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Posts Tagged ‘client’

SmartStops.net Teams With TradeKing to Facilitate Risk Management

July 11th, 2012

San Francisco, California, July 11, 2012– SmartStops.net, an online service that helps investors of all levels manage investment risk, announced today that the SmartStops BrokerLink service is now available for clients of online broker Read more…

ETF, Mutual Fund, OPTIONS, Uncategorized

Think About This Investment Before You File Your Taxes

March 10th, 2011

Think About This Investment Before You File Your Taxes

I spent a number of years as a freelance writer.

And I have to admit, there were some benefits in being my own boss. I definitely prefer a pair of jeans to a pair of pantyhose. Also, slipping out to the grocery store during the day cut my shopping time in half. My daily commute? Just a short walk down the hall to my office.

However, there's one thing I don't miss about freelancing — the paperwork.

Monthly invoices had to be issued to all my clients and payments had to be accounted for. Depending on the client, that involved tracking bank wire and PayPal account transfers, depositing checks and, in some cases, waiting weeks for checks issued in foreign currencies to clear.

Records of every penny spent on office supplies, postage, software, business trips and meals had to be maintained. Writing an annual check to the IRS is bad enough. As a freelancer, I was obligated to pay estimated taxes quarterly. At the end of the tax year, a few of my clients issued 1099 tax forms, while others didn't. And, of course, all my income had to be properly accounted for.

It didn't take me long to realize the benefit of owning a good business accounting software program.

The demand for paperwork gets kicked up a notch
I was reminded of my accounting escapades the other day, after reading an article about a proposed new tax law. Starting in 2012, some lawmakers are trying to get small businesses, freelancers and independent contractors to generate even more paperwork: They will have to issue 1099 tax forms to any vendor on which they spend $600 or more annually.

So for instance, if a small business occasionally buys pizza for its employees, it may have to issue a 1099 form to the local pizza parlor at the end of the year.

I started to envision what my records would look like if I were still freelancing. Would I have to issue 1099s for my hat and bubble gum expenditures?

Regardless of whether this proposed tax law is enacted or not, we're living in an increasingly entrepreneurial age, as experienced workers strive to start their own firms.

Uncategorized

Managing Risk… and Conflicting Interests

February 4th, 2011

With each passing day it’s always exciting to see what new examples of banking unscrupulousness happen to pop up. Today, there’s one from Omer Rosen, a former employee in Citigroup’s corporate derivatives unit. In a recent piece for the Boston Review, he gives the skinny on how technically his job was to help clients manage risk… however, in reality, he spent the bulk of his time figuring out how to profit on his clients’ inferior information.

From the Boston Review:

“Our clients were non-financial corporations, the Deltas and Verizons of the world, which relied on us for advice and education. Our directive was ‘to help companies decrease and manage their risks.’ Often we did just that. And often we advised clients to execute trades solely because they presented opportunities for us to profit. In either case, whenever possible we used our superior knowledge to manipulate the pricing of the trade in our favor.

“I never heard this arrangement described as a conflict of interest. I learned to think we were simply smarter than the client. For unsophisticated clients, being smarter meant quoting padded rates. For the rest, a bit of “legerdemath” was required. Most brazenly, we taught clients phony math that involved settling Treasury-rate locks by referencing Treasury yields rather than prices.

“If a client requested verification of our pricing, we volunteered to fax a time-stamped printout of market data from when the trade was executed. One person talked to the client on the phone while another stood by the computer and repeatedly hit print. The printouts were sorted, and the one showing the most profitable rate for the bank was faxed to the client, regardless of which rate was actually transacted. If a rate for the client’s specific trade was not on the printout, we might create rigged conversion spreadsheets for them to use in conjunction with the printout.”

Without a doubt, you’ve already heard of creative accounting… consider this an example of creative use of the “print screen” key. If you didn’t find that little nugget of insight hard enough to swallow, you can read a few more of his tricks of the trade in his original post on Legerdemath in the Boston Review.

Best,

Rocky Vega,
The Daily Reckoning

Managing Risk… and Conflicting Interests originally appeared in the Daily Reckoning. The Daily Reckoning recently published an article looking at the impact of quantitative easing.

Read more here:
Managing Risk… and Conflicting Interests




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

“What We Love Is Transparency” – Casey Smith, Wiser Wealth Management

December 20th, 2010

ActiveETFs | InFocus had a conversation with Casey Smith, who is the Principal and President of Wiser Wealth Management, a registered investment advisor based out of Marietta, Georgia. Wiser Wealth Management is a fee-only wealth management firm offering portfolio management, tax preparation, and estate planning. Wiser Wealth has been utilizing ETFs in client portfolios since 2004 and follows a passive management philosophy. Casey chats with us about how ETFs fit into his investment framework, where he’s considered utilizing Active ETFs and his take on transparency in Active ETFs.

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Shishir Nigam – ActiveETFs | InFocus: Casey, tell us a little about yourself and how you got into the money management business?

Casey Smith – Wiser Wealth Management: I actually invested in my first mutual fund when I was 13 years old, so I guess I’ve always been interested in this aspect of the business. Growing up I always thought I wanted to be a mutual fund manager and as I got closer to picking a career path, I found that personal finance probably more suited towards me. I was a finance major in college and coming out of college I entered into the brokerage business. I eventually broke away from that into a fee-only investment advisory firm which is now called Wiser Wealth Management.

Shishir: What kind of clients do you target and how much money is Wiser Wealth currently managing?

Casey: We have 110 clients right now, most of our clients have net worth of $1 million plus. We have three focus groups and that’s just how the business has developed. We have a lot of airline pilots that are a part of our firm. We also seem to have a lot of widowed clients which include several clients from my predecessor. And the third group is our regular, everyday, blue-collared workers who did a great job saving. A lot of them have approached a little over $800,000 in their IRAs and then they get very nice pensions when they leave the firm. And so with those three service groups, even through 2007 and 2008, we have continued to grow.

Shishir: What is your portfolio management philosophy and how do ETFs fit into that framework?

Casey: Ever since my years as an undergrad, I really latched onto a Professor that was really adamant about passively managing assets. Obviously, the brokerage business is very anti-passive, they really push active products. So when I broke off on my own, I really started doing my own research and we are a passively-managed firm. We’ve been using index funds since 2001. In the beginning we used index mutual funds. We’ve developed our portfolios over the years to take a global view of the world, not just large, mid, small and international. A “traditional” passive portfolio today – I just don’t know that it can survive long term. We currently have, what we consider 12 long term healthy asset classes that we want in our portfolios and we just simply change allocation based on risk tolerance and in some cases we may only run with 8-10 asset classes in our aggressive portfolios. Like our conservative portfolios, we use a lot more fixed-income type ETFs. We do make up most of our portfolios with passively-managed ETFs and one ETN for commodities. We do have one actively-managed ETF as well.

Shishir: Have you considered the use of actively-managed ETFs in client portfolios?

Casey: We are using MINT. As any advisor would know, we are having issues with yield right now, with new money that’s coming in. There’s a portion of our portfolios that we keep in cash because people are making withdrawals. They’re basically monthly pay checks. Keeping 10% of your money in cash is almost painful these days because even inside a TD Ameritrade brokerage account, you’re only getting maybe 0.25% – 0.5% in yield. MINT allows us to lower our cash holdings, put it in MINT and you at least get a higher yield, versus sitting in cash.

Shishir: And have you considered utilizing Active ETFs for asset classes other than cash?

Casey: No, we haven’t. Certainly, we’ve looked at them, especially when some of the first ones were rolled out though MINT’s philosophy made a lot more sense to me – being actively-managed in that asset class versus being passively-managed. Once a year, we do a large portfolio review where we basically break down everything we know and understand and rebuild from the beginning. And most years, the portfolios come up about where they are right now, as far as how we allocate. But in some years, new things come to light, like for instance MINT this last year.

Shishir: What advantages or disadvantages do you see from an investor’s standpoint when you compare actively-managed ETFs to active mutual funds?

Casey: First of all, what we love is transparency. It’s a joke, but we have windows in every room in our office and even the rooms that don’t go to the outside have a window on the inside. It’s because we want to send a signal that we are transparent, there’s no smoke and mirrors. So obviously, being able to see what’s inside the portfolios is important. One of the big negatives with active mutual funds is the tax consequences. We’ve seen separate managed accounts from clients’ assets coming in – they often have to pay $20,000 in federal estimated quarterly taxes. But when you break down the option strategies, all the active trading, after you look at their tax return, deduct that from their actual rate of return, they actually matched the S&P500. So obviously, mutual funds wouldn’t be quite as bad as some of these boutique firms with their managed accounts. That’s a plus for actively-managed ETFs versus a mutual fund.

The other part is liquidity.  At Wiser Wealth Management, we’re not buying and selling on a constant basis. We rode out the financial crisis just fine, yes some days it was a little painful, but we didn’t have any withdrawals, we didn’t lose any clients and in the end they’re fully recovered from the losses of 2007-08. But it’s always nice to know that you can hit a button and know that you’re out and you don’t have to wait until close of business – that’s a big advantage.

A big thing for me, obviously, is lower expenses. I just did some work for the airline pilots association, with one of the airlines based in Atlanta. Their employer refused to allow ETFs inside a brokerage link. Due to a lack of ETF education, they didn’t understand the benefits of ETFs. We showed them that the ETFs are 60% cheaper than their mutual fund options and that over a 20-year period, the indexes basically tracked all their premier managers with the mutual funds. If a person came to work at the airline and retired 30 years later, they would have 11% more money in their account because of the reduction in cost.

Wiser is an independent registered investment advisory firm, we’re not stock brokers, we don’t pitch any products, we don’t work for a commission. We continuously search for what’s in the best interest of our clients and our toolbox is built by us, not by a corporation. Somewhere on your site, I think you referred to this too, which you don’t see a whole lot – mutual funds are sold. I could name 3 brokerage houses right now and I can almost guarantee you your funds will be 90% American funds. You’re telling me that that’s the best for you in every single category, in every single asset class? No, they’re just getting sold products. Obviously, if you’re using actively-managed ETFs, you’ve got an advisor who’s thinking outside the box at least, whether you agree with active or passive or not.

One of the negative issues that I see with Active ETFs is the talent side. I think you’ve got to get some big players on the active management side to bring over assets to make actively managed ETFs more competitive.

Shishir: Do you see the transparency required of actively-managed ETFs in the US being beneficial or detrimental to investors?

Casey: To me and to the client, I think it’s beneficial. Now, if an asset manager is worried about giving away his plays then I can sympathize with that side of the argument. Part of the problem in the whole mutual fund business is compensation. Fund managers get paid on a quarterly basis because their performance is directly tied to where they’re ranking within Morningstar and other rating agencies. Nobody says, “Hey, these quarterly rankings are fine, but we really want to see where you can take us in 10 years”, nobody does that. If you can be in the top 10 in Money Magazine, then your fund get a tremendous inflow of money, which causes new problems for current investors. This compensation model creates “window-dressing,” where managers are trying to cover up the additional risk that they took to get their returns. So, I guess there are two answers. Obviously, if I have to pick sides, I’m going to pick the consumer’s and fund managers probably need to clean up their act a little bit anyway.

Shishir: What kind of improvements do you think are necessary before the use of actively-managed ETFs become more widespread amongst advisors?

Casey: You have to look at where all the money is. The majority of the money is not in small independent firms like mine. It’s growing—we have a huge upwards trend in assets that we’re pulling from large brokerage houses. Wire houses and banks are doing everything to look just like us without the fiduciary responsibility, but they’re not. Now, if the fiduciary standard is made industry wide where brokerage houses have to act as fiduciaries, just like individuals like myself running independent practices, then that could open up an avenue to active management through ETFs. Because at that point, you’ll have to be able to show why you’re different and what fiduciary really means. Transparency may be the new marketing catch phrase. The problem is compensation, I just don’t know how advisors are going to be able to sell these things, who don’t get paid a flat fee or a percentage of assets under management. Our firm does either flat hourly billing or charge a percentage of assets under management, which is traditional in most firms like mine. I think it comes down to compensation, who’s working for whom.

Shishir: Are there any sectors or strategies in particular where you see actively-managed ETFs being more relevant than their passive counterparts?

Casey: That’s a good point. I think that there could be an avenue into that. There’s a new ETN right now from UBS. Essentially, the ETN (TRND) is tracking the S&P500 unless it drops below its 200-day moving average. If it drops below the 200-day moving average, then it buys treasuries. But there’s really no trading per se. I could see some more main stream strategies like that being employed with the Active ETF. You have to take on the tax consequences of that but that might catch more speed than an ETN with a promissory note from a company that had a $45 billion bailout. Obviously, in bigger sectors, that could possibly take hold but it depends on what the cost is. I don’t know that it will take away money from the passive sector, I could see it taking money away from the active manager who’s picking his own stocks. So instead he picks an outside manager to handle a sector that maybe he’s not as familiar with.

Shishir: That’s great. Thanks a lot for joining us Casey and we wish you all the best.

Casey: Thank you very much.

Commodities, ETF, Mutual Fund, OPTIONS

Seeking Profit Potential When Stocks Sink AND Soar

October 27th, 2010

MIke Burnick

The outcome of next Tuesday’s election could easily set off a chain reaction of events in our economy … and perhaps worldwide.

DEADLINE SUNDAYGo Here Now for Your Free Report

• Will the U.S. economy be able to grow enough to avoid a double-dip recession marked by deflation?

• Will Washington finally put the brakes on runaway spending … or will the Federal Reserve open the monetary spigots with another round of quantitative easing?

• And will this provide ANY relief for the consumers on Main Street … or simply result in another huge payoff for Wall Street investors?

Rampant uncertainty keeps volatility running high — and make no mistake — next week’s election could be a pivotal tipping point for financial markets, triggering even more sweeping moves both up and down in the months ahead.

Washington’s ability to control our economic outcome has been exhausted. They have no more tools in their toolbox to ignite economic activity and engineer the outcome they so desperately seek. As a result, we fully expect these broad rallies and declines — which have become a lasting feature of the stock market in recent years — to continue shaping our financial future. And the heightened volatility that results could affect every investment you hold in your portfolio.

To make money in a volatile market climate like this, it’s clear you can no longer count on a bull market alone to grow your wealth. Instead of waiting around for the next bull run, perhaps you need a strategy specifically designed to profit no matter which way the markets move.

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

If you’re unsure about which way markets could move next … or unclear about how to invest in today’s climate of uncertainty, then you’re not alone.

But what if I told you it may not matter which way markets move next?

What if you could harness the market’s volatility … the up and down swings … and potentially turn these shifting trends to your advantage?

What if you could make money when stocks sink and soar?

Many investors — not just professionals — view volatility as an opportunity. And for investors following the right kind of strategy, these markets can present a unique opportunity to make money.

Recently, my colleagues at Weiss Capital Management joined me for a special webinar briefing: The Secrets of Dynamic Investing.

In this special, online only event, we discussed the key reasons behind sharp swings in market direction and why they’ve become the norm. But more importantly, we revealed our Seven Rules for Dynamic Investing to help you navigate unstable markets.

And, we unveiled an actively-managed trading strategy that offers the potential to turn volatile markets into money-making opportunities: The Weiss Dynamic Strategy.

If you had been closely following each buy and sell signal from this strategy over the last five-plus years … you would have more than doubled your investment in the most turbulent markets since the Great Depression!

While this aggressive strategy may not be the right fit for everyone, in this investment briefing you could discover new ways to invest in challenging markets.

In today’s special edition of Money and Markets, we’re providing you with the firsthand insights and analysis we shared in this edited transcript of the Secrets of Dynamic Investing webinar, which first aired on September 15, 2010:

Weiss Capital Management

The Secrets of Dynamic Investing:
With Sharon Daniels, Mike Burnick,
and John Breazeale

Sherri Daniels: It’s been three long years since the financial crisis began, yet we’re STILL locked in a volatile, emotionally-charged investment climate … with no end in sight! For investors, this can be terribly frustrating because wild swings make it difficult to earn consistent returns.

But in this briefing, we will show you why we believe markets will continue to be powerfully volatile — and tell you how to turn that volatility to your advantage by earning potential gains no matter the market’s trend.

Plus, we’ll share with you our Seven Rules of Dynamic Investing!

Rule #1: Stay Flexible and Look Beyond
Traditional Investing Approaches!

John Breazeale: Rule Number 1 is to always remain flexible with your portfolio and be willing to expand your horizons beyond the traditional investing approaches.

Sherri: In other words, don’t limit your choices to plain vanilla stock and bond strategies, or restrict yourself to a traditional buy and hold approach, but don’t completely abandon the markets either.

John: Exercise good judgment. If you can see with your own eyes that the market trend is changing — either for better or worse — then be willing to take advantage of these rapid shifts in market direction to earn potential profits along the way.

Mike Burnick: To put it bluntly, buy-and-hold simply has NOT worked in the last decade. And, it’s not going to work in the next, in our view! But at Weiss, we’ve been applying proactive and defensive tools to our strategies for many years.

Sherri: And, we’ve found that one key to success is turning volatility to your advantage.

John: That’s easier said than done, but the bottom line is: Do not make decisions based on emotions, as many investors tend to do … that brings us to rule number two …

Rule #2: Follow a disciplined, rational and systematic approach in your investments, especially in turbulent markets.

Follow a disciplined, rational and systematic approach in your investments, especially in turbulent markets. Make more frequent moves with your portfolio when needed because sentiment can change on a dime and the market trend with it.

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

Mike: And above all, don’t act or react based on emotion or let it cloud your judgment.

Sherri: That’s easier said than done for most investors. But having this skill set has proven critical and will remain so if, as we believe, markets stay volatile for some time.

Mike: This up-and-down roller coaster we’re in right now has been in full swing for more than a decade! Stocks were down sharply from 2000 to 2003 … then back up for a few years … but down again sharply in 2007 and 2008.1

chart1 Seeking Profit Potential When Stocks Sink AND Soar

Recently we witnessed the big rebound rally in 2009 … but that hasn’t lasted, just as we warned. During 2010, the stock market has rallied five months (February, March, April, July, and September) and sold off four months (January, May, June, and August) — we’ve essentially gone sideways, but there’s been no shortage of up and down extremes along the way.2

John: And guess what! Average investors typically bought stocks in the heat of euphoria when the market was surging higher … and sold them in cold panic when the markets were plunging.

Sherri: There’s a historic precedent for this …

John: Yes, but the precedent is NOT a recent one. If you want to use history as your guide, forget about the rise in the Dow Jones Industrials or the S&P 500 Index during the 1980s and ’90s. Instead, look at the 1930s and ’40s, or Japan more recently. This leads me to rule number three …

Rule #3: Expect overall market volatility to remain high in the years ahead, and adjust your investments accordingly.

Sherri: To earn more consistent returns in this environment, you may want to consider an active strategy that allows you to earn potential gains as markets fluctuate both up and down.

John: Let’s face it; we live today in a post-bubble world, which is totally different from the typical post-recession pattern in the US since World War II. It’s not just that the rules have changed … this is a whole NEW ballgame we’re facing.

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

Mike: To elaborate, history has shown time and time again that in the aftermath of any great financial crisis, the economy and financial markets rarely return to business as usual right away. Instead, the healing process takes time, and that time is usually measured in years, if not decades.

chart2 Seeking Profit Potential When Stocks Sink AND Soar

During the 1930s and early ’40s, investors witnessed years of false starts and volatile swings in sentiment. There were many BIG moves in those years — both bull AND bear markets. But after all was said and done … after two long decades, these rallies still came up short! Like today, stocks went basically nowhere!

Sherri: But many people simply don’t want to believe that the Great Depression is relevant today.

John: Then just look at Japan right now!

Sherri: You’re referring to Japan’s lost decade!

John: No! Japan’s two lost decades! Its stock market has been bouncing around in a secular bear market for the past twenty years … with no end in sight.

chart3 Seeking Profit Potential When Stocks Sink AND Soar

And just as in the US over the past decade, Japanese investors have been slaughtered. Over and over again, they were lured back into stocks with government programs and promises to make things right. And over and over again, those hopes were dashed and their portfolios trashed.

Sherri: And you’re saying that the US today appears to be following a VERY similar path as Japan?

John: … it is quite definitely, in my humble opinion … and I’m saying that US investors must find a way to cope with volatile market conditions.

Mike: If the US continues to follow the same path as Japan, we can expect several more years of this type of “meat grinder”, up-and-down market volatility. There could be many false starts and relapses.

Sherri: But John, you believe investors can look at this TWO ways … as both a threat … and as an opportunity.

John: Absolutely!

Mike: Based on our research at Weiss Capital Management, I have to agree that rather than being a doom-and-gloom outlook — this uncertainty presents plenty of profit opportunities as well.

For instance, if you add up all of the upswings over the years, the Nikkei Stock Index in Japan has managed to rack up over 434,000 cumulative rally points!

John: That spells opportunity for investors willing to be more aggressive in an effort to capture these frequent rallies, but it also requires a disciplined approach to buying and selling and the timing of those transactions.

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

Mike: And our markets indicate a similar pattern.

The Dow, for example, has managed to accumulate 130,000 rally points when you add them all up over the past 11 years.3 Even though it sits around 11,000 today, no higher than it was in 2000.

John: Not to mention all the points that have been accumulated on the downside too … which leads me to rule number four:

Rule #4: Use roller-coaster markets for trading
opportunities in BOTH directions.

Sherri: In other words, use big, sweeping market rallies for trading opportunities on the upside. And be ready to reverse course and use big, sweeping market declines for trading opportunities on the downside. What type of investment vehicle do you use?

John: ETFs. These securities are growing in popularity and for good reason. They are transparent, low cost, and they trade throughout the day, giving investors the flexibility they need to act fast when necessary.

And with the advent of inverse ETFs — we now have more flexibility than ever before to earn potential gains as markets advance OR decline.

Sherri: Using which ETFs specifically?

John: In the Weiss Dynamic Strategy we use just two. When we get a signal to go long the market, we buy the PowerShares QQQ Trust (Symbol – QQQQ), an ETF designed to track the Nasdaq-100 Index. And, when we get a signal to go short, we buy the ProShares Short QQQ ETF (Symbol – PSQ), an ETF designed to track the inverse performance of the Nasdaq-100 Index.

Mike: So to clarify, the Weiss Dynamic Strategy is essentially either long or effectively short the market at all times using one of these two ETFs. There’s no in between.

John: That’s exactly right.

Mike: That’s certainly a unique strategy, and it may be a perfect fit for the market conditions we expect going forward. Sherri mentioned big, sweeping market rallies and declines … and history clearly shows there are four typical stages of a secular bear market like we’re witnessing now.

chart4 Seeking Profit Potential When Stocks Sink AND Soar

First comes a major bear market drop, usually triggered by a severe financial shock of some kind — that’s Stage One4

Sherri: The decline from 2007 to March 2009 fits that description to a “T” — the S&P was down minus 57 percent!

Mike: Correct. Stage Two is a sharp rally that recoups about half or more of the decline. This is typically a knee-jerk rebound triggered by massive government intervention.

Sherri: Again, almost exactly what happened last year!

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

Mike: Then comes Stage Three. Another steep correction, when markets usually drop about 25 percent. In this stage, investors begin to suspect that maybe the rally was not much more than smoke and mirrors. So far this year, we’ve been down about 15 percent from the April peak.

John: And the stage where most of the profit potential can be found, in my view, is what comes NEXT

Mike: Stage Four. This is when investors finally recognize that the economy faces structural challenges that could take years to fix. It’s a broad trading range market that can persist for many years, perhaps the next five or six.

John: And this is the point where I personally feel I have the clearest vision of the top range and bottom range for the market, which leads me to …

Rule #5: Until further notice, consider Dow 11,000 to be the top of the market’s current range and Dow 7,000 to be the bottom range.

This is just to give you a general guideline. Don’t assume it will be exact or it will be permanent.

Sherri: This phase can be very tricky to navigate on your own, without the right strategy.

John: True, but even in a narrower trading range, the Weiss Dynamic Strategy still signals a number of trades both long and short. After all, the market has many fits and starts on varied economic news.

chart5 Seeking Profit Potential When Stocks Sink AND Soar

Sherri: John, let’s go back and explain some of the technical tools and indicators used in the Weiss Dynamic Strategy.

John: The goal of the strategy is to identify changes in market trend and potentially capitalize on those changes. To do this, we put together our own unique combination of technical, price-based indicators and developed a proprietary set of trading rules for investing in both sides of the market — either long or short.

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

Mike: So … the core idea is to follow the market’s primary direction in the short term, whether it’s up or down …

John: Exactly, and the main indicator we use as a foundation for this strategy is based on the Directional Movement Index developed by J. Welles Wilder back in the 1970s. Wilder actually used this tool, along with others he developed, mostly to trade the commodities markets.5

The Directional Movement Index plots two lines: a positive directional movement indicator and a negative directional movement indicator. When the lines cross, a change in trend is likely — from bullish to bearish, or vice versa.

chart6 Seeking Profit Potential When Stocks Sink AND Soar

Mike: And the magnitude of the move in these indicators can also tell you when a trend appears overbought or oversold, can’t it?

John: In theory, yes. Plus, we also have some other indicators we follow in Dynamic to enhance performance, like a critically important stop-and-reverse component to tell us when a trend may be reaching extremes and may be reversing direction.

Sherri: When Welles Wilder’s theories were first introduced over 30 years ago, it truly was ground breaking stuff.

John: No question. But his mathematical calculations are relatively straightforward. They not only form the basis of the Weiss Dynamic Strategy, but many technical charting and trading programs in use today are based on it. Instead of focusing on commodities as Wilder did though, we apply it to the stock market.

book

Mike: The calculations themselves aren’t complex, but there are several steps that take time to explain and work through. We have included each step to compute the Directional Movement Index in a special report we’ve just published: The Weiss Guide to Dynamic Investing.

Sherri: Using this tool as part of the Dynamic Strategy leads me to the next Rule:

Rule #6: Grab gains and cut losses!

John: And this follows directly from everything we’ve said so far. Be willing to grab gains off the table sooner and also be willing to cut losses quickly to help preserve your assets.

Mike: That’s especially true when you’re betting on a declining market. Importantly, the inverse investments must be handled with extreme care. You’ve got to be willing to invest the time and effort required to closely monitor these positions, because many leveraged and inverse funds are not suitable as long-term holdings.

Sherri: No question. You must fully understand these limitations and the risks involved… and monitor them daily. Plus, if I may, I want to add a rule of my own:

Rule #7: Adapt to CURRENT market conditions using
history as a guide but NOT as a road map.

No matter what anyone tells you about what they’ve achieved historically — including us here today — always remember that the future IS bound to be different.

John: That’s a good way of saying that past performance is no guarantee of future results … and also of reminding our clients that they have to be flexible and adapt to ever changing market conditions.

Sherri: That’s right John, but it also leads to my next question: At Weiss Capital Management, you’ve followed these rules with the Dynamic Strategy, and you’ve done so with real money in real accounts going back a number of years. Mike will you share with our viewers a quick summary of the results we’ve witnessed firsthand?

[Important Note: The following performance data has been updated based on the latest available quarterly data available as of September 30, 2010.]

Mike: Certainly, the ACTUAL results for the Weiss Dynamic Strategy show the following results for the period April 30, 2005 through September 30, 2010 …

  • A total cumulative return of 111.2%
  • Average gains of 14.8% annualized …
  • All returns are NET of all fees and commissions!*

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

Sherri: That’s a bit more than five years worth of actual performance, and these results are after all commissions and fees?

John: Correct, 111.2 percent net total return with real client money invested.

Mike: That’s over 14 percent per year, on average. By contrast, investors in the best performing broad US stock market index over this period, the Nasdaq-100, earned only 6.5 percent per year.6

John: That’s the goal of the Dynamic Strategy: To follow the market’s primary direction in the short term, whether it’s up or down.

Mike: What I believe is most impressive about the Weiss Dynamic Strategy track record is its ability to follow our seven rules and outperform even in the most difficult markets we’ve seen in decades.

You can see the results for yourself over the past three volatile years …

chart7 Seeking Profit Potential When Stocks Sink AND Soar

In 2008, we were caught in the most devastating bear market since the 1930s … the Nasdaq-100 Index plunged 41.9 percent. Meanwhile, the Weiss Dynamic Strategy delivered a positive 20.7 percent total cumulative return for the year — during a crushing bear market!

Then, in 2009, the markets seemed to turn on a dime. We witnessed the biggest rebound rally also since the 1930s, with the Nasdaq-100 Index up over 50 percent …

chart8 Seeking Profit Potential When Stocks Sink AND Soar

And the Weiss Dynamic Strategy also turned on a dime and grabbed MOST of those gains, with a 45.3 percent total return last year… by the way, that 45.3 percent return for Dynamic is AFTER subtracting all fees, expenses and trading commissions, while the index return doesn’t include those real-world costs.*

Sherri: And so far this year, we’ve had even MORE intense swings, with markets getting whipsawed up and down on a weekly basis …

Mike: Yes. Stocks plunged right out of the starting gates in January, hitting a low in February. Then, we witnessed a sizeable rally until April, followed by the “flash crash”, and yet another steep decline to the June lows. Since then, stocks moved higher again, but you can see how well Dynamic performed …

chart9 Seeking Profit Potential When Stocks Sink AND Soar

[Important Note: The following performance data has been updated based on the latest available quarterly data available as of September 30, 2010.]

Mike: Despite these huge swings, stock markets overall have had a sluggish go of it. The Nasdaq-100 Index is up 7.40 percent through the end of September. Dynamic, by contrast, is UP 35.88 percent year-to-date through September.*

John: Not every change in trend. We’ve certainly missed a few. After all, no investment strategy … no matter how carefully designed … is perfect, and Dynamic is no exception — losses do happen and will in the future.

Sherri: Yes. It’s important to point out that, as with any investment strategy, there is always the potential for loss. At times, the trades just don’t go our way and draw downs do occur.

John: When that happens we can get whipsawed. Maybe several times in a row, resulting in some losses, before the market finally makes a big move UP or DOWN.

Sherri: You’re talking about risk.

Mike: Yes, but overall, the Weiss Dynamic Strategy’s average monthly volatility — as measured by the standard deviation of returns from one month to the next — is NOT much higher than the Nasdaq itself.** And yet, as we’ve seen, Dynamic’s returns over time have been much higher.

Editor’s Note: DEADLINE SUNDAYGo Here Now for Your Free Report
The Weiss Guide to Dynamic Investing!

chart10 Seeking Profit Potential When Stocks Sink AND Soar

John: That pretty much sums up this strategy. To produce these returns, I follow the market’s primary direction in the short term — not the medium or long term as many stock investors tend to do. And I follow it both up and down — seeking profits on both sides.

I do this for Weiss clients only. I don’t write a newsletter. I don’t issue signals via email or fax. I manage this strategy for Weiss Capital Management clients ONLY, with real money, in real time.

Sherri: Thank you very much, John. I’m glad you’ve drawn that distinction because I don’t want our viewers to confuse our service with those from our publishing affiliate, Weiss Research.

Weiss Capital Management is a registered investment adviser, managing money for individuals and institutions, with minimum accounts of $250,000 … which investors can put into this program, into our other, more conservative programs, or some combination.

Your money is kept in a separate individual account with our custodian and you can view your account online whenever you want. Your investments are customized to meet your individual needs. And you can leave the driving to us — we make all the buy and sell decisions for you and we place the orders too.

I hope you have an opportunity to take advantage of these secrets of dynamic investing with our one-on-one advice.

Editor’s Note: To learn more about the Weiss Dynamic Strategy, simply follow this link for more details. We’ll give you immediate online access to our special report: The Weiss Guide to Dynamic Investing, with more details about this innovative strategy, how it works, and everything you need to get started right away.

You’ll also receive a complete performance report updated through the end of the third quarter 2010 — more than five years of actual returns — PLUS,

Commodities, ETF, Mutual Fund, Uncategorized

This Year’s Best Stocks You’ve Never Heard Of

September 28th, 2010

This Year's Best Stocks You've Never Heard Of

There's an old Wall Street adage: “Buy what you know.” It's not bad advice, as it points investors toward stocks they can reasonably assess. For the year so far, though, sticking with what you know would have kept most investors clear of the market's best performing industry, as none of its stocks are household names.

The good news is that it's not too late to tap into this uptrend. Indeed, given the nature of the business model, it may never technically be too late.

And what's this hot group? The Internet service, software and support providers. As a group, they're up by more than +50% this year and still going strong.

The description likely conjures up names like AOL Inc. (NYSE: AOL) or Comcast Corp. (Nasdaq: CMCSA), both of which are well-known players among casual, at-home Web surfers. Those two don't quite fall into the “Internet service software and support” category, though.

Rather, the group in question includes the likes of F5 Networks (Nasdaq: FFIV), EasyLink Services Intl. (Nasdaq: ESIC) and AboveNet (Nasdaq: ABVT). These technology specialists provide a variety of Internet-related services to organizations with some heavy-duty connectivity needs, solving problems that retail ISPs couldn't even begin to address — things such as e-commerce, traffic flow management and cloud computing security (ensuring authorized users of Internet-based software and information services are the only ones accessing it). Think of them as the backbone of corporate-level connectivity.

Now, fess up — have you heard of all, or any, of those companies?

There's no shame if you haven't, given that most investors and more than a few professional stock-pickers are in the same boat. Yet, considering their performance, it's a group all investors may want to become more familiar with very soon simply because of the numbers and nature of the business.

Making money in a robust economy is nice, but not particularly challenging. Making money in a lousy economy — like the one we were stewing in for much of 2007 and all of 2008 — is a little more impressive. Making almost as much money in 2008 as you did in 2006 is practically a miracle, but that's exactly what F5 Networks managed to do despite being smack dab in the middle of a recession. The company brought home $1.02 per share in 2006, $0.90 in 2007, and $0.89 in 2008. Those are results most other companies would have loved to been able to produce at the time, never even mind the fact that F5 posted a record-breaking EPS of $1.68 in 2009.

AboveNet wasn't up and running in 2007, but since it got the ball rolling in the first quarter of 2008, we've seen similar earnings growth trends through the middle of 2010. More of the same is anticipated through 2011.

So what is it about these two companies that allowed them to sail through the recession as if it weren't happening and then keep on soaring as the recession faded?

F5 and AboveNet, along with EasyLink and many of their peers, have effectively recession-proofed their operations by (1) entrenching themselves in their client companies' daily operations (to the point of indispensability), and (2) offering a service that draws recurring revenue for “ongoing services rendered.”

And that's the beauty of the business model. Whereas an auto manufacturer sells one car to one customer without knowing when that buyer may want to buy another vehicle, the Internet software and support providers collect predictable and recurring fees for continually managing an aspect of another corporation's operation.

F5 (which by the way is the year-to-date leading stock for the group, up nearly +94%) is a prime example of how sweet such a business model can be. While the industry as a whole has seen a general earnings growth trend, F5 Networks has sequentially upped its per-share earnings in each of its past five quarters. It's also sequentially improved per-share earnings in 10 of the past 11 quarters, the first five of which overlapped with the latter part of the recession.

It's what the old-schoolers would call a cash cow.

Action to Take –> Value-conscious investors may have a tough time getting on board F5 Networks over AboveNet. The former is sitting on a P/E of more than 60 (though it's coming down), while the latter boasts a trailing P/E of less than 6.0. In that light alone, AboveNet is the no-brainer choice. When you factor projected growth rates in, though, F5 Networks makes its way back into the mix.

As for other stocks one could use to tap into the Internet service support/software (and recurring-revenue) theme, they're out there to be sure. Some of them may even offer more attractive recent numbers. The problem is, they all either lack history, are small to the point of being shaky or are foreign equities that are tough to keep good tabs on.

Investors would be better off sticking with either AboveNet or F5. Perhaps a little of both — the best of both worlds — is the solution.

– StreetAuthority Contributor
James Brumley

Disclosure: Neither James Brumley nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: James Brumley
This Year's Best Stocks You've Never Heard Of

Read more here:
This Year’s Best Stocks You’ve Never Heard Of

Uncategorized

This Year’s Best Stocks You’ve Never Heard Of

September 28th, 2010

This Year's Best Stocks You've Never Heard Of

There's an old Wall Street adage: “Buy what you know.” It's not bad advice, as it points investors toward stocks they can reasonably assess. For the year so far, though, sticking with what you know would have kept most investors clear of the market's best performing industry, as none of its stocks are household names.

The good news is that it's not too late to tap into this uptrend. Indeed, given the nature of the business model, it may never technically be too late.

And what's this hot group? The Internet service, software and support providers. As a group, they're up by more than +50% this year and still going strong.

The description likely conjures up names like AOL Inc. (NYSE: AOL) or Comcast Corp. (Nasdaq: CMCSA), both of which are well-known players among casual, at-home Web surfers. Those two don't quite fall into the “Internet service software and support” category, though.

Rather, the group in question includes the likes of F5 Networks (Nasdaq: FFIV), EasyLink Services Intl. (Nasdaq: ESIC) and AboveNet (Nasdaq: ABVT). These technology specialists provide a variety of Internet-related services to organizations with some heavy-duty connectivity needs, solving problems that retail ISPs couldn't even begin to address — things such as e-commerce, traffic flow management and cloud computing security (ensuring authorized users of Internet-based software and information services are the only ones accessing it). Think of them as the backbone of corporate-level connectivity.

Now, fess up — have you heard of all, or any, of those companies?

There's no shame if you haven't, given that most investors and more than a few professional stock-pickers are in the same boat. Yet, considering their performance, it's a group all investors may want to become more familiar with very soon simply because of the numbers and nature of the business.

Making money in a robust economy is nice, but not particularly challenging. Making money in a lousy economy — like the one we were stewing in for much of 2007 and all of 2008 — is a little more impressive. Making almost as much money in 2008 as you did in 2006 is practically a miracle, but that's exactly what F5 Networks managed to do despite being smack dab in the middle of a recession. The company brought home $1.02 per share in 2006, $0.90 in 2007, and $0.89 in 2008. Those are results most other companies would have loved to been able to produce at the time, never even mind the fact that F5 posted a record-breaking EPS of $1.68 in 2009.

AboveNet wasn't up and running in 2007, but since it got the ball rolling in the first quarter of 2008, we've seen similar earnings growth trends through the middle of 2010. More of the same is anticipated through 2011.

So what is it about these two companies that allowed them to sail through the recession as if it weren't happening and then keep on soaring as the recession faded?

F5 and AboveNet, along with EasyLink and many of their peers, have effectively recession-proofed their operations by (1) entrenching themselves in their client companies' daily operations (to the point of indispensability), and (2) offering a service that draws recurring revenue for “ongoing services rendered.”

And that's the beauty of the business model. Whereas an auto manufacturer sells one car to one customer without knowing when that buyer may want to buy another vehicle, the Internet software and support providers collect predictable and recurring fees for continually managing an aspect of another corporation's operation.

F5 (which by the way is the year-to-date leading stock for the group, up nearly +94%) is a prime example of how sweet such a business model can be. While the industry as a whole has seen a general earnings growth trend, F5 Networks has sequentially upped its per-share earnings in each of its past five quarters. It's also sequentially improved per-share earnings in 10 of the past 11 quarters, the first five of which overlapped with the latter part of the recession.

It's what the old-schoolers would call a cash cow.

Action to Take –> Value-conscious investors may have a tough time getting on board F5 Networks over AboveNet. The former is sitting on a P/E of more than 60 (though it's coming down), while the latter boasts a trailing P/E of less than 6.0. In that light alone, AboveNet is the no-brainer choice. When you factor projected growth rates in, though, F5 Networks makes its way back into the mix.

As for other stocks one could use to tap into the Internet service support/software (and recurring-revenue) theme, they're out there to be sure. Some of them may even offer more attractive recent numbers. The problem is, they all either lack history, are small to the point of being shaky or are foreign equities that are tough to keep good tabs on.

Investors would be better off sticking with either AboveNet or F5. Perhaps a little of both — the best of both worlds — is the solution.

– StreetAuthority Contributor
James Brumley

Disclosure: Neither James Brumley nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

This article originally appeared on StreetAuthority
Author: James Brumley
This Year's Best Stocks You've Never Heard Of

Read more here:
This Year’s Best Stocks You’ve Never Heard Of

Uncategorized

Leveraging Junk Debt Off the Charts

September 24th, 2010

The massive door of the Mogambo Bug-Out Bunker (MBOB) was locked, and I was taking a little break, leisurely looking through the periscope/range finder/fire-control module, calmly reconnoitering the perimeter and keeping an eye on the neighbors, watching them acting like they are innocently mowing their lawns and washing their stupid cars, but who are actually spying on me, like I am too stupid to notice their treachery and perfidy.

I see all this an say to myself, “These are the same dolts who are not buying gold, silver and oil with every dollar they have, even after all the time I spent telling them do that very thing! Dolts!”

And, indeed, everywhere I look I see dolts, and so, apparently, does Doug Noland, who, in his Credit Bubble Bulletin at PrudentBear.com, takes a look at what is happening in high-yield bonds. He found that “According to Bloomberg, this week’s $41.7bn of corporate bond issuance combined with about an equal amount from last week pushed two-week debt sales to the strongest level this year. With more than three months to go, year-to-date junk issuance is already well into new record territory.”

“Wow! I whistled to myself. “Record territory! Wow! Paying the highest price to get the lowest yield in history!”

Almost involuntarily, I began a pointless tirade of further scathing commentary on such abject stupidity as to pay a historically high price for very low quality debt to get a historically-low yield when the government is deficit-spending more than 10% of GDP and the Federal Reserve is creating staggering amounts of money, which guarantees inflation! Insane!

Mr. Noland, apparently seeing me spiraling off into Screaming Mogambo Outrage Land (SMOL), thankfully headed me off by noting that The Wall Street Journal reported, to my utter astonishment, that all of this buying of junk debt is all being leveraged, but even worse is that the amount of leverage is Off The Freaking Charts (OTFC)! We’re freaking doomed!

Well, anyway, this “OFTC” thing is how I, a typical paranoid lunatic who sees the horror of inflation in prices every time he sees the inflation in the amount of money being deficit-spent by the government and created out-of-thin-air by the Federal Reserve, interpret the Journal reporting that “Poster children of the mid-2000s credit bubble, leveraged loans are set to have their busiest year since 2008,” which were “at the heart of the credit bubble,” and have now “surged back with surprising speed as investors chasing yield are increasingly willing to finance riskier companies.”

My hands, wrapped around the handles of the periscope, instinctively clenched in terror at the thought of seeking riskier debt – and leveraging the bet! – in the riskiest economic environment that I can imagine, when I accidentally hit the “Fire” button! Oops!

Expecting a massive eruption of firepower, I instinctively cringed and immediately started trying to come up with some plausible denial (“Those weren’t my machine guns!”) or a scapegoat (“Islamic terrorists!”), when the ensuing silence made me realize that I had fortunately forgotten to set the Fire Control Arming Switch (FCAS) to “on,” which I didn’t do because it is all the way over on the other side of the room, making this an instance of pathological laziness and poor work habits paying off!

Of course, you never hear about the upside of incompetence and sloth from your stupid family or your stupid boss, but who are instead always “on your case” about something like getting up off the couch and doing some work, working, and doing things right, and not goofing off, and the ever-popular “paying attention, which is not to mention the blah blah blah.”

My tightened grip was just a hint – a mere hint! – of my paralyzing fear and paranoia cranked up, as in the movie Spinal Tap, to 11, an unbelievable overload of impending doom and hyperinflationary torture brought on by the sheer, staggering dumbosity of Yet More Massive (YMM) amounts of money being created to buy Yet More Massive (YMM) amounts of junk debt, selling at the highest prices of the last zillion years, by taking advantage of the lowest interest rates in that selfsame “last zillion years,” a bizarre interest-rate environment caused by the panicked response of the Federal Reserve at its own egregious mismanagement, all of this even though I know that “dumbosity” is not even a word, but I don’t change it, no matter how stupid it sounds, which shows you how Completely Freaked Out (CFO) I am about the whole thing! We’re freaking doomed!

So, as bad as it is that somebody is buying riskier and riskier debt, in a deteriorating economic environment of pandemic burdensome debt, with consumer prices rising, with massive government deficit-spending and unbelievable amounts of money being created by the monstrous Federal Reserve to make price rises even worse, and even worse, it’s all leveraged!

Alert Junior Mogambo Rangers (JMR) are instantly on alert at the use of the unusual phrase “even worse, and even worse,” which is an obvious Mogambo Secret Code (MSC).

You can pinpoint a rookie JMR by the way they earnestly dial-in their Junior Mogambo Ranger Decoder Rings (JMRDRs) and go through a lot of pointless rigmarole, only to find the message to, “Buy gold, silver and gold!” which is always the same secret message.

The experienced JMR, on the other hand, doesn’t bother, and looks, instead, for the reason for the sudden appearance of a Mogambo Secret Code (MSC), in this case being that these high-risk junk bonds are speculators using their client’s money not to merely buy high-yield debt, but as mere collateral on a loan to borrow many times that amount!

Then Mr. Noland says that, “In the face of enormous supply, corporate bond yields have remained extraordinarily low,” which certainly seems like a paradox to me, which was alarming until I remembered that I am stupid, and everything always seems strange and paradoxical to me.

Then I, despite my tragic handicap, remember the enormous amounts of money being created by the central banks of the world, including our own foul Federal Reserve, just for things like this! Money is everywhere!

Startling myself, my fear of inflation suddenly comes roaring up from the hideous depths of my nightmares, making me jump, a condition not made any easier by Casey’s Daily Dispatch newsletter, where he writes, “debt is the single biggest economic challenge facing the US – and much of the developed world. In time this debt will get resolved, it always does, but it’s not going to be pretty.”

Not going to be pretty, indeed! Pausing only long enough to congratulate Mr. Casey on using “it’s not going to be pretty” as a humorous understatement to the horror of eventual massive defaults, massive unemployment, massive loss of wealth, a collapsed economy, a trashed dollar and hyperinflation, I go helpfully on to note that this seems like the perfect time to bring up the fact that you should be buying gold, silver and oil with a nervous, paranoid mania usually seen in crack addicts and crazy people, because while it certainly won’t “be pretty” for people who do not own gold, silver and oil, it will be for those who do! Whee! This investing stuff is easy!

The Mogambo Guru
for The Daily Reckoning

Leveraging Junk Debt Off the Charts originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Leveraging Junk Debt Off the Charts




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Leveraging Junk Debt Off the Charts

September 24th, 2010

The massive door of the Mogambo Bug-Out Bunker (MBOB) was locked, and I was taking a little break, leisurely looking through the periscope/range finder/fire-control module, calmly reconnoitering the perimeter and keeping an eye on the neighbors, watching them acting like they are innocently mowing their lawns and washing their stupid cars, but who are actually spying on me, like I am too stupid to notice their treachery and perfidy.

I see all this an say to myself, “These are the same dolts who are not buying gold, silver and oil with every dollar they have, even after all the time I spent telling them do that very thing! Dolts!”

And, indeed, everywhere I look I see dolts, and so, apparently, does Doug Noland, who, in his Credit Bubble Bulletin at PrudentBear.com, takes a look at what is happening in high-yield bonds. He found that “According to Bloomberg, this week’s $41.7bn of corporate bond issuance combined with about an equal amount from last week pushed two-week debt sales to the strongest level this year. With more than three months to go, year-to-date junk issuance is already well into new record territory.”

“Wow! I whistled to myself. “Record territory! Wow! Paying the highest price to get the lowest yield in history!”

Almost involuntarily, I began a pointless tirade of further scathing commentary on such abject stupidity as to pay a historically high price for very low quality debt to get a historically-low yield when the government is deficit-spending more than 10% of GDP and the Federal Reserve is creating staggering amounts of money, which guarantees inflation! Insane!

Mr. Noland, apparently seeing me spiraling off into Screaming Mogambo Outrage Land (SMOL), thankfully headed me off by noting that The Wall Street Journal reported, to my utter astonishment, that all of this buying of junk debt is all being leveraged, but even worse is that the amount of leverage is Off The Freaking Charts (OTFC)! We’re freaking doomed!

Well, anyway, this “OFTC” thing is how I, a typical paranoid lunatic who sees the horror of inflation in prices every time he sees the inflation in the amount of money being deficit-spent by the government and created out-of-thin-air by the Federal Reserve, interpret the Journal reporting that “Poster children of the mid-2000s credit bubble, leveraged loans are set to have their busiest year since 2008,” which were “at the heart of the credit bubble,” and have now “surged back with surprising speed as investors chasing yield are increasingly willing to finance riskier companies.”

My hands, wrapped around the handles of the periscope, instinctively clenched in terror at the thought of seeking riskier debt – and leveraging the bet! – in the riskiest economic environment that I can imagine, when I accidentally hit the “Fire” button! Oops!

Expecting a massive eruption of firepower, I instinctively cringed and immediately started trying to come up with some plausible denial (“Those weren’t my machine guns!”) or a scapegoat (“Islamic terrorists!”), when the ensuing silence made me realize that I had fortunately forgotten to set the Fire Control Arming Switch (FCAS) to “on,” which I didn’t do because it is all the way over on the other side of the room, making this an instance of pathological laziness and poor work habits paying off!

Of course, you never hear about the upside of incompetence and sloth from your stupid family or your stupid boss, but who are instead always “on your case” about something like getting up off the couch and doing some work, working, and doing things right, and not goofing off, and the ever-popular “paying attention, which is not to mention the blah blah blah.”

My tightened grip was just a hint – a mere hint! – of my paralyzing fear and paranoia cranked up, as in the movie Spinal Tap, to 11, an unbelievable overload of impending doom and hyperinflationary torture brought on by the sheer, staggering dumbosity of Yet More Massive (YMM) amounts of money being created to buy Yet More Massive (YMM) amounts of junk debt, selling at the highest prices of the last zillion years, by taking advantage of the lowest interest rates in that selfsame “last zillion years,” a bizarre interest-rate environment caused by the panicked response of the Federal Reserve at its own egregious mismanagement, all of this even though I know that “dumbosity” is not even a word, but I don’t change it, no matter how stupid it sounds, which shows you how Completely Freaked Out (CFO) I am about the whole thing! We’re freaking doomed!

So, as bad as it is that somebody is buying riskier and riskier debt, in a deteriorating economic environment of pandemic burdensome debt, with consumer prices rising, with massive government deficit-spending and unbelievable amounts of money being created by the monstrous Federal Reserve to make price rises even worse, and even worse, it’s all leveraged!

Alert Junior Mogambo Rangers (JMR) are instantly on alert at the use of the unusual phrase “even worse, and even worse,” which is an obvious Mogambo Secret Code (MSC).

You can pinpoint a rookie JMR by the way they earnestly dial-in their Junior Mogambo Ranger Decoder Rings (JMRDRs) and go through a lot of pointless rigmarole, only to find the message to, “Buy gold, silver and gold!” which is always the same secret message.

The experienced JMR, on the other hand, doesn’t bother, and looks, instead, for the reason for the sudden appearance of a Mogambo Secret Code (MSC), in this case being that these high-risk junk bonds are speculators using their client’s money not to merely buy high-yield debt, but as mere collateral on a loan to borrow many times that amount!

Then Mr. Noland says that, “In the face of enormous supply, corporate bond yields have remained extraordinarily low,” which certainly seems like a paradox to me, which was alarming until I remembered that I am stupid, and everything always seems strange and paradoxical to me.

Then I, despite my tragic handicap, remember the enormous amounts of money being created by the central banks of the world, including our own foul Federal Reserve, just for things like this! Money is everywhere!

Startling myself, my fear of inflation suddenly comes roaring up from the hideous depths of my nightmares, making me jump, a condition not made any easier by Casey’s Daily Dispatch newsletter, where he writes, “debt is the single biggest economic challenge facing the US – and much of the developed world. In time this debt will get resolved, it always does, but it’s not going to be pretty.”

Not going to be pretty, indeed! Pausing only long enough to congratulate Mr. Casey on using “it’s not going to be pretty” as a humorous understatement to the horror of eventual massive defaults, massive unemployment, massive loss of wealth, a collapsed economy, a trashed dollar and hyperinflation, I go helpfully on to note that this seems like the perfect time to bring up the fact that you should be buying gold, silver and oil with a nervous, paranoid mania usually seen in crack addicts and crazy people, because while it certainly won’t “be pretty” for people who do not own gold, silver and oil, it will be for those who do! Whee! This investing stuff is easy!

The Mogambo Guru
for The Daily Reckoning

Leveraging Junk Debt Off the Charts originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Leveraging Junk Debt Off the Charts




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Finding New Opportunities in Volatile Markets

September 7th, 2010

MIke Burnick

Don’t look now … but the WORST month for stocks has just begun!

Historically, the month of September is the absolute worst month of the year to be invested in the stock market!1

[Editor's Note: Learn the secrets of dynamic investing. Go here now to sign up for Weiss Capital Management's free Webinar.]

And there aren’t many reasons to think that this year will be an exception. After all, recent economic data hasn’t exactly been encouraging …

  • The US economy crawled ahead at just a 1.6 percent annual pace in the second quarter … after yet another sharp downward revision, this time from a previously reported 2.4 percent GDP growth …
  • chart1 Finding New Opportunities in Volatile Markets

  • Housing appears to be in freefall once again. New home sales dropped 12 percent to the lowest level EVER recorded, while existing home sales plunged 27 percent in July — the lowest in 15 years …
  • And the unemployment rate still hovers close to double-digits with a persistently high number of claims for new unemployment benefits.2

The dramatic shift in market sentiment from July to August as a result of this dismal economic data is palpable, signaling we’re at a point of maximum uncertainty for markets and the economy right now.

  • Uncertainty about the potential for a double-dip recession …
  • Uncertainty about the true health of the global economy …
  • Uncertainty about tax and economic policies heading into 2011 …
  • Above all … uncertainty about where the markets are headed.

It’s like riding a rollercoaster in total darkness … without knowing when the next stomach-churning drop or sharp turn is coming.

Not surprisingly, this uncertainty is driving many investors to simply throw in the towel and move to the sidelines. But experienced investors know that where there is uncertainty … there are usually opportunities to build wealth too.

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Now available for the first time!

You’re invited to join us for an exclusive online briefing to discover a time-tested strategy with the potential
to turn market volatility to your advantage …

If you’d like to be among the first to hear about it …

Register NOW for this FREE Weiss Webinar!

By spotting these opportunities early — perhaps ahead of the crowd — it’s possible to position yourself to take advantage of the market’s next move.

What Follows in the Aftermath of Financial Crisis?

In the aftermath of a great financial crisis, the economy and financial markets rarely return to business as usual right away. Instead, the healing process takes time. That time is usually measured in years — if not decades — but rarely is it measured in months.

Consider the market pattern after the Great Depression …

chart2 Finding New Opportunities in Volatile Markets

Investors during the 1930s and early ’40s witnessed years of false starts and volatile swings in sentiment. There were many bull AND bear market moves over the years while stocks went basically nowhere for two decades!

Or take a look back at the blueprint for investors during the 1970s and early ’80s …

chart3 Finding New Opportunities in Volatile Markets

Once again, plenty of sharp ups and downs in the market, but the Dow was no higher in 1982 than it was in 1966 — 15 years earlier!

This pattern is also reflected in other developed economies. Take Japan as a more recent example. Its asset bubble burst in the late 1980s …

chart4 Finding New Opportunities in Volatile Markets

And its secular bear market has persisted for the past 20 years and is still lingering today.

Classifying the Typical Patterns

Each of these are classified as secular bear markets but all are similar in the fact that they were separated by vast amounts of time — generations apart — and in Japan’s case, separated from us by vast geographical and cultural differences.

But each severe financial crisis followed a similar pattern …

They all result in a sharp bear market decline. What comes next is a powerful rebound rally. Then, this big rally comes to an end only to be followed by another sharp correction. The final stage is a broad trading range that settles in and can stretch on for many years.

Researchers at Morgan Stanley poured over market data stretching back nearly a century, studying 19 major secular bear markets in all. They noticed the same thing that we did in the three examples above.3

They found the same general pattern repeats over and over again. Their findings are summarized in this graph:

chart5 Finding New Opportunities in Volatile Markets

Stage #1 — Major Bear Market Drop: The median decline was -57 percent peak-to-trough over a period of 30 months. This is usually triggered by a severe financial shock of some kind …

Stage #2 — Sharp Rebound Rally: A robust 71 percent gain over 17 months, on average. This knee-jerk rally is often triggered by massive government intervention — throwing everything at the crisis to avert it or stop it …

Stage #3 — The Next Correction: In this stage, investors finally realize that perhaps the rebound rally was just temporary “stimulus” spending — not much more than smoke and mirrors …

Stage #4 — Broad Multi-Year Trading Range: Reality sets in as investors realize the economy faces real, structural challenges that may take years to fix.4

It takes a lot longer to clean up the pieces after a bubble bursts than it took to inflate the bubble in the first place … longer than most investors realize at the time.

But it’s this trading-range stage that’s a real “meat-grinder” with plenty of sharp ups and downs in financial markets as the post-bubble economy struggles to adjust to a new normal.

The Historical Pattern is Repeating

If you’ve been watching the markets, you may look at this pattern and say, “No thanks! I’d rather be out of stocks entirely because I don’t want to put up with this seemingly never-ending stretch of volatility.”

BUT, some of us may see something else in this pattern … opportunity!

Each twist and turn in the market can offer you the potential to earn short-term gains — provided you’re willing to follow a more dynamic, proactive approach within your investment portfolio.

[Editor's Note: Learn the secrets of dynamic investing. Go here now to sign up for Weiss Capital Management's free Webinar.]

Take another look at the chart of Japan’s Nikkei Stock Index, above, then consider the following stat: During this period, the Nikkei managed to rack up over 434,000 cumulative rally points, even though today, the index sits well off its 1989 high. In other words, there were a lot of up and down opportunities in between.5

Similarly, the Dow sits at around 10,000 today, just about where it was back in 2000. But over the past 11 years, the Dow has managed to accumulate 130,000 rally points when you add them up. And there could be many more in store for investors over the next several years.6

Keep in mind that these are short-term, tactical trading opportunities that you MAY want to pursue, but only if you’re comfortable with trading more aggressively.

Let me explain.

We’ve been following the typical post-bubble, secular bear market pattern almost exactly since the financial crisis began in 2007.

  • First, we suffered an epic bear market decline — a peak to trough drop of 57 percent for the S&P 500 … right on target with stage #1 …
  • Then we witnessed an equally spectacular rebound rally of more than 75 percent from 2009 until the peak this past April … stage #2 complete …
  • Now, by my reckoning, we could be somewhere in the middle of stage #3 … the correction since April has, so far, taken the market down about 15 percent!7

If we keep following this blueprint, then the next stage could be a long, drawn out trading range lasting for the next five or six years. There will be plenty of ups and downs along the way, to be sure, but don’t expect stocks to make any real, long-term progress.

[Editor's Note: Learn the secrets of dynamic investing. Go here now to sign up for Weiss Capital Management's free Webinar.]

In other words, we could easily see the Dow crisscross 10,000 over and over again during the next several years!

How can you prepare your portfolio to handle this type of volatility?

Finding Opportunity in the Aftermath

First, prepare for a slow-growth environment in the economy and financial markets over the next few years. And don’t expect unrealistically high returns from your portfolio. Don’t “reach for yield” with investments that appear secure, but may have hidden risks.

Second, don’t expect the old buy-and-hold approaches to work — especially not when it comes to holding index investments. It hasn’t worked over the last 10 years. The broad market index — and the mutual funds and ETFs that track them — could continue bouncing around in a multi-year trading range without delivering much, if any, real upside return over the longer term.

Third, recognize that volatility may be here to stay for several years! Prepare for these up and down markets — and potentially turn this volatility to your advantage by taking a more dynamic approach with at least a portion of your portfolio. Consider making more frequent tactical shifts in your portfolio.

Take advantage of periodic market rallies as they occur, but also watch out for the corrections that may inevitably follow. Be willing to pull the trigger and take shorter-term gains when you have them.

Finally, there are a growing number of specialty funds and ETFs available today that can help you hedge the longer term “core” holdings in your portfolio during a market correction. You may even consider inverse funds to earn potential short-term trading gains, but only with money you have set aside for speculation. After all, these inverse funds can be risky bets and aren’t appropriate for everyone, as we pointed out in Weiss Advice Issue #68.

The bottom line: You’ve got to prepare yourself to live with — and even take advantage of — this kind of market volatility.

This kind of market environment isn’t easy to navigate, but it’s also not the end of the world. It simply presents new challenges that may require a new investment approach.

At Weiss Capital Management, our professional investment strategies are designed to help manage your portfolio in ALL market conditions, including bull markets … bear markets … and yes, even volatile trading-range markets.

Good investing,

mikesig Finding New Opportunities in Volatile Markets

Mike Burnick
Director of Research & Client Communications
Weiss Capital Management, Inc.

P.S. Next week, my colleagues and I at Weiss Capital Management will be hosting a special Webinar where we reveal, for the first time, a tactical investment strategy that we’ve developed specifically for today’s volatile markets. Go here now to sign up for this free online event!

Weiss Capital Management (an SEC-Registered Investment Adviser) is a separate but affiliated entity of Weiss Research, the publisher of Money and Markets. Both entities are owned by Weiss Group, LLC.



1 Chartoftheday.com, 8/27/10

2 BondWave Advisors: Weekly Market Summary, 8/30/10

3 Guardian News, 8/10/09; Morgan Stanley Research, 8/10/09

4 Ibid.

5 Gluskin Sheff Economic Commentary, 8/9/10

6 Ibid.

7 Bloomberg market data, 8/31/10


About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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Commodities, ETF, Mutual Fund, Uncategorized

IN FOCUS: WCM/BNY Mellon Focused Growth ADR ETF (AADR)

August 20th, 2010

Launch Date: July 20, 2010

Links: Website, Factsheet, Prospectus

Investment Strategy:

AADR is an actively-managed ETF that looks to achieve long-term capital appreciation above international equity benchmarks. The fund will invest in non-US companies that trade on US exchanges through American Depositary Receipts (ADRs). The fund is sub-advised by WCM Investment Management which analyzes major trends in the global economy in order to identify those economic sectors and industries most likely to benefit. The managers look at a time horizon of 3-5 years and believe in portfolio concentration. The portfolio will typically consist of fewer than 30 companies, but will have a minimum of 20 holdings, none of which will exceed more than 25% of the portfolio in weight. AADR’s primary benchmark is the BNY Mellon Classic ADR Index and its secondary benchmark is the MSCI EAFE Index.

Portfolio Managers:

WCM Investment Management is California-based sub-advisor that was established in 1976 and managed $1.4 billion in assets as of Mar 31, 2010. The individuals handling the day-to-day management of the portfolio are as follows:

Paul R. Black, Portfolio Manager – Paul is the President & co-CEO of WCM and has been in the investment business for 26 years. He helps define the firm’s investment strategy and has an active role in the selection of securities.

Kurt R. Winrich, Portfolio Manager – Kurt is the Chairman & co-CEO of WCM and has over 25 years of experience in the investment business. His primary responsibilities include portfolio management and equity research.

Peter J. Hunkel, Portfolio Manager, Business Analyst – Peter joined WCM in 2007 and has been in the investment business for 11 years, with previous experience at Centurion Alliance and Templeton Private Client Group.

Michael B. Trigg, Portfolio Manager, Business Analyst – Michael has 9 years of experience in the investment business and previously worked at Morningstar.

The Numbers:

Expense Ratio – 1.25%, including 0.75% in management fees. Expenses capped below 1.25% till May 6, 2011.

What’s special about it?

1. AADR is the only Active ETF that focuses on providing exposure through ADRs. By virtue of its mandate, AADR will end up having exposure to international mega-caps that are listed in the US like Nestle and Baidu.com, two companies which can be found in the fund’s top 10 holdings.

2. Partnering with BNY Mellon does give the fund a big advantage because BNY Mellon is the world’s largest depository for ADRs and is a leading source for international ADR market intelligence.

3. The fund’s sector and region diversification differs significantly from that composition of its benchmark indices – the BNY Mellon Classic ADR Index and the MSCI EAFE Index, but that’s where the managers hope to add value to the fund.

Analysis:

Positives –

- The managers, WCM Investment Management, have quite a strong track record in managing international portfolios. The prospectus highlights the performance of a “Focused Growth International Composite” that has similar objectives and investment strategies to the fund. The composite outperformed the MSCI EAFE by close to 9%, since inception in Dec, 2004.

Negatives –

- AADR’s expense ratio of 1.25% comes in at the high end of the Active ETF market, and it is only capped at 1.25% till May, 2011. The gross expenses for the fund are actually 1.29%.

- The portfolio concentration could lead to more volatile returns, implying greater upside during good times but also greater downside during bad times.

ETF