Dan’s Blog

Stocks Pause for No Cause

Dan Calandro - Sunday, May 21, 2017

Wall Street woke-up at the wheel and tapped the brakes last week. Pessimism ruled the day on Wednesday when the market averages lost 2% and stock market strength gave up 5%. But by the time the week ended all three indicators edged just a half-point lower.

Why the brake check?

A dysfunctional central government caught Wall Street’s attention.

Think of the U.S. body politic right now – a weak and incompetent socialist Republican Party controls both houses of congress and a Republican president sits in the oval office. Yet all too often they seem outmatched in strength, intellect, and will as compared to the communist Democratic Party. As a result Trump's pro-growth agenda looks to be nothing more than a wet dream – a great fantasy that never actually happened. Excitement for a moment, only to be let down seconds later.

This dynamic has stunted stock market optimism. 

Think about what we have in front of us right now. Nothing is getting done. Investigations are everywhere. Democrats have called for a Trump impeachment. And a special prosecutor has been appointed. This prompted the American Left to compare today’s situation to Nixon and Watergate. And that’s just stupid. Today and 1972 have nothing in common.

For instance, when news broke that the Democratic National Committee was broken into and that President Nixon was connected to it, a special prosecutor was appointed to investigate the crimes (i.e. breaking and entering, burglary, vandalism, abuse of power, etc.). The salient points are self evident: First, it was obvious that a crime had been committed and that the crime was politically motivated. Second, the leader of the opposition Party (the obvious culprit to the break-in) was then Republican President Richard Nixon.

No such evidence of a crime exists with the issues surrounding Trump – with either Flynn or Comey – nothing. In fact, several senior Democrat congress-people have recently attested to that, including Senator Diane Feinstein who just reiterated that fact a few days ago. And as ranking member of the Senate Judiciary committee she ought to know.

So everyone agrees – no crime has been committed, and no crime is being investigated.

Truth be told only foreign powers are being investigated. But now that we know General Flynn had conversations with those Russians being spied upon, he is included in that investigation. That’s an obvious and totally expectable outcome. No big deal.

However, the fact that Flynn’s name was unmasked is a big deal, it’s dirty politics – and illegal. But that crime isn’t the focus of any investigation.

 What a joke.

The record of the appropriateness of the content Flynn discussed with the Russians will stand for itself. And trust me, the answer to that is already known. If Flynn did something seriously wrong the American people would have heard about it already. Think of all the time, effort, and money the Left is throwing out there to get that information. If something were out there they would already have it and reported it.

But they got nothing. And that lack of evidence isn’t enough to stop them from talking about a Trump impeachment.

Of course Flynn had every right to have discussions with the Russians, as he was to be Trump’s National Security Advisor when the administration took control after January 20, 2017. The mere act of having a conversation with the Russians wasn’t wrong or a crime, nor was it wrong or criminal to discuss sensitive security issues. That was the job Flynn was transitioning into.

And this nonsense about obstruction of justice is just another inappropriate political stunt. On May 1, 2017, Trump and Comey had a conversation in which the President allegedly asked the then FBI Director to make the Flynn case go away. Let’s say that’s a fact, Trump asked.

What’ wrong with that! Comey works for Trump. A boss can ask an underling a question. Comey said no. They’re both big boys. Move on.

Two days later Comey appeared before Congress and was asked multiple times if he ever received political pressure to stop an investigation? Comey said, “No.” every time. That was May 3, 2017.

No political pressure equates to no obstruction. There’s no other honest way to view it.

And isn’t it no surprise that the FBI Director who charged Hillary Clinton with several crimes only to conclude that “no reasonable prosecutor would ever prosecute” those crimes to also be the one to leak his private journal to the media?

The American Republic is under great threat.

The FBI cannot be a political entity. The leak of Comey’s private journal proves that Trump did the right thing in firing him. He was clearly a political operative. Firing Comey had nothing to do with him not dropping the Flynn case. That investigation goes on regardless of who is the Director of the FBI – as our most recent history proves. And to think that Trump fired Comey to hide his obstruction of justice is to believe that Comey was pressured to drop the case – but Comey himself denies that.  

Democrats who charge obstruction clearly don’t understand the concept and relationship of crimes to investigative protocol. And they also don’t understand the definition of “High Crimes and Misdemeanors.”

For instance, we heard nothing about obstruction of justice when former president Bill Clinton boarded the plane of Attorney General Loretta Lynch while his wife and then presidential candidate Hillary Clinton was under investigation for crimes she committed with classified information.

When the Obama administration illegally traded guns with narcotics dealers in Mexico that were ultimately turned on U.S. Border Patrol and resulted in the death of two agents, no special prosecutor was appointed to investigate the crimes that the “Fast and Furious” program conducted under the Obama administration and Attorney General Eric Holder.

No honest American wants corruption and scandal from either Party. And it is dishonest and corrupt to turn a blind eye to crimes made by members of only their affiliated Party.

But the point here is that crimes must be committed before investigations ensue; otherwise anyone can investigate anyone for no good reason. And that’s not how a free society works. It is a violation of our constitutional rights, the right to privacy, the concept of probable cause, and unlawful search and seizure, to name a few.

When only one Party investigates crimes and the other Party constantly rolls over even without a shred of evidence then a One-Party System isn’t far away.

That is not how our Republic was intended to operate.

Democrat intent is clear – create scandals out of thin air and demand investigations for all of them. This is an effort to paralyze the Trump agenda by burdening Congress with investigations rather than legislative effort, and by distorting public opinion. Their goal is to end 2017 with no significant legislative action so that they could do even less next year due to the impending mid-term elections. They will rally their base to vote to stop Trump, to impeach him – something they will need majorities in both houses of Congress to pull off.

What a mess it is – all of which is being driven by no evidence of a crime.

One thing about Democrats, they fight and fight hard, and they never give up. They stand united behind their president's agenda and actions even when they’re dead wrong and commit crimes. They have no moral compass within their own.

Republicans have no such standard. They are weak and fragmented, and fight like sissies. Senior Republican Senators McCain and Graham were early proponents of the investigations – lack of evidence notwithstanding. And now Senate Majority Leader Mitch McConnell says tax reform has to be “revenue neutral.” Isn’t that great policy from a “conservative”? In other words, McConnell doesn’t think there is a spending problem in a Washington DC even though U.S. central government spends more than the entire GDP of Germany each and every year – a practice started in the Obama era.

Communists and fascists fight for power. Socialists try to buy it. And free market capitalists compete to win it. That’s the difference.

This country has gotten so politically incorrect it’s dangerous. I pride myself on calling a spade a shovel. It’s clear, direct, and accurate. I call Democrats communists because it is a nice way to call them fascists. The descriptors are essentially interchangeable, however. Both have little regard for human life, universal civil rights, or the decency of civilized society. Neither accepts dissention, and both believe their way is the only way – all must fall in line or be destroyed.

No clearer proof of this was the “protest” that transpired on the campus of Cal Berkeley in late April 2017. Students there protested an invited guest of the University named, Milo Yiannopoulos’s. Milo describes himself as a “conservative gay guy.” Watch a video of the protest by clicking here[1].

By watching the video and knowing the speaker we know one thing for certain: this was a protest against Republican and/or Conservative thought. In other words this was a Democrat or Liberal protest – you know, the “tolerant” ones.

Here’s my observation. This is not a protest, it is not an example of free speech, and it is not a constitutional assembly. It is an illegal riot with a purpose to destroy opposing views – the polar opposite of free speech.

Destroying property is a crime. Violence towards others with a difference of opinion is a crime. Both are traits of riots. Riots are not granted constitutional rights. They are crimes. Peaceful assemblies are a constitutional right. Cal Berkeley wasn’t that.

So how do we describe these protestors? As Democrats? As Liberals?

The way I see it is that those two descriptors are of people who openly protest and speak their minds and are willing to discuss and debate topics of great importance. They look to find areas of agreement for a more perfect union.

Communists don’t do that. And neither do fascists.

Communists wear nicely pressed suits and fitted hats when they kill you. Fascists like to cover their faces.

At the Cal Berkeley riot many students wore black garb that covered everything but their eyes. Others wore plain cloths. Call them what you will. I call them fascists and communists, or fascist Liberals and communist Democrats. It is the most accurate way to refer to them – as is the socialist Republican Party.

Yet in the mass media we have to hear about how it was the students at Cal Berkeley exercising their constitutional right of free speech and right to assemble. Sure it got a little out of hand, but they’re kids.

Give me a break. You’re stupid if you believe that.

So you take those two failed Parties, a corrupt media, and add a lightning rod named Donald Trump and what you end up with is exactly what we have: a totally dysfunctional central government.

More and more it looks as if the Trump agenda will die on the vine -- for no good cause. Remember, stocks went on tear after Trump won the election on the prospects of him implementing a pro-growth agenda. It’s only natural for stocks to sell-off as the agenda gets relegated to just another misplaced dream.

Somebody had to say it.

Stay tuned…

  The road to financial independence.


[1] https://www.youtube.com/watch?v=DyC80feMcgU

GDP, The King

Dan Calandro - Tuesday, May 02, 2017

This could be the longest span of time between blogs since I began posting online articles more than six years ago. The reason for my silence is simple: nothing of any significance has happened.—And I never wanted to be one of those pundits who create nothing from nothing. Such a practice has a tendency of producing incoherent pieces that convey nothing of import or purpose, and generally creates confusion among the readership. And while that’s not my style – it is quite common in today’s omnipresent media. Take the case of Myles Udland of Yahoo Finance, for example.

In anticipation of the release of first quarter 2017 GDP numbers Mr. Udland posted an article on April 27, 2017 entitled, GDP – WHAT YOU NEED TO KNOW IN FRIDAY MARKETS – and never will you read a more worthless piece of garbage in your life. It is a good example of what is wrong with conventional investment news and correspondence.

To begin with the article opens with a fallacy: “The biggest economic report of President Donald Trump’s tenure is due out Friday: first quarter GDP.”

We all know that first quarter 2017 is the first economic report since President Trump took the oath of office. But “first” doesn’t automatically equate to “biggest.”

Is that petty?

I don’t think so. Which of Trump’s policies has been enacted by Congress to improve the condition of the stagnant economy?

Answer: none.

So you can say that Myles Udland lost me at hello.

To bolster his erroneous position Udland quotes a gentleman named Neil Dutta, an economist at Renaissance Macro – who should either resign from his post or sue Udland for defamation. Above a picture of Trump, Dutta is quoted, “The data are real, but the news is fake.”

Huh?

Here’s Dutta’s explanation for his “fake” statement and the first quarter results, “The weakness [was] driven by soft consumption and a sharp inventory drawdown. However, underlying growth is considerably stronger.”

What?

Soft consumption is the reason production was slow and inventories were depleted. Weak demand presented businesses with no good reason to ramp-up production and hold higher inventories – which they would have done if growth was “considerably stronger” – which it wasn’t.

The “data” Dutta is referring to is Gross Domestic Product (GDP) – which happens to be the best and most inclusive fundamental of economic activity. Dutta correctly calls it “real” but labels the reported numbers as “fake.” In that statement I’m not sure if Dutta was taking a potshot at Udland’s poor work or if he actually believes the economy is strong. The former would be valid; the latter is stupid.

From there Udland shifts to Global Chief Investment Officer of Fixed Income products at BlackRock financial, Rick Rieder, who’s position Udland summarized like this, “GDP simply does not capture technology and the changes this has wrought on the economy efficiently.”

That’s just silly. The definition of GDP was changed under the Obama administration to include technological investments. But forget about that for the moment. There’s a more salient point to highlight.

Udland’s synopsis of Rieder’s point was corroborated by this quote by Rieder himself, “Vehicle miles traveled are at [an] all-time record. Gasoline consumption, all-time record. Air miles traveled, all-time record. Auto sales running at 17.5 million cars [per year]. Meaning the number we get through GDP, it’s just not calculated right. And it just lags what’s changed in the way that the economy works today.”

First of all, every one of those items Rieder points out are actually included in the GDP calculation. And secondly, isn’t the reason cars and air travel are so prevalent in the world today because technology has advanced so greatly that those things are affordable to so many people?  And aren’t the technological advancements in shale oil drilling somewhat responsible for the drop in gasoline prices, which aids in higher consumption rates (demand)?

This pathetic piece comes to a staggering conclusion: “The challenges for policymakers and economists is figuring out how to best capture what works and what doesn’t in our modern economy. And GDP often falls short.”

I’m not quite sure how Udland can come to such a conclusion when he obviously doesn’t understand the definition of GDP, how the market works, and how technology factors into market dynamics. This, not to mention, that his conclusion has absolutely nothing to do with the title of his article.

No wonder there are so many confused investors in the world today.

First quarter 2017 GDP has followed the same lethargic pace of the last several years; Real GDP increased just .7%. But that is not indicative of a Trump economy. Trump has done nothing to change the direction of the economy, and so this first report can no way be the “biggest” of his tenure so far. Through the first quarter of 2017 Trump simply presided over the continuation of the Obama economy. If you wish to charge first quarter weakness to any one person then charge it to Mr. Obama; his policies still rule the land.

To find “big” economic news reports for President Trump in the first quarter I would point to decisions made by Big Auto to cancel plans to move production to foreign markets and to expand U.S. production, the approval of the Keystone Pipeline, and more recently, the easing of regulations to drill offshore and in the Arctic. Trump had a hand in these things, and at some point in the future they will have a positive effect on GDP – I stress: they will have a positive effect at some point in the future.

So yes it is true that GDP is limited, as it cannot account for positive changes happening in the marketplace until those changes start producing positive market activity. But that doesn’t mean GDP isn’t calculated right or is in some way fake or misleading. If the economy were strong GDP would reflect it. Fact.

But that doesn’t also mean that the stock market won’t provide a completely different message than GDP numbers reflect. The stock market can and does “price in” changes before they actually improve or diminish economic activity. This is the case in the stock market today.

Since Trump won the election stocks have gained 14%; gold is down 1% and yields have jumped 23%. See below.


These trends are consistent with the expectation of Trump policies being put into effect – which is looking more and more like a long shot everyday. His effort to repeal and replace Obamacare has already failed twice in the Republican controlled House; his budget has no chance of Congressional approval as both Parties hate much of his cost cutting plan, and his ambitious tax plan, which is good for markets, has the major obstacle of an opposition Party hell-bent on stopping everything Trump puts forth.

For the record, the biggest economic report that Trump will face in his first term is one that follows the implementation of his tax plan. Fair people will give his plan two quarters to take hold and start bearing fruit.

And if history provides any guidance, GDP growth will double in due course and tax revenues to the federal government will increase. That’s a dynamic that has repeated itself each and every time for the last 100 years. Calvin Coolidge, who presided over the economy of the roaring 20’s, benefited greatly from cutting taxes; as did John F. Kennedy, Ronald Reagan, and G.W. Bush.

So the question before us today is: Will Congress let Trump be the next presidential benefactor of a tax cutting plan?

On this day, if I were king three people would lose their jobs (Udland, Dutta, and Rieder) and Trump’s tax cut plan would go into effect and be retroactive to January 1, 2017. And then the king of all economic fundamentals, GDP, under its current make-up and definition, would predictably and reliably reflect what policymakers should have anticipated from the very beginning.

Growth and tax revenues up strongly, and stocks up sharply. 

Stay tuned…

 The road to financial independence.

Buck Buffett

Dan Calandro - Sunday, March 05, 2017

Stocks continue to adjust to the prospects of a significant Trump tax cut. Candidate Trump ran on reducing corporate income taxes from 35% to 15%, and decreasing the highest personal rate from 39.6% to 25%. The million dollar question still exists: What will President Trump be able to get through Congress – and when?

Speculation is that some sort of tax cut can be expected in late summer. But will tax cuts affect both corporate and personal taxpayers? And will they be as dramatic as candidate Trump advertised?

No one knows.

In any event, it is important to understand the dynamic of what Trump wants to implement. Let’s take the corporate income tax situation first.

Such a change (from 35% to 15%) represents roughly a 30% change in net earnings. That amounts to an according 24% decrease in P/E multiples. See illustration below.

Company A

35% Tax

15% Tax

Earnings Before Taxes

$500,000

$500,000

Taxes

-$175,000

-$75,000

Net Income After Taxes

$325,000

$425,000

$Change in Net Earnings

$100,000

% Change in Net Earnings

30.8%

Share Price

$50.00

$50.00

Shares Outstanding

100,000

100,000

Earnings Per Share

$3.25

$4.25

Price/Earnings Multiple

15.4

11.8

Change in P/E Multiple

-24%


A mere change in tax rate made Company A much more profitable – and thus “cheaper” on a relative basis according to its P/E Multiple.

That’s why stocks have moved higher since the election.

While it’s easy to evaluate a corporate income tax change, the impact of a personal tax reduction isn’t so tangible. Moving the highest rate from 39.6% to 25% represents roughly a 37% tax decrease.—But that’s just for the highest tax bracket; less than 1% of all taxpayers.

The big question regarding Trump’s personal tax scheme is: What do all the tax brackets look like and how equitable are they?

For example, right now there are seven different tax brackets of which 140 million American taxpayers fall. Most Americans (31%) fall into the 15% tax bracket (before deductions).

The top 1% of taxpayers pay 40% of all taxes, and the top 10% pay 70% of the total tax bill. The top 50% of taxpayers pay 89% of all taxes and the bottom 50% pay just 11%. Thirty-seven million, or 27% of all taxpayers, don’t pay any income tax at all.—This, not to mention, that many Americans not only don’t pay taxes but receive a tax benefit (payment) from the IRS via the Earned Income Tax Credit. The EITC costs taxpayers approximately $65 billion per year.

It’s hard to describe this schematic as fair and equitable. Indeed, higher income earners should pay a higher share of the tax bill – but 70%???

The free-market system is driven by one thing: incentive. Provide incentive for people to work, and they will work. Incentivize workers to earn more, and they will work more.

Incentive paves the road to prosperity.

The Trump tax plan has to provide incentive to earners and discourage social welfare. If he does this, and creates a positive environment for job growth, stocks will go on an absolute tear.

More money via less tax payments is the best incentive for earners, and businesses and entrepreneurs to expand. It will lift GDP growth to Trump’s target of 5-6% and investors will applaud with even higher stocks valuations. 

To reform the tax code we as a country need to stop talking about arbitrary labels like “rich and poor” and define what the brackets actually mean and who fall into them. For instance, there are four classes of people: upper income, lower income, middle income, and poverty. Logic would dictate that there should be four according tax brackets.

To establish the highest rate we cannot look to national income averages for guidance; that would only lead to over-taxation to the highest earning territories of the American economy. For instance, to define “rich” as those earning $250,000 per year is erroneous and shortsighted – especially for those living and working in places like New York City. Remember, lowering healthcare costs is a major objective of the U.S. central government. To tax all New York doctors as “rich” is to raise the cost of healthcare in that area – along with all other areas with a similar economic dynamic, i.e. California, Illinois, Connecticut, and New Jersey, etc.

Instead, high-earning economic markets should set the bar for classifying taxable segments for federal tax purposes. Note: these segments are also usually confined to the highest taxing states.

A doctor earning $1 million in New York City is not rich. In fact, a higher federal income tax bill for this doctor automatically creates an according price increase for their services. This not to mention that once their cost of living, city taxes, state taxes, federal taxes, Social Security and Medicare, malpractice and payroll taxes are deducted, this doctor is nothing more than a middle class earner, taxed at the richest rate.

But let’s forget about that for a second. Let’s agree on defining upper income earners as those who earn $1 million per year or more. These people will pay the highest federal income tax rate (plus Social Security and Medicare, of course.)

Next we need to define the middle-income earners. This class must represent the largest number of U.S. taxpayers in the population because the middle class is what separates America from the rest of the world. A strong and vibrant middle class is essential to maintaining the American ideal. These people will be largest in number and pay the lion’s share of taxes to the federal government.

If we can agree that high-income earners start at $1 million income per year, then middle class earners must end there. Their starting income should be $100,000 per year. In other words, anything from $100k to $1 million should be taxed at the middle income tax rate.

No way should middle-income earners pay more than one day’s pay (20%) for federal income taxes. That’s outrageous. As is the case when high-income earners’ pay more than two day’s pay (40%). Remember, these taxpayers also pay state and local taxes as well, including sales and gasoline taxes, Social Security and Medicare.

Enough is enough already.

That said, middle-income earners should pay 15% federal tax (plus Social Security and Medicare); high-income earners should pay 25% (plus Social Security and Medicare). 

That’s fair.

Lower-income earners, those earning between $100,000 and the poverty level, should pay 5% (plus Social Security and Medicare.) This is consistent with the thought that all taxpayers should have some skin in the game –they should hate paying taxes but believe it is just, and for the collective good. After all, the military protects them too.

Poverty level people should pay zero federal income tax, because as the label suggests, they can’t afford it. They should pay Social Security and Medicare but hardship credits should be available to them on a limited, case-by-case basis. 

When tax rates move after establishing these brackets they should move together across the board. If the highest tax rate goes up by 10%, for example, then the lowest rate must increase by that same 10%. This will help minimize the effects of politically motivated class warfare – as will reducing the number of people not paying taxes, or people getting paid to not pay taxes.

The same tax bracket logic should then be applied to corporations. Why should companies the size of Warren Buffett’s Berkshire Hathaway pay the same corporate income tax rate as Mom and Pop Incorporated? That doesn’t make any sense.

High earning companies should pay 15%, middle-income earning companies should pay 10%, and small companies shall pay 5%.

In both classes, individual and corporations, loopholes need to be dramatically reduced and/or eliminated, and tax calculations need to be simplified. This would allow the federal government to significantly reduce IRS staffing and funding.

Also remember that corporations do not pay taxes – they collect them. The price of any good is defined as: Cost + Profit + Taxes. Lower taxes produce lower prices, which would provide further incentive for consumers to spend some of their tax savings. This would add needed lift to the economy – and employment.

If companies are selling more goods, and they are more profitable, they will require more workers. When business expands labor participation increases and wages expand. America sorely needs this dynamic.

And the performance of stocks shows that investors want it too.

According to a recent Wall Street Journal article, “Ordinary investors are buying low-cost exchange-traded funds at a record-breaking pace, adding fuel to the U.S. stock rally. Investors have poured $124 billion into ETFs in [the first two months of] 2017, the most aggressive start since the industry was founded 24 years ago.”

This news arrived on the heels of legendary investor Warren Buffett’s prediction that there is “no doubt” that he will win a bet that a collection of low cost index mutual funds would outperform a basket of hedge funds assembled by asset manager Protégé Partners. Buffett revealed the expectation in his recently released annual letter to shareholders.

The funny thing about this is that Buffett made his claim as if this was some kind of new revelation. Heck, it has been common knowledge since the industry began that the vast majority of professional funds managers fail to reach their stock market benchmark. My book opened with that fact back in 2011. But now that Buffet has finally joined on the concept is somehow novel. 

Buffett went on, “The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients,” – as if the fees, not poor portfolio construction, is the reason for their failure. 

Individual investors should know upfront that they will gain little by listening to Buffett, nor will his preaching’s enhance their investment acumen. Buffett is a has-been, a walking contradiction, a socialist in free-market clothing.

First, let me qualify the socialist element to that comment. Buffett gave a speech in Switzerland several years ago that condemned capitalism and embraced socialism. He has publically supported George Soros, endorsed Barack Obama, likes Bernie Sanders, and campaigned for Hillary Clinton while backing her plan to raise taxes on the middle class.

Birds of a feather flock together.

Second, in his most recent recommendation Buffett is pushing individual investors to low cost index funds. For the record, index funds – like all other mutual funds – are socialized investment products. They take capital from investors and spread it around the market in a broad, sweeping fashion. This decreases individual empowerment and mutes return.

Buffett’s recent annual report boasts a return for his company (Berkshire Hathaway) that greatly outpaces “market returns.” Such a track record earned him the “Oracle of Omaha” title. A chart comparing the returns of Berkshire Hathaway and the Dow Jones Industrial Average from 1995 to present is below. 


During this time Berkshire Hathaway more than doubled market returns, posting a 689% gain compared to a 307% advance by the Dow Jones Industrial Average.

That’s pretty good.

So let me ask this: Why would Buffett recommend that individuals invest in index funds instead of owning shares of his company? Berkshire Hathaway is a broadly diversified company, a pseudo mutual fund in its own right. The B shares of Berkshire Hathaway are only $175 per share, and very much affordable to every investor.

Answer: because Buffett is a socialist.

The difference between socialists like Buffett and free-marketeers like me are basic: He promotes market collectives and I advocate practices that empower individuals.

Socialists try to convince individuals that they are better off participating blindly in collectives, dependent on people “smarter” than themselves, to share costs and profits under the guise of “minimizing risk.” Yet they do the complete opposite in their own lives.

Buffett doesn’t blindly hand his investment capital over to others (unless he’s trying to win a meaningless bet, of course). He invests his own money, in companies that produce quality products and services – yet he recommends individuals should hand their money over to others and take whatever the market gives.

Unlike Buffett, I encourage individuals to educate themselves so that they can take control of their financial assets and invest in portfolios that produce exceptional returns with less risk. I contend that this is not only simple to do and understand, but easy to outperform experts and oracles alike (see my book for step-by-step instructions.)

A comparison between my 15-51 portfolio and Warren Buffett’s Berkshire Hathaway can be seen below. 



During this time my portfolio has gained an amazing 2,604% return – almost 4 times more than the Oracle’s portfolio.

So when it comes to investment, I say buck Buffett’s advice and build yourself a superior performing 15-51 portfolio.

It is...

 The road to financial independence.


Buckle Up

Dan Calandro - Sunday, January 22, 2017

It wasn’t long after Donald Trump gave one of the most unique inaugural addresses in the history of our great country that pundits like Chris Matthews and Rachel Maddow likened him to Hitler. I wonder if those two knuckleheads have ever read even a few pages of Mein Kampf.

To refute their utter nonsense I ask this: Would Hitler ever say, “When you open your heart to patriotism there is no room for prejudice,” as Trump did during his inaugural address?

Of course not.

And since when is placing America first a bad thing?

It’s hard to take the American Left seriously.

Several years ago I walked into a meeting in Chicago and an owner of the company was holding a bust of Thomas Jefferson. He was taping his favorite Jefferson quote to the base of it. Jefferson was his favorite he said, and then asked me what I thought of the icon. I said, “Jefferson was brilliant, a smart liberal.” He smiled and nodded.

The debates back then were for big, complicated issues. The banter between Hamilton and Jefferson on things like a national bank and currency were epic, brilliant arguments. And while Jefferson never shied away from dirty politics he never put forth a naked stance. Deep thought and legitimate tenets always backed his policy stances.

But that is not commonplace with today’s Left. Rarely to do They engage in debate of deep thought. Their way is always the correct way because They say so; and their opposition is always wrong because they always want some type of destruction – because They say it is so. Not because it is, in fact, so.

For example, because Trump and Republicans want to repeal the disaster that is Obamacare (simply look at its performance results for proof of failure) and replace it with something that could possibly work (see: Gruber Acknowledges Supreme Letdown for my 12 point plan) they are somehow illegitimate. But instead of legitimate policy debate Democrats resort to demagoguing their opposition with insidious one-line slogans like: Republicans want to “Make America Sick Again.”

Kool-Aid anyone?

Because they are liberal they can say whatever they want, regardless of factual basis, and without impunity.

But the other side can’t.

If someone merely disagreed with an Obama stance they were immediately labeled a racist. 

A difference of legitimate opinion does not a racist make.

For instance, if a person called Obama a communist then they would have instantly been labeled a racist. Yet according to Obama’s own words in the AUDACITY OF HOPE, he was greatly influenced by “the radicals, the communists.” It only stands to reason that if communists greatly influenced a person then that person might actually be a communist. Whether or not the person was an actual communist is irrelevant. The point is that an actual legitimate basis for the accusation exists.

And for the record, a person cannot be a racist if they believe Obama is a communist. An example of racism would be if a person believes that all black people are communists – and that their belief system is superior to communism. For instance, if a person believes that all black people are capitalists and that capitalism is an endearing position then that person is not a racist. They are a fan.

The far Left in America, the hypocrites that claim to be tolerant and inclusive, are the first to shout down opposing views and demean their opposition as stupid, racist, or fascist. When they lose they are the first to claim foul play, riot and destroy property, and pursue changes to protocol and law to destroy the opposition.

To intimidate with force rather than to persuade with fact and logic are tactics and practices of communist and/or fascist regimes. And governors who do not condemn such practices are either communists or supporters of communists.  

This, not to mention, that every major piece of major legislation passed in the Obama years was rammed through Congress by one authoritarian party and with no inclusion of the minority. That was when Democrat congressional positions included things like, “We won and you lost,” and “You have to pass the bill so you can find out what’s in it.”

A legitimate argument can be made that Democrats are the true communists or fascists practicing in America.

But instead Trump is being billed as that radical – and he has done none of those things or presided over an administration that has excluded the minority party from the legislative process. I’m not saying that Trump will or won’t do these things. I’m just saying that he hasn’t done them yet. So to call him “Hitlerian” like Chris Matthews did is liberalism at its worst – as is describing Trump’s address as “militant and dark,” as Rachael Maddow did.  

So why do I go down this ugly political road in an investment blog?

Because governments control markets – and this ladies and gentlemen is your government and its operating environment.

Trump had an extremely positive message for the America People, American jobs and industry, and American security. But implementing such an ambitious agenda will not be easy with an opposition Party that looks to be doubling down on their failed tactics and inferior agenda. This is not to mention that Trump also has to fight a pathetic and fragmented Republican Party who has sold out the American People so much over the last two decades that it won’t be easy breaking them out of their bad socialist habits.

Trump’s anti-establishment stance put both Democrats and Republicans on their heels at the inauguration. He blamed them both for the so many failures over the last two decades. Good for him. But that won’t make things easier.

Although Republicans should embrace Trump’s message and change their ways they might not. And if they don’t this can get really ugly, really fast; and then who knows how long much needed reform will take.

Investors must keep their eyes on what this new government is doing. It will set the course for stocks and correction.

I reiterate this condition because it is so very important…Trump’s policies if enacted as pitched will force the Federal Reserve to swiftly raise interest rates. That will strengthen the dollar – even though Trump has recently said that the dollar is already too strong. That’s a quagmire in-and-of-itself. In any event, it is these higher yields that will bring about the next major global reset. It will push European referendums to exit the EU and the Euro will collapse. And the crisis that will follow will infect the U.S. and investors all around the world.

That makes Trump’s first 100 days incredibly important – because it will be damn near impossible for him to get anything positive done once the next crisis hits. Democrats, of course, know this. That is why they are stalling confirmations on his cabinet selections, which of course will delay confirmation of Trump’s Supreme Court nominee.   

Investors should remain cautious and keep their antennas raised.

It might also be helpful to buckle up the seatbelt. This is going to be a rocky road.

Stay tuned…

  The road to financial independence.

The Million Dollar Question

Dan Calandro - Monday, January 02, 2017

The Dow Jones Industrial Average was last year's big winner; it posted a solid 13.4% gain in 2016. The S&P 500 added 9.5% for the year, and the 15-51 Strength Indicator recorded an 8.6% gain. All three market indicators ended the year more than 1% off their all-time highs, and more than half of their annual gains came after the November 8th election. There is little doubt stocks ended the year with much more optimism than when they started. See below.


The post election bounce was lead by Financials, who should reap huge benefits in a higher interest rate environment. Higher interest rates incentivize banks to lend; more loans equal more profit. And with the Trump promise of lower corporate taxes businesses will have more incentive to invest in growth and borrow. All of that helped to propel Financials upward by 18% in the final two months of the year.

The move in Financials particularly helped the performance of the Dow Jones Industrial Average, which has more financial stocks and a higher allocation to that market than does the 15-51 Indicator.

Healthcare stocks also surged late in the year, rising some 12% post-election. This in hopes Trump will deliver on his promise to repeal-and-replace Obamacare.

Let us pray.

Another market with a late year rally worth noting is the Defense and Aerospace sector, which added 10% in the final stretch. The rest of the market was spattered with solid single-digit gains.

So there you have it – investors sent a strong message after the election: Trump policies will be good for banks, healthcare companies and defense contractors.

Make of it what you will.

The highest performing Industry in 2016 was Industrial (19%) and the lowest was Financials, which even with the strong post-election performance only eked out a 1% gain for the year. A table of 2016 industry returns is below.


Even though the strong move in stocks stole the headlines, it wasn’t the mainline event for financial markets in 2016. Yields, once down 40% in the year, ended up 8% after a swift post-election reversal. Bond values and yields run in opposite directions.

Yields jumped 31% in the aftermath of the vote and, as expected, the Trump victory prompted the Federal Reserve to finally make another move at their December 2016 meeting. They raised the Fed Funds rate by another quarter-point.

This will be a continuing theme.

Gold ended a rocky 2016 up 8% and continued to take its lead from the stock market. The precious metal lost 10% since the Trump victory and ended the year 16% off its high. This, too, was to be expected. See below. 


To investors I say this: Forget about the stock market as a leading indicator and look to the bond market for future guidance. Yields are the real story. 

Below is an excerpt from SURVIVING THE NEXT CRASH

“And while another act of war on the homeland can obviously begin the next major corrective cycle, I still believe the impetus will be money related: inflation, spiking yields, widespread currency and debt devaluations, the collapse of the Euro, or something along those lines.”

A major problem still exists in Europe. Governments are going broke and the European Central Bank is getting tight. Greece can’t afford itself with historically low interest rates. The same goes for Italy, whose government is in turmoil. Add Portugal to the list, Cypress, etc. etc. – and then add the cherry on top, France. They’re in shambles, too. Higher interest rates will make all of their conditions worse.

Factual Note #1: Trump’s policies will force U.S. interest rates higher.

Factual Note #2: U.S. interest rates drive global rates.

Also from SURVIVING THE NEXT CRASH,

“It’s hard to imagine how much longer the German people will continue transferring their hard earned taxed dollars to irresponsible countries like Greece, Italy, and Portugal, etc. etc…These are the things that break-up unions – currency unions, that is.”

Well it appears that that time is getting closer. After several failed bailout attempts the EU looks to be getting tired of the same old dog-and-pony show. This time around they are demanding member nations to implement reform and austerity measures before another emergency funding program is initiated. But those broke countries – those who either failed to implement austerity measures or implemented policies that made their conditions worse – are unwilling to accept EU dictate and German demands. They just want more money to fund their failed systems. 

And that is the crux of the matter.

At what point does Greece, originator of the EU-Exit movement, leave the Euro in order to reclaim their right and ability to print their own money and debt?

The EU won’t give them any more money. Are they to do nothing?  

The same goes for Italy.

Portugal.

Etcetera...etcetera.

The point is that once one country leaves the currency union others will follow. And then boom, crisis: the Euro collapses and the world undergoes a widespread debt and currency devaluation.

We haven’t even mentioned the many issues in emerging markets and the IMF’s many warnings. Higher interest rates will make that problem worse as well.

And then again there’s this scary point, also from SURVIVING THE NEXT CRASH

“This is not to mention that at some point the Federal Reserve will have to start removing some of the QE money from the economy to avoid hyper-inflation – and that’s going to be a real trick.”

Add the Trump tax cuts into this equation and it really gets tricky.

What a mess it will be.

Like I said when this dialogue began, forget about what the stock market is saying right now. Yields, while still low, are sounding an alarm. They are the most important indicator to watch.

And it is equally important to watch what the new President does. Governments control markets, and this is the biggest change in government we have probably ever seen, a change much bigger than the last one, from G.W. Bush to Obama.

That said, I’ll make one final note before ending this piece…

There is no way to know what the Trump will do once in office. We know what he campaigned on, and we know that he has already backed off some of those promises. Maybe that’s just transitional politics. Maybe not. It’s hard to figure for so many reasons. However what we do know is that his first hundred days will be critical, and very telling.

Perhaps the most ironic thing to come from the election is how both political Parties have claimed victory – the Republicans because a republican won the Electoral College, and the Democrats because Hillary won the popular vote.

But the Republican establishment did everything they could do to derail a Trump presidency. Conservative pundits like The Weekly Standard used all of their power and might to sabotage his chance of winning. Paul Ryan called him a racist and former President H.W. Bush endorsed the other side. As a result of the many establishment condemnations Trump raised little-to-no money and had a mere fraction of Hillary’s campaign budget.

And he won anyway.

The Republican Party, like Hillary Clinton and the rest of the Democrat elites, lost the 2016 election in resounding fashion.

And instead of realizing that they need real change the Parties each positioned the election results as a victory. Democrats threaten to obstruct Trump at every angle and Republicans say they are  “willing to work” with him – a position that purports both Parties as simply tolerating an outcome rather than reforming their misguided operations.

That could spell trouble.

Will the Republican Party with their socialist big-government tendencies fight Trump every step of the way, pissed that he spat in their faces and then smiled from the winner’s circle? Will they water down his campaign promises into useless clichés that accomplish nothing? Will they act swiftly and decisively as Obama and the Democrats did, or will they once again sellout the free-market system by cowering to minority propaganda that produces stupid things like auto-expiring tax cuts and bloated government regs like No Child Left Behind?

What will Trump do and how quickly will he get it done?

That is the million-dollar question.

Stay tuned…

 The road to financial independence.

Trump Wins and Stocks Rally -- What's Up with That?

Dan Calandro - Sunday, November 13, 2016

Well if I was correct in describing Britain’s epic Brexit vote as a modern day Lexington and Concord then the presidential vote of November 8th is today’s version of the Battle of Saratoga – an event where a bunch of rag-tag “deplorables” rose up and turned the tides on the establishment crown, a victory that provided a pivotal turning point in the war against overzealous government.

Sing glory!

Now I’m not saying that Trump was the perfect candidate, or the perfect general to lead freedom’s cause. Far from it. Instead he was simply the only other option to a corrupt establishment candidate who wanted to tax more, regulate more, and force more central government into the lives of individuals and enterprise. This year’s vote was not between two people but between two different approaches to Americanism, a quasi Socialist/Communist system versus a pseudo Capitalist/Socialist structure – and the freer model won the day.

It was a good day for Markets.

On the Monday before the election stocks rose 2% in anticipation of the Clinton win that polls were forecasting. During the daylight hours on Tuesday, Election Day, the expected Clinton victory “appeared certain” – with many pundits predicting a landslide win for her. Stocks rose another half percent on that condition.

And then night fell.

Little-by-little victory slipped through Hillary’s fingers like sand through the hourglass – first Florida, then Ohio, and then Iowa, Wisconsin – and OMG, Pennsylvania?!?

Game, set, and match.

Immediately following this new reality stock futures began trading down. In short order they were down 700 points, indicating a 5% drop in stock prices for Wednesday’s open. That was Tuesday night.

But by the time markets closed on the much-anticipated post-election session stock markets ended Wednesday up 1.4% – and then followed with another 1.2% upward move on Thursday. Friday added another positive fraction, and when it was all said and done the week ended with a strong 5% increase.

Like the polls, market speculation regarding the impact of the election was way off base.

The initial negative reaction to the Trump win was another spoiled-brat impulse by the Wall Street establishment. They associated the Trump victory with an end to easy money and programs like quantitative easing (QE), and they wanted to show their displeasure with it. So they traded that way and sent futures down.

But then two things happened.

First, Trump said he had no intention of firing current Federal Reserve chairwomen, and monetary dove, Janet Yellen. (If true, this would mark Trump’s first mistake as president (see: Issues be Damned)). In any event, the announcement provided Wall Street with a glimmer of hope that easy money would somehow continue, and that tighter money would happen in the most tempered fashion possible.

Second, the hypocrites on Wall Street finally realized that Trump’s domestic policies are actually good for business, investment, and consumers. That is good markets – and stocks. And so they swiftly reversed course and bid prices up higher. The Dow Jones Industrial Average ended the week at a new all-time high; while both the S&P 500 and 15-51 Indicator ended more than 1% of their previous highs. See below.


As mentioned in Strategies for the Winner, buying into a Trump dip would have been premature. In that same vein, buying into a Trump rally is equally as misguided, and way too late for the underlying market condition. Below is the same chart as the above except it includes activity for gold and yields. Their addition changed the chart’s scaling so all items could fit into the picture. See below.


The post-election stock move looks muted in this view -- but take a gander at the jump in yields and the slip in gold. Nothing mute about them. These sharp moves indicate a higher interest rate environment, which is a totally legitimate position. Consider this…

It is no secret that interest rates have been historically low for way too long. Along with Dodd-Frank and other ineffective and prohibitive regulations like Sarbanes-Oxley, interest rate policy has hindered lending and growth. Even though a normalized interest rate policy has been totally warranted and substantiated for a long time, a dovish Federal Reserve under Janet Yellen has been too scared to raise rates to a reasonable level in fear that it would be labeled as the one responsible for causing the next recession or financial crisis when the other shoe finally dropped. Yes, the Fed has talked a lot about raising rates. But because they didn’t have the courage to do it, they allowed bogus data to constantly talk them out of it. And the reason they were so wishy-washy is because they didn’t have a perfect excuse to raise rates, signals were always mixed, and they didn’t have someone or something else to blame if it all went wrong.

Enter President-elect Trump.

One of Trump’s big agenda items is a significant tax cut for businesses and individuals. If purchasing power were to increase quickly and considerably as Trump intends, the flood of new cash into the economy would cause a spike in inflation. That scares the Fed – even though they have been looking for higher inflation for a long time. Like the rest of the establishment world, the Fed simply wasn’t expecting Trump and his ambitious tax-cut plan to win the vote. If they had, interest rates would already be higher. (Count on a Fed move in December.)

The Federal Reserve raises interest rates to discourage borrowing and spending. They do so to control inflation, the general rise in prices. Prices rise when consumer demand increases. Tax cuts increase spending (a.k.a. consumer demand) because more money is available to consumers and businesses to circulate through the economy.

So now the Fed has to move interest rates higher to combat inflationary pressure inspired by the Trump tax plan. Unless, of course, they can convince Trump to slowly phase in his tax cuts like Volker did to Reagan. (That would be Trump’s second mistake as the new president.) But this has yet to be determined. 

That’s one reason I maintain a wait-and-see strategy to investment decisions at this point in time. It’s hard to figure what will actually happen in Trump’s first 100 days.

In any event, the Fed must act (which is the reason yields spiked and gold dropped post-election). But they are in a delicate position. Their inflation target is 2%. The current year inflation average is 1.4%. So they’re not far off. The Trump tax cuts are aggressive and can easily move that needle beyond the target. That said, interest rates need to move a lot higher, fast, and without causing panic – which has already begun. 

International Monetary Fund (IMF) chairwoman, Christine Lagarde, has been warning of a brewing financial crisis in emerging markets that would ultimately reach our shores for a long time. In Take it from Her, posted in February 2016, I said this….

a disturbing revelation came from Christine Lagarde, chairwoman of the International Monetary Fund (IMF), who made a public plea last week for world leaders to greatly increase the emergency funding mechanisms for the global economy. “While the safety net has expanded in size and coverage since the 2008 financial crisis, it has also become more fragmented and asymmetric.” She went on to say that foreign-exchange reserves, central bank credit lines, and the IMF’s own trillion-dollar war chest of reserves were inadequate to meet the growing vulnerabilities of the global economy.

And then several months later I said this in What to Believe

The International Monetary Fund (IMF) has been sounding the alarm about another global crisis brewing for a long time, and it has recently added more fuel to their fire. The IMF downgraded global economic growth again and reiterated their call for “urgent” action by the G20 to stabilize the fragile global economy. They noted that advanced economies [a.k.a. the U.S.] would get hit the hardest during the next crisis, and that that crisis will be driven by the intensification of bank distress in vulnerable economies.”

If you are a believer in Christine Lagarde’s warning, and I am, what do you think higher U.S. interest rates will do to emerging markets?

Emerging markets use foreign capital to fund their infrastructure needs, social security spending, and bank lending. When U.S. interest rates rise so do the rates for the rest of the world. Many emerging markets can’t afford themselves now. Higher rates will only make their problems worse. And it’s already coming to a head…

On November 12, 2016, just four days after the U.S. election, the Wall Street Journal posted an article on-line entitled, Donald Trump Win Has Investors Selling in Emerging Markets. I recommend reading the entire article, but below are some highlights:

  • Investors [were] expected to pour a net $157 billion into emerging markets by the end of the year…seeking relief from rock bottom yields prevailing elsewhere around the world. But Mr. Trump’s election has changed that calculus.
  • The dollar-denominated J.P. Morgan emerging-markets bond exchange-traded fun experienced its sharpest outflow on record on Thursday, with $300 million exiting the fund.
  • Emerging market stocks and bonds suffered about $2.4 billion in outflows over the past few weeks, with much of that cash exiting since the election
  • A fresh selloff rolled from Asia to Europe, Africa, and Latin America as the day progressed Friday. Stocks ended the day down 4% in Indonesia, while South Africa’s [stock] index fell by 2.3%. Argentina’s [stock] index tumbled 3.5%.
  • Currencies took a beating too. Even the Russian ruble, which held up in the election’s immediate aftermath, dropped by .6% against the U.S. dollar.
  • The South African [currency] fell by more than 1% against the [U.S. dollar]. The yield on the country’s sovereign bond maturing in 2026 rose to 9%
  • The Brazilian [currency’s] 5.3% decline against the dollar Thursday was the currency’s largest daily drop in five years.
  • The Mexican peso is down more that 12% since the election.
  • A 2% slump in Indonesia’s [currency] prompted intervention by the country’s central bank.
  • Countries including Mexico, Colombia and Brazil are just beginning to recover from expansionary fiscal policies that widened deficits, drove up inflation, and lowered growth. Many of these governments are suffering from low approval ratings as they enact painful budget cuts. Capital outflows could tip an already difficult balance in the wrong direction.
  • “People pulling money out will hit many emerging markets, particularly in Latin America, at a very weak moment.” [Kerner quote]

A reinvigorated and liberated American market offers the best returns available to stock market investors. As a consequence, investors shift capital from higher risk emerging market venues into American investments. 

Higher U.S. interest rates afford bond investors the opportunity to earn higher income without the increased risk associated with emerging market vehicles. So they remove capital from emerging markets and invest in U.S. debt instruments.

As emerging market debt becomes abundant their yields rise to attract capital; their stocks also sell-off with the worldwide rebalancing of capital. This causes mayhem for local governments, who find it harder and harder to raise capital, pay bills, and function as a legitimate custodian. And before you know it, governments fail and all hell breaks loose.

In Issues Be Damned, I said, “The next president will run into a burning building.” The above is that building, and the fire has already started.

Trump will be tested in relatively short order once in office, and his policies will be at the epicenter of debate. It won’t take long to find out how strong he is, and how committed he is to his limited government agenda. 

That’s why I caution investors on jumping into the stock market hysteria right now. No doubt, Trump promises to be better for stocks than Clinton projected. But neither of them, no matter what they did, could hold off this next onslaught. The seeds were sown a very long time ago, and have since developed an extremely deep root system that makes it impossible to remove without an inordinate amount of excruciating pain.

You can thank Yellen and Obama for that.

Bonds and fixed income investments continue to be high-risk assets, and even more so right now. Yields are still at historic lows and will most certainly be forced higher in the very near future. (Bond values fall when interest rates and yields rise.) A spike in inflation will cause rates to runaway higher.

Gold will continue to be confused for the foreseeable future as it struggles to determine whether higher interest rates are indicating a stronger currency and economy or higher inflation. I expect it will continue to take its cue from the stock market until a definite condition is certain; it will fall when stocks rise, and vice versa.

One last thing…this meltdown that is about to happen – it should have happened long ago. The market should have been allowed to recess as much as it needed in ’08 to completely correct. Instead an overzealous U.S. government led the world in a money and debt ponzi scheme that inflated the disastrous balloon that now looms over us. Like the last financial crisis, this next one could have easily been avoided. But again this time, government couldn’t control themselves.

I can already see Obama from his plush post-presidential office blaming Trump’s policies – and the free market system – for again causing a global financial disaster. If only Trump had followed his program the disaster in front never would have materialized, Obama is sure to say. It is Trump’s fault…that’s what you get when you vote for a reality TV star.

Can’t you just see it?

But Obama will again be wrong. 

Every government intervention causes a future problem.

Trump needs to be strong in the face of calamity. He must have faith in the free market system and resist the urge to re-inflate the balloon as Obama did. That will only kick the can down the road and bring us back to this very same spot in 8 to 10 years, when we will be saying the same things, and fighting the same fight.   

Reagan once said, “Freedom is never more than a generation away from extinction.”

The battle never ends.

Live free or die broke.

Stay tuned…

 The road to financial independence.

Strategies for the Winner

Dan Calandro - Sunday, November 06, 2016

This year’s presidential election reminds me so much of the run-up to the Brexit vote. Almost every academic scholar, political operative, and industrial leader is backing the establishment position, Hillary Clinton. And just like the stance to remain in the European Union, Hillary is ahead in the polls.

But will the establishment lose out again?

That is the question that has paralyzed U.S. markets. Stocks have moved but are flat this year. Bonds and gold have moved significantly and are up 22%. Bond values and yields run in opposite directions. See below.


Falling yields and rising gold values are indicators of economic weakness.

The establishment hates Trump, especially the political institution and Wall Street machine. The polls are tight but Hillary remains ahead, and according to some it appears that she is again pulling away.

Then why aren’t the markets raging with optimism?

Answer: Because no one truly believes the polls this time around – and because the Brexit vote is still fresh in the establishment’s memory.

The airwaves are filled with trading strategies revolving around the election results, and the one I’ve heard the most is to sell into a Hillary rally should she win, and buy into a Trump sell-off should he win.

To make an investment move strictly on election results is a silly thing to do.

Recall that the economy is weak – and yes, I know that the initial estimate for third quarter GDP growth came in at 2.9%. But that’s nothing to write home about. The growth rate has only averaged 1.7% this year – even with the supposed “robust” third quarter factored in. It is, after all, the worst recovery in 70 years.

Yet the stock market hasn’t cared. Stocks are now valued 31% higher than their twenty-year average relative to GDP and 19% higher than they were at the height of the housing boom, and 12% higher than at the top of the tech-boom.

That said, selling into a Hillary rally is a fine strategy if investors haven’t already acted and placed their portfolio on conservative footing – because we know what she will do once in office: more taxes, more regulation, and more big government. If the balloon hadn’t yet burst, it will; and when it does she will try to re-inflate with the same Obama template. And then it will replace the Obama recovery as the worst recovery in American history.

Can anyone say James Buchanan? (PS: Buchanan was the last Secretary of State to become president, and became possibly the worst president in history.)

So yes, selling into a Hillary rally is a good, albeit late, idea.

But to buy into a Trump dip is simply a blind gamble. Does anyone really know what Trump will in fact do should he win? He’s a self-proclaimed dealmaker and neither side likes him. What will he give up to get what?

The best strategy to employ if Trump wins is to wait and see what he gets done in his first 100 days. If he can get a good tax and spending plan through Congress and his administration is successful at cutting regulations and – pray to God – repealing Obamacare, then yes, there will be a good time to buy into a Trump presidency.

But when?

In SURVIVING THE NEXT CRASH I said that I would be shocked if Obama got out of office without a stock market correction taking place. Shockingly, it looks as if he will be that lucky. In addition, it looks as if President Obama will also have the fortune to duck recession. The reason for both of these resides at the very heart of this year’s election debate – corruption.

Quantitative easing (QE) and other easy money policies have funneled trillions of dollars into the Wall Street establishment that have enabled them to manipulate stock market activity to suit their needs – to facilitate their effort to lure skeptical capital off the sidelines. And there is no record of this kind activity, as programs like QE are not reflected in the official reports released by the Office of Budget and Management. It’s like it didn’t happen, and didn’t cost anything.

But it did, dearly.

President G.W. Bush spent $19 trillion over the course of his term, an amount Barak Obama called “unpatriotic” while running to replace him as president in 2008. Obama has spent more than $29 trillion and has added $10 trillion to the national debt – thanks to easy money policies like QE and a pathetic opposition party.

And for his epic central government spending and “investment” programs Obama has averaged only 1.5% real growth per year while GDP grew just $3.7 trillion in the eight years. Pitiful.

It appears then, that if you print enough money and throw it all around it is possible to avoid recession and stock market correction for one eight-year presidential term.

But there is no way to avoid it for two presidencies – or for another four years. 

There is no way the next president, whomever it turns out to be, will be allowed to spend what President Obama has spent in his eight-year term. National debt is 105% of GDP and debt has persisted above the level of GDP longer than at any other time in American history. That’s way too much – and yes, it is unpatriotic because it will bankrupt this nation.

Central government spending must be cut.

For this fiscal year tax receipts are expected to be $3.3 trillion and spending is planned to be $3.9 trillion, a $600 billion deficit. If that shortfall is cut in half (as in total spending is cut to $3.6 trillion) the U.S. will effectively slide into recession.

That is how fragile the situation is. 

But recessions are not always bad – especially if the recession is caused by the shrinkage of the federal government.

If Trump can cut spending, shrink the federal government, and cut all the bogus regulation, the economy will slide into recession and the stock market will sell-off. That’s a huge buying opportunity because the market will emerge much stronger than it has been, to a level not seen since the 1990’s.

So buying into an election dip if Trump wins in November is most certainly a premature investment move.

And if Hillary wins and Washington continues to act like it has for the last sixteen years then we as a country ought to go to the mattresses and wait for the war to end before making a significant investment move.

That is to say that the best strategies for this election cycle are a wait-and-see strategy for a Trump presidency and a hide-and-seek strategy for a Hillary administration.

Vote.

Stay tuned…

 The road to financial independence.

Issues Be Damned

Dan Calandro - Monday, September 05, 2016

The American media has reduced the coming presidential election down to a simple sinister matter: whether Hillary Clinton is too corrupt or if Donald Trump is too crazy to be the next president. The answers to those positions are quite simply, yes and yes. Hillary has proven herself to be too corrupt; and indeed, Trump appears to be too crazy – or at the very least, the craziest this generation has ever experienced.

But so what? These two are all we have to choose from. One will be the next U.S. President, like it or not. Pick your poison. 

Like so many others before this vote will come down to who is the lesser of two evils. We have been here before – and yes, we have survived. But each time we make prosperity harder to achieve.

But it is what it is.

Voters now only have one legitimate course left to travel: to allow a candidate’s proposed solutions to major issues – not Party affiliations – determine where to cast the big vote. To allow a political Party to undermine policy positions is to not care about the future condition of the State. It is to prioritize the power of the Party over what's best for the People. And that position is totally misguided.

A legitimate vote has nothing to do with Party and all to do with positions and solutions to current problems that face the State.

That said, there are some that say if a person doesn’t vote then they have no say in how things go. I totally disagree with that premise. A no-vote is an action, and a legitimate action if both candidates are considered to be repulsive. A no-vote is a valid action of free expression.

NFL quarterback Colin Kaepernick exercised his free speech by not standing for the American National Anthem – an anthem that salutes a country that stands for the freedom for his right to sit through the Anthem and not get executed. Try to do that in Iran or Cuba. Russia or China. Kaepernick’s protest is misplaced. But in a free country a person is free to be stupid.

But to be fair, Colin has a right to sit it out. And so do voters who can’t stand Donald Trump or Hillary Clinton, those who can’t vote for either for whatever the reason. Those people should stay home and sit it out – just like Colin Kaepernick.

The way I see it this vote is one that should be fought out by the two extremes. And yes, if the ambitious middle wants to jump into the fray then by all means go for it. All votes are always welcome. But know upfront that this election is not for the faint of heart. It’s a dirty-ugly-street-fight. Tempers are high on both sides.

And maybe that’s good.

The next president will run into a burning building. The world is at war, militarily, ideologically, economically, and monetarily. The global economy is a wreck, and America’s isn’t much better.

An already low second quarter GDP number was recently revised lower. The U.S. is growing at a rate less than one percent per year and employment is weak. Wages are down. National debt is up and deficits are close to a trillion dollars each and every year. And it’s Trump versus Hillary.

The IMF is calling for urgent preventive action to avoid another financial disaster but the rest of the world think she’s crying wolf.[1]

Not me.

This is the worst recovery from recession in the history of our lives. By rights Hillary Clinton should have no chance to win. She stands on the same platform as Obama. To think that her performance would be anything near Obama’s is a pipedream. That method has nearly run its course. To do more of the same will have worse results and consequences. Nothing works forever.

And this is what this election should be about. Who identifies the key areas that are failing? And what’s the best course of action going forward? Corrupt or not. Crazy or not. Who has the best solutions?

Illegal immigration is without a doubt a huge issue for Americans. That’s why Trump struck such a powerful nerve by bringing it up as aggressively as he did. This is a major problem that threatens the well-being of the State.

Trump’s policy objective to build a wall sounds better than more new laws to many people because the U.S. already has a ton of immigration laws that aren’t being enforced. That makes it impossible for We the People to know whether or not what is already on the books can work. And furthermore, by not enforcing current laws gives the American people no assurance that more new laws will actually be enforced, and for any length of time.  A wall like the one Trump advocates represents an automatic method of enforcement, which is why so many Americans support it.

The Democrat position on immigration is purely political. They believe if they make immigration easy with an open border policy and then provide illegal migrants with free healthcare, welfare, education, housing, and the right to vote, that such action will guarantee the future success for the Democrat Party. Increasing their voter base in this manner, they believe, ensures their political dominance. Such a stance has nothing to do with making America better, stronger, or more fiscally responsible to her taxpayers – for if it did, Democrats would articulate such reasoning.

But immigration isn’t the only huge issue facing the American people. And for as long as the debate is reduced to whether Hillary is too corrupt and Trump is too crazy, other big issues will continue to be removed the debate. And that’s the real travesty because there is still plenty of room for these two candidates to separate themselves well beyond immigration and to lift the debate into something much more meaningful than what is currently had today.

For instance, the U.S. Federal Reserve has turned itself into an illegal hedge fund with absolutely no constitutional authority to do so. They say their balance sheet is worth approximately $5 trillion – more than four times the amount it was before the crash. But I’d be shocked if it wasn’t closer to $10 trillion. But heck, we’ll never know because the Fed can’t be audited. And that enables the problem to get worse.

How?

Below is a recent quote from Janet Yellen, the Federal Reserve Chairwoman, who was discussing actions that the Fed could take during the next financial crisis and recession. (She seems to be expecting one too.)

“Though outside the narrow field of monetary policy, many possibilities in this arena are worth considering, including improving our educational system and investing more in worker training; promoting capital investment and research spending, both private and public; and looking for ways to reduce regulatory burdens while protecting important economic, financial, and social goals,” Yellen said[2].

Two questions: Who the hell does Janet Yellen think she is – and what does the Federal Reserve think they are???

Ladies and Gentlemen, these are not the roles and functions of an unelected group of private bankers! These are central government priorities and actions. These are policies that Americans must endorse or vote against.

We have a runaway Federal Reserve that must be reigned in. They are abusing their power and role; they have lost focus, and are devaluing money to a gross extent. And I don’t want to hear the lame argument that the U.S. dollar is doing well because it is strengthening against other global currencies. That’s happening because everything else is getting weaker. The dollar only looks stronger. It’s a paper tiger, otherwise, interest rates would be much higher than they are today and the Federal Reserve would be tightening monetary supply and not looking for ways to make it looser.

The Federal Reserve needs a complete and utter overhaul and Janet Yellen needs to be the first one to go. They need their scope tightened, their abilities reduced, and their budget cut.

Where do Hillary Clinton and Donald Trump stand on this?—That’s what We the People should be debating right now. These are the things our votes should be based on, corrupt or crazy notwithstanding.

But no, no one is talking about important issues like the runaway Fed. And the reason for that is simple: America has chosen two polarizing candidates for president and the media is enthralled with the polarizing elements of each. Issues be damned.

Stay tuned…


The road to financial independence.

What to Believe?

Dan Calandro - Monday, August 22, 2016

Major stock market participants threw a temper tantrum immediately following the historic British vote to exit the European Union. After a sharp drop in value institutional investors realized that the real threat to market stability isn’t a mere British exit from the EU, but instead a mass exodus that ultimately causes the Euro to collapse. And knowing that such a collapse is well off into the future, institutional investors swiftly reversed course and bid stocks up to fresh new highs. See below.


In the chart above stocks began the period essentially at fair value. In the five years that followed the Dow Jones Average added 49%, the S&P 500 increased 74%, and the 15-51 Indicator gained 104%.

Those are boom-type returns.

Usually when stock prices increase at such a pace and for such an extended period of time the underlying economy is buzzing right along with it, growing at 5-and-6% clips; interest rates are usually high and/or rising, and a healthy rate of inflation is present in the marketplace. Those conditions are good for corporations, which during these times experience expanding revenues and greater profits. Investors are then rewarded with higher stock prices.

But that’s not the case today.

Since my last blog we learned that the economy barely expanded in the second quarter of the year, growing at a pathetic 1.2% rate. Recall that the first quarter was even worse (.8%). Inflation has averaged just 1.3% this year (2.5 to 3% is preferred), and the 10-year yield is resting at a meek 1.5% (it was 5% during the last boom). This is not to mention that the Federal Reserve is scared to nudge rates up another quarter of a point in fear that such a move would derail the “fragile” economy. As an FYI, the Fed Funds rate was 5.25% during the housing boom. It’s just .50% today.

And even though U.S. interest rates remain way too low, at least they are still positive. Over the last several months many sovereign states have held bond auctions with negative interest rates. That’s a condition where investors pay, not receive, money to lend governments their money. Germany just issued a -.5% 10 year bond, and Switzerland recently held a 42-year bond auction with negative interest rates.

That’s a long time to lend money to make zero income!

If things are so good, as the stock market suggests, then why are negative interest rates in vogue?

And why is gold up sharply (+26%)?

Surging bond demand and negative interest rates are symbols of a scared investment community and their flight to safety.

Investments in bonds for stable governments like Switzerland, Germany, and the U.S. are a way to minimize downside loss and protect capital in the case of another global catastrophe. Gold is another way to hedge that risk. And both investment vehicles are up strongly this year.

The International Monetary Fund (IMF) has been sounding the alarm about another global crisis brewing for a long time, and it has recently added more fuel to their fire. The IMF downgraded global economic growth again and reiterated their call for “urgent” action by the G20 to stabilize the fragile global economy. They noted that advanced economies would get hit the hardest during the next crisis, and that that crisis will be driven by “the intensification of bank distress in vulnerable economies.” (see: Take it From Her, for more information.)

That’s why the value of gold and government bonds has risen so dramatically (yields and bond values move in opposite directions). They indicate a brewing economic crisis.

So why, then, have stocks continued to reach new all-time highs?

Because many powerful people from the Wall Street establishment to the U.S. government disagree with the IMF about the imminence and extent of the festering global catastrophe. For instance, U.S. Treasury Secretary Jacob Lew recently said this in response to the IMF at a global economic summit, “I don’t think this is a moment that calls for the kind of coordinated action that occurred during the ‘Great Recession’ in 2008 and 2009.”

This kind of divergent view – one where crisis is on the horizon and needs urgent action, and another where crisis is a distant possibility that does not warrant proactive corrective measures – is a common theme to most crises – especially the last one.

For instance, many people fail to appreciate President G. W. Bush’s multiple warnings[1] about the troublesome conditions that had engulfed Fannie Mae and Freddie Mac during the housing boom. Warnings are great, indeed, but without corrective action disaster is practically guaranteed. Adding to the near certainty of failure was the fact that Bush did make Fannie and Freddie’s condition worse by expanding their resources and capabilities several times during his administration. He knew it was wrong, no doubt, but he needed war funding; and the expansion of Fannie and Freddie was part of the deal – and Congress was unwilling to legislate reform because they didn’t appreciate the brewing crisis.

During the housing boom stocks climbed to all-time highs in the face of numerous bank failures, presidential warning, and an economy sliding into recession. You would have thought investors would have shifted capital from stocks to bonds and gold. But no “the market” continued on to new all-time highs...only to crash seven months later.

Warnings, in any form, go unheeded all the time. 

The stock market has traditionally been a leading indicator of economic activity because stocks can react to news and events long before consumer behavior driven by those same news and events can affect activity in related markets. Stocks are assessed and priced daily. Not true with the economy.

The economy is measured quarterly in the form of Gross Domestic Product (GDP), and those measurements are reported well after many public corporations have released their quarterly financial reports.

Corporate financials are market reports. They tell investors how much market activity is conducted (revenues), its growth rates, and the profitability of that activity (earnings). The stock market adjusts to them as they are released.

It is important to note that market indicators like the DJIA and 15-51i are simply portfolios of stocks allocated in a manner similar to GDP. That is to say that stock prices should reflect the condition and trends of their underlying economies.

But that’s not always the case.

Take 15-51 component, John Deere, for example. They recently announced their second quarter earnings report and the stock jumped 13.5% in a single day of trading. Listen to the reasons for the gain…revenues were down sharply: construction and forestry sales were down 24% and agriculture was down 11%... earnings per share rose for the first time in 10 quarters, and gained a paltry 1%.—And how’d they do it? Well, John Deere saved money by implementing a massive job-cutting program.

Does that sound like Deere is operating in a booming economy?

Of course not. “The market” is dysfunctional and irrational. That, too, is a common occurrance, especially at market tops and bottoms.

So far this year GDP has averaged 1% growth and stocks have gained 6.5%. The Price/Earnings Multiple, or PE ratio, of the S&P 500 has expanded to 25; its average is 15.

On news of lower sales and a long trend line of falling profits, John Deere implements a massive effort to shrink itself and gets rewarded with a 13% gain and a healthy 21 PE multiple. It’s usually around 14.

Any way you look at it, stocks are over-valued and inconsistent with economic fundamentals – a condition ripe for correction.

When that correction will ensue is always the most popular the question.

And no one has that answer.

As I have said before, I’d be shocked if President Obama escaped a major correction before he leaves office. But he might. Congress has given him carte blanche to spend whatever he wants and the Fed has continued to make it easy. 

After all, national debt was $10 trillion when Obama strutted into office and it will be $20 trillion when he saunters out. By the time he exits office his administration will have spent $30 trillion over the course of his eight years. In the same amount of time Bush spent $19 trillion – which Obama called "unpatriotic." The point here is simple: it’s a heck of a lot easier to hold-off recession when a government is allowed to throw trillions of dollars around haphazardly. And haphazardly is a fair descriptor. The economy proves it.

But that doesn’t mean correction will never occur. It just means that Obama will get lucky if it didn’t happen while he was in office. That’s it.

People email me all the time, I should’ve done this, or I should’ve done that. I suppose it’s only natural to question yourself. But to those people I say this…

Read THE BIG SHORT, written by Michael Lewis, or watch the movie based on that published work. With less Hollywood flair the book details the stories of a few investors who watched the 2008 crash develop and bet against the Wall Street establishment – who so often create investment products that they don’t fully understand and then trade them in environments that they fail to properly assess. THE BIG SHORT is a modern day story of David and Goliath, where the little investor beat the establishment because they maintained their focus on fundamentals.

Wall Street has a bad habit of creating unfounded euphoria that is based blindly on greed-ridden ambition. Their actions inflate markets to ungodly valuations that place them in a vulnerable position that can only lead to disastrous consequences for investors and taxpayers. The investors in THE BIG SHORT didn’t buy into their spectacle. Instead they shorted it (in other words, they sold high first during the boom, and then bought low during and after the crash.)

Wall Street was on the other side of their transactions; they bought high and sold low – which is why so many failed and required emergency funding and bailouts.

So if you think Wall Street knows everything, and that your investments are safer with them, think again. 

The same is true with stock market indicators. They are not the know-all and tell-all of economic indicators. Gold and yields are telling a completely different story than stocks. One of them is right.

So the question to ask is: Who/What do you believe?—Jacob Lew or the IMF, stocks or bonds-and-gold, hype or fundamentals?

There are two sides to every coin.

You can either place your bets in the hands of the Wall Street establishment or place them in yourself and what you believe.

Wall Street has been cataclysmically wrong before; and if history repeats like it usually does, they will be hugely wrong again.

Exposure to stocks should be measured. Gold is good and cash is king.

Stay tuned…


The road to financial independence.

Kudos to the Brits!

Dan Calandro - Sunday, June 26, 2016

The Brits had a chance to seize the world dialogue with their Brexit vote and they made the most of it. On Thursday, June 23, 2016, Liberty and Free Markets scored a major victory.

On that glorious day the British people voted to leave the European Union in spite of a well-choreographed full-court press inflicted by the establishment over the past several months, who wheeled out every major scholar, political operative (including Obama), and industrial leader (like JP Morgan Chase’s chairman and CEO, James Dimon), to convince the British people that bureaucratic oppression was better than the independent pursuit of prosperity.

Think about that for a second, in April 2016 the President of the United States argued before the British people that a supranational organization of unelected leaders non-responsive to the will of constituents is better than independence for those same constituents. In other words, it’s okay for unelected people to make laws that must be followed by people who not only don’t want those laws, have no way to repeal those laws, and have no way to petition a Congress or Parliament to change those laws. In other words, laws and procedures with no recourse for constituents is a better operating model than democracy. 

Obama advocated this.  

And if the Brits didn’t agree with King Obama? Well, then, they would just have to go “back in the queue” for trade deals.

The Brits, in the same spirit that liberated us in 1776, served Obama and his ilk the proverbial middle finger.

I join in their contempt.

My case for the ultimate collapse of the EU has always been: How long will the German taxpayer be willing to send their hard-earned cash to fund the Greek Nanny-State, and Portugal, and Cyprus, etc. etc.?

In SURVIVING THE NEXT CRASH[1], I said this…

And while another act of war on the homeland can obviously begin the next major corrective cycle, I still believe the impetus will be money related: inflation, spiking yields, widespread currency and debt devaluations, the collapse of the Euro, or something along those lines.

Friday’s 3.5% downward move in the stock market wasn’t just another wildcat move. It was a move based on something big – a major global event. The British exit from the Euro (a.k.a. “Brexit”) is the first in a series of events that will bring about the next major global reset. It is the beginning of the beginning, a modern day Lexington and Concord.

So what does this mean for the U.S. market, stocks and bonds, and all the other markets that drive global growth?

Not much. England will remain the serious market contender it has always been. Trade will not stop. Military alliance will not cease. And money will continue to flow throughout the world economy. But make no mistake, English succession is going to be a rough and bumpy road; if for no reason other than the EU will not allow it to be an easily travelled path. The EU is going to make it ugly and painful so to deter other member states from following Britain’s lead. An easy British exit would facilitate a mass exodus from the Euro – and the EU doesn’t want that.

But they can’t stop it.

The EU is rife with corruption. Big businesses and big government proponents pump billions of dollars through lobbyists to pass trade and immigration laws that only benefit themselves – the big bureaucracies, labor unions, and large multi-national corporations. The hell with the people is the way they operate because the people have no say, no vote, and no remedy. That is a blank check for corruption.

And the Brits rebelled. While they were the first, they won’t be the last.—And that’s what the markets reacted to on Friday, June 24, 2016. The uncertainty of what happens next.

Never before has a country left the Euro bloc – but already the Dutch are promising to be next. The Italian people are interested in a referendum on leaving, and let’s not forget about the Greeks, who started the movement with their talk of a “Grexit” when negotiating one of their many bailout packages.

So investors could expect a lot of volatility going forward, and I wouldn’t be surprised to see stocks test the lows reached in February 2016 and August 2015. Why not?

The International Monetary Fund (IMF) recently downgraded U.S. growth yet again, and market activity across Europe has been nothing better than lethargic. Chinese growth, the “cause” of the prior two aforementioned corrections, is still weak. Fiscal irresponsibility at the government level remains an epidemic, and the global body politic is in turmoil.

Even with Friday’s price drop stocks are flat this year, and valuations are still rich. There is a lot of room left to fall. Yields continue to drop in America, Germany, and Japan, as investors continue to seek shelter from the storm. And gold is on the rise, indicating a weakening economic and currency environment.


While the EU will make British succession difficult, I doubt they will so stupid as to isolate Great Britain from the rest of the region. That would be suicide. They need a solid relationship with England. Without it the entire Euro Zone is grossly weaker. And even the spiteful members of the EU who want to rip off the Band-Aid, like France, know it.

This puts the EU in a delicate quandary. They could only be so tough, and so accommodating.

Negotiations are going to be very theatrical and will no doubt rattle markets many times along the way. The EU will talk tough and act like a spoiled child who thinks they know better than their parents. And the reason for that is simple. The British vote was a complete and utter rebuke of them and their elitist policies and mentality.

Trump should feel good about that. After all, it is the same sentiment that propelled him to the Republican nomination. Trump has talked a lot about his candidacy being a movement. But that’s not accurate. Trump is not the movement. He is simply riding the wave of the movement, an anti-establishment watershed.

At times it may look like the Brits made a mistake while a new captain navigates their ship through a rough sea, but posterity will vindicate them when their ship makes it through the storm.  Until then, freedom, independence, and free markets shall serve as the beacon of light that guides them to prosperity. That combination always outperforms socialist dictatorships. 

Always.

The question is: Who will follow next?

Stay tuned…

 The road to financial independence.


[1] SURVIVING THE NEXT CRASH can be downloaded for free at www.loseyourbroker.com


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