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Money Game
May 31, 2012
Further to my blog: Stay Ready, Be Patient, I have a few more points to make about credit risk, interest rates, bonds, and high yield mutual funds – but first, some irony.

On May 28, 2012 the aforementioned blog asked rhetorically, "Wouldn’t it be interesting if they [Greece and Spain] struck a new deal with [the IMF]? – China and Russia the big-players there."  

And then three days later, today, May 31, 2012, this headline crossed the wire on the Wall Street Journal on-line: IMF Begins Internal Talks Over Spain Loan.
 
Indeed, the money game just got more interesting – the specter of a third world currency one step closer (see: 3 Pointer).  

The money game I refer to is being conducted by governments of major markets in the civilized world; they are the only ones able to print legal currency, and they can also issue bonds to raise capital. With bonds, low risk (a.k.a. safety) equates to low interest rates in the future. That’s how credit risk is related to interest rates.  

For example, the United States of America has never defaulted on a debt and for that reason is widely considered to be the "risk-free" rate of interest – generally known as, the lowest interest rate found on the bond market. As an FYI, the 10 year U.S. bond is around 1.5%.  

Germany’s recent zero percent coupon bond screams one thing: Your money is safe with us. Perhaps the most stable and profitable market in all of Europe, Germany is using its regional clout to attract local money cheaply so it can relend it at higher interest rates. That profit, I surmise, is a benefit awarded to regional fiscal strength.  

And much to the contrary, high credit risk equates to higher rates of interest. A country with a dying economy that can’t afford itself, like Spain and Greece, can never justify zero percent interest rates. The credit risk is too high; lenders require more compensation to lend to their situation. That’s why Spain’s interest rates are on the rise. See the chart below (source noted). 

SpainYield
 


So Germany is issuing certain bonds at 0%, the U.S. has some around 2%, and Spain is more than three times that at 6%. Also note that these interest rates are in a relatively low inflation environment. Persistent printing of currency will ultimately cause inflation because it cheapens the dollar, therefore, requiring more dollars to purchase the same goods (see: In Real Terms).   

Inflation, sure to arrive in force as a result of sloppy money policy, will drive all of these interest rates higher. So if countries can’t afford their debt payments in this historically low interest rate environment, they don’t have a chance of making timely payments under future higher interest rates. And then Europe really has a problem – which will instantly travel across the pond. 

For instance, when interest rates rise, so will failures and defaults. This puts "high yield" mutual fund owners at the epicenter of correction because buried in these massive pooled funds are, without a doubt, high risk loans to the likes of Greece, Spain, and/or Portugal etc. Like higher interest rates, defaults will cause bond values to fall and a wide scale deterioration of invested capital and/or principal. High yield mutual fund owners should take special note of this dynamic and allocate their portfolios appropriately! 

Some fund owners are under the false impression that high-yield fixed income funds are a "safe" bet because they’re bonds or backed by governments. So not the case. High-yield bond funds are comprised of high-risk bonds issued by borrowers most likely to default. While those countries might not fink on the entire loan, a debt restructuring usually includes some portion of forgiveness (a.k.a. loss for lenders.)  

That said, be very careful with your bond and fixed income allocations in this kind of environment, where monetary and fiscal incompetence is demonstrated daily. The possibility of loss in principal and falling valuations is very high. Consider high-yield mutual funds a high-risk proposition.  

You should also know one more thing about the worldwide money game: for some sad, strange reason the U.S. government appears to be hell-bent on losing it. They continue to make the same mistakes made by their European brethren by continuing to avoid sound money and spending policies. The U.S. is getting out-maneuvered at every turn (see: Management Deficit Disorder) and it’s hard to watch.   

But if you’re an independent investor, it’s a train wreck that must be witnessed. It’s the only way to know the score.  

Stay tuned…
 
Stay Ready, Be Patient
May 28, 2012
While above-average companies continued to outperform this week, average ones went nowhere – and I guess that’s good news considering the ugly Market environment that surrounds us. The stock market selloff that began in April got some more juice this week: Best Buy’s profit fell again, this time 25%; and consumer staple cereal maker General Mills announced a massive restructuring that will add another 35,000 people to the unemployment line. Not good.  

This tells us something very important about the stock market dynamic this year: strength has performed well thus far but average and below-average have not. The Average is up just 1.9% this year. The above-average 15-51 strength Indicator gained 24.3% so far; while gold (GLD) is around breakeven. That’s called, "market weakness." See chart below.

5-25-12

In a nutshell, stocks are correcting and gold looks confused. That’s what crazy market conditions do to trend-lines. It creates volatility and sends mixed signals. It breeds uncertainty. Over-reactions up always lead to over-reactions down.  

And why not the move down?  There’s continuing trouble in the U.S. financial system, as money isn’t moving in the right direction. We find out now that the mess at JP Morgan wasn’t limited to bad "synthetic" bets made overseas by the relatively unknown villain named "the London Whale," but that huge losses were also incurred on high risk investments made in "financially challenged companies" located here in America.—This, mind you, while hundreds of thousands of consumers can’t refinance the mortgages on their primary residences. And some people wonder why the housing market hasn’t recovered yet. Banks don’t want to be in the mortgage business – "conventional banking" no longer their thing. That’s not good for the housing market or consumers.  

Banks have all turned into investment companies – and that’s an institutional problem.  When this is the case certain borrowers get squeezed out of the market and it’s usually the little guy, the small business, the individual and consumer alike.  To be sure, in conditions like these Banks are more willing to lend money to larger institutions than any other populous (see: Red Flag in Bank Lending? Wall Street Journal on-line) – or place bad bets on high-risk gambles, in massive number, both here and abroad.  

Add the trouble in the U.S. banking system to the continuing saga happening overseas. 

This week, and amid new evidence of a global recession (see: New Signs of Global Slowdown, Wall Street Journal on-line), Fitch Ratings Company downgraded the financial status of Japan, the world’s third largest economy. Ouch. This won’t help the matter of world order.
 
And then, of course, there’s the disaster waiting to happen in Europe. Cash run-ons have nearly crippled Spanish and Greek banks as citizens withdrew hundreds of billions of Euros in fear of a monetary collapse. And since banks don’t reserve 100% of customer deposits, it’s easily possible for banks to run out of money – especially if their sovereign governments can’t print more. Remember, individual countries in the Euro Zone can’t print money. Only the European Central Bank (ECB) can do that. As a result, Spain and Greece must go to the ECB to get more money – and recently the ECB has dramatically reduced funding to those nations without aggressive government budgetary cuts. Greece and Spain are steadfast against such cuts, and appear to be banking on the "too big to fail" premise in hopes of landing another bailout. 

To capitalize on the panic over there, Germany took unprecedented action this week by announcing it will offer zero percent interest-rate bonds. As mentioned, the global competition for profit begins with a competition for capital. Germany recognizes this, and is using this strategic monetary policy to attract scared capital stuffed under mattresses in Spain and Greece – and to keep Euros in Europe. Like China, Germany is in the monetary game.  

With limited financing options, you wonder if Greece and Spain will turn their attention to the International Monetary Fund (IMF), which just raised more than $400 billion, and is planning to restructure its governing body. Wouldn’t it be interesting if they struck a new deal with them?— China and Russia the big-players there.

So what should investors take from all of this?   

Expect more volatility. Stocks are looking to move lower and gold is looking for a reason to move upward strongly. Be comfortable with your asset allocations and remember that cash is king -- only if it’s safe. (You can’t buy low without it.)
 
Stay ready, and be patient.  

And I’ll be here….
 
Facebook Flop, Too Big To Succeed
May 23, 2012
Facebook fell flat on the first day if its highly anticipated initial public offering (IPO). The stock opened at $42 per share and then quickly rose to $45 - before dropping like a hot rock to a dismal first day close of $38.23. That was Friday, May 18th. On Monday, day two, facebook closed at $34 - only to finish its third day at $31. After all the hype, and all the fanfare, facebook's introduction turned into a total flop.  
 
And then there's today. News broke early that investors have filed a lawsuit against facebook and its IPO investment bankers, in what has become the most recent example of Wall Street disgrace. 

As mentioned in my award winning book, IPO’s aren’t right for most investors because of the high-risk profile. The IPO price, for instance, has always been a speculative bet. It’s a preset price-value judgment call made by a company’s management team and their investment bankers before the free market activity has a chance to correct it. If their pre-market assessment is wrong, investors instantly lose money. And that’s what happened in this most recent Wall Street scandal, called the facebook IPO.

Just a few days before facebook's first public trade, both the shares being offered and the price per share were raised amid two major downgrades by Morgan Stanley and Goldman Sachs. The downgrades were kept secret. The valuation remained high. Both companies, Morgan Stanley and Goldman Sachs, are major stakeholders and investment bankers for facebook. That’s the reason for the lawsuit.  

Morgan Stanley was the lead underwriter for facebook and Goldman Sachs was involved long before. In fact, Goldman Sachs wasn’t the least bit shy about what they were going to do at the time of IPO: if facebook was priced to the high-side of $38 they were selling 50% of their investment position. That’s Goldman Sachs calling facebook a "sell" at the IPO price. Call me a cynic, but I’d place an odds-on-bet that they were the ones selling out at $45. Wouldn't be shocked.  
 
And that’s why so many people think the Wall Street establishment is corrupt and that investing is an insider’s game. Every time you turn around Wall Street is making money on inside information while selling their customers a phony bill of goods. Just today another illegal inside information story hit the press (see: Another Alleged Goldman Source Emerges in Gupta Trial, Wall Street Journal on-line). It happens all the time. 

That’s why I say, Lose Your Broker Not Your Money.

Some large institutional investors like Harvard University’s endowment, Canada Pension Plan, and Abu Dhabi Investment Authority, have discarded pooled investment products like mutual funds and REITs in favor of direct investment. "When we control what we buy, and how we mange it, our results tend to be better," said Jane Mendillo, head of the company that manages Harvard’s endowment fund (see: Large Investors Choose to Swim on Their Own, Wall Street Journal on-line). Tom Arnold, Abu Dhabi’s investment chief, agrees, "funds have more risk than investors are being paid for."  

Indeed.
 
The minute you hand your money over to someone else to manage you lose a piece of it. Brokers make money from your money. Your loss is their gain. Besides, you can’t trust them. It’s in plain view everyday. 

Now more than ever it’s time to Lose Your Broker. 

You can do better! – without inside information and absurdly priced high-risk IPOs. By the way, IPO's commonly find their way into mutual funds. So if you own a mutual fund you might have lost a few bucks on facebook and don’t know it. That’s another hidden cost of pooled investment products and over-hyped IPO’s: They’re too big to succeed.  
 
 
ShieldThe road to financial independence.™
 
Play Defense, Make Money Too
May 19, 2012
The ugliness at JP Morgan Chase continues to top headline news. Even though it’s a really bad situation there, it is just one bad apple in what has become a truly spoiled bunch. Banks are in terrible shape all over the world. Greece and Spain have experienced significant cash runs on their banking systems because, quite frankly, citizens are scared of a Euro collapse. In a monetary move to show their distrust for banks and governments alike, several hundred billion Euros have been withdrawn from banks only to be stuffed under mattresses. That’s a vote of no confidence.  And that’s why gold turned-around this week. Stress on money and banking does that – which is why China is buying gold in droves. Make no mistake, China understands the currency game.  

Year-to-date the Dow has given back all but a mere 1.2% of its early calendar gain. Gold, after this most recent turnabout, is only up 1.7% for the year. The 15-51 strength Indicator has once again outperformed, remaining up 19.8% to date. Here’s the picture.  

5-18-12a

After an unjustifiable robust start, stock prices began retreating in April. The reason they have kept moving downward is because they had no business trading up at the action zone high point. Remember, that’s where the Dow should trade during times of economic strength and expansion – and that’s not the market condition we’re in. 

Based on current market conditions the Dow shouldn’t even be trading at the action zone midpoint, which can be considered "fair value" (see this blog for more information.) Here’s the same year-to-date data from the above chart but with the action zone midpoint shown.  

5-18-12b

The Dow should trade around the midpoint level during times of market stability and moderate economic growth. But again, that’s not the market we’re in. The Dow should continue to move lower.

Many world markets are in recession and poor fiscal condition, and as we know, the free-market has been in recession for several years here in America. Add to this persistently weak and sloppy monetary policy – which, let us not forget, fueled the subprime mortgage disaster in 2008. Those same mistakes are stoking a worldwide debt crisis that will make the 2008 crash look like child’s play.  

Bad money policy, along with reckless government spending, irresponsible promises, and fake solutions, have been standard practice for way too long. That’s why gold has encountered a long term surge, and it’s also why average stock market returns as indicated by the DJIA have failed to outperform the market (GDP). See below.

5-18-12c

Listen, when you’re in a momentary and fiscal crisis gold is must have asset class. Gold is up 150.4% since 2007 began. The 15-51 Indicator gained 117.6% while the Dow lost 2% and failed to keep pace with GDP.   

This is the best argument for multiple asset class portfolios built with superior 15-51 construction and smart design. During uncertain times like these, now is the time to play defense. Allow me to introduce a portfolio I call, Keep It Simple Smarty. It is comprised like this:

Keep It Simple Smarty Portfolio
Asset Class:  %
Cash 50.0%
Gold (gld) 25.0%
Stocks (15-51) 25.0%
Bonds 0.0%
Total 100.0%
 
Here’s how that portfolio performed since 2007.  

5-18-12d

This KISS portfolio gained 52% during this five year time span (remember, the Dow lost 2%), experienced less volatility, and was well positioned to capitalize on any major market selloff.  That’s what you want. Buying low is where the real money is made.  

Again, the three critical triggers to a steep and broad scale stock market correction are:
Realization of Recession in America
Inflation that forces Interest Rates higher, and
Collapse of the Euro

Until then, play defense and make money too.  

Stay tuned…
 
Step 1: De-Institutionalize
May 17, 2012
There is an old saying that criminals serving long term prison sentences can become "institutionalized," meaning they become so  reliant on the jail system to provide their basic necessities of life – food, water and shelter – that they can’t live without it, or outside it. They become institutionalized when the very thought of maintaining sanity and civility outside the institutional borders scares them to hell. When they reach this point, the person has grown so attached to the institution that they prefer a jailhouse bunk over freedom and independence. It’s an ill state of mind.  

That is the state of the financial industry today. 

Banks began losing their identity during deregulation that occurred in the 1990’s. It was then that banks began transforming into "financial institutions" by offering services beyond traditional banking boundaries. It also brought about major industry consolidation in an attempt to offer consumers a "breadth" of services. Consolidation got a further boost during the panic stricken market Crash of 2008 – when bailouts and takeovers were everywhere, and even Goldman Sachs changed their operating structure to a "bank holding company" to qualify for emergency cash funding through the Federal Reserve’s discount window. By the time the dust settled, and after an unprecedented amount of industry consolidation, the financial industry was essentially nationalized through the banking system by the end of 2009. Today the industry is inundated with "too big to fails."    

And then Jamie Dimon rattled the hornet’s nest by losing a few billion dollars. The government is now investigating and there are suggestions of more financial regulations, tighter boundaries – and then there’s the so called Volker Rule (not to be confused with the Dimon Rule of Stupid.) But who’s kidding who? More political rhetoric and grandstanding won’t fix this problem. Dodd-Frank has already proven that in 2,500 pages.  

The only way to end "too big too fail" is to break-up companies that fit that bill. Am I wrong here?

Why not start this process by making banks be banks. Banks don’t sell insurance. Insurance companies do that. Banks provide banking services and asset based lending/financing (i.e. the purchase of a primary residence or capital equipment.) They’re not investment banks. They’re money banks. Investment companies provide investment services and effectuate investment transactions – they’re not insurers or money bankers. They’re investment banks.  

Let’s take JP Morgan Chase for example. At the very least it should be broken into two parts: JP Morgan Investment Company and Chase Manhattan Bank. (How’s that for radical?) Banks cannot place bets in "synthetic portfolios" like Mr. Dimon did. But investment companies can. As such, Jamie Dimon can’t be the CEO of Chase Bank but could be for JP Morgan Investments.  

Banks must be more conservative. They facilitate market activity (spending and making payments) and should be dedicated to instruments of savings and financing long term purchases. As such, banks should focus on calculated credit risks attached to actual and legitimate items of collateral. Anything else is an insurable risk, an investment, or a speculative gamble – none of which have a place inside bank operations.  

Hey, free-markets are just like free-people, both can overindulge at times. The financial industry has done this through deregulation and wide-scale consolidation. By providing all the same services in massive form – banking, insurance, and brokering investment transactions – financial institutions have become too much of the system, and hence, "too big to fail."

This must end.  

The industry needs to change its mindset and de-institutionalize, making itself smaller and less reliant on the system, government intervention and bailouts. This will lead to a freer market – one step at a time.  


ShieldThe road to financial independence.™
 
 
 
*assuming "synthetic" bets are legal investment products 
Dimon is No Diamond and Gold is Misleading
May 13, 2012
The stock market story for this week, no doubt, is the massive losses posted by JP Morgan Chase – a company, no doubt, considered "too big to fail." 

The company’s CEO, Wall Street sweetheart Jamie Dimon, announced in an ad hoc news conference that his company lost $2 billion in the most recent fiscal quarter and that another billion dollar loss is expected in the near future. As irony would have, Dimon, who has said on numerous occasions that the European contagion wouldn’t threaten U.S. banking in the least, lost billions on bad "bets" on Europe.  A "humble" and "contrite" Dimon said that they were "stupid" and broke his so called "Dimon Rule."

What is this so called Dimon Rule?

Dimon, a consummate Wall Street insider and CNBC star, cautioned investors not to make too much of the losing situation by trying to isolate the stupidness to just his bank, stating "just because we were stupid doesn’t mean everyone else was." In other words, he is the only stupid large bank CEO. 

Is he saying that the Dimon Rule is to not be stupid?  Because if he is, I’d say losing $3 billion like he did during the post Lehman Brothers era is really stupid. So I ask: Why should we still listen to him?

That’s one point. The other is this: in a post 2008 Crash era the American people should insist that persons running company’s "too big to fail" not be really stupid. Companies "too big to fail" are reliant on taxpayer bailouts should their management prove to be really stupid. Dimon, in fact, did the same really stupid things that were done industry wide in 2008. And he should be fired because of it -- that from a taxpayer's perspective.    

Like Sarbanes-Oxley, Dodd-Frank has proved to solve nothing, as large financial institutions continue to engage in the same risky hedge fund practices that brought the industry to its knees just a few years ago. Consider these massive Chase losses as another red flag warning to a troubled financial system, which is additionally affected by the disaster in Europe. Birds of a feather flock together. Dimon isn’t the only one – and Chase isn’t the only one. This kind of nonsense is not limited to them. It can't be.  

That said, my good advice to you is that financials be positioned no higher than IS: 5-1 – or better yet, completely eliminated from conservative and moderate 15-51 portfolios – starting now at the latest. It's really not worth the risk.  

And though the Chase news was extremely significant, indeed, it produced little more turmoil in the investment markets, which continued on their moderate downward trends. The Dow Jones Industrial Average lost 1.7% this week, the 15-51 strength Indicator lost just .3% - but gold dropped a bunch, losing 3.7%. Here’s a look at the most recent 12 months.

5-11-12a


As the 15-51 Indicator shows, stocks are extremely inflated and starting to correct under more apparent recessionary evidence. The Dow average shows it, too, but to a lesser extent as one would rightfully expect. Gold, in theory, should be on the rise. But it too is in decline, which can be seen even more clearly in the chart below.  

5-11-12b


Gold’s move in these two charts screams one thing to me: uncertainty. Wishful investors have sent above-average performers soaring on positive earning reports while "the market" average has produced only meager results; and gold appears less sure about financial instability. 

Two things are clear to me: Jamie Dimon is no diamond and gold is misleading.  

 

Senior Dilemma
May 10, 2012
I would love to blog today about the competition between Spain and Greece – which country will steal the headlines, and who is in worse shape.  But today I don’t care about them, or their problems. Today I care most about those being screwed the most with the current U.S. financial condition. U.S. senior citizens – they are the ones being hurt the most by current monetary and fiscal irresponsibility.  

You know, there are at least four classes of senior citizens in the U.S. – there are upper class seniors, middles class, lower class, and poverty class seniors. All of them, especially those who have played by the rules and contributed handsomely to the Social System, are persistently being compromised in the current Market environment.  

Perhaps the best way to illustrate this point is to describe the ideal senior position. Let us consider the lifelong American, a private citizen, a hard worker who has paid an entire career into the Social Security System. His employer, by the way, has also matched every nickel of his contribution towards the social security of his retirement. His wife, too, has contributed to the same system, but admittedly, not to the same monetary extent. They are a middle class couple, a middle class people – nothing fancy, just an honest day’s pay for an honest day’s work. They raised two children and lived a frugal life. Their children, now, are six figure income families living nicely in suburban neighborhoods. They, the proud parents, remain living in the same meager dwelling of their children’s youth. Somehow, beyond college and marital expenses, they have managed to save a few bucks in order to supplement their Social Security benefits. Through thoughtful consideration and experience, they had ascertained that a reasonable quality of life could be had until expiration with just a 5% return on their savings per year. At retirement they had planned to do what their parents had done – they would buy U.S. government bonds and live happily ever after.

But today caught them by surprise. The 10 U.S. year bond yield is below 2% – well short of their required rate of return, even before inflation. This market condition has persisted for far too long – cheap and easy money has been a multiple decade disease. During this time our senior citizen couple sought higher income percentages in the stock market, via high dividend issues. High dividend stocks, those considered to be mature and low growth, suffer greatly during downside stock market corrections because they have less future value. Though they have lost money, our senior citizens continue to incur higher risk in hopes to earn higher income (dividend) reward. This works out great, unless "the market" goes down – or if the government raises taxes.

If the government raises taxes on dividends, not only do they raise taxes on every mutual fund owner, but they also raise taxes on every senior citizen trying to supplement their Social Security with investment income. This will drive seniors into a more risky proposition, forcing them to seek income through higher growth-higher risk capital gains instead of more stable-more mature dividend issues – not to mention risk-free government bonds; which is where they should be. Reason being, seniors shouldn’t have to live with the volatility that juniors inflict on "the markets" (see below.)


5-9-12


Why force seniors into taking such a volatile risk on their responsible long-term career?  

Cheap and easy money policy combined with reckless fiscal policy is the Real problem here – and it hurts senior citizens more than any other demographic over the long-term. And it always will.  

The Federal Reserve must begin reversing this insanity by raising interest rates and doing so in swift fashion – if for no other reason than to provide a safe, high income investment suitable for our most treasured Senior Citizens.  

There should be no dilemma.  
 
Europe Headlines News
May 07, 2012
Spain, not Greece, continues to headline news from across the pond. There is real trouble in Europe. Here is a sample of recent Wall Street Journal headlines in the past several days:
Spain’s Unemployment Jumps, Deepening Crisis (4.27.2012)
Data Deepen Spanish Gloom (4.30.2012)
Hollande, Sarkozy Square Off in France in key Vote for Euro Zone  (5.6.2012)

Spain’s unemployment rate jumped to an eye-popping 24% as its economy shrank for a second straight quarter (-4%).  Spain is in a disastrous three-faced condition: high unemployment, recession, while facing national bankruptcy.  If that isn’t bad enough, the country is apparently blind to the easy solution incentive offers to correct its Market problems. (PS: Their highest individual tax rate is 45% and their lowest is 19% -- plus 4.7% of gross wages for Social Security. Corporations pay 30% and a Social Security tax of 23.6% on all its gross wages. It’s hard to believe there are still so many people in the civilized world think that higher taxes solve problems. They don’t. They make everything worse. Ask Spain.)  

And then there’s France.  In stunning fashion, Nicolas Sarkozy lost his bid for a second term in France. He is the first one-and-done French President in more than 30 years.  Sarkozy, who was portrayed as a "free market capitalist" the first time he ran was defined as a "center-right" candidate this time – and lost to committed socialist Francois Hollande. 

Now, I don’t know what "center-right" means to them, but to me Sarkozy looked more like a limp communist than anything else.  And the French people, clearly sick of his type of governance, joined the club and ousted their leader. Sarkozy represents the 11th leader to be ousted in the wake of the "financial crisis." 

You can imagine the mindset of the French electorate, tired of sending their hard-earned tax dollars to bail-out irresponsible Union members like Greece and Spain, and frustrated with persistently difficult Market conditions in their own country. Stressful economic conditions span the globe and presiding governments are being thrown out. Sarkozy is just the latest victim.  

Whether or not Francois Hollande will turn out better than Sarkozy has yet to be seen and, quite frankly, matters very little right now. It’s important to note that Hollande got elected not because of differences in policy, but because he was lucky enough to be the other guy. Like Sarkozy, Hollande wants a stronger role in the European Central Bank (i.e. socialized banking), higher taxes on the rich, and a more relaxed austerity program. In other words, Hollande wants France to move closer to the Spanish model because he thinks he can do it better. Good luck. He’ll certainly need it.   

That said, independent investors should continue to expect Market turmoil in Europe. And as mentioned several times in these blog before, it is impossible for the U.S. to sidestep the trouble overseas. World markets are connected like never before.  Our currency depends on theirs. And theirs’ ours.  Any break-up and/or dysfunction within the Euro will cause stock market volatility here in America, including but not limited to, a massive and sizeable downward correction.  

Just like Europe, the American Market remains under severe economic stress.  Here is a sample of domestic Wall Street Journal headlines appearing in last week or so:
U.S. Stocks Up on Housing Data (4.26.2012)
U.S. GDP Growth Slows (4.27.2012)
Slowing Growth Raises Fears of Stall (4.27.2012)
Upbeat Earnings Buoy Stocks (4.27.2012)
Manufacturing Drives Dow to Four-Year High (5.1.2012)
Job Growth Slowed in April, Report Says (5.2.2012)
Market fundamentals remain negative.  And while above-average companies continue to produce strong earnings which translate into above-average stock market returns (see chart below), "the market" average is up 6.6% so far thus year -- or three times the pace of Real GDP growth. The 15-51 Indicator, comprised only of above-average stocks, has gained 27% year-to-date. Both, including gold, are showing signs of correction in the 4- month view below.


5-4-12a


When considering underlying Market conditions as described in these blogs, it’s easy to see that stocks are over-valued on a year-to-date basis. The same can be said when viewing the most recent 12 months. In this period the Dow gained just 3%, compared to 34% for the above-average 15-51 Indicator, and 9.8% for gold.  See chart below.


5-4-12b


Again, the underlying economy supporting these investments is fragile, stressed out, and connected to world Markets that are lost and falling apart.  

Stay tuned…
 
An Energy Game Changer: Scams and Con-Artists
May 02, 2012
Those who have read my book know that I grew up in the inner city.  It was there I learned that a seasoned con-artist could be more sincere and convincing than Mother Teresa. Daunting economic conditions can easily make you question yourself, the conventional approach, and your options going forward. Let me caution, taking a gamble on a "hot stock" is never a prudent long-term option and, as I detail in my book, are an extremely high risk proposition that offer little more than false hope.  

Today I alert all independent investors of a current scam circulating through the U.S. Postal Service. Just now I received a twelve page full color advertisement for what was billed to be the next great green energy play.  See cover art below.

Stocks_Digest
 

The advertisement featured a company trading under symbol SEFE and the piece was authored by a guy named Andy Carpenter, from a company called, Carpenter Global Stock Advisory. Besides recommending SEFE as a hot stock pick to buy, the advertisement also encouraged enrollment to a "free" website located at PennyStockWizard.com. PS: I never went to their website, nor do I care to.

Instead, I went to Yahoo Finance and performed the Lose Your Broker process outlined in chapter 5 of my book. The purpose of that chapter, entitled The Fundamentals of Fundamentals, was to sniff out the kind of rat that Andy Carpenter is. The company, SEFE, has no revenue, 4 employees, and one million dollars of expense. It’s a total scam, a Ponzi scheme at the very least. How such a company could be listed on any respectable exchange is beyond me. The fact that it is lends reason to so many people considering investment an insider’s game, rigged against them, with Vegas type odds. And who could blame them? It’s an industry gone rotten.

Carpenter, who passes himself off as an expert, boasts of an extensive track record of success picking hot new stocks, with triple digit returns easily had in weeks, days, and "sometimes hours." He props himself up on coverage he received from The Wall Street Journal and USA Today, whether this is true or not I do not know, nor do I care. Carpenter, and his ilk, are a discredit to an ugly industry and a cancer to society.  

In essence, Carpenter lays a bet on SEFE – a go nowhere shell company – hoping to buy low. Then he runs a direct mail campaign directed at creating demand for SEFE. If his mail campaign works, greater demand will cause SEFE’s price to rise swiftly – where he will then sell you out.  (As an FYI, it doesn’t take much for penny stocks to move wildly in price on small volumes of trade. That’s the nature of the beast that they are.) In other words, he buys low and then sells high to you.  

SEFE, at the very best, is a sucker’s bet against a seasoned con-artist named Andy Carpenter. It’s a gamble, and very much not worth the risk.    

It’s time to Lose Your Broker, not your mind. Stay away from scams and con-artists – you just might stumble across them in your mailbox.
 
:-)

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"As convincing as it is successful." -- CBS Connecticut

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