Dan’s Blog

Message Reinforcement, Courtesy of Bennett Broad

eugene ball - Tuesday, December 30, 2014

Two Wall Street Journal articles recently crossed the wire that reinforce the overriding themes in my book: mutual funds stink, and no one can do a better job managing your financial assets than you can because no one cares more for your financial well-being than you do. Let the following stream of consciousness serve as proof positive.

The first article, When Funds Insult Their Clients, reports that as of December 19, 2014 "more than 79% of U.S. stock funds had failed to beat their market benchmarks for the year." That stinks – but it’s not the end of the story. 

The article goes on to highlight several mutual funds that are lagging well behind the S&P 500 and passing huge tax bills onto their clients even though investors haven’t sold a share of the fund. In other words, clients are paying huge taxes for no economic gain and lackluster market performance.

Take the Janus Forty fund S class (symbol JARTX), for example. On December 17 – just eight days before Christmas – the fund distributed $14.20 of taxable gains per share onto its owners. At the time the fund was lagging the S&P 500 by nine points. The distribution, a whopping 34% of the fund’s value, forced investors to sell a portion of their position to cover the tax bill. The flood of Janus Forty redemptions sent the share price tumbling.

The economics for the Janus Forty fund is dismal.

Consider an investor owning 500 shares at the beginning of 2014 when the share price was $40.22, at which time total value for 500 shares was $20,110. On December 17, the day of the capital gains announcement, the fund opened at $41.95 and then went straight to $28.64 – the first chance ordinary investors had to sell or get out. Fifty shares had to be sold to cover the tax bill in this example. After that transaction the investor was left with 450 shares of JARTX valued at $12,888 – a 36% drop in value from the beginning of the year – and well below its benchmark index, the S&P 500, which had gained 13.8% at the time.  Below are the numbers in table form.

Janus Forty S Class (JARTX)         Change in Value
  Price Shares Value Action $ %
2014 Open $40.22 500  $    20,110  Held     
Day Before Announcement $41.95 500  $  20,975  Held     
Day of Announcement (12/17/14) $28.64 -50  $   (1,432)  Sold     
Day After Announcement  $28.64 450  $   12,888  Held   $ (7,222) -36%


That’s an ugly performance tally – but not the extent of mutual fund ill-will. The Janus Forty is just one mutual fund in a market littered with many exactly like it. The price for underperformance is as expensive as it is maddening.

The Lose Your Broker method is easy to understand, simple to use, and consistently produces superior performance. In fact, since publication I have yet to meet a person who has read LOSE YOUR BROKER NOT YOUR MONEY and can’t construct a portfolio that greatly outperforms the S&P 500 and Dow Jones Industrial Average. 

Mutual funds are below-average investment products.

And because brokers recommend owing them is the first case in point why they can’t be trusted. Additional proof of this was highlighted in the second Wall Street Journal article that recently reinforced the Lose Your Broker message, entitled, Wall Street’s Watchdog Doesn’t Disclose All Regulatory Red Flags.

To make a long story short, the Wall Street establishment created and funds a broker oversight organization called the Financial Industry Regulatory Authority, or Finra. Finra’s mission is to provide investors a means of researching the credibility of their broker or financial advisor. Did I mention Finra is an industry funded organization?

Low and behold, the Wall Street Journal reports that 38,400 brokers have regulatory or financial red flags that don’t appear on Finra. The article features a broker named Bennett Broad, a 35 year veteran of the Wall Street game. During his experience, good ‘ole Bennett "faced 25 customer complaints involving alleged trading abuses, and 15 ended in payouts to clients." His Finra rap sheet can be found here.

What’s really amazing is that the man is still allowed to work in the industry. He’s currently at Oppenheimer & Co. – no doubt a Finra funder. This is to say that the Wall Street establishment creates a watchdog agency that buries a lot of criminal activity and disregards the rest. As a consequence the Wall Street establishment employs too many people that have absolutely no right or credibility to manage other people’s money. And they don’t care about it, for if they did Finra postings would actually mean something. 

Wall Street trains brokers to be slick and cunning. They employ trained con-men to convince unknowing investors that mutual funds are the best things since sliced bread and that one isn’t enough. They promote overreaching diversification through a "basket" of mutual funds that is sold with high hopes but delivers little chance of success. And because the whole industry is built upon these false truths and deception, criminals like Bennett Broad are all too common.

The goal of LOSE YOUR BROKER is to provide investors with the tools and techniques required to outperform the Wall Street establishment. It is meant to empower investors to take control of their financial well-being and achieve success and financial freedom – easily, simply, and comfortably.

Take my portfolio, for instance, which is built on my patent-pending 15-51 platform. Since its publication the portfolio has outperformed its benchmark index (the Dow Average) by 32% points, 82% versus 50% respectively; and beat the S&P 500 by 26% points, 82% versus 56% respectively (see below.)

12-26-14a

And you can do it too. The first step is…

ShieldThe road to financial independence.™

 

Apropos Endings

Dan Calandro - Sunday, December 14, 2014

Stocks got slammed this week on the good news that oil prices continued to drop. Oil is now just $57 per barrel, down 50% from a year ago. Yet the Dow Jones Industrial Average lost 3.8% in the week and 15-51 Strength lost 2.9%. Gold added 2.6% and yields dropped sharply, again. The 10 Year T-Note is now trading at a paltry 2.1%.  See below. 

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The hysteria surrounding the drop in oil prices is actually hysterical – a laugh out loud condition. For days we have heard some speculate that lower energy prices will add further drag to an already struggling world economy, and thus stocks went down.

That’s silly. Lower oil prices cannot hurt the economy and it’s disingenuous to say so. In fact, the same argument was made when oil prices were skyrocketing. Pundits can’t have it both ways.

The drop in oil prices is being cause by two things: 1) lower global demand, and 2) higher global supply.

There is little doubt that lower oil demand is being driven by a weak and weakening global economy. Growth is slowing in most major Markets, and some big producers like Japan and Germany are falling into recession. But it’s not a drop in oil prices that is causing those economies to shrink, or will cause them to shrink more; it’s their shrinking economies that are causing oil prices to fall, and perhaps fall more. Shrinking demand in the broader market is the real problem – and lower oil prices can only help that condition. 

Higher global supply is coming from a boom in shale oil drilling in America and OPEC’s recent decision not to curb their output in the face of falling global demand. As mentioned in Records Abound, OPEC has their head in the game: They know lower oil prices put pressure on American drillers, and hurt Russia and the ISIS terror network.

Lower oil prices are good for many reasons.

Yet there were other pundits promulgating that the drop in oil prices is fueling deeper concerns about Euro Zone deflation, and so stocks went down. That, too, is silly.

Let’s make this simple: Lower energy prices are bad for oil suppliers and good for everybody else. Lower oil prices can lead to broader market growth and inflation because more dollars are being directed to more sectors of the economy, thereby lifting demand, and perhaps pricing, in those sectors.

Lower oil prices are better for the economy as a whole than higher oil prices could ever be.

Indeed, higher oil prices can contribute to broader market inflation because it is used in the production of so many goods, and because energy is required to transport all products to markets. I get that. But that’s not the Market problem right now. Lower demand is.

Besides, falling oil prices does not automatically bring about a fall in general prices – certainly not in the same way as higher oil prices will bring about a general rise in prices.  Producers are more likely to capture the fall in oil prices as retained earnings, and then lower production to meet lower demand. Any drop in general prices relating directly to oil are long off into the future, at the very least. 

That doesn’t mean world governments shouldn’t take deflation and the Market condition seriously. They should. These things could easily spin out of control.

The one surefire way to reverse deflationary pressure is to increase dollars circulating in the marketplace – and the best way to do that is to empower the consumer by cutting tax rates across the board, and by reducing the amount of government presence in market activity. If earners are given more of their hard earned money to spend they will spend it. Production will increase, unemployment will decrease, the economy will grow, and inflation will naturally return.

But, sadly, empowering consumers with more of their hard-earned dollars is never a viable option for today’s governments – Democrat or Republican, communist or socialist. 

The problem with today’s governors is they are all in the same basket: They want to control the Market through central planning, a Keynesian approach, which has proven bankrupt throughout the course of history. That’s the reason deflation is such a threat. Governments do not want to empower People; they instead want to empower themselves. (see: Their Side, for more info.)

Increased government subsidies and monetary shell games cannot solve the deflation problem because they are only temporary in nature and rife with corruption. Tax rate changes are permanent (or at least long term in nature) and have a much greater impact on the economy because working People are rewarded with additional dollars to spend freely in the markets they choose.

Workers and earners are the vibrant consumers markets need to thrive. Stealing from them to boost welfare and Wall Street is not a solution to thwarting deflation.

So forget about the deflationary fears relating to the drop in oil prices and stocks. They’re misguided and misplaced. Over-reaching central planners do much more harm – query: Jonathon Gruber

So why was the stock market down so significantly this week?

Simply put: Wall Streeters wanted an excuse to sell over-valued stocks because they’re scared of the lofty valuations at the present time. This week’s move was merely a price-value correction.

For more than thirty years I’ve been closely watching "the market," and while it’s impossible to have seen it all, certain trends seem to reoccur over the course of time. For instance, during the tech-boom in the 1990’s the S&P 500’s performance trend crossed over the Dow’s at the top of the market, and then crossed under it at the bottom. This characteristic (the S&P 500 crossing over the Dow at the market top) is common in advance of corrections. This dynamic also happened during the housing-boom -- and now it has happened again with the QE-boom.  See below.

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The S&P 500’s performance trend remained above the Dow’s for three years leading up to the crash of ’08. In today’s market, the S&P trend has been over the Dow’s for a little more than a year. So if history repeats, the next major correction (much different from mere price-value corrections) will likely occur around the time the Obama presidency ends.

And wouldn’t that be apropos.

Stay tuned…

 ShieldThe road to financial independence.™


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