Will You Light $180,000 on Fire by Taking Social Security at Age 62?

Will You Light $180,000 on Fire by Taking Social Security at Age 62?

By Dennis Miller

On the television series Dragnet, Sgt. Joe Friday was known for his calm demeanor while questioning witnesses. When they began to ramble, he would corral them with comments like, “Just the facts, ma’am.” Sound advice for the witness stand, but when it comes to retirement planning, Sgt. Friday was giving the wrong instructions. Instead of asking for “just the facts” we should ask for “all the facts.”

A recent article for Bankrate featured a frightening graphic quoting Social Security Solutions founder William Meyer: “Two-thirds of Americans take Social Security at age 62, giving up $180,000 if single, $323,000 if married.”

With those statistics in mind, holding off until age 70 can seem like a no-brainer. Let’s take a closer look, though, with “all the facts” in plain sight.

The Social Security Administration’s website offers a handy tool for estimating benefits. We used it to run through a few hypotheticals for a man I’ll call Joe Friday.

Let’s assume Joe was born on January 1, 1953. This would make him 62 on January 1, 2015, and he plans to retire immediately before this birthday. Joe would rather sail around the world than work. To keep it simple, let’s say he’s unmarried—or married to his boat, so to speak.

Joe’s current annual salary is $200,000, which puts him above the Social Security maximum ($114,000 in 2014). According to the calculator, if Joe starts receiving Social Security benefits beginning at age 62, his monthly check will be $2,000. If he waits until age 70, he’ll receive an estimated $3,562 per month (all amounts are in 2014 dollars), or $1,562 more. In other words, if he waits eight years, his monthly benefits will increase by approximately 78%.

And there you have “just the facts.” Wait eight years longer… receive 78% more each month. Now, let’s explore “all the facts.”

If Joe takes Social Security at age 62, he will have collected $192,000 by age 70. At this point, he is well ahead of the game.

About 10 years and 3 months later, or just after Joe’s 80th birthday, though, he will have received the same total amount in benefits whether he began taking them at age 62 or age 70. Taking the benefits at age 62, however, won’t put him $180,000 behind, as Meyer said, until he reaches 89 years, 10 months of age.

With that in mind, Joe should consider a few details before waiting to take Social Security:

  • If he lives past 80 years, 3 months of age, he’ll receive more money. If not, waiting is a bum deal.
  • These estimates are just that: estimates. They do not take into account potential changes to the Social Security system. The government could reduce benefits, tax a larger portion, or scrap the program entirely. With so many uncertainties, there’s something to be said for having some money in hand, even if it’s in exchange for more (but not guaranteed) money later.
  • These calculations ignore the value of money. They assume Joe will spend, not invest his Social Security, from age 62 until age 70.

So, what is the right decision? If Joe asked me, I’d recommend he consider:

  • His realistic life expectancy based on his health, lifestyle, and family history;
  • Whether he needs the money now; and
  • Whether he’s confident the Social Security system will remain intact throughout his lifetime.

If Joe were married, he’d also want to consider his spouse’s income and expected longevity.

When you make these decisions for yourself, keep in mind that taking Social Security at 62 or 70 are not the only choices. You can start receiving benefits any point after age 62; the amount will go up with each passing month.

I have a high school classmate who, at age 70, told me about his quadruple bypass and how he’d outlived every male in his family… by 20 years! He died shortly thereafter. My own grandmother passed away two months shy of her 100th birthday, and my mother’s twin sister just celebrated her 99th birthday. Although a man who reaches age 65 today can expect to live, on average, until age 84.3, you know many more details about yourself. Although it’s uncomfortable to think about, you can make a more personalized estimate than “84.3.”

Because you can’t know for sure if you’ve made the right decision until after the fact, the best decision is one that weighs all of your personal facts. Headlines and sound bites might make it seem like a no-brainer, but it’s not. I’m sure most of the two-thirds of Americans who take Social Security at age 62 have good reasons for doing so. Many who wait and enjoy increased benefits can likely say the same.

Learn more retirement truths every Thursday by signing up for our free e-letter, Miller’s Money Weekly.

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What If Silicon Valley Moved to Puerto Rico?

What If Silicon Valley Moved to Puerto Rico?

By Gerald Nowotny

The tax benefits of Puerto Rican residency gained some attention and notoriety when hedge fund billionaire John Paulson went to Puerto Rico to “kick the tires.”

He did not become a Puerto Rican resident (not yet, at least), but ended up buying a resort there instead. My theory is that John Paulson can’t move anywhere without attracting adverse media attention. The media would declare that Paulson’s purchase of a Big Gulp at Seven Eleven as tax motivated.

Puerto Rico has long used corporate tax incentives to attract many large American multinational companies. Both Apple and Microsoft can attribute a great deal of their tax benefits and success to Puerto Rico. Many pharmaceutical companies have Puerto Rican operations.

The Puerto Rican government—not lacking in creativity—passed a series of tax bills in 2012 to create economic incentives for Americans to move and start businesses in Puerto Rico. Namely, they eliminated taxation on dividends, interest, and capital gains as well as reduced corporate taxes to just 4%.

Frankly, my hat is off to the Puerto Rican government for its ingenuity. Our own federal government could learn a lesson or two from this legislation.

Less known are the substantial benefits for research and development in Puerto Rico. The combination of the R&D, business, and personal tax benefits make Puerto Rico a far better option than Silicon Valley.

While the reader may argue that any intent to unseat Silicon Valley as the King of the technology hill is foolish and farfetched, I will make the argument in this article that Puerto Rico is a much better location for operations, or at least a subsidiary.

To all my friends in the “city by the Bay,” no offense, but the Fillmore has been closed for a long time, Janis Joplin has been dead for more than 40 years, and Journey stopped touring a long time ago. Yes, the proximity of Sonoma and world-class wine and beauty is compelling, but the costs of living in the Bay area are not.

Silicon Valley Versus Puerto Rico—David Versus Goliath

A few key distinctions come to mind right away when you consider the possibility of Puerto Rico versus Silicon Valley as an alternative location for research and development.

Immediately, I think of the dramatic differences in the cost of living between Puerto Rico and San Francisco and Silicon Valley. Housing is a major factor in the cost of living and typically the largest expense for employees when considering whether to relocate to a high-cost urban area. Outside of San Juan, the differential becomes dramatically more pronounced.

The difference in the cost of housing between San Francisco and San Juan is massive. Rents are a third of what they are in Silicon Valley.

I heard a story during the early days of the tech bubble that has always stayed in my mind. A single mother with a child rented a room in a person’s house without kitchen privileges for $2,000 per month in 2000. The same mother would have had a three-bedroom house in a nice neighborhood, a live-in maid, and could have sent her child to the best private school in San Juan or any other Puerto Rican city for the same money.

Of course, there is the incredible difference in taxes as well.

Startups tend to attract young entrepreneurs with young families. Cash compensation tends to be low, in favor of “success-based” compensation after a sale or IPO.

Recently, Puerto Rico adopted tax incentives that would allow workers to exercise the sale of stock in their company following a sale or an IPO without any personal tax due.

The proceeds would not be subject to federal taxation or Puerto Rican taxation.

The taxes in California by contrast would be confiscatory.

Assuming a significant sale, the California resident would be subject to long-term capital gains taxation of 20% along with the 3.8% Medicare tax on investment income. At the state level, the capital gains wouldn’t receive preferential treatment and would be taxed at ordinary tax rates, which could reach as high as 13.1%.

A Puerto Rican resident would pay no federal or Puerto Rico taxes on the sale of company shares, while the California resident pays 37%. That’s an incredible difference.

Let’s not understate the fact that San Francisco is a very cosmopolitan city, but when you’re barely paying your bills, the quality of the local museum and opera company aren’t your biggest concerns.

A few recent stories have covered tech companies providing housing for workers not only to reduce the high cost of living but also to encourage a family (more likely, frat house) environment, where employees can exchange ideas 24-7. Clearly, a beach house in the Puerto Rico could provide a similar work and living environment at a fraction of the cost.

What about the weather?

The Bay area is prone to earthquakes and foggy weather. Puerto Rico has Caribbean weather and world-class resorts. The Bay has wine country; Puerto Rico has world-class rum. Puerto Rico is very accessible from the mainland. I once counted over 50 flights per day from the mainland US originating from major Eastern cities and Chicago. Most of the discount airlines have multiple flights per day to Puerto Rico.

What about the rule of law?

Remember that Puerto Rico is part of the US with federal courts. Law firms in Puerto Rico are sophisticated and cost about 75% less than firms in San Francisco and New York City. You’ll need and want to keep your US lawyer, but it’s likely that your attorney in Puerto Rico also went to Harvard or Georgetown.

Ultimately, it’s about the money.

Shareholders and employers will be able to dramatically reduce operating costs through a combination of significant tax incentives and R&D incentives in Puerto Rico. The local universities provide a rich talent pool and US-based employees who move to Puerto Rico and become residents will be able to personally benefit financially in a manner that’s impossible in Silicon Valley or the entire continental US. If it’s about the money, then it’s equally about how much of the money that you get to keep.

Conclusion

I am certain that many of the readers of this article will say “foolish” and “very naïve” at the idea that Silicon Valley should move to Puerto Rico.

All it takes is for someone to be first.

I recently met two entrepreneurs who were moving through another round of venture-capital financing. Both were in a position to sell some of their shares following the financing. Both shareholders would reap a few million dollars each. One of the shareholders was a resident of NYC, while the other was a California resident. The company had 20 employees living and working in Silicon Valley.

If their company had been in Puerto Rico instead of Silicon Valley, neither of the entrepreneurs would have paid any federal and state income taxes. Neither of the two would have paid any Puerto Rican taxes. The employees would have qualified for the compensation exemptions under R&D provisions and had no taxation on the sale of company shares.

The employees’ families would have enjoyed living in housing that is a fraction of the cost of the Bay area. Their children would become bilingual. Their families would come to visit them every winter, and the employees would return to see their families a few times per year. And there would be no need to renounce your US citizenship like Eduardo Saverin.

In the final analysis, perhaps the proposal is a bit naïve, but if money really talks, the venture capitalists and entrepreneurs should be listening.

If you want to find out more about taking advantage of Puerto Rico’s tax benefits, I’d suggest you check out this free video that we put together. It’s information you won’t find anywhere else and is really a must-see. You’ll hear from hedge fund legend John Paulson, best-selling author and financial commentator Peter Schiff, and all-star investor Nick Prouty, as well as a handful of others who have taken advantage of these incentives. You can see the free video by clicking here.

 

The article was originally published at internationalman.com.

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Golden Bottom

Gold Scents

Today I’m going to follow up on my last article “Are commodities at a major turning point”.

If commodities and gold are ready to reverse then the first thing that has to happen is the dollar needs to form a top. I think that may have occurred on November 7th when the last employment report was released. Notice how the dollar formed a key reversal on that day, that was retested Friday and failed, forming a bearish engulfing candlestick.

dollar retest

Considering that the daily cycle is now on day 22 and late in the cycle timing band, the odds are good that the reversal Friday marked at least a daily cycle top in the dollar index. If that’s the case then the euro’s daily cycle should have bottomed. Looking at the euro chart it does appear that the euro bottomed on November 7.

euro

Now the question is are we looking at just a minor daily cycle rally to be followed soon by another lower low, or is the intermediate trend about to reverse? If the intermediate trend is about to reverse, then the euro is going form a right translated daily cycle (rally for more than 12 days) which would force the dollar into a stretched decline that may generate a failed daily cycle even though it is currently right translated (topped after day 12). While the odds are against a right translated cycle producing a lower low it does happen rarely, and I’m starting to think it might be setting up to happen in the dollar index. I think we could see the euro rally until the December employment report, which would correspond with the dollar forming a daily cycle low also on December 5 (stretching the current daily cycle to 36 days).

currency cycle expectations

If this unfolds as I have described then both currencies would produce a minor corrective move and then continue the intermediate trend reversal. Notice in the chart below the pattern that would form if this scenario plays out.

head and shoulder patterns corrected

As I have been saying all along, the May bottom in the dollar just did not look like a major three year cycle low to me. On top of that over the last 9 years the euro has developed a very distinct two year cycle, which makes me wonder if the three year cycle in the dollar is evolving into something different. If that’s the case, and the euro is about to put in a major 2 year cycle low, then the dollar is about to form a major multi-month, or possibly multiyear top.

multiyear currency cycles

So how does this relate to commodities you ask? Well as long as the dollar continues to rally commodities are probably going to continue to struggle. But if the euro is putting in a major multi-month, or multi-year bottom, and the dollar a major top, then it’s likely, as I discussed in my previous article, that the CRB is forming a slightly early 3 year cycle low right here and now.

US dollar commodities cycles

So how does this affect the gold market you ask? Well if the dollar is in the process of putting in a major multi-year top (which I think it’s safe to say no one is expecting at this moment) then it is possible that gold just put in a final bear market bottom. Yes I have been expecting gold to make a final bottom next summer, and that is still a very strong possibility, but based on that two year cycle in the euro, there is a credible possibility that the bottom I was expecting next summer is occurring right now.

With Friday’s reversal and rally, gold is now flashing signals that an intermediate bottom may have occurred on November 7. Starting with the weekly charts we not only have a weekly swing (the first confirmation that an intermediate bottom has formed) but also a bottoming pattern with two hammer candlesticks in a row.

gold hammers

Another sign that something may have changed is the false breakdown below multi-year support. The last time this happened in 2013 gold collapsed in a waterfall decline. This time the break of support has been quickly reversed. As I have noted in the past this is often how major trends reverse as big money will create an artificial technical breakdown (to trigger stops and create a massive liquidity event) to produce the conditions necessary for them to enter very large positions. Unlike me and you these institutions can’t just click a mouse and enter positions. They need a panic selling event to bring enough shares into the market so that they can take multi-million or even billion-dollar positions.

technical breakdowns

And speaking of entering large positions, note the volume on the triple leveraged mining indexes. Almost 20 billion dollars worth of shares have changed hands over the last two weeks in just GDX and GDXJ, and that doesn’t even include the triple leveraged funds.

NUGT

jnug

For no other reason than the dollar is due for a move down into its daily cycle low the metals should rally next week. Here’s what I’m going to look for to tell me if the rally is the beginning of a new intermediate cycle and possibly a new cyclical bull market.

First: If gold has put in an intermediate cycle low then the miners are going to produce a very large move this week, somewhere in the neighborhood of 7-10%. A recognition candle stick that signals that the smartest and most nimble players in the market are convinced a bottom has formed and have taken positions.

miners weekly recognition candle

Second: In order for gold to generate a major trend change the currency markets also have to complete a larger degree trend reversal. The rally in the euro will be key. If it rallies enough next week to challenge or break its intermediate trend line that will provide confirmation that the currency markets are reversing.

euro intermediate trend line

So watch these two charts next week and they will tell us whether or not this is just a short-term bounce in gold with one more lower low to follow later in December, or if the metals have completed a major multi-month bottom, or maybe even a final bear market low.

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The Colder War is Heating Up as Putin Tightens His Grip on the Global Energy Trade

The Colder War is Heating Up as Putin Tightens His Grip on the Global Energy Trade

By Marin Katusa, Chief Energy Investment Strategist

Vladimir Putin is stronger than ever and judgement day for the petrodollar is here says Marin Katusa, author of the bestselling book, The Colder War, in a new interview with Bloomberg Radio.

Marin warns that America cannot achieve energy independence and that downward pressure on the price of oil will remain a near-term threat. He also reveals where he thinks the next big discoveries in oil will occur. Hint: It’s not America. And gives his insights on the deals happening between Russia and China and what’s in store for the future of OPEC and US oil exports.

For the full story on The Colder War and how it will directly affect you, click here to get your copy of Marin’s new book.

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Russia Back to Superpower Status

Marin Katusa: “Russia Back to Superpower Status”

By Marin Katusa, Chief Energy Investment Strategist

Russian President Vladimir Putin has re-established his country as a global superpower. “Not only that, he’s got the other emerging markets working in concert against U.S. interests, globally,” said Marin Katusa, author of The Colder War, during an interview on the “Steve Malzberg Show” on Newsmax TV. On top of that, Marin added, “Western Europe’s become more addicted to Russian sources of oil and natural gas.”

 

Click here to get your copy of Marin’s new book and discover how the struggle between Russia and the West to control the world’s energy trade will directly affect you and the future of global finance.

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Love What You Do

People seek to make money in many different ways, but money isn’t all there is to life. Perhaps people are looking at money in the wrong way. While money doesn’t buy happiness, not having money can bring sadness and stress and frustration and homelessness. People can decide to be happy with money. However, people are more likely to be sad without money. Money, in and of itself, is not what is of value. Money enables people to pursue what they love. If people can make money doing what they love, it’s even better.

Drop shipping is an excellent and easy way to make money without having to worry about overhead or inventory. However, it means keeping a sharp eye for things of value. Seller “B” lists an item for a buyer. Once the buyer buys the item listed, Seller “B” buys the item for a lesser amount from Seller “A” and has it shipped directly to the buyer. In this manner, Seller “B” makes a profit without having to keep inventory, go to the post office and without paying extra for postage. The key is to obtain items that buyers wouldn’t be able to and sell them for a marked up price.

Trading presents amazing freedom in generating cash flow. However, it should not be entered into unless a person knows what they’re doing. It’s important to have a rule of when to buy and when to sell. If a person is seeking to make money long-term, the chances that a person will turn a profit is unlikely. Trading must occur daily or in some other short duration of time. It’s important to learn about trading, and it’s important to learn about who to learn from. Checking out Reviews of Online Trading Academy is one way to discover who the best option is to learn from.

Real estate presents another hot way to make good money. Some people resort to flipping houses where they buy a house for a lesser amount, fix it up and sell for a profit. People need to know what they’re doing when they begin such an undertaking. Houses that are damaged or stripped of things due to a foreclosure present a wonderful opportunity to flip. However, many others get into rental properties to have a steady stream of income. Whatever a person decides to do, the key is to love it and have fun.

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The Madness of the EU’s Energy Policy

The Madness of the EU’s Energy Policy

By Marin Katusa, Chief Energy Investment Strategist

The stakes couldn’t be higher. Vladimir Putin has launched a devastating plan to turn Russia into an energy powerhouse. And Europe, dependent on Russian natural gas and oil for a third of its fuel needs, has fallen right into his hands: Putin can bend the EU to his will simply by twisting the valve shut.

Considering how precarious Europe’s economic security is, one would have thought that now would be a good time for the EU to reassess its energy policy and address the effect crippling energy costs are having on its struggling economy.

But the EU is never going to agree to a rational reappraisal of its policies, because eco-loons like its new energy commissioner, Violetta Bulc, have taken over the asylum.

A practicing fire walker and a shaman, she’s the sort of airy-fairy Goddard College type who only believes in the power of “positive energy.” What will guide us in this frightening new era is, according to her blog, the spirit of the White Lions:

The Legend says that White Lions are star beings, uniting star energy within earth form of Lions. The native ancestors were convinced that they are children of the Sun God, thus embodying Solar Logos and legends say that they came down to Earth to help save humanity at a time of crisis. There is no doubt that this time is right now.

With the European Commission stuffed with green anti-capitalist zealots, it’s not surprising that the EU’s response to the challenges of a resurgent Russia is a complete break with reality.

The EU has come up with an aggressive climate plan—just like Obama’s. In defiance of all logic—if not Putin—it’s agreed to cut greenhouse gas emissions by 40% and make clean energy, like wind and solar, 27% of overall energy use by 2030.

Instead of guaranteeing the “survival of mankind,” this would cause the extinction of Europe’s industry—unless there’s a secret plan to massively expand nuclear power.

Fortunately for Europe, its leaders haven’t yet lost all their marbles.

These climate goals are just a bargaining chip in the runup to next year’s UN climate summit in Paris. They’re not legally binding. Unless the whole world commits to an equally radical policy of deindustrialization—which seems rather unlikely to say the least—the EU will “review” its climate targets.

This is just as well. In trying to meet the so-called 20:20 target—a 20% reduction in emissions by 2020—Germany and the UK have already discovered that renewable energy is too costly to maintain a competitive industry. As electricity prices skyrocket, Germany’s industrial giants are either having their power costs subsidized or are relocating to the US.

Both countries are struggling with the inability of wind and solar energy to provide reliable baseload power, which is threatening to cause blackouts.

The UK is putting its faith in fracking—and has managed to head off any EU legislation to ban shale-gas. But Germany and its fellow travelers, who have no qualms about reverting to coal, are simply overriding the EU Commission and its zero emissions utopia.

Knowing that EU climate policy would destroy international competitiveness and crush their economies, Poland, which depends on coal for 90% of its energy needs, and other low-income countries have taken a different approach. They’ve forced the Commission to give them special exemptions from any emissions reduction plan.

Unlike in the US—where Obama is taking executive action to wipe out the coal industry—lignite, or brown coal, is set to become an increasingly important part of Europe’s energy supply, as it is in much of the rest of the world. There are 19 new lignite power stations in various stages of approval and construction in Bulgaria, Czech Republic, Greece, Germany, Poland, Romania, and Slovenia. When completed, these will emit nearly as much CO2 as the UK.

Which is ironic. The UK is the only member of the EU to have been insane enough to impose a legally binding carbon dioxide reduction target intended to take it to 80 percent of 1990 levels by 2050. It’s also the only modern industrial nation where there’s serious talk of World War II-style energy rationing.

As you’ll discover in my new book, The Colder War, Europe and America need to wake up. They’ve never been so economically vulnerable. The time for indulging environmental fantasies and putting one’s faith in White Lions is over—unless, that is, you want to see Putin controlling the world.

Click here to get your copy of my new book. Inside, you’ll discover exactly how Putin is orchestrating a takeover of the global energy trade, what it means for the future of America, and how it will directly affect you and your personal savings.

The article The Madness of the EU’s Energy Policy was originally published at caseyresearch.com.

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Putin Signs Secret Pact to Crush NATO

Putin Signs Secret Pact to Crush NATO

By Marin Katusa, Chief Energy Investment Strategist

Back on September 11 and 12, there was a summit meeting in a city that involved an organization that most Americans have never heard of. Mainstream media coverage was all but nonexistent.

The place was Dushanbe, the capital of Tajikistan, a country few Westerners could correctly place on a map.

But you can bet your last ruble that Vladimir Putin knows exactly where Tajikistan is. Because the group that met there is the Russian president’s baby. It’s the Shanghai Cooperation Organization (SCO), consisting of six member states: Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.

The SCO was founded in 2001, ostensibly to collectively oppose extremism and enhance border security. But its real reason for being is larger. Putin sees it in a broad context, as a counterweight to NATO (a position that the SCO doesn’t deny, by the way). Its official stance may be to pledge nonalignment, nonconfrontation, and noninterference in other countries’ affairs, but—pointedly—the members do conduct joint military exercises.

Why should we care about this meeting in the middle of nowhere? Well, obviously, anything that Russia and China propose to do together warrants our attention. But there’s a whole lot more to the story.

Since the SCO’s inception, Russia has been treading somewhat softly, not wanting the group to become a possible stalking horse for Chinese expansion into what it considers its own strategic backyard, Central Asia. But at the same time, Putin has been making new friends around the world as fast as he can. If he is to challenge US global hegemony—a proposition that I examine in detail in my new book, The Colder War—he will need as many alliances as he can forge.

Many observers had been predicting that the Dushanbe meeting would be historic. The expectation was that the organization would open up to new members. However, expansion was tabled in order to concentrate on the situation in Ukraine. Members predictably backed the Russian position and voiced support for continuing talks in the country. They hailed the Minsk cease-fire agreement and lauded the Russian president’s achievement of a peace initiative.

However, the idea of adding new members was hardly forgotten. There are other countries which have been actively seeking to join for years. Now, with the rotating chairmanship of the organization passing to Moscow—and with the next summit scheduled for July 2015 in Ufa, Russia—conditions could favor the organization’s expansion process truly taking shape by next summer, says Putin.

To that end, the participants in Dushanbe signed documents that addressed the relevant issues: a “Model Memorandum on the Obligations of Applicant States for Obtaining SCO Member State Status,” and “On the Procedure for Granting the Status of the SCO Member States.”

This is extremely important, both to Russia and the West, because two of the nations clamoring for inclusion loom large in geopolitics: India and Pakistan. And waiting in the wings is yet another major player—Iran.

In explaining the putting off of a vote on admittance for those countries, Putin’s presidential aide Yuri Ushakov was candid. He told Russian media that expansion at this moment is still premature, due to potential difficulties stemming from the well-known acrimony between India and China, and India and Pakistan, as well as the Western sanctions against Iran. These conflicts could serve to weaken the alliance, and that’s something Russia wants to avoid.

Bringing longtime antagonists to the same table is going to require some delicate diplomatic maneuvering, but that’s not something Putin has ever shied away from. (Who else has managed to maintain cordial relationships with both Iran and Israel?)

As always, Putin is not thinking small or short term here. Among the priorities he’s laid out for the Russian chairmanship are: beefing up the role of the SCO in providing regional security; launching major multilateral economic projects; enhancing cultural and humanitarian ties between member nations; and designing comprehensive approaches to current global problems. He is also preparing an SCO development strategy for the 2015-2025 period and believes it will be ready by the time of the next summit.

We should care what’s going on inside the SCO. Once India and Pakistan get in (and they will) and Iran follows shortly thereafter, it’ll be a geopolitical game changer.

Putin is taking a leadership role in the creation of an international alliance among four of the ten most populous countries on the planet—its combined population constitutes over 40% of the world’s total, just short of 3 billion people. It encompasses the two fastest-growing global economies. Adding Iran means its members would control over half of all natural gas reserves. Development of Asian pipeline networks would boost the nations of the region economically and tie them more closely together.

If Putin has his way, the SCO could not only rival NATO, it could fashion a new financial structure that directly competes with the IMF and World Bank. The New Development Bank (FKA the BRICS Bank), created this past summer in Brazil, was a first step in that direction. And that could lead to the dethroning of the US dollar as the world’s reserve currency, with dire consequences for the American economy.

As I argue in The Colder War, I believe that this is Putin’s ultimate aim: to stage an assault on the dollar that brings the US down to the level of just one ordinary nation among many… and in the process, to elevate his motherland to the most exalted status possible.

What happened in Tajikistan this year and what will happen in Ufa next summer—these things matter. A lot.

Perhaps no one knows how dangerous Vladimir Putin is and how much he controls the flow of capital in the global energy trade than author of The Colder War, Marin Katusa.

Marin stakes millions on his deep knowledge of energy and politics. And as a result, his hedge funds have outperformed the TSXV index by 6-fold over the past 5 years. To discover everything Putin is planning and how it will directly affect you, click here to get a copy of Marin’s brand new book, The Colder War.

The article Putin Signs Secret Pact to Crush NATO was originally published at caseyresearch.com.

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4 Steps for Avoiding a Capital “C” Catastrophe in the Next Downturn

4 Steps for Avoiding a Capital “C” Catastrophe in the Next Downturn

By Dennis Miller

When the tech and real estate bubbles burst, many of my friends lost 40-50% of their retirement portfolios almost overnight. Is a similar downturn looming?

Take a look at the chart below showing the S&P’s performance since 2008.

Caution is in order. We may see a major correction, a huge downturn, or this bubble could continue to grow for quite some time. I’ll leave the timing predictions to others. Still, investor euphoria worries me. Even those playing with retirement money often ignore warning signs, thinking the parabolic rise in stock prices is never going to end. However, this time is NOT different.

Look at the Nasdaq’s performance just before the tech bubble crash:

From March of 1999 to March of 2000, the Nasdaq doubled, and investors were euphoric. Are you feeling that euphoria today?

Don’t Let the Next Downturn Make You Poor

The goal for a retirement portfolio is to create enough of an income stream that you can maintain your current lifestyle over the long haul while the balance grows ahead of inflation. This portfolio should also include enough safety measures to keep you whole regardless of what the market does.

Sounds simple, but it can feel like walking and chewing gum—to the power of 10. Treasuries are supposedly safe… but from what? Sure, you won’t lose your principal, but they won’t protect you from inflation. Certain stocks are solid; after all, many companies survived the Great Depression… but will they keep paying dividends when you need them? Investing in a turbulent market is a gyroscopic balancing act with endless variables.

4 Lifejackets

While outlining the entire Miller’s Money safety system is beyond our scope here, there are four must-do safety measures anyone can easily implement.

#1—Set strict position limits. No single investment should make up more than 5% of your overall portfolio. That means rebalancing at least once a year. I have a friend who brags about how well his portfolio has been doing. Turns out, 80% of his holdings are in Apple. While Apple is a fine company and has done well, he should consider locking up most of his gain and focusing on capital preservation.

#2—Use trailing stop losses. We recommend setting trailing stop losses at 20% or less on all market investments. Stop losses can prevent catastrophic damage to your portfolio. As our portfolio grows, a trailing stop can help lock in a gain. While you may still face setbacks from time to time, a trailing stop limits them. You’ll live to fight another day.

I’ve spoken to some retirement investors who limit each holding to 4% of their portfolio and set 25% trailing stops. Whatever makes sense! Just limit the size of each position—and in doing so the potential for catastrophe.

#3—Diversification is the name of the game. This means internationalizing, too. Holding 5-6 mutual funds all in the United States or in US dollars just won’t cut it. You must diversify into non-correlated assets all over the world; so, should one segment or market tank, it won’t bring down a major portion of your portfolio.

You should also review the correlation of the asset you’re considering. What events in the market will cause the price to rise and fall? And pay particular attention to the near term. For example, until recently, utility stocks were considered the gold standard for retirees. Now there is so much capital in this sector, the stocks are correlating much closer to changes in interest rates.

Look for assets that are either uncorrelated to the market or those which may move in the opposite direction (the market goes down, this goes up, and vice versa).

Again, the game is: hold on to as much capital as possible and live to fight another day.

#4—Look for low duration on income investments. Bond sellers tout the safety of US government and investment-grade bonds. They are correct as far as default is concerned; however, a sudden rise in interest rates would mean a large loss for an investor holding these bonds who resells them in the aftermarket.

Retirement investors normally hold bonds for interest income, and they hold them until maturity. While some say bonds are still a good investment, most of these folks are traders. They buy high duration bonds (their market price moves significantly with changes in interest rates), betting on interest rates continuing to decline, and plan to sell for a profit down the road. We are not traders or market timers. Unless you are comfortable holding a bond until maturity, stay away from it.

When you invest money earmarked for retirement, using models that were in vogue as recently as 10 years ago will leave you vulnerable. Whether you’re considering bonds, utilities or any other investment vehicle, having the most up-to-date information is imperative. You can learn more about where bonds fit—or don’t fit—in your retirement plan by downloading our timely and free special report, Bond Basics, today. Access your complimentary copy here.

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Four Things to Do If Your Retirement Savings Is Less Than Planned

If you are in your late 50s or early 60s and have not saved as much money for your retirement as you wanted to, there is still time to plan for your retirement with less money. The following are several things to consider that may help in making your retirement years better.

Plan on a more frugal way of life

This is not a bad idea regardless of the amount of money you will have available, but if it looks like you are going to have less than you planned, your first step will be to begin to think of ways to cut back on expenses. Housing is usually the most expensive cost you will need to address. If you can reduce your monthly cost for a roof over your head, you will make significant progress in lowering your cost of living.

Plan on working part time

Although working part time during your retirement is an obvious way to have a higher standard of living, you may find it difficult, if not impossible, to get a part-time job in your retirement years. The trick is to focus on self-employment. Try to find a way to turn a hobby into a part-time income. One example would be to provide music lessons for an instrument that you play. A part-time income can be generated in many ways doing things you have always enjoyed doing in your life, and this will fit well with a retirement style of living while providing additional money.

Pay off your mortgage

If you still have a mortgage, you can pay it off before retiring. If you begin your retirement with a house that is paid off, you will have a low cost place to live. Of course, there are many expenses involved in maintaining a house, but this money is generally much less than you would have to pay for renting an apartment.

Tap into the equity in your house

This can be done without selling your home. In fact, a lender will pay you a certain amount of money each month, and you will be able to stay in you home until the day you die. A reverse mortgage company can provide details of this type of mortgage arrangement.

If you have found yourself short of your financial goals for retirement, don’t fret about it. Simply focus on alternatives in retirement. The above mentioned ideas will give you a good start.

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The Fed’s Stealth Tightening

The Fed’s Stealth Tightening

By Bud Conrad, Chief Economist

As expected, the Fed tapered its purchases of mortgage-backed securities on Wednesday to $15 billion per month and its purchases of longer-term Treasury securities to $20 billion per month.

That means total monthly purchases, which were $85 billion last year, are now down to $35 billion. That’s a significant cut.

The Fed also cut the range of its full-year 2014 real GDP growth forecast, from 2.8% – 3.0% down to 2.1% – 2.3%. That was no surprise, considering that GDP in Q1 was negative 1%, and it may have been a bit of a warning.

Those who are familiar with my work know my no-confidence stance on Fed prognostication. But just to make my opinion clear: I think the Fed is in the business of obscuring the truth. Official inflation numbers vastly understate actual price rises:

  • Housing in California is back to its pre-crisis peak;
  • Stocks are at record levels;
  • Food prices jumped 0.7% in May alone; and
  • Anyone who drives knows that a tank of gas is far more expensive than it was a year ago.

The Fed’s claim that inflation is contained and that there is no need to raise interest rates is just a show put on for people who believe the government. If we applied a more accurate inflation rate to GDP calculations, real GDP would not be growing at all.

My point is that the Fed and the media tell us things are better than they actually are. Meanwhile, the Fed is taking secret actions that reveal where Yellen and friends really think the economy might be headed.

The Fed’s New Tool: Reverse Repo

Traders have used Repurchase Agreements (“repos”) for decades. A repo is essentially a collateralized loan. A borrower sells government securities to a lender and buys them back later at an agreed-upon date and slightly higher price. The lender takes on very little risk to earn a small amount of compensation while it holds the government securities as collateral.

Repos can last for any amount of time, but they are often ultra-short-term. Overnight repos are the most common.

The Fed has announced that it’s using “reverse repos” as a new tool to manage monetary policy. Don’t let “reverse” confuse you: Reverse repos are just a way the Fed soaks up cash from financial institutions. The Fed is the “borrower,” swapping its Treasuries for banks’ cash. You might call it the opposite of quantitative easing: reverse repos drain money from the financial system.

The Fed can also use repos to add money to the system, as it did in the early stages of the 2008 Credit Crisis:

By netting repos with reverse repos, we can see their combined effect on monetary policy over time:

As you can see, the Fed is quietly using reverse repos to drain the money supply. Remember, this is on top of the taper. Net, the Fed is being less accommodative than most are aware of.

How Repos Fit into the Fed’s Balance Sheet

The following chart illustrates how the Fed’s liabilities (sources of funding) changed dramatically during the financial crisis.

The Fed funded and continues to fund its quantitative easing programs with bank deposits. Here’s the rundown on how that works:

  1. The Fed creates cash from thin air.
  1. The Fed buys Treasuries and mortgage-backed securities (MBS) from banks with that freshly minted cash.

The Fed pays banks 0.25% interest as an incentive to keep the new cash on deposit at the Fed.

That huge $2.8 trillion in deposits is a risk source, because the financial institutions could withdraw those funds at any time, if they think they can generate better returns than the 0.25% interest that the Fed pays.

Reverse repos are also a source of funding for the Fed: they provide cash for the Fed to continue purchasing Treasuries and mortgage-backed securities.

Though reverse repos are only a small portion of the Fed’s balance sheet, they are important. As the growth of the yellow “deposits” has trailed off, reverse repos have picked up much of the slack.

In effect, the Fed has sopped up $200 billion in the last nine months in “stealth tightening.” I use the word “stealth,” because most investors, and even most Fed watchers, aren’t aware of the effects of reverse repos.

You’re probably wondering, “What’s the Fed’s ultimate plan here?”

I think that the Fed is using reverse repos to build up a hidden source of funding so that it can unwind its tightening quietly, if need be. The Fed now has $200 billion in “ammunition” that it can deploy without much (or any) fanfare, because nobody is following this closely. “Reverse Repos” isn’t the headline grabber that “Quantitative Easing” is.

As a side note, notice that the Fed’s capital is so small that you can barely see it. If the Fed were a bank subject to market forces, the slightest negative surprise would render it insolvent. But of course, it has a monopoly over the printing press, so it needn’t worry about such things.

One last reason the Fed might be secretly building a rainy-day fund: As my analysis in the newest issue of The Casey Report demonstrates, foreigners have recently stopped lending money to the US. That’s a huge problem for a country that had a $111.2 billion trade deficit in the first quarter alone, and will spend half a trillion more dollars than it takes in during 2014.

As I said earlier, the Fed has been very quiet about this repo program, so we can only surmise what its true motivations are. But as the US government’s lender of last resort, the Fed may be raising this source of cash so it can lend more money to the US government as foreign lending continues to dry up.

In conclusion, the credit crisis of 2008 changed our financial system in many ways. Whether this latest repo experiment is just another Band-Aid on the money balloon or something more, it’s well worth keeping an eye on.

You can find my data-driven analysis in every single edition of The Casey Report. Start your 90-day risk-free trial now to read the current issue plus two more, access all of the current stock picks, and peruse the archives before deciding if The Casey Report is for you. If it’s not, no problem—just call or email for a full and prompt refund. Click here to start your no-risk trial subscription to The Casey Report straightaway.]

The article The Fed’s Stealth Tightening was originally published at caseyresearch.com.

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What Is Worse Than Being at Risk?

What Is Worse Than Being at Risk?

By Dennis Miller

You may have heard the old adage: “What is worse than being lost? Not knowing you are lost.” In that same vein: What is worse than being at risk? You guessed it! Not knowing you’re at risk.

For many investors, portfolio diversification is just that. They think they are protected, only to find out later just how at risk they were.

Diversification is the holy grail of portfolio safety. Many investors think they are diversified in every which way. They believe they are as protected as is reasonably possible. You may even count yourself among that group. If, however, you answer “yes” to any of the following questions, or if you are just getting started, I urge you to read on.

  • Did your portfolio take a huge hit in the 2008 downturn?
  • Was your portfolio streaking to new highs until the metals prices came down a couple years ago?
  • Do oil price fluctuations have a major impact on your portfolio?
  • When interest rates tanked in the fall of 2008, did a major portion of your bonds and CDs get called in?
  • Are you nervous before each meeting of the Federal Reserve, wondering how much your portfolio will fluctuate depending on what they say?
  • Has your portfolio grown but your buying power been reduced by inflation?
  • Do you still have a tax loss carry forward from a stock you sold more than three years ago?

There are certain lessons most of us learn the hard way—through trial and error. But that can be very expensive. Ask anyone who has a loss carry forward and they will tell you that the government is your business partner when you are winning. When you are losing, you are on your own.

The old saying rings true here: “When the student is ready to learn, the teacher shall appear.” Sad to say, for many investors that happens after they have taken a huge hit and are trying to figure out how to prevent another one.

Alas, there is an easier way. Anyone who has tried to build and manage a nest egg will agree it is a long and tedious learning experience. The key is to get educated without losing too much money in the meantime.

Avoid Catastrophic Losses

The goal of diversification is to avoid catastrophic losses. In the past, we’ve mentioned correlation and shared an index related to our portfolio addition. The scale ranges from +1 to -1. If two things move in lockstep, their correlation rates a +1. If the price of oil goes up, as a general rule the price of oil stocks will also rise.

If the two things move in the opposite direction (a correlation of -1), we can also predict the results. If interest rates rise, long-term bond prices will fall and generally so will the stocks of homebuilders.

At the same time, a correlation of zero means there is no determinable relationship. If the price of high-grade uranium goes up, more than likely it will not affect the market price of Coca-Cola stock. So, your goal should be to minimize the net correlation of your portfolio so no single event can negatively impact it catastrophically.

General Market Trends

An investor with mutual funds invested in Large Cap, Mid Cap, and Small Cap stocks may think he is well diversified with investments in over 1,000 different companies. Ask anyone who owned a stable of stock mutual funds when the market tumbled in 2008 and they will tell you they learned a lesson.

Mr. Market is not known to be totally rational and many have lost money due to “guilt by association.” When the overall stock or bond market starts to fall, even the best-managed businesses are not immune to some fallout. While the Federal Reserve has pumped trillions of dollars into the system, there is no guarantee the market will rebound as quickly as it has in the last five years. The market tanked during the Great Depression and it took 25 years to return to its previous high.

If you listen to champions of the Austrian business cycle theory, they will tell you the longer the artificial boom, the longer and more painful the eventual bust. Mr. Market can dish out some cruel punishment.

Diversification is indeed the holy grail, but there are some risks which diversification cannot mitigate entirely. No matter how hard you try to fortify your bunker, sooner or later we will learn of a bunker buster. There are times when minimizing the damage and avoiding the catastrophic loss is all anyone can do.

Sectors

Allocating too much of your portfolio to one sector can be dangerous. This is particularly true if a single event can happen that could give you little time to react. While no one predicted the events of September 11, people who held a lot of airline stocks took some tough losses. Guilt by association also applied here. After September 11, the stocks of the best-managed airlines, hotels, and theme parks took a downturn.

When the tech bubble and real estate bubble burst, the stock prices of the best-run companies dropped along with the rest of the sector, leaving investors to hope their prices would rebound quickly.

Geography

One of the major factors to consider when investing in mining and oil stocks is where they are located. It is impossible to move a gold mine or an oil well that has been drilled. Many governments are now imposing draconian taxes on these companies, which negatively impacts shareholders. In some cases, this can be a correlation of -1. If an aggressive government is affecting a particular oil company, other companies in different locations may have to pick up the slack and their stock may rise in anticipation of increased sales.

Many governments around the world have become very aggressive with environmental regulation, costing the industry billions of dollars to comply. If you want to invest in companies that burn or sell anything to do with fossil fuels, you would do well to understand the political climate where their production takes place.

Investors who prefer municipal bonds must make their own geographical rating on top of the ratings provided for the various services. States like Michigan and Illinois are headed for some rough times. I wouldn’t be lending any of them my money in the current environment no matter what the interest rate might be.

Currency Issues

Inflation is public enemy number one for seniors and savers. One of the advantages of currencies is they always trade in pairs. If one currency goes up, another goes down. If the majority of your portfolio is in one currency, you are well served to have investments in metals and other vehicles good for mitigating inflation.

Tim Price sums it up this way in an article posted on Sovereign Man:

“Why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

“Last year, the US Federal Reserve enjoyed its 100th anniversary. … By 2007, the Fed’s balance sheet had grown to $800 billion. Under its current QE program (which may or may not get tapered according to the Fed’s current intentions), the Fed is printing $1 trillion a year. To put it another way, the Fed is printing roughly 100 years’ worth of money every 12 months. (Now that’s inflation.)”

It is difficult to determine when the rest of the world will lose faith in the US dollar. Once one major country starts aggressively unloading our dollars, the direction and speed of the tide could turn quickly.

Interest-Rate Risk

The Federal Reserve plays a major role in determining interest rates. Basically they have instituted their version of price controls and artificially held interest rates down for over five years. Interest-rate movement affects many markets: housing, capital goods, and some aspects of the bond markets. While it also makes it easier for businesses to borrow money, they are not likely to make major capital expenditures when they are uncertain about the direction of the economy.

While holders of long-term, high-interest bonds had an unexpected gain when the government dropped rates, their run will eventually come to an end as rates rise. Duration is an excellent tool for evaluating changes in interest rates and their effect on bond resale prices and bond funds. (See our free special report Bond Basics, for more on duration.)

While interest rates have been rising, when you factor in duration there is significant risk, even with the higher interest offered for 10- to 30-year maturities. Again, having a diversified portfolio with much shorter-term bonds helps to mitigate some of the risk.

Risk Categories of Individual Investments

While investors have been looking for better yield, there has been a major shift toward lower-rated (junk) bonds. Many pundits have pointed out that their default rate is “not that bad.”

At the same time, the lure of highly speculative investments in mining, metals, and start-up companies with good write-ups can be very appealing. There is merit to having small positions in both lower-rated bonds and speculative stocks because they offer terrific potential for nice gains.

So What Can Income Investors Do?

There are a number of solid investments out there that offer good return, with a minimal amount of risk exposure and that won’t move because of an arbitrary statement by the Fed. It’s not always easy to find them, but there is hope for people wondering what to do now that all of the old adages about retirement investing are no longer true.

There are three important facets of a strong portfolio: income, opportunities and safety measures. Miller’s Money Forever helps guide you through the better points of finance, and helps replace that income lost in our zero-interest-rate world—with minimal risk.

This is where the value of one of the best analyst teams in the world comes into focus. We focus on our subscribers’ income-investing needs, and I challenge our analysts to find safe, decent-yielding, fixed-income products that will not trade in tandem with the steroid-induced stock market—or alternatively, ones that will come back to life quickly if they do get knocked down with the market. They recently showed me seven different types of investments that met my criteria and still withstood our Five-Point Balancing Test.

My peers are of having holes blown in their retirement plans. While nuclear-bomb-shelter safe may be impossible, we still want a bulletproof plan.

This is what we’ve done at Money Forever: built a bulletproof, income-generating portfolio that will stand up to almost anything the market can throw at it.

It is time to evolve and learn about the vast market of income investments safe enough for even the most risk-wary retirees. Some investors may want to shoot for the moon, but we spent the bulk of our adult lives building our nest eggs; it’s time to let them work for us and enjoy retirement stress-free. Learn how to get in, now.

The article What Is Worse Than Being at Risk? was originally published at millersmoney.com.

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Junior Mining Stocks to Beat Previous Highs

Junior Mining Stocks to Beat Previous Highs

By Laurynas Vegys, Research Analyst

Despite last week’s pullback, the precious metals market is off to an impressive start in 2014. Gold is up 10.6%, silver 4.3%, and the PHLX Gold/Silver (XAU) 17.1%. Gold, in particular, had a great February, rising above $1,300 for the first time since November 7, 2013.

This has led to some very handsome gains in our Casey International Speculator portfolio, with a few of our recommendations already logging triple-digit gains from their recent bottoms.

Why Junior Gold Mining Stocks Are Our Favorite Speculations

One of Doug Casey’s mantras is that one should buy gold for prudence, and gold stocks for profit. These are very different kinds of asset deployment.

In other words, don’t think of gold as an investment, but as wealth protection. It’s the only highly liquid financial asset that is not simultaneously someone else’s obligation; it’s value you can liquidate and use to secure your needs. Possessing it is prudent.

Gold stocks are for speculation because they offer leverage to gold. This is actually true of all mining stocks, but the phenomenon is especially strong in the highly volatile precious metals.

Most typical “be happy you beat inflation” returns simply can’t hold a candle to stocks that achieved 10-bagger status (1,000% gains). In previous bubbles—some even generated 100-fold returns. And we may see such returns again.

It’s Not Too Late to Make a Fortune

Here’s a look at our top three year-to-date gainers.

What’s especially remarkable is that all three of these stocks shot up much more than gold itself, on essentially no company-specific news. This is dramatic proof of just how much leverage the right mining stocks can offer to movements in the underlying commodity—gold, in this case. Two of the stocks above are on our list of potential 10-baggers, by the way.

So have you missed the boat? Is it too late to buy?

Looking at the chart, two bullish factors jump out immediately:

  • Gold stocks have just now started to move up from a similar level in 2008.
  • Gold stocks remain severely undervalued compared to the gold price. A simple reversion to the mean implies a tremendous upside move.

Now consider the following data that point to a positive shift in the gold market.

  1. After 13 consecutive months of decline, GLD holdings were up over 10.5 tonnes last month. The trend is similar to other ETFs.
  1. Hedge funds and other large speculators more than doubled their bets on higher gold prices this year.
  1. Increase in M&A—for example, hostile bids from Osisko and HudBay Minerals to buy big assets.
  1. Apollo, KKR, and other large private equity groups have emerged as a new class of participants in the sector.
  1. Gold companies’ hedging of future production—usually a sign of insecurity among the miners—shrunk to the lowest level in 11 years.
  1. China continues to consume record amounts of gold and officially overtook India as the world’s largest buyer of gold in 2013.
  1. Large players in the gold futures market that were short have switched to being long.
  1. Central banks continue to be net buyers.

To top it off, there’s been no fallout (yet) from the unprecedented currency dilution undertaken since 2008—and we don’t believe in free lunches.

The gold mania train has not yet left the station, but the engine is running and the conductor has the whistle in his mouth. This means…

Any correction ahead is a potential last-chance buying opportunity before the final mania phase of this bull cycle takes our stock to new highs, well above previous interim peaks.

In spite of the good start to 2014, most of our 10-bagger gold stocks are still on the deep-discount rack. And you can get all of them with a risk-free, 3-month trial subscription to our monthly advisory focused on junior mining stocks, the Casey International Speculator.

If you sign up today, you can still get instant access to two special reports detailing which stocks are most likely to gain big this year: Louis James’ 10-Bagger List for 2014 and 7 Must-Own Stocks for 2014.

Test-drive the International Speculator for 3 months with a full money-back guarantee, and if it’s not everything you expected, just cancel for a prompt, courteous refund of every penny you paid. Click here to get started now.

I hope you will take advantage of this opportunity in front of us—while shares are still relatively cheap.

The article Junior Mining Stocks to Beat Previous Highs was originally published at caseyresearch.com.

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