In Venezuela, China will contribute $8 billion to a strategic fund for oil development mainly to increase Venezuela’s oil exports to China. China is paying now at today’s prices to insure growth in the supply of oil and their long term access to its share.

Meanwhile here in the U.S., the Obama administration is planning to severely tax exploration and production companies operating in the Gulf of Mexico (our core area of production). Boy, that will be a real incentive for any company to consider looking for oil (tish-tish). This will also make U.S. oil production more expensive (duh!).

The government has delayed and rescinded the opening of other offshore areas for additional incremental exploration and possible production (higher prices for us and less supply. Oh, and you did not know about this? HMMM! I thought we were to have full transparency in this new administration).

Since October 2004 the U.S. Department of Energy claims the global oil supply hasn’t grown much even though we had huge price increases. Most experts agree that large new oil supply is not in the picture.

So, if the supply for oil will be, say, “X” and China has already “bought up” an amount equal to “Y,” then, X-Y will equal the remaining supply. With the demand for oil rising and supply only at “Y”…..well better prepare for higher prices. Experts are predicting a price of $150-$180 a barrel very soon. That is without a major interruption in flow (war, terrorism, etc.) Ah, yes higher gas prices. Better prepare as well as make investments to benefit your family. Once again…discipline or regret.

As many of you learned in your economics courses – inflation comes about as too many dollars are chasing too few goods.

The money being printed in Washington for TARP, the Stimulus Bill, and the 2009 budget is astronomical. Never in the history of the U.S. has so much money been printed (I wish I would have told everyone to invest in WD-40 to oil the printing machines. We would have all been wealthy).

None-the-less, my role as my client’s advisor is to look out into the future, note trends and have them invest ahead of the crowd. With all this money being created in Washington it will lead to a HUGE increase in inflation very soon (somewhat like a snake eating a rat, it will take a little time to go through the system).

I advised all my clients in December to increase their asset allocation position in metals, especially gold. I am not a gold bug, but, it is obvious what will take place. Last December prices for gold were at $750. It increased to $1000 recently (a 33% increase) and as of this writing is in the mid $900. Experts predict a rise to $1500+ in the next two years. Please do not follow the crowd and get into gold after the price rises (you know buy high sell low). You can, and should have long ago taken a position in gold via stocks, mutual funds or exchange traded funds. I am suggesting that you buy the physical gold. Coins are an acceptable method to do this and you must take possession. Do NOT store them at the coin company.

Remember you will never make money in gold. It is simply a hedging or insurance mechanism. That is, if gold is going up, then other asset classes are going down and vice versa. Make sure you work with a reputable coin dealer.

Watch the short video below that came from Glenn Beck’s show; it does show how dramatic money creation has been recently.

Federal law does not place restrictions on how you can use the money from a 401k loan. On the other hand plan administrators can limit the money to certain purposes. The more common uses are medical expenses and student loans. Loans typically must be paid back within five years.

No matter the reason for the 401k loan, even though you pay it back, it slows your ability to build a substantial nest egg.

Advantages of this type of loan:

• The loan application is much quicker.
• The loan interest rate is usually low.
• There will not be any surprises.
• You can usually borrow up to 50% of the account value.
• With a 5 year payback this forces you to start saving again sooner.
• Some administrators allow for long term loans of 15 years when the funds are used as a home down payment.
• Loan repayments can be done by payroll deduction.

The disadvantages of a 401k loan:

• If you lose your job you will face a major financial crunch. Typically, the whole loan must be paid in full within 30 days of your dismissal. If it is not paid in full, the loan will be deemed an early withdrawal subject to tax and a 10% penalty tax. Hmmm! You have lost your job, no income coming in, and you have to pay the remaining loan back. If the loan is not paid back, you will need to come up with probably 45% of the amount due in taxes. This is the major reason why I do not like these loans.
• You are looking at, in effect, double taxation. The loan is paid back with after tax dollars (unlike your contributions which are paid pretax). When you retire and withdraw the loans funds you pay tax again.
• If you use the 401k loan to buy or improve your home the interest is not deductible.
• You may have to pay a one time fee to the administrator for loan origination.
• If after borrowing you stop making contributions to the 401K, it is a double loss. First, you are not making contributions, and second you lose any match on those contributions not being made.

I often hear people who take out 401k loans use this excuse … “Well, I am paying myself back”. Really … look at this simple example.

Facts of the case:

You borrow $20,000 @ 6% for 5 years. The repayment is about $400/month. The loan repayment of $400/month is a drain on your cash flow so you stop making contributions to your 401K. You have taken a loan of 50% of your balance. The company matches you 50% on your contribution. Assume your money has been invested in an S+P 500 index fund. The S+P 500 has averaged a 13% return since 1926 (dividends included).

Option A: Do not take the loan

• $40,000 balance @ 13% for 5 years = $73,700
• $400 contribution per month @ 13%, 5 years = $33,550
• Tax savings on contribution (33% bracket)
$132/mo @ 13%, 5 years = $11,100
• 50% company match; $200/mo, @ 13%, 5 years = $16,800
• Total value in 5 years = $135,150

Option B: Take 401k loan of $20,000

• $20,000 remaining balance in plan @ 13%, 5 years = $26,800
• Repayment of $400/mo (loan repayment)
Invested @ 13%, 5 years $33,550
• Extra tax cost since loan repayment not pretax
@ 13% opportunity cost
$132/mo @ 13%, 5 years ($11,100)
• Value in 5 years $59,250

Taking the loan produces a loss to your nest egg by cutting it more than in half.

You know a home equity loan that is tax deductible may be a better alternative.

Calling in sick to work makes me uncomfortable. No matter how legitimate my excuse, I always get the feeling that my boss thinks I’m lying.

On one recent occasion, I had a valid reason but lied anyway, because the truth was just too darned humiliating. I simply mentioned that I had sustained a head injury, and I hoped I would feel up to coming in the next day. By then, I reasoned, I could think up a dozy to explain the bandage on the top of my head. The accident occurred mainly because I had given in to my wife’s wishes to adopt a cute little kitty.

Initially, the new acquisition was no problem. Then one morning, I was taking my shower after breakfast when I heard my wife, Deb, call out to me from the kitchen. “Honey! The garbage disposal is dead again. Please come reset it.”

“You know where the button is,” I protested through the shower pitter-patter and steam. “Reset it yourself!”

“But I’m scared!” she persisted. “What if it starts going and sucks me in?” There was a meaningful pause and then, “C’mon, it’ll only take you a second.”

So out I came, dripping wet and butt naked, hoping that my silent outraged nudity would make statement about how I perceived her behavior as extremely cowardly.

Sighing loudly, I squatted down and stuck my head under the sink to find the button. It is the last action I remember performing.

It struck without warning, and without any respect to my circumstances.

No, it wasn’t the hexed disposal, drawing me into its gnashing metal teeth. It was our new kitty, who discovered the fascinating dangling objects she spied hanging between my legs. She had been poised around the corner and stalked me as I reached under the sink. At the precise moment when I was most vulnerable, she leapt at the toys I unwittingly offered and snagged them with her needle-like claws. I lost all rational thought to control orderly bodily movements, blindly rising at a violent rate of speed, with the full weight of a kitten hanging from my masculine region. Wild animals are sometimes faced with a “fight or flight” syndrome. Men, in this predicament, choose only the “flight” option. I know this from experience.

I was fleeing straight up into the air when the sink and cabinet bluntly and forcefully impeded my ascent. The impact knocked me out cold.

When I awoke, my wife and the paramedics stood over me. Now there are not many things in this life worse than finding oneself lying on the kitchen floor butt naked in front of a group of “been-there, done-that” paramedics. Even worse, having been fully briefed by my wife, the paramedics were all snorting loudly as they tried to conduct their work, all the while trying to suppress their hysterical laughter….and not succeeding.

Somehow I lived through it all. A few days later I finally made it back in to the office, where colleagues tried to coax an explanation out of me about my head injury. I kept silent, claiming it was too painful to talk about, which it was. “What’s the matter?” They all asked, “Cat got your tongue?”

If they only knew!