Independent Ideas on the Economy, Financial Markets, and Investing

How to Build Wealth and Stick it to the Government

Posted on April 13, 2012 by MN Gordon

Doing the Roth Arithmetic
By Terry Coxon, Casey Research

It’s clear to me, even though it may not be clear to you, that unless there is something very unusual about your situation, if you have a traditional IRA, you should pay the tax now and convert it to a Roth IRA. Not just maybe, but definitely. Not just for a small advantage but for a big one. If you don’t convert today, you’ll ultimately surrender much more to the tax collector. You’ll be throwing money away. And you’ll keep throwing it away. It’s a result neither of us wants.

Your IRA is an object in motion, with money going in and out of it and investments turning over inside of it. It lives not just on your brokerage statement but across the years of your calendar as well. That’s why the Roth conversion question can seem so tangled. Because of the time dimension, deciding whether to convert isn’t as simple as deciding whether to replace one stock with another. But there is, as I’ll try to show, a way to look at the question that cuts through the complexity. Continue reading →

Posted in Stock Market, Terry Coxon | Tagged ira, private property, retirement, roth ira, taxes | Leave a comment

Spain to ECB: Inflate or Die

Posted on April 10, 2012 by MN Gordon

The Bane of Europe

“Thou hast seen nothing yet.” – Miguel de Cervantes, Don Quixote

In the late 15th century, the gods look down from the heavens above and smiled upon Spain. With the capture of the Emirate of Granada in 1492, Spain completed the Reconquista of the Iberian Peninsula…ending the last remnant of a 781-year presence of Islamic rule. That same year, in a voyage funded by Queen Isabella, Christopher Columbus discovered the new world.

Soon after, Spain emerged as the first world power.

For the next 200-years Spanish treasure fleets transported vast riches of gold, silver, spices, tobacco, and agricultural goods, from the Spanish Empire in the Americas to the homeland. Spanish rulers just knew their good fortune was limitless and without end. But alas, the bounty was not without consequences.

Overtime the flow of wealth to Spain became an expected entitlement. The influx of riches proved not to be a blessing, but a curse. Like spoiled heirs of a family fortune, or an unprepared lottery winner, Spain squandered its wealth through a succession of misadventures. Continue reading →

Posted in Inflation, MN Gordon | Tagged currency, debt, euro, european central bank, interest rate, ltro, monetizing debt, spain | Leave a comment

Monetary Policy, Explained

Posted on April 6, 2012 by MN Gordon

Minutes from the March 13 Federal Open Market Committee meeting were released Tuesday afternoon. Upon perusing the record of proceedings, Wall Street was shocked to discover there was no discussion of monetary easing options. Traders promptly sold. Then, on Wednesday, they sold again.

“The major support for the economy and for the financial markets over the past two years has been stimulus, and without it, it’s still a question whether these economies can make it on their own,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. Based on the market’s sell off, clearly, investors don’t believe the economy can stand on its own two feet.

Nonetheless, with $4 dollar per gallon gas already here, well in advance of the summer driving season, additional monetary inflation is not politically expedient at the moment. In several months’ time that will likely change. But first the twisted mix of money and politics will have to get from here to there.

What’s become vastly apparent since the 2008 credit crisis and economic contraction is how enormously dependent both the economy and financial markets are on Fed money creation. Following each monetary experiment, like QE and QE2, when the Fed concludes its bond buying operation the stock market nosedives and economic growth reverses. Continue reading →

Posted in Inflation, MN Gordon | Tagged collapse, federal reserve, gas prices, government meddling, QE2, S&P500 | Leave a comment

The Time Is Nigh to Walk Away from the Table

Posted on April 3, 2012 by MN Gordon

Hardly a Soul Noticed

“Great things are not accomplished by those who yield to trends and fads and popular opinion,” once remarked Jack Kerouac. Perhaps Kerouac had the stock market in mind when he made this observation…we don’t know. But if he did, he would’ve likely perceived a stern warning from recent volatility index readings and investor complacency.

The volatility index measures investor expectations of stock market volatility over the next 30 days. Generally, a volatility index reading below 15 has been a good time to sell. For example, in April 2011 the volatility index dropped below 15…presaging a swift 20 percent decline in the S&P 500.

The first quarter of 2012 concluded last week. If you can believe it, the stock market, as represented by the S&P 500, is off to its best start in 14 years. Year-to-date it’s up 12 percent.

But while everyone was yielding to the popular opinion that a new bull market is underway, the volatility index did something it rarely does. Not only did it drop below 15, on March 16th it dropped all the way to 13.66 – the lowest reading in nearly 5 years. Continue reading →