February 07, 2013

February 07, 2013

This week, we begin with an issue that is high on the radar of many investors: When can I retire?

Retirement trends in the developed world are changing.  The following discussion is about retirement in the U.S. and although we do not have the same type of detailed data on other developed countries we believe that many of the same behavior patterns can be found in Japan, Europe, Canada, Australia, and other developed nations.

Retirement?  Not So Fast

New Study Shows American Workers Postponing Their Golden Years

A January study released by the Conference Board, a management think-tank, shows that more and more Americans are planning to keep working past their retirement age — and that this trend has been dramatically accelerating even though the recession has ended and the Dow and housing prices are posting five-and six-year highs.

A previous study in 2010 showed that in the 45 to 60 age cohort, 42 percent of those surveyed indicated that they were delaying their planned retirement, while in the new study, that proportion jumped to 62 percent.  Besides the impact on personal lives, this shift may portend larger economic consequences, both on the upside and on the down.  Older and more skilled workers will help in technical industries that tend to be afflicted by retirement brain drain; on the other hand, their presence in the workforce may block the careers of younger workers seeking to rise in the ranks.

The Labor Force is Aging, and Retirement Being Delayed

Source: U.S. Bureau of Labor Statistics, The Conference Board

What are the Causes of Delayed Retirement?  To read the full story upgrade your subscription to a Gold Subscription.  Please click the following link to learn more, Gold Subscription

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U.S. Retirement Savings — Will the U.S. Government Intervene in Your Investments?

This seems like a strange idea, but read the enclosed article from Bloomberg about the U.S. government’s interest in controlling the private pension savings of U.S. workers.  As you read it remember what happened in November 2008 in Argentina; we’ve included a recap of those events below.  Could the same happen in the U.S. – only if politicians get control of citizens private retirement accounts.

Click the image above to read the article

The Ugly Precedent from Argentina

In 2008, Argentina was indebted and had a hard time selling bonds, so the government mandated that $24 billion in private pensions would be taken over by the government.  It is widely believed that the formerly private retirement savings would be invested in Argentine government bonds.  Over the past five years since 2008, the Argentine currency has fallen by more than 36 percent versus the U.S. dollar…and the Argentine bond yields have risen causing a decline in the value of the bonds.

The effect has been to devastate the value of the private pensions and to remove the citizens’ chance to keep their capital intact by investing in gold, real estate, stocks or other vehicles.  Since 2008, currency controls have been established, making it hard for citizens to get their money out of Argentina.  This has happened during an inflation that outside economists estimate at greater than 25 percent per annum, while Argentina’s official inflation numbers are so low that the country has recently become the first country ever to be censured by the International Monetary Fund (IMF) for under-reporting their inflation rate.

Speaking of Understating Inflation…

In our opinion, the inflation rate is understated by the officials in many countries, not just Argentina.  In the U.S. inflation as measured by headline CPI is still near historically trough levels.  In the 35 years since 1977, the U.S. median 12-month rolling inflation rate in the U.S. has been about 3.3 percent.  The monthly data point has spent the vast majority of these past 35 years between 2.3 percent and 4.3 percent.  The current official 12-month trailing headline inflation rate is only about 1.7 percent.  Most people who buy things in the U.S. will tell you that prices are going up faster than 1.7 percent.  Regardless of what the real number is, it is lower than normal.

Investors and Consumers Should Not Get Too Comfortable with the Current Lower-than-Historical Inflation Rates

It is no secret that the Federal Reserve would prefer a higher rate of inflation.  Its various QE programs are designed to influence the CPI along with the economy.  The Fed’s current program of $85 billion per month of bond and asset purchases will eventually have an effect on prices… asset prices, commodity prices, and other prices.  All prices may move higher, but of course they will not move at the same pace.  For example, the prices of necessities can be expected to rise faster than that of many discretionary items.  We also expect these prices to begin to elevate sooner.  The Guild Basic Needs IndexTM (GBNI) tracks the prices of certain food, clothing, shelter, and energy components; therefore we expect it can give our readers an advance warning as to when headline inflation will turn higher.  Since 2000, you can see in the charts below that basic essential needs have been more volatile, but have also more than doubled the government’s official inflation rate.

There Are Ways to Protect Yourself from Coming Price Increases

So, assuming you are reading our letters and notice a prolonged upward move in the prices of basic essential needs in the GBNI, what are you to do?  First of all recognize that your investment portfolio needs to have assets that can appreciate to protect your purchasing power.  If you have not already done so, reduce investors’ cash savings and bond allocations; these will not be able to keep up.  In the case of bonds, not only will they not keep up, they  will hurt your real net worth…

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Guild Basic Needs IndexTM

Tracking the Prices of Basic Necessities

Guild Basic Needs Index (December 2012)
GBNI Dec 2012s.jpg
  Click to Enlarge

In this week’s Premium Global Market Commentary available to Gold Subscribers, we discuss:

  • Law Schools: Not Bringing Home the Bacon?

    With Dismal Prospects, Fewer and Fewer Students Will Pony Up…

    What’s Driving the Shift?...

    Law Schools Respond…

  • China: Pollution Shows the Need for “Less Sexy” Infrastructure Investment

    China’s spectacular growth during its generation of reforms has been accompanied by, and partly driven by, a massive and visible building out of infrastructure projects.  China has come in for criticism as a result, with a sentiment often expressed that this build-out has been excessive — but this only tells part of the story…

    Looking for the Drama…

  • Guild Investment Management Weekly Global Market Summary

    Find out what investments Guild InvestmentManagement favors in this environment.  Today we have a new recommendation for Gold Subscribers. 

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Guild Recommendation Tracker

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