Time to Bail From 401(k)s

Looking at the stock market and economy, I don't see any reason anyone with a 401(k) plan should stay invested with it for the foreseeable future. Most of the choices in these plans are either mutual funds, money market accounts and/or annuities. Neither of which are very appealing, when Ben Bernanke has unleashed monetary hell with Quantitative Easing, Part II.

Here are the reasons why I'm not a fan of any of these investments:

1) Mutual funds only go up in value, when the stocks they're invested in go up in value. The fundamentals underlying the American economy and stock market are pretty lousy: High unemployment, plus large amounts of debt at all levels of business and government. Having said that, stocks could go up if QE2 takes hold - however, I doubt that the increase in stock values will outpace inflation. My guess is that at best stocks will keep up with the higher (and soon to be hyper) inflation rate.

2) Money Market funds don't pay a lot of interest, and aren't safe - especially when the Fed is debasing the currency. After taxes and inflation, savers will be net losers in money market funds, bank savings and CD accounts.

3) Annuities are future promises to pay a sum of money over a period of time. We know that Wall Street firms and the government can keep promises... and also break them. If you're retiring in 10 years or more, and believe that you'll see every penny of Social Security you have coming to you - I've got oceanfront property in Wyoming for sale. In theory, annuities are supposed to be invested in certain assets that will make a given rate of return over time. However, I don't have much faith that the financial assets annuity companies invest in will provide a great rate of return.

4) The longer-term trend of Baby Boomers retiring, will have more sellers than buyers of stocks, mutual funds and other financial investments. Boomers investing in Wall Street from 1982 until 2000 helped fuel the secular bull market in stocks. Conversely, retiring (and stock-selling) Boomers will contribute to the secular bear market through at least the late 2010s.

My advice to anyone who has a stock-based IRA or 401(k) plan? Take the tax hit and SELL - immediately. The more money and assets that you have in your possession, instead of a bank or Wall Street firm, the better.

If you have money with any garden-variety financial planner or stock broker who says "stocks will always work out in the long term," you should fire them on the spot. Anyone who knows what's really going on with the markets and the economy understands we're in uncharted financial waters. This isn't your father's - or even your older brother's - economy or stock market.

Karl Denninger says it best: "Lots of money to be made (in the stock market) if you're quick and good, but an absolute minefield if you're a long-term investor."

Invest some of your money in physical gold and silver as dollar and inflation hedges; and if you don't have the trading "chops" to get short-term profits from the stock market, find a stock, options and/or FOREX trader who can do it for you. Single-digit returns in a savings, CD or money market account won't keep you ahead of the not-so-hidden tax of inflation.

That's why you must find ways to get consistent double (or even triple)-digit returns on your investments, to stay ahead of increasing taxes and inflation.

Where QE2 Could Lead the Economy

Unlike most mainstream financial analysts and pundits, I don't believe that the Federal Reserve's latest actions to revive and stimulate the economy will have positive results. When you think about what the Fed is doing (printing money out of thin air, to purchase Treasury debt because foreign demand is drying up), the longer-term consequences don't appear to be good.

By increasing the money supply, the value and purchasing power of the U.S. Dollar will eventually decline. Prices of food and energy are bound to increase - and conversely, I see real estate, automobile and other big ticket items going down. Why?

If Americans spend more of their income on the necessities of life, there won't be as much disposable income to pay for (or invest in) boats, cars or real estate. Commercial real estate is faced with the double-whammy of recovering from an over-inflated real estate bubble... and entering an era where more businesses can be operated from a home office or basement.

Consider this: If you can setup a website that will take payments, fulfill a product or service - and it's not location or employee-dependent - why should a savvy business owner invest in leasing or buying a brick-and-mortar facility? Not to mention paying utilities, insurance and overhead.

QE2 will have the same effect as a bartender giving a drunk 3 more shots of Vodka and Red Bull at last call - when instead, our inebriated friend should stop drinking so the detoxification process (also known as the hangover) can start as quickly as possible.

Unfortunately, most Americans are like the late-night drunk, not wanting to admit that the credit party should be over and they should get off the sauce ASAP. The 2008 stock market and real estate crashes were the start of the hangover. The Fed should take away the punch bowl, let the economy go into "detox" mode, and a quicker financial recovery will ensue.

However, it doesn't look like Benny and the Feds will do the right thing - and instead, these financial bartenders are trying to keep the party going as long as possible. This could provide some short-term benefit, but it'll delay a longer-term economic recovery. While there are still opportunities to make money and prosper in any economy, I see the overall American economy as sluggish for the short to medium-term, maybe even a decade or longer.

It all depends on how quickly the massive amount of debt Americans have at the federal, state, corporate and household level is repaid or defaulted on (probably more of the latter than the former). QE2 does nothing more than increases debt and money supply, which is what ultimately caused our current recession/depression in the first place.

Diary of a Monetary Madman

That's what I would call "Helicopter Ben" Bernanke's latest ramblings from this week's Federal Reserve meeting. The 2nd round of Quantitative Easing (or money-printing on steroids) is supposed to kick start the economy back to health.

The only problem is that excessive money creation and debt is what caused our current recession/depression. Both Republicans and Democrats around the country seem to be debt junkies who don't want to go "cold turkey," and start the process of the long financial hangover - which will be the start of a true economic recovery.

Many Americans still believe that the Fed and the federal government have the power to bring the economy back to health. In reality, the best thing they can do is quit trying to "help," and get the heck out of the way so the real recovery can begin.