Dan’s Blog

False Pretense

Dan Calandro - Wednesday, November 30, 2011

The Dow Jones Industrial Average posted another surprising upward move today ending the day over 12,000 points – up another 4.2% (or 490 points.)  When you look at what’s going on in the world right now, such a bold Dow move can seem hard to fathom.  But when you get to the bottom of it all it makes perfect sense.

The world market is under extreme pressure.  Much of the Middle East is in full fledged turmoil.  Turkey is joining an Arab led coalition to sanction Syria.  Iran is seeking nuclear weapons and is hell-bent on destroying Israel.  In response to Iran’s ambition, the U.S. and some of her allies imposed additional sanctions on Iran for its behavior.  China and Russia, those who are profiting most from the Iranian nuclear effort, voiced their angry dissent and shortly after England’s Embassy was stormed in Tehran.  Riots are on-going in Pakistan in protest of NATO airstrikes and aggressive covert operations.  And then there’s Europe, which makes the news today because the U.S. just joined several other central banks to bail out the European financial mess. 

What a mistake! 

Why must American taxpayers now pay for an absurd Greek lifestyle?  Why must Americans bailout the incompetent foreign governments that include Italy, Spain, Portugal, Ireland, and France, to name a few.  Heck, we’re having enough problems bailing out our own incompetent governance. 

Let’s be fair, the U.S. has $15 trillion in national debt at the present time, the economy is in recession, and one-tenth of all workers are unemployed – this not to mention that the U.S. is staring massive cuts to Social Security and Medicare in the face.

Is this really the time, or the best use of American money that we don’t have, (remember, we must borrow money from China in order to lend some to Europe) to bailout another continent?  Is it me, or doesn’t this sound stupid? 

Yet the stock market ran boldly higher today.  Why?

Wall Street loves money, and with today’s Federal Reserve announcement, there will be more money printed, more debt to sell, and more cash for banks – and don’t forget, the Wall Street establishment are banks – they make money with money.  Today’s market move is based on the false pretense that current central banking moves will cure the ailment.  But it won’t.  It can’t.  Today’s action was like taking a pain killer for a broken back.  The only things it did was make it easier for banks to make more money – and harder for you to. 

Unless of course you own a strong portfolio, one constructed with superior 15-51 construction.  Here is how a strong portfolio stacks up to an average one for the past twelve months.

12mos11-30-11

 

That’s the kind of performance you need to stay ahead of inflation.  Superior 15-51 construction makes it easier to make money, build wealth, and manage your portfolio. 

Don’t buy into the hype.  Today’s move was under false pretense.  

Opportunity Knocks

Dan Calandro - Wednesday, November 30, 2011

The DJIA is up strongly today (+422 points as of 10.30am) on nothing short of a pipedream. 

These are great markets to Sell into -- details at 11 ( or thereabouts). 

Isn't it Ironic

Dan Calandro - Tuesday, November 29, 2011

The Dow Jones Industrial Average surged yesterday on rumors that European officials are getting closer to a debt deal. The Dow ended yesterday up 291 points or 2.6%. The above-average 15-51 strength Indicator rose 3.3% on the same grounds. And in early trading today both were in positive triple-digit territory again. Is this new European effort really cause for such a movement?

Sure it could be. But let me say, I find it ironic that the market for free market capitalism (the U.S. stock market) is applauding the pact being sought in Europe – one in which unites the region under one fiscal governing body comprised of a collection of “officials” that aren’t elected by free people. 

American investors would never applaud such a tactic. 

But remember that the German bond auction fell flat and interest rates across the region are soaring (an indication of greater risk.) Add to this a global recession and what you have is one ugly picture. Yet stocks are up, on of all things, a European movement in a direction away from free market democracy.  Why?

In this case, overly optimistic stock prices come from the Wall Street establishment, the traders and investment bankers who believe a consolidation of European debt is easier to sell than individual sovereignty bonds – even if those bonds are from the region’s number one economy (Germany.) Wall Street loves easy money – and in their minds a European pact makes selling their debt easier. So they applaud the move by bidding stocks prices higher – because there’s more money, and more money to be made easier. 

But by so doing, Wall Street thus endorses bailouts and dysfunction over a principled stance on free market success and failure. 

Think about it this way; if a CEO ran a corporation and Greece was a business unit of it that consistently lost money, produced little, and wasn’t willing to work harder to get cash flow positive, they’d be excoriated on Wall Street for not eliminating the losing unit from the organization. Why? Because losing units of the Greek ilk suck resources from units that produce greater returns on investment (ROI.) This drains future growth and mutes long term performance. As a result, the stock price for such a company would be driven into the depths of valuation hell, as investors and bondholders ran from impending doom. 

And rightfully so. 

But we’re not talking about a corporation or a stock. We’re talking about a region called Europe and troubled countries called Greece, Italy, Portugal, Spain, etc. etc. Even though this is a much bigger problem with much larger consequences than just a poorly managed company, broad based stocks moved higher on the bad news. 

Isn’t it ironic. 

Ugly

Dan Calandro - Wednesday, November 23, 2011

Market conditions have been hostile for a long time. This is acutely evident by recent stock market volatility. Yesterday there was a valuation stalemate. Today was another triple-digit loss (the Dow ended 200+ points down). While it’s the same old story retold, look at these ugly Wall Street Journal headlines:

  • Spending Slowed in October (by Eric Morath and Tom Barkley)
  • Nokia Siemens to Cut 17,000 Jobs (by Arild Moen)
  • German Bond Auction Falls Flat (by Emese Bartha, Art Patnaude, Nick Cawley)
  • HSBC China Manufacturing Gauge Falls Sharply (by Tom Orlik)

 

In a nutshell, consumers continue to fall behind, their spending pattern is slowing and their savings are dwindling. Employment is consistently under pressure, with Nokia adding itself to the long list of large corporations to announce massive job reductions. The largest and most successful economy in Europe (Germany) is having a difficult time raising money. And the world’s largest manufacturer (China) is shrinking. 

No mixed signals there. 

This is what happens in times like these. When strong entities consistently bail out the weak, soon the strong becomes weak and has difficultly raising money. When global demand shrinks, manufacturing shrinks. And when the consumer shrinks, markets shrink, and the Dow Jones Industrial Average indicates it. 

 

BacktoMidpoint

 

Ugly. 

 

 

XRef:

Back to the Midpoint

Correction or Bear Market

What the Market Needs

Stalemate

Dan Calandro - Tuesday, November 22, 2011

US stocks remained relatively unchanged today amid a day of mixed news. The U.S. Bureau of Economic Analysis revised third quarter 2011 GDP down to 2% (off 20% from its original 2.5% estimate.) Revisions happen regularly.

Here’s the revised GDP growth for the year thus far.

                 Quarter            Growth

                 1Q ’11              .4%

                 2Q ’11             1.3%   

                 3Q ’11             2.0%

                 Average           1.2%

 

That stinks. Yet profits rose in the quarter. According to a WSJ article titled, Profits Rise as GDP Revised Lower (by Jefferey Sparshott and Jeff Bater), “corporate profits –- after tax and unadjusted for inventories or capital consumption — rose at a 6.5% seasonally adjusted rate compared with a year earlier…”

That’s market activity down (GDP) and profits up. 

In another news conflict, U.S. Banks Post Strong Profits (by WSJ's Alan Zibel) reports that “U.S. banks reported their best quarterly profit in more than four years in the third quarter.” Yet, today, the nation’s second largest financial institution, Bank of American/Merrill Lynch was “warned to get stronger” in an article written by Dan Fitzpatrick. That article “identified governance, risk and liquidity management as problems that had to be fixed.”

That’s bank profits up and big trouble for the second largest bank. 

On days like these, when mixed signals swirl, stock market buyers and sellers often find themselves in a stalemate. That’s what happened today. 

 

 

Stocks Head Back to Midpoint, Again

Dan Calandro - Monday, November 21, 2011

The Dow Jones Industrial Average fell 248 points (2.1%) today, and with it all of its gains for the year. The 15-51 strength indicator ended down 1.4% for the day but remained up 6% for the year. Here’s the year-to-date chart comparison. 

 

YTDcomp-11-21-11

 

Today was the same old story: Europe is a financial disaster and America is right behind, as expressed in these three Wall Street Journal headlines:

  • Bank of Spain Rescues Lender
  • Moody’s Warns France on Rating
  • Debt Panel Meets in Last-Ditch Effort

Now more than ever you must believe in your investments and your asset allocations. Let me know if I can help

 

XRef:

Pricing "the market" and Establishing Action Zones

Easy Money in 1 Year

Dan Calandro - Friday, November 18, 2011

Ever since A Different Kind of Day was posted, the most popular question I get is: Yeah, but how did it perform over the past year with all of this volatility? 

Answer: Pretty good.  Here's the picture.   

EasyMoney1yr

The Dow Jones Industrial Average advanced 7% over the past 12 months.  Easy Money gained 10% during the same time, beating the Dow by 43%.  That's pretty good. 

And You can do it too!

Have a good weekend! 

Fixing the Market: Ax the VIX

Dan Calandro - Wednesday, November 16, 2011

I was drawn to two specific Wall Street Journal articles today:

           * Did ‘Volatility Funds’ Deliver? (Ben Levisohn)

           * Morgan Stanley Settles SEC Case (Brett Philbin and Ben Fox Rubin)

Some cable news pundits can’t get enough of the VIX, the Chicago Board of Trade’s Volatility Index.  They call it the "fear index."  But what actually is it?

The first mentioned WSJ article explains how, "Volatility funds use complicated futures and options strategies to bet on the direction of volatility."  The key word in that sentence is "bet."  The VIX truly is a bet – not an investment, as no real asset (i.e. gold) or business (i.e. Apple) substantiates it. This makes the VIX nothing short of a gamble, nothing short of pure speculation.

Gambling and investment are two completely different things.  As a result, the VIX can’t possibly indicate investor fear.  Instead it indicates the fear of gamblers – those speculating on volatility, not investing in value.  Why should you care? 

"Volatility strategies can be housed inside a mutual fund, an exchange-traded fund or note, a hedge fund or a commodity-trading adviser."  Mutual funds are getting harder and harder to own because less and less in known about them.  Today it seems that the most important feature of a mutual fund is the number of stars awarded to it by Morningstar.  

Listen, mutual funds stink for a lot of reasons -- regardless of their star rating.  I detail a bunch of reasons in my book.  But it's even worse to know that fund managers are playing games in make believe instruments like the VIX with investor’s money.  These kinds of instruments should be illegal in the investment markets – ditto for credit default obligations.  They increase market volatility, risk, and steal wealth from the average investor.

Of course, fraud and deception have run roughshod throughout Wall Street of late. Today Morgan Stanley settled its latest infraction (charging consumers fees that never existed) for a few million dollars.  Add that to a rap sheet ten miles long and soon you’ll realize that you’re the best chance for your success.

Let me know if I could help.

A Different Kind of Day

Dan Calandro - Tuesday, November 15, 2011

I walked into a meeting today with a couple of brokers and their first words to me were, "Wow, Dan – all dressed up today." I smiled and nodded my head. Truth be told, I’m a notoriously causal dresser. But today was different. 

Today was my first personal encounter with the Wall Street establishment since publishing LOSE YOUR BROKER NOT YOUR MONEY. My attire was similar to that of my book cover, which is much different than my jeans-and-a-T-shirt style. But I was anxious to see how they would react to my book – what they would say, how they would say it. So I dressed up. 

Indeed this was a different kind of day. 

It was only yesterday that I thought I heard and seen it all from the Wall Street establishment. But today, on this special day, wearing my Sunday best and staring the Muse in the face, I was presented the most absurd statement ever uttered from a broker’s mouth. At one point in the conversation a broker said that the Dow Jones Industrial Average is "an insignificant index."

Clearly they didn’t read my book. 

Those who have know that I have nothing but the utmost respect for the Dow Jones Industrial Average because it is a brilliant piece of work – and that’s coming from a guy like me who created a market index of his own (called the 15-51 Indicator) that outperforms the DJIA by triple-digit percentages over the long term.  

The Dow Jones Industrial Average is a work of art with a long track record of reliable market indication. That’s why most people refer to it as "the market." 

So let me ask: How could something with such an important title be considered "insignificant?"-- and, Why would a broker say such a thing?

Because we were talking about benchmarking performance returns. The portfolios that broker’s throw together can never outperform the DJIA – or the S&P 500 for that matter. That’s why the Dow is "insignificant." That’s why it no longer matters; no longer counts; and because it’s too small, it doesn’t mean anything. Now they throw the S&P 500 in that category as well. 

Don’t believe it for a second. 

The reason for this new Wall Street pitch is because they’re now looking to benchmark off a global portfolio comprised of thousands of stocks spanning every corner of the world (including troubled European and Asian stocks) because it’s easier to beat, easier track, or both.  By lowering benchmarks, Wall Street lowers standards and expectations so they can sell you more stuff – so they can make more money while you get stuck holding the short end of the stick. 

It’s time to LOSE YOUR BROKER and START MAKING EASY MONEY.

Investment is about performance and building wealth. In order to build wealth your stock portfolio must outperform the DJIA. That’s easy to do with superior 15-51 construction and the LYB method. In fact, using my portfolio builder makes it easy to beat the above-average performing 15-51 Indicator. For example, here’s a portfolio I created using LYB’s exclusive tools, I call it: Easy Money.

EasyMoney5yr

During this 5 year period my Easy Money portfolio beat the DJIA by 1,209% (133% versus 11% respectively), and outperformed the 15-51 Indicator portfolio by 215% (133% versus 62%.)

If your investment portfolio was 50% cash and 50% Easy Money it would have outperformed "the market" by 604.5% in five years; a portfolio with 66% in cash would have outperformed by 403% in the same time. Brokers who say you must be 100% invested (that is to have zero cash balance) in order to produce robust investment returns don’t deserve your business. You could do better.

Gamblin' Men

Dan Calandro - Thursday, November 10, 2011

"The market" rebounded today by posting a 112 point gain after yesterday’s 389 point slide.  If I were a gambling man, which I’m not, I would have bet it would have dropped another 125 points today.  My friend Bobby had his money on a 60 point gain.  (Yeah I wrote the book – but he read it :-)

We all get surprised in life.  Every expert, every investor, every person, can get surprised – especially on a day-in and day-out basis (ask Jim Cramer, it happens to him all the time.)  That’s why stock trading is for gamblers and addicts alike.  But that’s not investment.

Investment is long term.  With investment, logic determines success.  With gambling, logic helps but isn’t necessary – to be successful you must be lucky.  Investing requires no such luck.  Understanding is all that is needed.

This Wall Street Journal headline caught me by surprise today from the moment I saw it.  It was the cause to today’s stock market gain if there was one.

      Economists See Smaller Chance of U.S. Recession (by Phil Izzo)

It was a panel of 52 economists that "put 1-in-4 odds that the U.S. will experience a recession in the next 12 months, down from 1-in-3 chance they were seeing just two months ago."

I bet this panel of economists is also fond of casinos and horse races.  Their jargon sounds more like a gambling ring than an investment circle.

Gambling is short term.  With investment a long term view begins with a 3 to 5 year perspective; 10 years is best.  Focusing on short term news and daily moves only brings more emotion and luck into the equation for success.  It turns investment into gambling.  Why go there?

My friend Billy once said, "You know, the moment you put the words billion or trillion behind a number it seems like most people lose all conception of numbers."

Taking his message to heart, let’s try it this way:

Right now, the U.S. government has $2 of income per year but spends $4.  As a result, it must borrow $2 per year to cover its irresponsible spending habit.  Now, everybody knows the government can’t keep spending twice the amount it takes in.  It’ll go bankrupt if it does, and that will look like Europe right now.

Also at the current time, the United States has $15 of economic activity and $15 of national debt.  That is to say that the U.S. is 100% leveraged.  Greece and Italy fell into hell around 120%.  This doesn’t give the U.S. much room left before calamity strikes here again.

So the U.S. government must curb its spending habit.  And the moment spending drops from $4 to $3 the economy will have no choice but to fall into recession – and then the stock market will dramatically sell off.

This will happen.  Whether it occurs in the next 12 months or 2 years doesn’t matter to the long term investor.  The real money is to be made by buying low (then it’s easy to sell high.)  To do that, you need cash and a plan of attack for when stocks go on sale at discounted prices.  View my 15-51 portfolio builder to prepare that plan and schedule a workshop if you need help with it.

And leave the luck for the gamblers.  They really need it.


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