Dan’s Blog

Dow 13,000, No Big Deal

Dan Calandro - Tuesday, February 28, 2012

Those who have read my book know that the Dow Jones Industrial Average (DJIA) and the 15-51 Indicator started 1996 at 5,117.  The Dow closed over 13,000 points today and for the first time since May 2008. Some thought it was a big deal.  

Not me.  

The 15-51 strength Indicator closed the day at 59,633 – up an amazing 373% since it last ended a session at 13,000, which was in March 2003.  The Dow returned just 38% during this same time.  With superior 15-51 construction, the 15-51 Indicator produced roughly 10 times more return than "the market" during this long stretch of time.  Now that’s a big deal!  

The same is true in the short term.  The Dow returned 6% for the most recent 12 months while the 15-51 Indicator gained a superior 30% return – five times better for the period. Below is a picture of the same story with a different look.  

2-28-12

Consider each graphical point on my charts to represent a single dollar.  In this example, the 15-51 Indicator started the period at $45,571. The Dow, which started this period at 12,273 points, was scaled up to match the Indicator’s starting point.  From there they traveled their own course until the period ended.  The 15-51i turned $45,571 into $59,633 while the Dow produced $11,000 less.

Even though the scale has changed the picture is still clear.  "The market" is at the top of its range and looks scared to be there – so unlike the 15-51 Indicator which has exploded through the action zone high point.  This dynamic performance makes it easier to make money in the stock market.  That’s what superior construction does.  

That’s one point.  

Another is to notice the obscene spike in the 15-51i’s value when considering the dreadful market conditions that currently surround it.  Take this as a red flare warning. Hyperinflation of this kind brings about steep and swift stock market corrections.  So REALLOCATE your portfolio now if you already haven’t done so!

But if you have appropriately planned ahead then hold onto your hat and wait for the sale extravaganza to begin.  

Stay tuned…

Recessionary Proof

Dan Calandro - Sunday, February 26, 2012

I keep hearing television pundits’ claim that there is no threat of a "double-dip" recession.  To offer one specific example, Larry Kudlow has recently promulgated such a notion. And Larry’s has a lot of creds; he worked in the Reagan White House and has popular shows on CNBC and ABC radio.  

But he’s dead wrong on this one.

The government is artificially inflating the market with wasteful government spending to make it look like there is no recession when in fact there is. Reckless government spending puts forward a facade that everything is okay because Gross Domestic Product (GDP) is growing, however so slight, making it appear "not in recession."  (This misconception also explains how the DJIA can be speculated to a valuation so high in the action zone.)  

This is a dangerous mindset.  And it isn’t true.  

You don’t have to know Ronald Reagan or work in the White House to know that the power of the American market resides in the free-market.  But that market, the free-market, is in recession and has been for a long time. To think to the contrary is to be misguided.  

As Ronald Reagan knew all too well, the American market is most strong when it is lead by free-market activity – not government spending.  In the chart below, the green line represents the total market economy (nominal GDP).  Notice that the blue line has receded to below the green line since the 2008 crash.  That’s free-market shrinkage – also known as a recession.  

Recessionary-Proof

If these lines represented stocks, the one you would want to own is the red line – the U.S. government.  Its bold upward trend reveals massive government expansion that came at the expense of the free-market.  In other words, We the People are shrinking and the government is expanding. That’s why it feels like a recession.  

That’s also why some people, looking at charts with only one green line on them, can be misled into believing the Market has recovered and no threat of recession exists today.  This erroneous belief could cause you to misallocate your investment portfolio.  And that could be costly.  

Don’t be fooled.  

Successful independent investors must raise their sights above misguided market assessments and electoral propaganda or risk getting blindsided by the next stock market correction that is sure to come.  There’s simply no reason to be surprised when it does.

Prepare your portfolio now and let me know if you have any questions.

Stay tuned…

PS: If you haven't listened to my recent radio show give it a try. It was a pretty good one.    

The Road to Financial Independence

Dan Calandro - Sunday, February 19, 2012

The Dow Jones Industrial Average (DJIA) closed Friday’s trading at a 52 Week high – 12,950.  It’s had quite a run, indeed, but let’s not forget it’s just an average portfolio.  It shouldn’t be the high watermark when it comes to stock performance.  To achieve financial success independence your entire portfolio should beat "the market."  Your stock portfolio, therefore, must consistently outperform the DJIA.  

Above-average stock returns are most easily had using superior 15-51 construction.  Built on that strong foundation, the 15-51 Strength Indicator (15-51i) is an above-average portfolio.  And while logic would dictate above-average performance results, the 15-51 Indicator has recently produced an arrogant show of dominance. Take a look below.  

1551i-2-17-12


The 15-51 Indicator is up an amazing 24.7% in the past 12 months – in a horrible economy and volatile market, mind you – that produced a meager gain for the Dow Jones Average, which ended up just 5.5% during this same period.  

That’s what strength does.  It outperforms – more and more as time moves on.  That’s why you need it.

Superior 15-51 construction is important not just because it produces big stock market gains but also because it allows you to make more money with less risk.  Contrary to what Wall Street would have you believe, more risk is not required to earn more reward.  The notion that more risk is required to outperform "the market" is nothing short of a sales pitch to sell more mutual funds.  And it’s not true.  

All you need is superior construction and smart design.  It makes making more money much easier. That’s the Lose Your Broker way.  

Recall my recent blog on asset allocation where I define a "moderate" portfolio like this:

 

Moderate

Asset Class:

 %

Cash

60.0%

Gold

25.0%

Stocks

15.0%

Bonds

0.0%

Total

100.0%

That’s what I call a moderately aggressive portfolio allocation in hostile economic times such as these. The same was true in February 2007.  And just like then, above-average construction will outperform an average build over the long-term.  

For example, we know that my Keep It Simple Stupid portfolio (KISS) significantly outperformed "the market" over the long-term (five years.)  But perhaps this validation is a bit unfair.  The compounding effect of above-average construction grows exponentially as the years accumulate (which can be seen here.)  This affords investors the opportunity to take less risk and maintain a cash security blanket while still earning above-average investment returns – even in the short term.  

Here’s how the moderate KISS portfolio performed in the most recent twelve months.

KISS-Mod-2-17-12


Yeah it outperformed – but man, look at that stability!  KISS outperformed the Dow by an 8.4% to 5.5% margin with 60% in cash, and 15% percent of the Dow’s risk (which has 100% in stocks.)  

That’s what smart design and superior 15-51 construction can do for you.  More money with less risk and volatility -- unlike that basket of mutual funds your broker threw together.  

It’s time to Lose Your Broker Not Your Money.  

It is the road to financial independence.

See you there!

Looking Around

Dan Calandro - Wednesday, February 15, 2012

As demonstrated in LOSE YOUR BROKER NOT YOUR MONEY, investing is an extremely personal task. It doesn’t require Ivy League degrees and Wall Street experience.  Investment success only requires basic knowledge and common sense.  And you have that.

Right now successful long-term investors are mostly spectators – watching stock market activity and waiting for the goods to go on sale.  Just like any other item, you must not only shop for stock bargains but wait for them to occur.  In retail holiday sales are famous, Christmas the most notable.  Steeply discounted stock prices usually occur in the fourth quarter, October being the most notorious.  But timing isn’t the point here.  It’s about the sales discount – because that’s where the value is.  

So how long must we wait?  And why should "the market" sell-off well below this point?

Well, when you look around your local market and the news headlines today you see no justification for a Dow 12,800 valuation.  Consumer wages are up only slightly, spending is flat, and inflation is acting like a thief in the night.  It’s amazing how fast the money leaves your wallet these days.  More money, less goods.  Not a good sign.  

Europe continues to be a disaster in wait.  Moody’s recently cut the credit ratings of six Euro-Zone nations and lowered the outlook for America’s greatest ally, the United Kingdom of Great Britain.  A major write-down of sovereign debt should be expected – look out you high-yield fixed income mutual fund owners – as crippled economies like Greece are drastically shrinking what is already shrunk.  It’s really ugly over there.

Recessionary pressures continue to appear in Asia, and most recently, the Japanese government announced a historic monetary easing to weaken their currency.  They are not famous for this sort of thing, but it appears that the Japanese have finally learned that when in Rome do what the Romans do. And right now easy money is in vogue, sad to say.

Caution to those applauding the automotive bailouts of General Motors and Chrysler.  They ought to take note that while U.S. automotive numbers and profits are up they have benefited from the weak U.S. dollar.  That makes Japanese cars more expensive and gives American car companies a pricing edge. With this recent Japanese money move, that edge has been reduced.  

Housing prices continue to tumble, money isn’t moving, and there’s a lot of movement at the top of major banks here at home.  Citigroup and Bank of America recently announced executive management shake-ups, which rarely happens when things are going well.  Once again, it’s all to reminiscent of 2007.  I’m just sayin’.  

Add to this the severe case of Management Deficit Disorder inflicting American central governance, the threat of inflation, the realization of recession, and the possibility of higher taxes.  

When you look around it just doesn’t warrant this kind of valuation.

2-15-12

Stay tuned...

And Oh -- By the Way...

Dan Calandro - Tuesday, February 14, 2012

According to his own public admissions, President Obama is part of the "evil one-percenters" – those people in the highest income tax brackets.  He’s one of them.  Just one.  

And that one person has spent one-third of our entire national debt in just one-four-year-term as president of the United States.  That’s one man, fours years, and five trillion dollars of additional national debt.  Sadly, that translates into $16,000 per American person in just one presidential term – and he’s asking for more.  Let me ask… 

Are you sixteen grand better than you were three years ago?  

As my friend Billy always says, "The definition of insanity is to do the same things over and over again and expect a different outcome."

Governments control markets and, therefore, the course of investment.  To be "in the market" and completely unattached from the electoral process is to transform the relatively predictable task of investment into a high-risk gamble.  Investors must take notice of current events or face getting blindsided by future events.  There’s simply no reason to live and invest in that condition.  

Over the past several days the president has been out on the campaign trail preaching to blindly stay the course – so reminiscent of President George W. Bush’s mindset in 2004 when he beat democratic lightweight John Kerry.  But unlike Bush, Obama is scared of the enemy.  He’s afraid of recession, and lacks the courage and will to get smaller in order to get stronger.  And that’s what America really needs right now.  

President Obama unfortunately still believes big government spending is the way to economic revival.  He’s wrong.  Free markets are the only path to prosperity.  

But without a strong republican opponent Mr. Obama is likely to return for another four year term.  And to expect the same man and another four years won’t turn into more false promises and another five trillion dollars of national debt would be insane.  Let me ask…

Is it worth another $16,000 of your money – plus interest, taxes, and child support?  

More of the same is bad news for markets, money, and investment.  Investors should take note.  

Stay tuned...

Management Deficit Disorder

Dan Calandro - Friday, February 10, 2012

The U.S. Bureau of Economic Analysis reported today that the trade deficit widened to $49 billion for December.  Also in today’s news, President Obama unveiled a budget that calls for another trillion-dollar-plus operating deficit for 2012.

An operating deficit occurs when expenses are greater than revenues -- in other words, spending beyond ones means -- and thus creating a "loss" for the operation.  And since a budget is nothing more than plan, a "budget deficit" is nothing more than a plan to lose money.   

Doing so, in the current manner, is nothing short of gross mismanagement.  

To put the harsh statement above into context, and should the U.S. hit Mr. Obama’s 2012 deficit target, consider that his administration will have spent $14.5 trillion in his first presidential term – adding an alarming $5.7 trillion to the national debt.  A comparison of the three most recent presidents’ first terms is below.

1st 4 Years ($trillion)

Spending Debt

Obama $14.5 $5.7

G.W. Bush  $8.3 $.8

Clinton $5.9 $.7

(source: Congressional Budget Office, 2012 revised for Obama budget.)

Of these three presidents, Bill Clinton was the only to reduce government spending each year in office, while George W. Bush outraised them all, averaging a sizeable $2.4 trillion in annual tax revenues during his term. Neither Clinton nor Obama have come close to that kind of annual raise – higher tax rates or not.  

Americans may recall that a byproduct to President Obama’s first term policy agenda was to increase exports and to stop unemployment from reaching 8%.  He promised to deliver these results with fiscal policies called "stimulus", investments in green energy, new banking regulations, and a continued easy money stance.  

But since reaching 8% in Mr. Obama’s first month in office, the unemployment rate has persisted stubbornly above that target; exports are shrinking, and money isn’t moving.  

What happened?

First the obvious: governments are incapable of producing long term job growth and investment value because they are driven by politics instead of return on investment.  To use a modern analogy, you can throw a ton of money at green energy and create some temporary jobs but that doesn’t guarantee long term benefit.

Profit creates long term jobs and escalating benefits.  Politics, on the other hand, can only produce short term puffs of life.  That’s why radical government spending programs (a.k.a. stimulus) always fall short of expectations.  They embolden waste and corruption.  Look no further than the current state of the green energy market for further proof.  Wasteful spending is not a long term solution.  

Next, Mr. Obama sought to increase exports (and in fact, to create a trade surplus) with a weak monetary stance.  In other words, the administration meant to increase demand for American products overseas via a cheaper dollar.  The expanding trade deficit proves this to be false conjecture.  

A trade deficit means less demand for American goods overseas.  Less demand signifies a shrinking market (a.k.a. recession.)  This, of course, corroborates recent news of recession from Europe and Asia – which also reinforces the fact that cheap money cannot create long-term demand.  Only healthy markets can do that.  Besides, Europe and China followed suit by weakening their respective currencies that leveled the currency playing field.  In short, international monetary policies derailed President Obama’s grand plan.

The problem with the American market isn’t that it’s getting out-performed – it’s getting out-managed!

American central governance has an infectious disease I call: Management Deficit Disorder (MDD) -- a condition when monetary and operational deficits seem to be a profitable way to do business.  

Oh how I wish there was a modern medicine to cure such a condition, but I’m afraid the FDA hasn’t received an application for it yet.  But while we wait for the miracle to arrive, may I suggest starting rehab with fiscal restraint, a strong dollar policy, and drastically reducing the Market’s regulatory and tax burdens.  

To put it bluntly, American governance needs to get out of the way and let American enterprise – and We the People – outperform the rest of the world.  Because that's what we do best.  It is the American way.  

It’s time to stop this dreaded MDD disease.  Until that happens play defense and prepare your investment portfolio for battle.  It is the road to financial independence.  

And let me know if I can help.  

Talk soon,

dan-

Lighten Up Francis

Dan Calandro - Sunday, February 05, 2012

The job market continues to show signs of improvement, however so slight, and once again highlights the resiliency of the American market.  

But let’s not get crazy.  The unemployment rate is still over 8% with a disturbing 13 million people still looking for work.  January’s job additions number is nice to see indeed, but at just 243,000 jobs is well short of anything to get wound up about.  So to steal a line from the classic movie Stripes, lighten up Francis – there’s no reason to get excited here.

Yet the Dow Jones Industrial Average continues its march towards irrational exuberance.  In such a market condition, above-average portfolios demonstrate supernatural strength, as depicted by the 15-51 Indicator in the below chart.  

chart2-5-12

Steep rises in stock market valuations increase the probability of future volatility and severe "flash crash" potentials.  They signify economic balloons, which as we know, always bust at some future and unfortunate time.  

Sure it’s easy to get caught up in the employment numbers.  But have we already forgotten 4th quarter GDP numbers – and in fact, the entire 2011 résumé.  What warrants the recent strong move in the Dow?  
Not much.

That’s why it’s easy to be successful with investment.  "The market" gives you plenty of opportunities to capitalize on current market conditions and reset your asset allocations well in advance of stock market corrections – unless, of course, you buy into mass stock market hype and speculation.  

For instance, it’s easy to think now that America is out of the woods and therefore a great time to invest.  Hey, the Dow’s at 12,800 and employment is rebounding.  Things must be great, right?  Heck, if you believe that then you probably bought into the Dow’s all-time high of 14,100, which occurred just one year before the entire financial industry collapsed in the fall of 2008.  Don’t get sucked into that same kind of hype.  

If unemployment was recovering then so would the real estate market.  But that hasn’t happened.  Why?  Because the Market is still suffering.  Don’t get blindsided by the hype.  The chart above clearly shows a stock market over-exaggeration of current market circumstance.  It’s a make believe run built on speculative misconceptions.  That’s it.  

Make your moves now and prepare your portfolio for the opportunity sure to come.  To maximize your potential use smart portfolio design and superior construction.  They are: The road to financial independence.  

Today's Message

Dan Calandro - Friday, February 03, 2012

You knew it would get political sooner or later.  


God bless Freedom of speech.  

I hope you enjoy.  


Click here to listen.  

-dan


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