To say we’ve had a few difficult years is putting it lightly. Lehman shock, sub prime mortgages, toxic derivatives, bad banks, sovereign debt crises, near zero interest rates, rising energy prices, Arab spring, Occupy Wall Street are just some of the most prominent news pieces we’ve had to digest in recent years. And for us in Japan the apocalyptic and heart-breaking disaster that occurred a year ago, the persistently strong Yen, a debt to GDP ratio of almost 250% and no economic recovery boost in sight has led to even greater anxiety about the future. 

In view of world events spinning faster and faster and because life is getting ever more complicated, we have to make sure we are brave and focus much more diligently on our personal finances in general and retirement planning in particular. 

I believe all surveys ever published on retirement planning have come to the conclusion that the majority of people just don’t save enough and don’t start early enough with the focus on saving rather than spending. It is of course difficult not to spend and people go through tough times like sudden unemployment, divorce, illness, etc. Then there is the cost of children’s education, the need for a new house, a new car, and so on. 

Putting off retirement planning until later, whenever that may be, having best laid plans derailed by sudden tough times, living beyond one’s means, not having a healthy savings habit, etc. are major reasons for experiencing a shortfall in your savings in later years. Another reason that cannot be denied is the fact that annualised growth rates have come down over the last 15 years and the usually projected rates of 7~9% have been more around 3~5%. Some investments haven’t delivered their expected returns and interest bearing products pay next to nothing. People have been put off by extreme market events and volatility and have also learned that real estate investments are prone to cycles and crashes; a stand-alone property investment is not a suitable retirement strategy. 

So what to do? Go back to the basics and be undeterred: Consider your time horizon until you will likely have to draw from your savings, save as much as you can on a regular basis, pay attention to and discuss diversification and allocation between conservative and aggressive assets to ensure you have enough overall growth. People in their 50’s, for example, can’t take the downside of the stock market but need the upside of equity or equity-like returns. That is where careful asset allocation comes into play, and a strategy of regular investing combined with ad hoc lump sum investments usually works well if allocations are changed as time and market cycles progress. 

Having a realistic outlook on retirement life is also helpful: Maintenance of standard of living vs. something you always wanted to do but haven’t had time for during your working years – the latter should be budgeted for separately. Consider changes in housing needs, i.e. downsizing to cut cost. A new study has shown that single retirees are having a tougher time in retirement compared to married couples; e.g. single baby boomer men compared to their married counterparts have a 19~34% higher savings deficit for retirement.  

To sum up: Be undeterred, build up your savings as consistently as possible (aim for a higher retirement income, let’s say 75~80% of your pre-retirement income to keep the shortfall to a minimum and to factor in inflation), keep an eye on diversification to maximize growth and review your progress regularly (at least once a year!), and be realistic in regards to your retirement years.

Last but not least, don’t hesitate to contact me to have a chat about your personal strategy and how I could possibly help. Feel free to email me your comments and feedback. Now is not the time to do nothing but high time to review what you have been doing so far.

by Stefanie Richert, Senior Adviser

Japan has been shifting investment and production to locations overseas and this has contributed to the first annual trade deficit in more than 30 years—just when Japan can least afford it: national debt will surpass one quadrillion yen by March 2013, the end of the next fiscal year, the Ministry of Finance announced in January. About $14 trillion. A breathtaking 240% of GDP. By comparison, Greece’s debt is a paltry 160% of GDP.

The forecast is based on the budget that the cabinet approved on Christmas Eve when it hoped that no one would pay attention, apparently. After excluding two acknowledged accounting shenanigans, the deficit jumps to a horrid ¥54.4 trillion. The government will have to borrow 56.2% of every yen it spends in 2012, a record even for Japan.

Did you know; On December 24, 2011 the cabinet approved a draft budget for fiscal 2012 whose headline numbers were horrid enough: ¥90.3 trillion ($1.173 trillion) in outlays, ¥42.3 trillion in tax revenues, and a deficit of ¥48 trillion. 49% of the outlays are to be covered by issuing bonds, a record even for Japan. But it gets worse. Accounting shenanigans gloss over the fiasco by removing two items from the general budget: the reconstruction budget of ¥3.8 trillion and pension payments of ¥2.6 trillion. When they’re included, the deficit jumps to ¥54.4 trillion.

The Japanese government will have to borrow 56.2% of every yen it spends in 2012. But it gets even worse! Japan regularly passes “supplementary budgets” during the year—four of them in 2011, the last one on December 1 for ¥2 trillion. So there may be a few in 2012 as well, which could push borrowing requirements toward a dizzying 60% of outlays.

Despite the near-zero interest rate policy the Bank of Japan has been pursuing for years, interest expense on the debt—at 230% of GDP by far the highest in the developed world—will eat up ¥21.9 trillion in 2012, a stunning 51.8% of tax revenues! If yields on 10-year JGBs were to rise from 1% to 2%…. Better not think that way. Keeping yields near zero is simply a matter of survival.

Funding these deficits and rolling over the gargantuan debt has been made possible by the institutional setup and cohesive psychology of Japan Inc.: 95% of JGBs are held within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%. Among them: the Government Pension Investment Fund, the government-owned Post Bank, financial institutions the government can lean on, and the BoJ. Foreigners hold 5% for decorative purposes.

But two of the strengths of the Japanese economy that have supported the absurd deficit levels—a high savings rate and a large trade surplus—have collapsed. The savings rate is in the low single digits, and the trade surplus has turned into a ¥2.2 trillion ($29 billion) trade deficit in 2011 through November.

2011 Trade Balance in billion ¥

In November, imports grew 11.4% over a year ago, in part due to liquefied natural gas imports—up 21%. Since the Fukushima disaster, utilities have shut down reactor after reactor for scheduled maintenance but have not restarted them. Of the 54 reactors, only six are operating (one was shut down December 26, three more will be shut down in January). To make up for the shortage, utilities have revved up natural gas plants—though reductions in power consumption have also been implemented.

Exports dropped 4.5% from a year ago. Exports to China, Japan’s largest export market, declined 7.7% while imports grew 6.6%. Japan used to have a trade surplus with China. No more. The pace of offshoring is picking up, particularly in the auto and tech industries. While a weaker yen could slow down that trend, it would also drive up the cost of imports, including fossil fuels and raw materials—posing additional strains on the struggling economy.

If you have not guessed, this will affect the YEN . . time to move to different currencies and GOLD to protect yourself.

The start of 2011 was a phenomenal start for junior mining PM stocks but the
latter half of the year was very negative. Still, one could have done very well
in 2011 with junior mining stocks by taking profits off the table when they
existed and letting one’s remaining capital ride risk-free in the junior mining
sector. In addition to using discipline to protect profits when they exist in
the junior mining sector, the greatest friend of a gold/silver investor is
patience. Sometimes one knows that great moves higher are coming, but one’s
timing may be off by a mere six to nine months. Patience will allow one to still
reap the bulk of the rewards from these great moves higher as long as one isn’t
shaken out of the markets by the banking cartel induced price volatility in
gold/silver assets. To this end, I leave you with 10-year charts of gold and
silver. Sometimes, it really is necessary to step back and take a deep breath to
see the forest from the trees.

Anyone needing a quick summary of the main tension lines in Europe as they currently stand can probably not do any better than the attached explanation by Kyle Bass.

The video below explains more than a full day of watching the financial funny channel from basic cable. In a nutshell: Europe is about to see trillions in debt written down (the only mathematical explanation which makes sense), the “profligate idiot” spenders of Southern Europe are not going to be bailed out by Germany, which has decided it has had enough of the “Mexican standoff” within the Eurozone, and will not be held by the short hairs any longer. And as for the quote that captures the total and utter chaos in Europe: “they have a German pope and an Italian central banker.”

Get in touch and we will assist you place your assets correctly. 03 5724-5100

According to data from the IMF, central banks continue to be significant net buyers of
gold. Mexico has added most to its reserves, with a net 83.7T of gold between
January and September 2011, followed by Russia, which has added 59.3T this
year, and Thailand, which has added 52.9T (see chart).

Central Bank Purchases of Gold So Far in 2011

Many market participants and non gold and silver experts tend to focus on the daily
fluctuations and “noise” of the market and not see the “big picture” major
change in the fundamental supply and demand situation in the bullion markets –
particularly due to investment and central bank demand from China, India and
the rest of an increasingly wealthy Asia.

The central banks of India and China are rightly believed to be again quietly
accumulating gold and the IMF figures do not include this potentially very important
and significant source of demand.

China’s gold reserves are very small when compared to those of the U.S. and indebted
European nations. They are miniscule when compared with China’s massive foreign
exchange reserves of over $3 trillion.

The People’s Bank of China is almost certainly continuing to quietly accumulate
gold bullion reserves. As was the case previously, they will not announce their
gold bullion purchases to the market in order to ensure they accumulate
sizeable reserves at more competitive prices. They also do not wish to create a
run on the dollar – thereby devaluing their sizeable reserves.

The deepening Eurozone debt crisis and real possibility means that central bank
demand will remain robust and may even increase in the coming months.

Central bank demand has put a floor under the gold market and will likely help propel
prices above the nominal record high in the coming weeks.

Comparing the gold market of today to the gold market of 1980 is ridiculous. Talk of the
gold bubble bursting remains extremely ill informed.

Individuals who have left the UK permanently, temporarily moved there or even frequently visited it, have for some time been uncertain as to whether or not they were caught by the UK’s tax system. The current rules are quite frankly a nightmare for all but the most experienced tax advisers, and even they have not been adverse to getting it wrong from time to time.

Following years of criticism, Her Majesty’s Revenue and Customs has recently consulted on a new framework which aims to make it easier for individuals to determine their exposure. The new proposals distinguish between individuals who have not been resident in the UK for all of the previous three tax years (“Arrivers”) and individuals who have been resident in the UK in one or more of the previous three tax years (“Leavers”). 

The proposal introduces a three part test.

Part A of the consultation contains rules which, if met, confirm that an individual is non-resident and as a result provides certainty of their non-UK resident status. As such, the individual need not consider parts B or C of the test.

Arrivers who spend less than 45 days in the UK or Leavers who spend less than 10 days in the UK would automatically be non-UK resident.

As mentioned above, Part B only applies if Part A does not, and contains categories where individuals would definitely be considered UK resident. If both Parts A and B could apply, then Part A has precedence. In broad terms, individuals who spend in excess of 183 days in the UK; individuals whose only home(s) are in the UK; and individuals who carry out full time work (35 hours or more a week) in the UK would automatically be UK resident.

If neither Part A nor Part B applies conclusively, then Part C is used to determine residence.

Part C looks at ‘connecting factors’ linked to day counts. Overall, the more connecting factors a person has to the UK, the less time they will be able to spend there without becoming tax resident. The connecting factors are:

° Family (defined as spouse, civil partner, common law partner and minor children) who are resident in the UK

° Available accommodation in the UK

° Working in the UK for 40 or more days in the tax year (working 3 or more hours a day constitutes one working day for these purposes)

° Spending 90 days or more in the UK in either of the last two tax years

° (for Leavers only) spending more time in the UK than in any other single country.

Far be it from me to suggest that the intention here is to make it far easier to acquire UK residence for tax purposes than it is to lose it. However, this does appear to be the case.

This reflects current UK case law which supports the idea that residence should have an ‘adhesive’ quality and, at a time where governments around the world need every penny that they can get, you really can’t see it getting less ‘stickier’ any time soon.

The United States has until Aug. 2 to raise the $14.3 trillion debt ceiling, according to Treasury Secretary Tim Geithner. Failing to act would invite “catastrophic” consequences, Geithner has said. Military service members would not be paid, retirement investments would drop in value, and people would face higher payments on mortgages and car loans, he said.

To be fair what would be the upside? Perhaps the Military goes home? If you have savings you actually earn a return by being in Cash! I’m sure the ending of some of the entitlement programs would likely be a good thing, others perhaps not. The point of spending too much is that at some point you have to make tough decisions and pay the debt down. The USA is at that point.

The USA is adding 3 billion dollars a day to its debt which is now larger than the entire economies of China, the United Kingdom and Australia combined.  The bottom line is that the USA has to stop borrowing money to pay for borrowed money. 

However, the truth is nobody really knows what would happen if the debt ceiling is not raised because the USA has never not raised the debt limit – seems the path they have took does not work so perhaps it is time to cut the credit card. . . There are consequences for everything and this seems to be the responsible thing to do so bring it on; seal the debt ceiling. But, it won’t happen: the debt ceiling will be raised and the debt will be kicked down the road.

It’s always amusing to remember that credit is derived from the Latin “credere,” to believe or Trust.

So what does this tell us?  That there is a monster rally in metals coming, so now is the time to start building your positions as DEBT drives gold and silver. The bigger the debts the higher the price the metals will eventually achieve. . .

Gold has been in a bull market for 10 years, and is basically a no-brainer. Buy gold bullion, buy good gold stocks, buy gold!

Our current view on silver is that it will spend a while settling at this current level, and could even fall to under $30 first. So be patient and slowly start building a position. Look at the 200 day moving average for a buy point.

A recent quote from Eric Sprott  16 May 2011;  “I have no fear of silver here. Yes it will be parabolic, but it’s going to be way more parabolic than what we have today… I believe that gold today is the de facto reserve currency. It’s outperformed everything for 11 years. Silver has always been a currency, people are now treating it as a currency, and it’s a very, very small market. There is no way that with roughly $50 billion of silver inventory around that we can make it a currency, so I see the price going much higher.” And on the ridiculous recent trading volume in silver: “One of the things we should look at is the trading of silver in the paper markets, I mean the Comex and the SLV. Last week it averaged 1.2 billion ounces per day. There is only 700 million ounces mined in a year. There is only 33 million ounces of physical silver that is available for delivery by the commercial shorters. If something like 3% of the people that were trading silver in one day demanded physical delivery, there would be no silver on the Comex…. The key market is the physical market. I don’t think this raid is going to work.”

Great Fact:

Most Americans don’t realize how much the U.S. dollar has been devalued over the years. An item that cost $20.00 in 1970 would cost you $115.93 today. An item that cost $20.00 in 1913 would cost you $454.36 today.

 Houses: they may very well fall further  . . we think so. 

As always we invite you to call us and discuss your concerns  – 03 5724 5100