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Your Money and Argentina
Aug 06, 2014

When the topic of wealth redistribution surfaces most people think about taxes. While it is true that taxes are the most visible form of involuntary wealth redistribution, it is not the most egregious form of the practice. No. That high crime is free-market fraud with the intent to pillage – and Wall Street is notorious for it.

 

Taxes take earnings from individuals and place them in the hands of governments. The essence of government spending is to fund things that individuals or enterprises can’t do – or to a further extent, won’t do.

 

For instance, individuals and enterprise can never defend these United States as effectively and efficiently as a centralized effort can. Taxes are required to coordinate a cohesive force and united front to thwart an enemy attack. That security is a totally legitimate basis for taxation, and most people have absolutely no problem paying for it.

 

Much to the contrary, however, many taxpayers would never direct their hard earned profits to subsidize an unsustainable amount of welfare, food stamps, free housing, and free non-essential healthcare services, to able-bodied individuals without the ambition to help themselves in the first place. This unfounded level of charity has become commonplace in American government today, and it breeds a culture of dependence. 

 

Government funded social programs have made it too easy for people not to participate in the labor force. That runs contrary to our founding principles, the cause of individualism, and everything that made this country great.

 

Irresponsible social programs increase the national debt and place a much higher tax burden on the working class – the middle class. Excessive taxes, whether under the guise of social equality or military defense, is a complete bastardization of the American system. It bankrupts the middle class, zaps incentives from small businesses, and crashes the free market.

 

Elections are about selecting fiscal managers to balance the budgets of tax revenues and appropriate expenses. And for the last twenty years both Democrats and Republicans have proven inept at the job. Even so, it is impossible to fire them all – however grand the idea. They perform functions that individuals and enterprise can’t do: and as a result, central governments and their according taxes will forever be a necessary evil in a civilized society. 

 

That said, taxpayers must come to grips that a large portion of their taxes paid will be misappropriated and produce little to no return on investment. That makes gains on private investments all the more important.  

 

Just one week after this news headline appeared in the Wall Street Journal on-line: Wall Street Takes Shine to Argentine Bonds – Argentina defaulted on all of its outstanding debts. That’s right, large U.S. financial institutions like Bank of America, Goldman Sachs, and JP Morgan Chase have been aggressively seeking to lend more money to the failed Argentinean government just moments before they defaulted on all their debts.

 

And if you own a mutual fund in fixed income investments – that money is yours. According to some estimates the Argentinean default will cost American investors more than $30 billion, and that’s a great shame.

 

Let me ask rhetorically: What do governments do with the money in their control, whether the monies are derived from taxes or borrowings?

 

Governments spend money according to their political agenda – infrastructure, education, defense, or social welfare. Social programs have increased dramatically in Argentina since 2007 and the government has produced multi-billion dollar deficits ever since. Billion dollar deficits might not seem like a lot of cabbage here in America, where trillion dollar annual deficits have become commonplace, but billion dollar deficits are a really big deal in a Market like Argentina. Consider this…

 

Total economic output (GDP) in Argentina is just $475 billion; America’s economy is $17 trillion. Argentina’s debt to GDP is an extremely low 46% (or $215 billion) while America is 100% leveraged ($17 trillion in debt.)  By the looks of these numbers it appears that Argentina should have an easier time paying its debt than America. But that’s not true.

 

The Argentine Market is in much worse shape than its American counterpart: Argentina’s economy is steadily shrinking, their inflation is 26%, and their tax rates are crazy: corporate income taxes are 35% (like in America), but their personal income taxes are 35%, sales tax is 21%, and their social security tax rate is 44% (27% paid by corporations and 17% paid by individuals) – and, as you might expect, their labor participation is a dismal 49%; which is to say that one out of every two Argentineans don’t work.

 

In short, the Argentinean government has bankrupted their Consumers, zapped incentive to profit from Enterprise, and crashed their bond Market.—Yet the Wall Street establishment was looking to lend that Market billions more of new money.

 

But that isn’t their money. It’s your money – if you own a fixed income or high yield mutual fund, that is.

 

By creating the perception that ‘you’re too stupid to invest on your own’ Wall Street creates a Captive Market: You need them, because you can’t do it yourself. They advance the false impression that investing is too complicated, too difficult, and requires too much time that ordinary folks can’t muster. Investment is not a one person job, they say, it requires a team of skilled and experienced professionals. So they say, Give us your money because we know what to do with it. We’re the experts. You’re not. Trust us. We’re the best money can buy. You’re just you: incapable. You need us.

 

Under this false guise Wall Street snatches money from American middle class clients who have worked hard and saved judiciously– and then directs that money into the failed Argentinean Market. Does that sound smarter than you?—And one should note: this isn’t Argentina’s first rodeo. Not too long ago in 2001 they defaulted on $100 billion, which was the latest notch on their long and lengthening rap sheet. Yet Wall Street was looking to lend them even more money – more of your money, if you own a leverage fund, that is.

 

Why would they do this? 

 

Money and Control.

 

First, Wall Street banks receive a sizable fee to sell Argentinean debt to their American customers – you know, the "rich." The risk is sizable, but heck, it’s not Wall Street’s money – it’s yours. And just like lending money to a heroine addict, the next fix for Argentina wouldn’t solve anything. More debt would only prolong the agony of self-destruction, just like an addict. 

 

Prolonging the default provides Wall Street with the opportunity to earn high rates of interest (Argentina recently sold short-term bonds at 26% interest) for their clients, who then pay the Wall Street establishment management fees and performance bonuses – without risk of loss, of course. Remember, Wall Street doesn’t loan their money to Argentina; they lend your money. Fees, underwriting, and commissions for connecting you with Argentina is how Wall Street makes money. In other words, placing bad investments overseas is a money maker for the Wall Street establishment. And they do it all for you.

 

Aren’t they nice?

 

Second, the ugliest way to make money is to control people. Both the government and Wall Street do this.

 

The government does this through taxation and social program spending like Social Security. They take more of your money through taxes and thus make it harder for you to save and invest, which bolsters the need for a nationalized retirement plan. 

 

Wall Street does this by convincing their customers that they need their product (investments) and their services (mind and management.) They create product demand by pointing out the obvious: Social Security is bankrupt, and supplementing it is vital. Then they create service demand by corrupting markets and confusing customers with complicated rhetoric and onerous explanations. If they are successful, then you are their Captive Market. They control you, your money, and your net worth.

 

Independent wealth is the greatest liberator. Think about it. If you become a savvy investor and have enough money so that you don’t have to work, don’t have to worry about retirement and the rising costs of senior citizen healthcare, then who would need Wall Street? Who would need Social Security?

 

Social Security is a domestic means of wealth re-distribution. That is, a redistribution of wealth that occurs within U.S. borders. Okay, fair enough, let’s assume we want that: domestic redistribution of wealth.

 

That is much different from an American transfer of wealth to foreign countries.

 

When the government taxes your earnings and then sends a multi-billion dollar aid package to the Palestinian territory – they send your money there. It’s a transfer of wealth from one country to another. 

 

The Wall Street establishment does the same thing but in a different way. 

 

When Wall Street solicits your capital and places it with Argentina they temporarily transfer your money to that country. When the country defaults on its obligation to repay the monetary transfer becomes permanent – like a tax. In other words, by way of Wall Street's control over the capital of American investors, Wall Street forces Americans to pay for social welfare programs in Argentina – without the ability to vote that government out of office or change its policies.

 

Talk about taxation without representation. 

 

Wall Street profits from your money to procure bond transactions and then spreads the remains throughout the world to nefarious recipients. Wall Street and the U.S. government steal wealth from middle class Americans (92 million Americans own mutual funds, one out of three people) and create a higher degree of dependency and control over American consumers and investors by so doing. This expands the role of government and Wall Street banks, as the loss of capital ensures consumer/taxpayer reliance on them for generations to come. 

 

Taxes are forever, no doubt, as are government corruption and mismanagement. But that’s not the case with your investments. You can lose your Wall Street broker, keep your money in America, and bolster your independence by investing successfully on your own. My 15-51 method is easy to understand, simple to use, and produces superior long term performance. See below.
 

8-1-14a

 

The objective of the Dow Jones Industrial Average is to indicate the market, Nominal GDP, which it reliably does. The DJIA, therefore, indicates average returns. Since the last market top (October 2007) the Dow has gained just 16% – which is a tough pill to swallow if you just lost your luggage in Argentina. 

 

The objective of my 15-51 method is to produce above-average returns – without taking the extraordinary risks associated with foreign investments in poor markets like Argentina. In the time period shown above my 15-51 portfolio more than doubled; it gained 118% since the last market top – which is more than seven times the Dow’s return.

 

It’s never a bad time to take control of your investment capital. No one cares more about it than you do, and no one will do a better job managing than you will. And let’s face it: it doesn’t take a rocket scientist to figure that there is absolutely no reason to lend Argentina money until they get their house in order, and they’re a long way away from that.

 

Argentina was a bad bet.

 

The sad thing is that Wall Street was too stupid figure it out or too corrupt to admit it.

 

And the travesty is that they did it all with your money. 

 

 LYB_Plate

The road to financial independence.™

 
Too Little Room
Jul 27, 2014

So, the world’s largest economy shrank 3% in the first quarter and stocks everywhere rose in value; yet just one week later a single troubled Portuguese bank sent stocks reeling when news surfaced that it delayed interest payments on a portion of its short-term debt. That’s right, one struggling bank in Portugal caused bank stocks in Germany, France, and the U.K. to drop by more than two percent, and Spanish bank Popular to fall 5%, while prompting it to delay a bond offering.

 

Really?—one Portuguese bank did all that?

 

Of course not.

 

The world economy is approximately $75 trillion dollars; Portugal’s economy is just $250 billion.  The fact of the matter is quite simple: Portugal is simply too small to cause world financial havoc. That is to say that the problem in Portugal isn’t an isolated condition. Europe is rife with government corruption and fiscal mismanagement. In fact, several Euro Zone members are teetering on the brink of collapse, like Greece, Italy, Cyprus, and Ireland – and by the way, larger member states like France and Spain aren’t in much better shape. The reason world markets shook on the Portugal news is because the Portugal condition is emblematic of the entire region. Plain and simple.

 

This was affirmed by the European central bank (ECB), who just one day before Portugal stole the news headlines, announced that it would begin a quantitative easing (QE) program for the entire Euro Zone. Remember, the goal of QE is to strengthen banks by injecting newly printed cash in exchange for toxic assets that were procured by banks. But as one senior European economist pointed out: just because "a banking system has been recapitalized, doesn’t necessarily mean that it doesn’t face problems." That’s a clever way to say that QE is not a permanent long-term solution, but instead a temporary band-aid. 

 

QE is another kind of cancer, not a cure.

 

The world financial system has been persistently inflated by central bankers since the ’08 crash. QE devalues the monetary base, forces yields lower, encourages irresponsible government spending, and inflates stock market indices beyond economic substantiation. That is why monetary threats like potential bank failures (like in Portugal) that can ultimately affect an underlying currency (like the Euro) negatively affect stock market values across the globe. 

 

But like most other negative economic news of the modern day the stock markets quickly shrugged off the news of this failing Portuguese bank, Espirito Santo, after a good night’s sleep – even though accounting irregularities had been found which prompted them to file for creditor protection to make it easier for them to raise additional capital to remain solvent. In short, the Espirito Santo bank is in real trouble and is desperate to raise capital. But that seems to be yesterday’s news, and no longer a consideration for today’s stock markets.

 

U.S. corporate earnings have now stolen the news headlines and results have been mixed so far. Apple’s new iPhone delivered better than expected results; but Microsoft fell way short, prompting it to announce 18,000 job cuts. Harley Davidson disappointed – but Polaris surprised to the upside. McDonald’s is struggling, and gas prices are once again on the rise. But if anything is consistent with this quarter’s earnings season it is the performance of U.S. banks, who have led the markets higher. Of course, QE has made those profits happen – not economic vibrancy, and certainly not Dodd-Frank.

 

An excellent piece appeared recently in the Wall Street Journal on-line, entitled: Four Years of Dodd-Frank Damage. I have always said that this law was ill-conceived from the start, and those who have read my book know the true culprit of the ’08 crash. It was massive government intrusion into the lending marketplace that forced banks to take-on irresponsible and unnecessary risks that were facilitated by Fannie Mae and Freddie Mac – two government agencies omitted by Dodd-Frank regulation. Excluding Fannie and Freddie from responsibility and regulation is a travesty, and lays the groundwork for an incompetent and impotent law.

 

According to the aforementioned article, Dodd-Frank "has already overwhelmed the regulatory system, stifled the financial industry and impaired economic growth." That can be validated by Wall Street darling, Jamie Dimon’s JP Morgan Chase, who in the last 18 months have hired 10,000 compliance officers and laid-off 5,000 loan officers. In other words, banks are replacing revenue generating employees in favor of regulatory administrators. 

 

That’s not efficient or productive – but then again, major stock market participants have chosen to ignore this reality as well.

 

In fact, that’s how the stock market is choreographed to blindside investors. The Wall Street establishment, with its chief investment strategists and economists, often turn "the market" into its own being – an impossible to predict, irrational and independent actor. Comments like this one, made by chief European economist Riccardo Barbieri Hermitte, makes the point clear. When discussing the market sell-off in response to the troubled Portuguese bank, he said, "this shows that assumptions that the market was making were incorrect." 

 

Really – the market makes assumptions?

 

Markets are about people. Investment markets are about investors. Investors make assumptions, and investment markets reflect them. And when investors – especially those greedy institutional investors with the collateral power to manipulate markets – get so drunk on upward momentum and the possibility of maximum profit they forget to listen, look, and act rationally. That’s when Wall Street’s deaf ears produce the shocking sights of major market corrections.

 

You see, by transforming "the market" into some kind of third party beast, Wall Street players can blame it when disaster strikes. They do so to maximize their profits, secure their bonuses, and sidestep penalties and fiduciary responsibility when this unknown, unpredictable being called "the market" steals their customers’ wealth. They purport that their assumptions weren’t wrong, the market was. Their tactics weren’t faulty; the market did something it wasn’t supposed to do. That’s the mantra of the Wall Street establishment in a nutshell.

 

Successful investors need to be smarter than that. They must see the world dynamic for what it actually is, and make portfolio adjustments based on them – not hyped-up market indexes.   

 

And for the record, "the market", a.k.a. the Dow Jones Industrial Average, is easy to understand, easy to value, and easy to manipulate. It’s just 30 stocks, after all – and those same 30 stocks also drive the S&P 500. With the assistance of the Federal Reserve via QE, the Wall Street establishment is armed with the capital to inflate those values well beyond fair value.  That’s what’s going on right now.

 

The question to independent investors is simple: Do you believe this is an economic boom or a choreographed rally?

 

Before you answer, look at these recent news headlines from the Wall Street Journal on-line: U.S. Corn Farmers Face Cash Crunch for the First Time in a Decade, New Home Slowdown Pressures Recovery, Ex-Banco Espirito Head Detained, Wall Street Takes a Shine to Argentine Bonds, and Options Show Rising Concern Over High-Yield Bond ETFs.

 

Food and energy prices are up, the housing market is still in a shambles, bank irregularities still exist to disastrous proportions, and sovereign debt is being accumulated way too fast, at ungodly levels, while sectors of the investment markets are showing signs of concern.

 

If you believe an economic boom is ongoing, albeit with no economic qualification, then cautiously invest in it – keeping in mind that stocks remain near all-time highs and unprecedented valuation in Real terms.

 

But if you see things as they actually are and believe this is a make-believe rally built on newly printed money with a blinds-eye towards reality – then wait for the correction to happen before you buy in and get aggressive. There’s much more money to be had (with less risk) by buying low than by chasing the next inflated record – especially with 15-51 strength. The chart below makes that point clear.

 

7-25-14


Since the bottom of the last correction (February 2009) the Dow Jones Average has gained 140%, or about 25% per year. Stock market strength nearly doubled that performance by gaining 276% in the five-plus year period, or 50% per annum. And you can see that the growth has slowed over the last year or so.

 

That’s what makes making money in the stock market so hard right now, and so risky. Valuations are too high – and there’s simply too little room for big-time growth. 

 

That said, I have one more point to make before signing off. As you know the action zone is a dynamic range with a myriad of variables. One important array is the economy, Real and Nominal GDP, and their according growth ratios.  If the economy was in a full-fledged boom – meaning inflation, taxes, and interest rates were moderately low while labor participation was rising (and the world wasn’t falling apart) – the action zone high would be 18,438. That’s just 1,500 points from where the Dow stands today. 

 

Stock market values are grossly out of whack to the underlying economy. 

 

Discretion is the better part of valor. 



Shield

The road to financial independence.™

Two Trends One Outcome
Jul 07, 2014
It has been three years since LOSE YOUR BROKER NOT YOUR MONEY was published. In that time the original 15-51 Indicator portfolio that is detailed in the book has produced a 67% gain, compared to a 42% increase for the Dow Jones Industrial Average. Those following along with these blogs know that the 15-51 strength indicator was changed and rebalanced at the end of 2011 (signified by a pink diamond in the below chart). This, of course, was a move made to bring the portfolio more into line with changes in "the market" that were inspired by the 2008 crash. The two 15-51 portfolios, though very different in make-up, have taken two completely different paths to ironically the same outcome: both have produced a 67% gain. Below is a chart showing the trend-line comparisons.
 

7-3-14a

 

The red line shown above is the portfolio detailed in my book that has never been changed or rebalanced. It has fully recovered from its 2012 correction and is within inches of the updated and rebalanced 15-51 strength indicator. The turnaround of the original portfolio (and its correction for that matter) is basically due to the performance of Apple, which became a dominant part of the portfolio. Due to this imbalance the portfolio started to track Apple more than "the market" – and that wasn’t its objective. That’s the reason a rebalancing was required.

 

The 15-51 strength indicator is a portfolio designed and constructed to indicate stock market strength. It should, in theory and by design, produce above-average returns in a trend-line that closely mimics "the market." Clearly the rebalanced portfolio produces returns greater than the DJIA, and in a manner more in tune with "the market," as signified by the blue line in the above chart. The Dow, of course, is an actively managed portfolio that is routinely reconfigured and rebalanced. In fact, it has been changed several times since the 2008 market crash. Below is a look at just those two trend lines, the DJIA and 15-51 strength indicator.

 

7-3-14b

 

It was just one month ago that the S&P 500 set a record high milestone by closing over 1,900 for the first time in its history. This month it’s the Dow turn; it closed over 17,000 for the first time in its storied career. And while that’s all fine and dandy, the 15-51 strength indicator also closed at a new all-time high, 77,270 – that’s 604% better than the Dow average since year ended 1995.

 

Pundits credited a "strong" jobs report for the 1+% surge in stock values last week. Approximately 288,000 jobs were added in June and the unemployment rate dropped to 6.1%, from 6.3% – yet the more accurate employment gauge, labor participation, remained unchanged for the third consecutive month. It’s still stuck at thirty year lows (62.8%).


Again, the employment picture hasn’t changed and won’t change until labor participation and wages begin to grow significantly. Such moves would produce steady economic growth – and that’s something we haven’t seen yet. That is to say the most recent stock market run-up is once again overblown and purely inflationary.


Nothing communicates this better than the eye-popping ascent of the 15-51 strength indicator since the ’08 crash. Take a look below.

 

7-3-14c

 

That’s what hyper-inflation looks like. 

Stay tuned…


ShieldThe road to financial independence.™

 
Out of Step
Jun 30, 2014

I tore a bicep muscle and have been unable to type and blog. Now that I’m out of a cast and into a splint, I’m back in action. 


Little has changed for the better since Records and Reality was posted more than a month ago. Global strife continues in the Middle East, Europe, and parts of Africa, and the specter of another major war engagement is omnipresent. This has forced the prices of oil and gas to move higher. These conditions – along with corrupt, incompetent, and inept U.S. leadership and management – will further pressure an already fragile world economy.


The biggest news since my last blog post is the substantial contraction of the world’s largest economy in the first quarter of the year. What was originally thought to be 1% first quarter U.S. growth, was later revised down to 1% shrinkage, and finally ended as a 3% drop in Real output. That’s a significant economic contraction! To put that malaise into perspective consider that the last time the market shrank at that pace was March 2009 – the quarter following the ’08 crash.


But again the stock market shrugged off the declining global picture. Below is a year-to-date comparison between the Dow average and 15-51 strength.  


6-27-14a


The market average has gained 1.7% while stock market strength added 1.4% so far this year – stellar performances considering the 3% economic shortfall.


But hold on a second. Recall that bond yields rise during economic expansions and gold values fall. That’s the opposite of this year’s dynamic: gold is up and yields are down.  Below is a year-to-date picture including gold and yields.  

6-27-14b

Here are a couple of things to take away from the above trends.


First, yields continue to fall despite the Fed’s QE tapering plan; they’re down 17% this year. Recall that QE is the process of printing new money and handing it to Wall Street banks who are then required to purchase U.S. Treasury securities with half of the new money. It should be noted that although there is less QE and mounting U.S. debt, the pace of debt has slowed. Instead of wracking up one-plus trillion of new debt every year the U.S. is now accumulating about $600 billion annually. So there is less QE and less debt, a condition that will continue to keep yields artificially low. But this is not the only condition for falling yields. Global strife and weakening economies push investors to the safety of U.S. bonds. That increased demand also puts downward pressure on yields.


And second, the next stock market correction will be spawned by a massive monetary and debt devaluation. That’s a condition ripe for gold; so every time stocks and money are threatened gold will rise. That said, it’s no big surprise to see gold rising when stocks are flattening and yields are falling.  


Both yields and gold indicate weakening economic and monetary conditions. That is to say that stock valuations are out of step with the global economic condition.


So how can stocks remain near all-time high valuations? 


Extortion. 


Think of all the people that need interest income (a.k.a. yield) like senior citizens and/or retired people. These people can’t get it in the bond market because yields have been too low for too long. As a consequence, ultra conservative investors are extorted into finding income in the form of dividends in the ultra-risky stock market. These investors, compelled to find income in all the wrong places, will stay in the stock market until the consequence of correction forces them out. In other words, stocks will stay high until the seeds of correction begin bearing fruit.   


At the time of the next correction the world markets will again be in disarray, another crisis will exist, and the establishment will once again steal wealth and liberty from the innocent. As with the last crisis, the next will produce more regulation, more taxes, more wasteful government programs, and more individual loss. 


Panic selling during corrections ensures only one thing: a massive wealth transfer from individuals (including seniors and/or retired people) to the Wall Street establishment – those who make the Market for investments.


Exorbitant and prolonged QE programs have provided Wall Street banks with the clout to corrupt and inflate market indices to lure capital from wary investors. This inflation sets the stage for crisis; and when correction hits Wall Street market makers cash-in on the panic by buying low from investors desperate to get out – using capital reserves fortified by newly printed government cash accumulated from the extensive QE program.


Just because stocks are out of step with reality doesn’t mean you have to be.


Asset allocation and dry powder (cash) remain keys to long-term success.


Stay tuned…


Shield The road to financial independence.™

Records and Reality
May 25, 2014
Trading volume is generally light leading into holiday weekends and that was the case again last week. On the lightest trading volume so far this year the S&P 500 ended the week at a new all-time high, closing over 1,900 for the first time in its history. But even with recent achievement the S&P 500 has continued to underperform the Dow Jones Industrial Average since the internet appeared on the scene. Below is a chart showing the performance comparison between the two market averages since year ended 1995 when the tech boom essentially took root.
 
5-23-14a
 
In the eighteen year period shown above the S&P 500 rose 207% and the Dow gained 223%. The S&P 500 averaged 11% per year and the Dow added 12% per. Both are respectable returns, indeed – but they are average nonetheless. 
 
Stock markets overreact in both directions, up and down. In other words, they trade well above fair value in up markets and well below fair value during down markets. So the move from the March ’09 bottom to fair value in April ’11 was a totally expected move. The ’08 crash was indeed a serious condition; but there was little doubt that the event would cut the economy back to the levels of the 1980’s. That was in fact how it was valued at the March ’09 bottom. It was simply an over-reaction to the downside. It happens.
 
Today’s stock market is the opposite condition. Economic growth is stagnant, labor participation is at historic lows and declining, and according to FactSet earnings growth for the S&P 500 companies was just 2.1% in the first quarter – not a strong showing by any standard. Perhaps that is why stocks have only oscillated this year. But because stocks ended 2013 at historic highs, they continue to trade well-above fair value.
 
Stock market inflation and over-valuation can easily be misunderstood, misinterpreted, and miscalculated. The action zone helps clarify those ambiguities. Remember, the action zone is a range the Dow historically trades around. It is the average high, low, and mid point (fair value) the Dow trades as related to Nominal and Real GDP. Below is the same chart as the one shown prior except that includes the action zone and GDP. 
 
5-23-14b
 
Stock market portfolios like the Dow and S&P should always outperform the economy over the long-term. They’re smaller and more nimble, and are comprised of more powerful parts. But how much they outperform the economy, and why they are outperforming it, are the most important issues to consider. 
 
An unprecedented amount of monetary stimulus has forced Nominal GDP and stocks higher simultaneously; making it look like an economic boom is underway. But that’s not the case. This is a smoke and mirrors stock market rally.
 
Real growth, that is growth adjusted for monetary inflation, has essentially flat-lined since the ’08 crash. In fact, the Dow is now trading at a higher multiple to Real GDP than ever before. The QE inspired money-boom caused that, as proven by the widening spread between Nominal and Real GDP.  
 
In Market conditions such as these the stock market averages should be trading around fair value. The economy simply isn’t strong enough to qualify irrationally exuberant stock valuations. But these anomalies happen all the time, and as mentioned in my book, corrections usually follow prolonged periods of hyper inflation – and that’s what’s going on right now.
 
Sometimes it’s hard to see hyper inflation in the stock market averages because they’re so grossly manipulated by the Wall Street establishment. Perhaps the best illustration of this dynamic is with stock market strength – because that is where dollars flow most heavily when things get shaky. Below is the same chart as the one shown above except that it includes the 15-51 strength indicator, an above-average stock portfolio.  
 
5-23-14c
 
During this 18 year period 15-51 strength posted an amazing 1,352% return, or 74% per year – more than 6 times the rate of the Dow and S&P. Its amazing performance placed the chart on a completely different scale and pushed the stock averages down to their rightful place – close to Nominal GDP, the true market average.
 
So forgive me for not getting too excited about the S&P 500’s most recent record achievement; it is a valuation level the 15-51si first reached fifteen years ago. 
 
And while the Dow and S&P may appear as “reasonable” or “slightly” elevated in this chart, don’t let that mislead you. The 15-51 portfolio highlights the incredible amount of inflation in the stock market – and like the market averages, is also over-valued.
 
Because the Wall Street establishment portrays “the market” as an impossible investment benchmark to reach many investors succumb to believing that they’re doing good because their portfolio is going up and not down. They cave to the mindset that beating the market is impossible and that earning less is good so long as they’re not losing. But that’s a false assumption. It is impossible to make money in the stock market long-term without consistently outperforming the market averages. Inflation, along with corruption and poor management from the Wall Street establishment, will steal what little profit is made. That’s the reality of the Wall Street proposition.
 
That’s why I say, Lose Your Broker Not Your Money.
 
It’s time to stop making them rich and yourself wealthy. 
 
 
Shield
 
The road to financial independence.™
 
 
 

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