking this opportunity to divorce yourself from this bubble while it’s still inflated?

It is amazing to me that more people are not taking this amazing opportunity to take profits, and instead are electing to roll the dice on market timing or give the keys to their future to some guy who has no stake in their success.

I know that I should not be surprised, as history seems to repeat itself every 7 to 10 years these days.  People have exceedingly short memories and attention spans that can only be measured in milliseconds.

I really don’t want to be that guy who said “I told you so”…or “I tried to tell you”.  I get no joy in hearing sob stories about how people waited too long and got wiped out by the debt tsunami.

The current market value has no basis in reality.  When it goes pop, it is going to destroy the retirement of millions of Americans who blindly followed the pundits on CNBC.

Please, Americans, spend more time thinking about your future and less time getting re-educated by mass media.

Lars Forsberg
Longboat Retirement Solutions LLC

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Election or Not, QE3 Is Coming in September: Economist August 16, 2012

Filed under: Economics,Uncategorized — larsfforsberg @ 12:06 am
Tags: , ,

BY:  Jeff Macke

This month’s edition of the Most Important Number Ever is out, and the headlines look good. The Bureau of Labor Statistics’ Employment Situation Report, commonly referred to as Non-Farm Payrolls, showed that a total of 163,000 jobs were added to the economy in July. While the headline looks great, there are some issues under the surface as the unemployment rate ticked up to 8.3% and total jobs added for June was revised from 80,000 down to 64,000.

The stock market seems to love the report, but Dan North, chief economist at Euler Hermes cautions against breaking out the party hats just yet. “We need 200,000 or 250,000 jobs a month to start bringing the unemployment rate down,” North says. “These numbers peaked last January, and it’s been a trend downward ever since.”

It’s the worst-kept secret in the financial world that bad news is good for the stock market this year. The darker the picture, the more likely it is that the Federal Reserve will come to the rescue — or at least prop up asset prices — with another round of quantitative easing. If the data aren’t good enough to mark an improvement, stock market participants would just as soon see numbers bad enough to justify Fed intervention.

North says Bernanke already started signalling QE3 with Wednesday’s FOMC statement on rates and will hint even more brazenly at the central bank’s annual gathering in Jackson Hole at the end of the month. Assuming the numbers remain grim, North thinks Bernanke is going to finally launch the endlessly discussed easing program at Fed’s regular meeting on September 13.

“Why would I wait?” says North, putting himself in Bernanke’s shoes. The economy is getting worse. Any actions will take the better part of a year to have an impact, and any hopes for a fiscal policy are going to have to wait until sometime in 2013. The answer to North’s rhetorical question is, obviously, Bernanke would wait because there’s a Presidential election less than two months after the September meeting. Any action by the Fed so close to November would likely hand the election to the President.

Dismissing out of hand the notion that the Fed is apolitical, North notes that Bernanke’s term ends in January, at which point he’ll either be re-appointed or out of work. “Certainly Bernanke will want to have made a positive move if he believes Obama’s going to be President again.”

Economically speaking, North is right in that QE3 is unlikely to succeed where QE’s 1 and 2 failed. In terms of stocks, history would suggest just the opposite.


The Silver Linings In China’s Slowdown August 9, 2012

BY: Patrick Chovanec

Earlier this week, I was interviewed by the Council on Foreign Relations(CFR) for its website, about the current state of the Chinese economy.

Silver Linings in China’s Slowdown

China’s gross domestic product for the second quarter declined to 7.6%in July, its lowest level since the height of the global financial crisis in 2009. At the same time, the International Monetary Fund reduced its 2012 growth forecast for China by 0.2 percentage points to 8%. While China has been adversely affected by external factors like the eurozone crisis, its current slowdown is mainly the result of internal structural issues, including a suppression of domestic consumption, says Tsinghua University’s Patrick Chovanec.

“The main growth driver of the past several years has been an investment boom that was engineered in response to the global financial crisis,” explains Chovanec, “and this investment boom is buckling under its own weight.”

What are the main causes-internal and external-of China’s worsening economic slowdown?

A lot of people compare this slowdown to what happened in late 2008, early 2009. The main difference is that what happened in 2008 was primarily due to external causes- a fall-off in exports caused by the economic crisis in the United States. What’s happening now in China is mainly due to internal reasons. The main growth driver of the past several years has been an investment boom that was engineered in response to the global financial crisis, the last slowdown, and this investment boom is buckling under its own weight. It’s not sustainable, and it has given rise to inflation and now to bad debt, and that bad debt is dragging down Chinese growth. And, of course, people pay attention to whether Chinese exports are rising or falling. It’s relevant because if Chinese exports are very vibrant, that creates something of a cushion for the Chinese economy.

If the causes of the slowdown are more internal, and not just a response to outside factors like the eurozone crisis, should we expect a more long-term slowdown?

It really depends on what the Chinese leadership chooses to do. China is due for a correction. That correction will be good for China in the sense that a lot of the growth we’ve been seeing over the past several years is not sustainable and in many ways does more harm than good. So in some ways, slower growth, if it’s part of an adjustment toward a more sustainable growth path, is actually good. That doesn’t mean it’s painless, so there is a lot of resistance, even though in principle China’s leaders know that China needs to make this economic adjustment away from dependence on exports and investment-driven growth toward more domestic consumption-driven growth. If they resist a meaningful adjustment and if they try to pump up the economy even more- try to push this growth model to its limits and beyond- then the repercussions could be more damaging and painful than embracing any economic adjustment, painful as that might be.

I would add that there are lots of areas of potential growth in the Chinese economy- in agriculture, in services, in healthcare, in retail, in logistics. The problem is that that growth is not as easily achieved as pumping money and boosting investment. Unfortunately, that more sustainable growth is not where the focus has been these past few years. But there is nothing to say that the Chinese economy has to be doomed to slow growth.

What are some policy responses China should take to boost domestic consumption and diversify sources of growth?

They have to realize that it is a structural issue. Part of China’s export-led growth model was to suppress consumption in order to maximize investment and then make up the difference through selling abroad. The Chinese economy is geared toward channeling resources away from the household sector- Chinese savers and consumers- toward investors and producers to boost production and basically turbo-charge GDP growth. To re-balance the Chinese economy, you have to channel those resources back to the household sector through changing exchange rate policy, interest rate policy, the tax policy.

The problem is that if you channel resources back to the household sector, you knock the legs out from under the growth that you’ve got, and nobody wants to do that. That’s the biggest challenge- that these are deep reforms that change the way the Chinese economy works, and it takes some foresight and some vision to pursue that.

What of the short-term measures the Chinese central bank has taken by cutting interest rates twice since the beginning of June? Should we expect further measures along this line?

Unfortunately, the short-term response we have seen is to fixate on GDP growth. Even though they talk about the need for quality GDP growth over quantity, whenever GDP starts to look like it’s falling- even slightly- the immediate response is, “We have to shore it up.” The easiest way to shore it up is through more lending, more investment. You get a situation where any movement toward meaningful reform or meaningful re-balancing is put on a shelf. A lot of people have been critical of the efforts to re-stimulate the Chinese economy for precisely that reason. There is a broader recognition that what the Chinese economy needs is not more stimulus, but reform. I don’t think there is a full appreciation for just how constrained the Chinese government really is, even if it chooses to go down that path of re-stimulating the economy. They are actually quite limited in their ability, in the tools they have available to continue pushing down this path.

The conventional view is that China has a debt-to-GDP ratio of about 30% and that it has all kinds of resources to throw at boosting growth. I would draw a comparison to Japan in 1990. Japan had many of the same qualities that would lead you to think it could stimulate its way out of any dilemma. Japan had a high savings rate, almost no foreign debt, and it had a strong fiscal position because of all the taxes raised during the boom of the 1980s. But when the Japanese turned on the fiscal tap, the money went primarily to socialized losses and to counteract a contraction in private investment. The Japanese were able to prevent GDP from collapsing, but they were not able to sustain high levels of GDP growth in the 1990s; the fiscal resources that Japan had went to fill a hole, to pay for the growth of the 1980s.

With the lending boom that took place in China in the last three or four years, it was fiscal spending in disguise, and now the bill is coming due. Once the fiscal taps are open, the money released will go to pay for the growth of the past four years, not the next quarter, not the next year, not the next decade. You start to see that already, with the bailouts starting to take place in China; local governments, even the national government, devoting resources to bailing out property developers, bailing out state-owned enterprises, bailing out companies that have run into trouble, bailing out local governments.

What are the implications of the economic slowdown for the Chinese political situation, particularly given a once-a-decade leadership transition this year?

There’s been little political capital for anyone to spend on meaningful reform or any kind of resolute action on the economy, because if people did have political capital to spend, it was going to be devoted to ensuring their seat at the [leadership] table. What happens after the leadership transition [is] hard to say. The slowdown we are seeing, and particularly the pressures that it has created in the financial system and the credit system in China- the danger of default and the danger of a domino effect rippling through the Chinese economy- has pressed some difficult choices on [the] leadership at a point where they are least prepared to make decisions. The economic situation is not waiting for the leadership transition to work itself out before demanding some kind of response.

What are the potential repercussions of China’s economic situation on the U.S. and global economies?

It depends where you sit relative to the Chinese economy. There are countries and companies that have been riding this investment boom that has been driving Chinese growth, but I would argue that is not sustainable and is now collapsing under its own weight. And for those countries- like Australia selling iron ore, Chile selling copper, Brazil selling iron ore, Germany selling machinery- they’re very exposed to this economic adjustment that’s taking place, this correction.

But if your goal over the long-term is to sell to the Chinese consumer, and if you have an economy positioned to do that- if you’re a producer of finished goods or a producer of food- then this economic adjustment could be a good thing if it unlocks the buying power of the Chinese consumer. For any economy around the world that wants to sell more to China, that wants to have a more balanced trade relationship with China, a meaningful economic adjustment that resulted in a more balanced domestic economy in China would be a very positive thing.

If you have lower GDP in China, that doesn’t necessarily mean that China’s consumption has to fall. In fact, China has $3 trillion in reserve; that’s buying power. China has produced more than it has consumed for many years; China could afford to consume more than it produced. That would be a major growth driver for the rest of the world. It would provide a cushion for China to undertake this kind of economic adjustment that otherwise could be extremely painful.


Jim Rogers – Markets Rely on Fundamentals Not Short Term News June 9, 2012