It’s Voluntary… For Now

January 29, 2014

  • Once a raunchy Raquel Welch movie, now a government retirement plan!
  • Another step down the path to “the Australian Solution”
  • A tightening vise on emerging markets? Amoss teases out the aftershocks from Turkey
  • Where are the naysayers now? Neil George on something you need in your portfolio at times like this
  • Waiting on the Fed… the last word on the Christmas tree tax… easing the sting of redistribution (a reader wishes)… and more!

  “Let’s do more,” said the president last night, “to help Americans save for retirement.”

We warned you yesterday “more” was coming; this morning, we have a clearer idea just what it is.

Every initiative from Washington must come with a clever name or acronym, and this one is no exception: MyRA. “It’s a new savings bond that encourages folks to build a nest egg,” the president explained. “MyRA guarantees a decent return with no risk of losing what you put in.”

He appeared uncertain about how to pronounce the thing. Is it “My-R-A”? Or is it “Myra”?

As he droned on, your editor’s mind wandered: Do I know anyone named Myra? No. Wasn’t there a movie called Myra Breckinridge? Yes; my Leonard Maltin movie guide calls it “as bad as any movie ever made,” and according to Wikipedia, the late Gore Vidal disowned what Hollywood had done to his novel. Guess I didn’t miss anything….

Despite the failure of Myra Breckinridge, Raquel Welch built a comfortable nest egg and a secure retirement…

The Treasury Department is launching the MyRA-not-Breckinridge program today, under executive decree. So what’s it all about… why should you care?

  The target audience for the MyRA is a worker whose employer doesn’t offer a 401(k) or similar plan.

“The accounts would function like a Roth IRA,” says The Wall Street Journal, “and have government backing like a savings bond. This would give the investments principal protection, meaning the account balance cannot go down.”

The Treasury will seek out employers for a pilot program that will launch before year-end. Initial investments can be as low as $25 and subsequent investments as low as $5. Imagine the publicity campaign: “You can start your savings plan with only a fraction of your mandatory Obamacare premium!”

No word yet about the yield; the Journal suggests it might be pegged to the Thrift Savings Plan Government Securities Investment Fund for federal employees. It yielded 1.5% in 2012 — less than even the phony official inflation rate of 1.7% that year. Heh…

 The MyRA appears to be another step on the path toward mandatory retirement savings.

As with so many other questionable endeavors of the current president, the previous president blazed the trail. In 2006, he signed a bill pushing companies to automatically enroll workers in 401(k)s when they’re hired. Before the law, seven in 10 eligible workers signed up for 401(k)s. By 2009, it was nine in 10. More money for Wall Street to manage — and more fees to collect.

In 2012, Sen. Tom Harkin (D-Iowa) proposed a bill requiring businesses that don’t offer 401(k)s to automatically enroll workers in a plan to be funded by both employers and employees, paid out as an annuity based on the investment returns at the time of retirement. (This too had a clever name — Universal, Secure and Adaptable Retirement Funds. USA!)

Harkin’s scheme didn’t pass, but last night, the president hectored Congress to get on the stick. Maybe with a MyRA bureaucracy in place, resistance in Congress might start to wither.

  The endgame is what our executive publisher Addison Wiggin calls “The Australian Solution.”

“In 1992,” he wrote last year in Apogee Advisory, “the Australian government decided funds should be deducted from their citizens’ paychecks… and deposited into investment accounts in the Australian Stock Exchange. Today, its assets total $1.52 trillion, more than Australia’s entire economic output in a year.”

Participation is mandatory. Publications from Time to BusinessWeek were busy pimping the Australian Solution last year; as we noted yesterday, its most vocal advocate on Wall Street is BlackRock CEO Larry Fink.

“If you think it’s bad not being able to opt out of Obamacare, wait until you can’t opt out of your mandatory savings account while it’s being invested in the stock market,” says our friend Dan Denning, founder of The Daily Reckoning’s Australian edition. What’s more, the program “provides an easy source for funding bond purchases,” the better to fatten the Aussie treasury.

The Australian Solution might not come to America until the next president. But we figure it can’t hurt to warn you now. Just keep it in the back of your mind the next time you read a story about “America’s retirement crisis.”

[Ed. note: If you have an appetite for risk and a desire to see your retirement savings grow, we direct your attention to an aggressive program that could leave you set for life. It’s not for everyone… but you won’t know if it’s for you unless you examine the plan for yourself at this link.]

  Stocks are sinking today ahead of whatever the Federal Reserve announces around the time this episode of The 5 hits your inbox. Yesterday’s weak gains have vaporized; at last check, the S&P 500 sits at 1,784.

“Now’s not the time to place any big bets or let losers ride,” says The Rude Awakening’s Greg Guenthner. “When a trade’s not working, cut it loose. If a mental stop gets hit, don’t try to wait it out. You can’t hope the markets higher.”

Gold has rallied steadily since trading opened overnight in London; at last check,, the bid was back to $1,265.

  “By the time you read this, the Federal Reserve may have just tightened the vise squeezing emerging markets,” says our Dan Amoss. “Markets expect a taper of $10 billion per month, and the Fed usually goes with the consensus.

“The tide of easy money is receding (for now), and it’s first exposing the fragile state of emerging-market banking systems.”

For the moment, Turkey is the poster child: “Zero interest rates and QE drove investors to seek higher returns in the Turkish capital markets,” says Dan. “Hot money flows turbocharged a Turkish credit bubble. But the tide has turned.

“Since the Fed’s December taper announcement, investors have sprinted out of Turkish markets, crashing the Turkish lira. A crashing lira compelled the Turkish central bank to hike interest rates dramatically last night.”

How dramatically? The benchmark rate leaped instantly from 7.75% to 12%.

Higher rates give fleeing investors an incentive to stay. “Think of rate hikes as the carrot to fix a currency crisis and capital controls as the stick,” Dan explains. “But the rate hikes, while palatable at first, involve a huge risk: raising the cost of credit in a Turkish economy slogging its way through a credit hangover.”

  “Good thing we have those dividends,” said the email from our income specialist Neil George.

As the major stock indexes touched record highs at the end of last year, “I started seeing more and more gurus telling folks that the growth was proof that dividends were for dorks. After all, with the dividends paid by most major stocks being so low, how could you invest for retirement without a bet on growth?

“In fact, a number of people said that the fact that high-income stocks were trailing the S&P 500 and the Dow was proof that growth was more important than getting paid in dividends.

“It’s a pitch I’ve heard before… and it really irks me. I’ve seen too many investors pulled into that kind of talk and make some tragic mistakes by giving up on income.”

The correction now in progress has silenced those gurus. Emerging-market jitters? Maybe, says Neil. “But I’d like to offer a different perspective.”

 “The United States is looking like a pretty good place to do business and to invest in,” Neil suggests. “It has a cheap dollar — meaning that if you’re a non-U.S. investor, you can put cash to work in the states at some bargain prices.

“Growth is up and accelerating over the past few quarters. And with ample pools of labor (at least for general labor, rather than higher tech) still available, wage costs should remain under control. And the United States is absolutely swimming in petrol.

“It seems more and more people around the world are starting to agree. Foreign portfolio investments in U.S. stocks and bonds are up near 100% for the last reported month, according to the U.S. Treasury. And the United States is now the No. 1 destination by size for cash for actual land, plant and equipment.”

Neil’s conclusion: “Rather than falling for the excuses of gurus who were overly cheering the S&P and Dow on the way up, why not take a step back and just enjoy buying and owning a nice collection of bigger-dividend stocks?” Neil has several suggestions to get you started, right here.

  It took more than two years… but the Christmas tree tax is now *this* close to becoming the law of the land.

As we noted at the time, the Obama administration tried to sneak it into the Federal Register in November 2011… but the hue and cry shortly before the holidays was deafening.

To refresh your memory: The National Christmas Tree Association wanted to collect a voluntary fee from its members for marketing and publicity — 15 cents a tree. When the members balked, the association turned to the iron fist of Washington instead.

When the feds were caught trying to impose the fee via regulations, they opted instead to slip it into the next version of that legislative monstrosity otherwise known as “the farm bill.”

It worked: With the 2013 holidays safely in the rear view, House Republican leaders are sending the bill, all 959 pages of it, to the House floor today — “less than 48 hours after it was released to the public,” says The Washington Times.

And how many members have actually had a chance to read it? Yeah, thought so.

“The National Christmas Tree Association said it was about time, adding that most of their members support it,” the paper adds. “The group said it doesn’t expect producers to pass the fee on to consumers.”

The corollary of that statement is that the group does expect producers to eat the cost.

Uh-huh…

  “Hello?” a dumbfounded reader wrote after yesterday’s foray into the mandatory retirement-savings briar patch. “What the heck is Social Security? Mandated savings, matched by employees, spent by the government and backed by paper IOUs, and with a terrible rate of return.

“Not much different than the scene from Dumb and Dumber, where our heroes live large in Aspen, replacing a briefcase of cash with paper slips. And now they want another one?”

The 5:

  “OK, so redistribution is inevitable,” a reader concedes after our latest “inequality” musings on Monday.

We’d hoped we’d laid the matter to rest then, but the president invoked it last night and we can’t get away from it.

The reader goes on: “Can’t we at least do it in the most fair way possible? Is income tax and masquerading taxes as health care really the most fair?

“This sounds too far to the left to be coming from me, but what about the government collecting a portion of everyone’s net worth? The ‘portion’ should be tied to GDP. Therefore, if the government does its job and raises GDP, then everyone in the country should benefit financially and taxes on people’s net worth can be higher. If the government fails, then tax rates and net worth go down, so the government can’t do as much next year.”

The 5: Huh?

We didn’t realize it was government’s “job” to raise GDP — a statistical abstraction, hopelessly manipulated, that has zero relevance to your standard of living.

By the way, the International Monetary Fund recently analyzed the mess in the eurozone and concluded that a 10% levy on household net worth would return the debt levels of European governments to pre-crisis levels.

Of course, that would be in addition to all the other taxes…

  “Would you please stop crying and complaining about Obamacare,” a reader implores.

“Are you so dumb as not to see it’s the law? The morons that call thierselves [sic] republicans have tried 40 times to repeal it, we all know how that fared. If you are so low and lack education as to carp and whine about something you have absolutely no control over, at least shut up about it. If your brain was as big as your mouth you would be the smartest man in the world. however such is not the case.”

The 5: Are you even paying attention? Yes, we know it’s the law. Nor do we put any stock in legislative solutions to do anything about it. That’s why we’ve gone to so much effort to seek out practical solutions, so that people who recognize it as a boondoggle can do something to protect themselves from its worst effects.

But thank you for playing…

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “I don’t think we’re going to get enough young people signing up to make this bill work as it was intended to financially,” says Rep. Jim Moran (D-Va.) about Obamacare. “I’m afraid that the millennials, if you will, are less likely to sign up. I think they feel more independent, I think they feel a little more invulnerable than prior generations.”

Funny how impending retirement frees up a congresscritter to speak candidly.

If you’ve been with us for a while, you know Obamacare was built to fail. If you haven’t, we urge you to get up to speed and begin acquainting yourself with the three words that can shield you from everything that’s coming.

rspertzel

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