Dan’s Blog

Action Zone Update: 2012

Dan Calandro - Tuesday, January 31, 2012

The Dow Jones Industrial Average is a market indicator that is priced in current dollars – just like Nominal GDP.  Both "markets" go up and down, expand and contract, inflate and deflate, and both are dependent on the same currency. These dynamics can easily change the Action Zone’s range.  That’s why it needs to be updated.

Here’s how today’s "market" fits into the Action Zone which was recalculated using recently released market data.


Since the last recessionary bottom, which I consider to be the end of 2002, the Dow’s average value was 12,645 points – just 9 points off it where it stands on the day I prepare this blog.  Currently at 1,300 point above the action zone midpoint, "the market" is toppy here – not to mention that it looks scared.  

Anything above the 13,420 mark can be called irrational exuberance all over again – and Wall Street knows it.  They, too, are scared of the volatility that would exist up there and the possibilities of severe split-second sell-offs.  That’s why I wouldn’t expect to see the Dow surge through the action zone’s top.  There’s simple no reason for such a valuation.  Too much bad news is all too frequent these days.

But this is not say that the Dow won’t move outside the action zone to an unjustifiable point, as it did when it hit its all-time high in October 2007 – one year before the market crashed.  Wall Street overreacts to everything, good news and bad, because it usually pushes valuations to the brink before the correction occurs on news that came in "worse than expected."  So when there is a reason to sell-off with dramatic fashion, the stock market will do so and blow right through the bottom of the action zone.  

Why do I say?  Because the proverbial other shoe to drop is one of three things and all of them are really bad for markets and investment.  Once again, they are:

  1. Realization of Recession
  2. Inflation that forces Interest Rates higher
  3. A EuroZone Disaster

All three of these conditions have the potential to bring about a severe stock market correction, which to long term investors, represents the next great opportunity to profit.

Until then have a plan, know where you are, and stay tuned…  

Asset Allocation: 2012

Dan Calandro - Sunday, January 29, 2012

When you look around these days and assess "the market’s" condition it really does seem like déjà vu all over again.  Monetary policy has been cheap and easy for way too long, fiscal governance is irresponsibly spending, and the underlying economy is overinflated and fragile.  It’s all way too reminiscent of January 2007 – but without the "boom."

The housing boom was on its last leg in January 2007.  Remember that in February of that year HSBC warned of larger than expected defaults on subprime mortgages.  Soon after that banks began to fail all over the place, with seemingly every other one was scrambling to raise additional capital.  The housing boom went bust more than a year later in the fall of 2008 – leaving legendary Wall Street firm Lehman Brothers in the dust of its ruin.  After more than 100 years in business, Lehman symbolized the fate of what was a horrible market crash.  

But today we’re not talking about banks failing or subprime mortgage failures.  Instead today we are talking about countries going bankrupt and civilizations on the brink of calamity.  Will they all make it though the storm?—And if not, which ones will fail – and how bad will the damage be?  

Like in 2007, 2012 is the time for investors to play defense and position their portfolios for the buying opportunity that is sure to come.  Market fundamentals have been pointing to such an opportunity for some time, and the evidence keeps coming.  In times like these, what your portfolio needs most is smart design and superior construction.  

What I mean by smart design is an asset allocation that will bode well in the current Market condition and for the five years beyond.  Your approach to investment should have this wide view and long-term perspective; otherwise it’s easy to get lost in current daily events, which then makes it easy to make bad investment decisions.  

There’s simply no reason for that.  

Like in 2007, your 2012 portfolio allocations should reflect these undeniable truths: Cash is king, Gold is queen, exposure to Stocks should be Small, and Bonds are for Gamblers.  (For more explanations to these please refer to chapters 6, 7, and 8, of LOSE YOUR BROKER NOT YOUR MONEY.)  

That said, below is a conservative portfolio allocation heading into what I expect to be a rocky road in 2012.  


Asset Class:












Now, I know Wall Street brokers hate when investors have money sitting around on the sidelines idle and "not earning" money.  What a load of bull.  

They say that you have to be fully invested to capitalize on long-term stock market returns, that total return relies on 100% automatic reinvestment of dividends and interest, and that broad market diversification through a blended basket of several different types of mutual funds are required to minimize stock market volatility and maximize long term investment returns.  

Nothing can be further from the truth.  

Recall, first, the well known fact that the vast majority of mutual funds fail to outperform "the market" consistently over the long-term.  If one mutual fund can’t do it – then 4, 5, or 6 have even less of a chance doing so.  It’s too much of too much, and impossible to produce above-average investment returns .  This, as we know, is required to actually make money with investment.    

So I say don’t buy into their hype.  In times like these, all you need is smart design, superior construction, and the Lose Your Broker way.  It really is that simple.  

To show you an example of how such a portfolio would perform in times like these I’d like to offer you a KISS as a gesture of good faith.  I call it: the Keep It Simple Stupid portfolio – KISS, for short.  

In the KISS portfolios to follow, their performance trend does not recognize dividends or interest earned.  Call that unrealized vig.  Gold investments are shares in the gold SPDR traded under symbol GLD.  The stock portfolio is the 15-51 Indicator, which as we know, is not a great portfolio but an above-average one.  It was bought and allocated on the first trading day in ’07, and therefore signified as 15-51i ’07.

The KISS portfolio, with smart design and superior 15-51 construction, is a prudent way to approach the next five years – just like it was in January 2007.  (See previous blogs for further explanations.) Here’s how that portfolio performed in over the past five years.


Thanks to smart design and superior construction volatility has been virtually removed from this KISS portfolio while it produced a robust 28.4% percent return – strongly outpacing the DJIA which gained a lackluster .3% gain.  The KISS portfolio outperformed with a 75% cash allocation, mind you, and turned the $50 thousand initial investment into $65 grand in a terrible five year span for "the market."  

That’s smart design and superior construction.  

This is how I define "conservative" but only you can define your investment posture.  I expand my definitions of investment posture this way:




Asset Class:
























Here’s how these portfolios performed over the past five years.  


Regardless of their make-up, the smart design and superior construction method produces more return with less risk – contradicting another one of Wall Street’s tried old mantras that only more risk produces more return.  So not true.  

I’m a Keep It Simple Stupid kind of guy.  There’s no reason to over-complicate things here.  That’s Wall Street’s thing.  Not mine.  The Lose Your Broker way is a quite logical approach.  Above-average construction and smart design will always outperform average construction and fat and lazy design (speaking of the portfolio your broker threw together for you.)  Call me crazy but it makes total sense to me.  

Lose Your Broker is the place for efficient construction and high performance.  It’s also a place where past performance is indicative of future results – because markets act according to the way they are built and managed.  To understand markets and their motivating factors is to know the course of investment.  To understand markets you must understand the governments that control them.  

Governments inflate markets all the time to suit their political agendas.  Inflating markets to the brink of collapse takes a bit of time, like the last time with the housing-boom.  President Clinton ran on a platform that included making housing more affordable to lower income people via subprime mortgages.  What gained steam in the 90’s collapsed years later in the fall of ’08.  

That’s why patience and a long-term perspective are required to succeed with investment.

Acknowledge that we are making the same mistakes today that we made during the run-up to the last meltdown.  But this time it’s not just the housing market we are inflating, not just the green energy market – but the entire market!

More than ever before, today the government is recklessly throwing money around to serve their own political agendas – without regard to profit.  That’s politics and negligence.  Not investment.  Herein lay the problem with an overactive and imposing government force in the Market. It changes their purpose and causes them to become disjointed and misguided – because they operate for politics instead of profits.* 

That’s bad for markets and investment.  

Stock market corrections usually follow and extended period of inflation and monetary failure – a.k.a. failures in government management.  Sometimes economic balloons are easy to see, like the tech-boom and housing-boom, and other times they’re not.  Today’s balloon is a different sort of beast.  It’s not creating mass market wealth like most yet it is so more misguided.*  

Today a major debt balloon exists, caused by a prolonged period of monetary and fiscal failure that will end in a much more severe fashion than the last unfortunate circumstance.  Why? 

Because all over-inflated balloons bust.  And this one will too.  

The time of bust is the time to invest in above-average stocks trading at discounted prices because the American Market will never crumble.  To do so you need cash and courage.  

Prepare your portfolio now and KISS your broker good-bye. And let me know if you need help.

Market Up, Stocks Down

Dan Calandro - Friday, January 27, 2012

4th quarter GDP numbers were released today and they stink (really no surprise.)  Total market activity grew just 3.9% in 2011 – but only 1.7% when adjusted for inflation.  Inflation, the cost of money, outpaced economic activity by posting a 2.1% increase in prices.  

The Dow Jones Industrial Average leads GDP up during economic expansions and down during recessions. Since the last real recessionary bottom (end of year 2002), the Dow appears to be indicating an economic expansion as of the current time.  See below.


Remember, the Dow’s goal is to indicate the market – Nominal GDP.  During boom cycles, like the housing boom which occurred in the 2002-2007 years, the Dow will greatly outpace Nominal GDP.  When investors and traders are scared of overvaluation the Dow will stay close to Nominal GDP.  In any event, the Dow is indicating expansion here, however so slight, even though it doesn’t feel like one.  

The difference between the straight green line (Nominal) and the dotted green line (Real) is the inflation gap. To put it into words, inflation is responsible for more than 2,000 Dow points during this time period.  This proves once again that you need to beat the Dow in order to make money with investment, otherwise inflation will rob you blind.  

Of course, the argument can be made that 2002 was not the "last" recessionary bottom (even though I think so) but instead the 4th quarter of 2009 was.  2009 ended with the clinical definition of recovery – two straight quarters of market expansion – following the market crash in 2008.  But a two year GDP/Dow trend isn’t quite enough to get a good feel for "the market" condition.  I believe at least five years of data is required for such an analysis.  Below is that 5-year chart. 


Here the Dow is indicating a recession in Real terms (adjusted for inflation.)  This chart also suggests that the Dow will have to regain its all-time high to indicate economic expansion.  (As an FYI, that all-time high of 14,100 occurred in October 2007 – one year before the 2008 crash.)  I’d argue that this chart is a more accurate indication of "the market" condition.  

And why not?  The world economy is a mess.  Just a few days ago the International Monetary Fund (IMF) warned of a European recession in 2012 that could turn into a "deeper downturn" should their governments not take aggressive action to curb their debt crisis.  PS: That means dramatically cutting government spending.  

But spending cuts alone will not get the job done.  At the same time, Europe must adopt aggressive pro-growth fiscal policies to expand their markets and put their people back to work.  Today Spain announced that their unemployment rate has escalated to 22%.  Yikes!— almost 1 out of every 4 Spaniards is unemployed.  How could they possibly pay back their debt with so many people not generating tax revenue?  

There’s a major problem over there.  And there’s no way to escape it.

Add that to more evidence that wholesale inflation is on a rapid rise here at home and what you have is one troubled market.  Also in today's news, consumer staple powerhouse Procter & Gamble reported a drop off in profit to the tune of 49% in the most recent quarter, citing among other things, higher commodity costs as the cause.  It’s only a matter of time until producer price pressures reach consumers.  And stocks won’t like that either.

In the coming days I will blog about asset allocation and adjust the action zones for 2012.  Stay tuned…

Heads Up

Dan Calandro - Monday, January 23, 2012
The Dow Jones Industrial Average ended today at 12,700.  The 15-51 strength Indicator closed at 51,260.  It gained 1.04% today, outpacing the Dow by ten times, which ended the day down a mere .1%.

Lack of actual news has slowed stock market volatility.  Investors and traders look almost paralyzed, wishing "the market" up five straight sessions, but with little show of confidence.  Everybody’s waiting for fourth quarter numbers, or waiting for all hell to break loose in Europe.  "The market" looks scared. Really scared.  So today I set out to answer the question:  Exactly how bad is the situation across the pond? 

You won’t like what I found.  But before I say – Are you sitting down?

Are you sure you’re sitting down with no risk of injury?  You’re sure.    


As I mentioned in LOSE YOUR BROKER NOT YOUR MONEY, the next piece of bad information to hit "the market" would cause it to swiftly correct and sell off with dramatic fashion.  I pointed to inflation, the cost of money, as the major cause for concern.  Inflation will raise interest rates and tighten money even further.  This will slow market activity significantly – which will cause the stock market to correct – which will further pressure banks – and homeowners hanging on by the skin of their teeth.  That’s bad enough.  But what’s even worse is that inflation will raise the cost of government debt.  And sadly, that’s the picture in today’s story.

If you have been reading my blogs you know that the United States of America is 100% leveraged – $15 trillion of national debt against a $15 trillion dollar market economy.  Consider a healthy state to be a 65% debt-to-GDP ratio.  In other words, 100% leverage is about 35% points too much in debt.

In fact, 108% leverage caused the Italian government to collapse – in other words, $1.08 of debt for every $1.00 of market activity caused its government to fail.  Think about that for a moment.  The Italian government crumbled under a debt load just 8% points higher than the current U.S. level.  That’s pretty scary – but heads up!  

Consider that Greece, the major thorn in Europe’s side, is 174% leveraged, Spain is 154%, France is 182%, and Germany, Europe’s largest market, has 142% in national debt.  Ireland has an eye-popping 1,165% in national debt – OMG!  And these are not to mention all the other countries in major trouble, the Netherlands (344%), Portugal (217%), Sweden (187%), and Finland (155%), to name a few.  

These levels are way too high!  But wait…Are you still sitting?  

Are you sure you still have no risk for injury?  Okay.  Know that America’s greatest ally, the United Kingdom of Great Britain, is 400% leveraged – and China has just 5%.  

This is not good.  Inflation will drive the cost of borrowing through the roof and China will be there to solely gain – because they have money in hand and plenty of room to leverage (print) more.  
There is only one way to win such a battle.


America, and in fact the world, needs growth more than it needs anything else right now.  Government budgets can no longer be cut fast enough; fiscal restraints are no longer the silver bullet.  Real growth must accompany them.  And it must be brisk – with .45 caliber force.  

Otherwise this stock market will sell-off faster than a pig into a mud hole.  Count on that -- and don’t’ get sucked into the fluff.  Market conditions remain extremely negative, and the stock market is full of speculation.  

Stay tuned... 

The Road to Here

Dan Calandro - Thursday, January 19, 2012

This is where I stand and how Lose Your Broker got here.  It's an hour long show, and once again, I think you'll find it entertaining.  I hope you enjoy it!

Click here to take a Listen,

Talk soon,



Dan Calandro - Tuesday, January 17, 2012

I haven’t blogged for a few days and there’s a reason for that – there’s not much to say, nothing much has changed with the Market and its condition thereof.

As mentioned in a previous blog, the Dow Jones Industrial Average continues to tip-toe towards the point it reached right before things got really crazy last year (12,800).  First of all, it’s easy to be optimistic this early in the year.  There’s eleven more months in the year, material data hasn’t yet been released, and we just came off the holidays.  No new news is good news.  That’s one reason the Dow closed up 50 points today to 12,472.  

Another reason is that the stock market continues to speculate about whether or not we are in a recession of if a "double-dip" is on the horizon.  Pundits, experts, and television promoters fuel this transparent debate.  Economic expansions are great for business, investment, and markets.   It appears that if there is no recession consensus there is no recession.  And for this misguided uncertainty, stocks continue to trade valuations above the action zone midpoint.  

As I say in my book, take your cues from Market fundamentals not stock market activity.  If you do this you’ll always be ahead of "the market."  And if you’re going to be ahead it, you have to be patient to make your investment moves.  

Market fundamentals remain consistently negative.  Here are a few headlines from today’s Wall Street Journal:

  • Kraft Plans to Cut 1,600 Jobs, Raises Full-Year View (Paul Ziobro)
  • FDIC Proposes ‘Stress Tests’ for U.S. Banks (Alan Zibel)
  • China’s Growth Engine Declines (Tom Orlik and Bob Davis)

In a nutshell, more unemployment, continued concerns over the U.S. banking system, and more recessionary pressures from overseas.  None of this is good.

As WSJ journalist Timothy Aeppel so eloquently put forth in his article entitled: Man vs. Machine, a Jobless Recovery, "In no other U.S. recovery since World War II have companies been simultaneously faster to boost spending on machines and software, while slower to add people to run them."  In other words, companies like Kraft are generating more profit with less people and more machines.  While that may be good for Kraft it’s bad for the market because consumers are market, and unemployment weakens them.   

Now, I hate the term "jobless recovery."  It is impossible to recover without an increase in jobs. Unemployed workers are unemployed consumers.  Knowing that consumers are market, it is impossible for markets to recover without consumers going back to work.  It’s like a high-powered engine without sufficient fuel.  

And if you think the U.S. banking system is out of the woods then please think again.  The FDIC wants to test the risk profiles on several more U.S. Banks not because everything is hunky-dory but because they’re concerned about them.  The FDIC insures bank deposits – and I’m not one of those who believe in the $250,000 limit per account. Can you imagine the chaos that would ensue should banks not honor deposit commitments for businesses with million dollar accounts that are used to pay employees?  It’d cause pandemonium.  That’s why the FDIC is looking to perform risk assessments on banks – they don’t trust them – and perhaps they want to adjust their insurance premiums accordingly.  As an FYI, the FDIC had a negative net worth of $7 billion through 2010.  Even they’re on shakey ground.  

Add to this the continued proof that China’s growth is slowing, that Europe is shrinking, and that inflation is starting to pressure U.S. profits, and what you have is one really ugly picture for stocks and markets.  

Yet the Dow continues to hang around the 12,500 mark – more than 1,000 points above the action zone midpoint, or 11% higher.  That’s pure speculation and I caution you from buying into it.  

Once again, investment is not about buying at the lowest and selling at the highest.  It’s about buying low and selling high.  "The market" is high here but specualtion can easily cause it to move higher (like it did last year.)  Prepare your portfolio for the opportunity that is sure to arrive.  But it still may take some time.  

Patience is a virtue.  

You Are Here

Dan Calandro - Wednesday, January 11, 2012
One of my first blogs ever posted was entitled: Pricing "the market" and Establishing Action Zones.  That blog explains the logic behind the Action Zone – an area in which the Dow Jones Industrial Average should trade.  The purpose of the Action Zone is to help investors determine how "the market" is valued based on historical performance.  In other words, it’s a mechanism to help investors gauge whether stocks are overvalued or undervalued – or put yet another way, whether it's a good time to buy or sell stocks.

Here is how the Dow performed within the Action Zone during the last twelve months based on my calculations in the aforementioned blog.


The green line in the middle is the action zone Midpoint, a point where stocks can be considered "fairly valued."  Anything above that point can be considered "over-valued," while anything below it can be figured to be "under-valued."

This is not to say that periods of "irrational exuberance" (like the housing boom) won’t propel the DJIA well beyond the action zone high watermark.  And it’s also not to say that times of panic (like the crash of 2008) won’t cause the Dow to plummet well below the action zone bottom.  Remember, the stock market is free to run wild on speculation and overreact to everything.  It routinely does so.  That’s part of the game.  And that’s okay.
Investing is not about buying at the highest and selling at the lowest.  It’s about making money – about buying low and selling high.  And the best way to do that is to know where you are in the trading zone and to pick a spot to act that suits your objectvies best.  
I hope this blog helps you understand where stocks stand.


Dan Calandro - Saturday, January 07, 2012

If the most recent jobs report was something to write home about the Dow Jones Industrial Average wouldn’t have laid an egg since the news broke.  The report revealed that the unemployment rate – not unemployment per se – decreased a mere .1%.  Excuse me if I don’t throw a party.

First, 200,000 jobs isn’t nearly enough when you’re in the mess We are – especially when considering that these jobs were added in December – the busiest spending season in the American market by far.  Second, the unemployment rate does not consider those workers who fall out of count because of expiring benefits.  It’s not that these people got jobs, it’s that they no longer factor into the unemployment rate because they can’t receive benefits.  Bottom line: the unemployment rate still stands at a painful 8.5% level.

That’s why "the market" didn’t show any mojo after its bold 200 point surge on the first day of trading in the New Year.  Remember, the first part of last year was nothing like the second.

In the first half of the year there is less consequence to overzealous stock market valuations.  First quarter shortfalls can easily be made-up in the three quarters to follow.  No reason to worry.  And in a different vain, great first quarter numbers are speculated to continue for the remainder of the year just as easily.

Here’s how the Dow performed during the first six months of last year.    


Not bad at all. "The market" was up 8.7% half way through 2011.

And then Wall Street woke up and read the news that had been there all along. 

  • Unemployment was 9% and economic growth was slow
  • Europe was falling apart, and
  • Consumers were falling behind

This, of course, is not to mention the worldwide collapse of prudent monetary and fiscal policies from central governance – which caused revolutions across the globe, like in Egypt, Libya, Syria, just to name a few.  Accurately, the Dow showed a completely different picture in the second half of 2011, losing a few points, before ending up 5.5% for the year.  Here it is.  


The point of this blog is to alert you that "the market’s" behavior can be much different in the first of a year than the second.  There’s more room to speculate in the beginning because at least 75% of the year still remains.  It’s easy to be overly optimistic early in the year.

It’s the kind of optimism that all professional sport teams experience as they break camp – all with hopes and dreams of championship runs.  But then it gets halfway through and pretty much everyone knows the score for the year.  The same is true with the stock market.

To that end, maintain your investment discipline, base your decisions on Market fundamentals, and stay true to your life experiences.  They’ll rarely lead you astray.

Stay tuned…

Asset Allocation

My First Spot

Dan Calandro - Thursday, January 05, 2012

I have some thoughts about today’s market, and making money in it, but I’ll hold that for another day.  Besides, nothing much has changed.

Today I was lucky enough to land my first public radio spot on Ashford Radio.  It’s an extremely progressive internet radio site.  Please take a break and click below to listen to today’s interview.  But in an effort of fair warning, know that they kept me for a 30 minute spot – so get comfortable, pour yourself a drink, and let me entertain you.  It was great fun.

So much so, in fact, later today we inked an 8-part miniseries tentatively named: "Losing Your Broker, with Dan Calandro," to take place every Thursday morning starting next week.  I’m really looking forward to it.

Let me know what you think.



Click Here to Listen to Dan’s 1st Public Appearance 

Challenge Your Method

Dan Calandro - Tuesday, January 03, 2012

Randomly picking stocks, throwing them together, and then waiting for a Muse to place a perfectly timed sell call doesn’t constitute a portfolio or investment.  People who do this are not investors.  They’re gamblers.

Ditto for people who own mutual funds and allow their brokers to buy and sell them on a discretionary whim.  These people are not investors.  They’re people with money to invest.  Big difference.

Investment isn’t an act – it’s a method, an understanding, and a perspective.  If your investment portfolio doesn’t consistently outperform "market returns" it’s time to challenge your method!

The Lose Your Broker method is easy to understand, simple to use, and produces superior investment results.  But it does require effort (everything worth having always does) and it does take practice.  And once understood its tactics are easy to work into any hectic schedule.

Rest assured, you have the time, skill, and experiences to invest successfully.  All you need is the tools and information to transform them into successful investment techniques.

That’s the purpose of the Lose Your Broker brand: its publications, website, and blogs:  To support likeminded investors in their quest for financial success and independence.  And with the Dow closing at 12,400 today, it’s a great time to get started.

Let me know if I can help.


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