God, Money,
& You:
Confessions of a
Wall Street Whiz Kid
by Peter Grandich
A
little over 44 years ago, I was born in Manhattan and raised
in the Bronx by a Russian- Jewish mother and an Italian-Yugoslavic
Catholic father.
I met my wife in 1979.
She was born and raised in Ireland. Her Father asked that we
get married in Ireland. In order to do so, I needed to become
Catholic. Since I was only baptized as a baby before my mother
debated with my father to raise me Jewish, I ended up making
my first confession at age 23. Unlike the second graders in front
of me, my confession lasted a whole lot longer- and so did my
penance. Good thing I didn't wait until becoming a stockbroker,
as I would still be in the confession box.
In April 1984, despite
what my wife had to say, I moved to Howell and became a stockbroker
with a firm in Freehold Boro.
By October of that
year, I wanted to quit. You see I could not perform the one duty
critical to the health and well being of a young broker- cold
calling. The irony is the very first product I marketed was a
10-year, 16% CD. What was so ironic? No, not how many people
hung up on me, but how many went out of their way to tell me
that 16% over 10 years wasn't a good enough yield. For those
that may have forgotten or weren't adults yet, the prime rate
had been over 20% and the "professional" view was high
rates of inflation and interest rates were here to stay. Kind
of like the view now that low rates are here to stay.
In lieu of having to
cold-call, I started publishing an investment newsletter that
over the years led to three other additional publications. This
way, people could read my forecasts and opinions and hopefully
seek me out. I began to get some media coverage and did plenty
of marketing. I was given an opportunity to join a NYSE member
firm in 1986 and because I began to appear regularly on national
TV and radio, I was promoted to VP of Investment Strategy.
I appeared regularly
on national TV & radio. I became either a contributing columnist
or editor to several publications and began to speak at major
investment conferences worldwide. I also hosted a cable TV show.
I didn't know it then or chose to ignore it, but despite thinking
I was modest and humble through it all, I was in fact, down deep,
becoming a legend in my OWN mind.
Fame began to lead
to an ever-increasing income and lifestyle. By 1993, I had opened
my own firm. I was the portfolio manager for four hedgefunds
and a mutual fund that bared my name. Albert Einstein said, "There
are only two infinite things, the universe and stupidity. And
I am unsure about the Universe".
I unfortunately became
heavily involved in junior mining companies. Many of them were
rising rapidly. I decided to have my clients and myself financially
back one company via a series of private placements. The stock
ended up going from 1 to 17, although most of us were out long
before it hit 17. Like going to a casino or racetrack, it would
be best if one lost their shirt instead of win big the first
time.
But like God promises he will do if we allow him, he used my fall and brokenness to open my eyes to what really matters. He showed me that the only two worthy material possessions were my wife and daughter. Through a series of events and Angels sent directly by the Almighty, I ended up back in the financial service industry, albeit humbled, but with a burning desire to take what has happened to me and share it in a way that truly is beneficial to others. Joining a financial service organization where integrity is the standard, not the exception, enhanced this opportunity. Borrowing an old phrase, an educated consumer is our best customer, the process my firm uses truly educates clients about the downside potential of many common financial strategies promoted by the financial service industry and the media. These all-to-common strategies can be as harmful to your financial well-being. They include, compounding interest, dollar cost averaging, pre-paying mortgages and yes, even maximizing your 401k. I know it seems impossible that these strategies can be anything but the best for you, but the widespread usage of these strategies, without first using a process called personal financing engineering, is in my book as dangerous as smoking cigarettes after reading the warning label on each pack. The only difference is, there is no effective way for the people who have fallen prey to the belief that these strategies can't cost you anything, to tell the public about their misfortune. The mass media has also been used to pass these strategies off as infallible. You will soon learn of the reality of the media and begin to understand about their motives in reporting to you.
If I could only have a dollar for every time someone in my business told me they would never discuss politics, religion or any topic if it would jeopardize a sale. The manner in which someone handles their financial affairs is among the most important things one does for themselves, and those they love and care about. Why then, would anyone entrust such importance to any human being or Internet site, without knowing first what their social, economical, political and yes, religious views, were? Are you going to tell me that the financial world is not greatly impacted by any and all these factors? Of course they are because they all help make the world go around. It may be viewed as politically incorrect now to bring up belief in God in this "Go for the gusto" society of ours, but I have experienced his direct intervention and know without his grace, I would not be here today.
I learned a long time ago that on Wall Street that you're only as good as your last call. With that in mind let me share with you some of the factors I view will have a direct impact on your investments. To begin, we must recognize that the advent of the Internet is one of three inventions that have impacted mankind beyond all others- the other two being the wheel and electricity. The world as we knew it just a few years ago, is forever changed. Whether it's for the better or not is far from certain. Mankind doesn't exactly have a great track record with technology- just think about guns and atom bombs for starters.
No industry has been more impacted by the Internet than the financial service business.
The Internet has clearly ushered in the information age, which when it comes to investment advice, has led the public to believe they now possess all the information advisors do. Therefore, the rationale is they can now handle their own financial affairs. At first blush, it seems the public could have done worst. After all, the majority of fund managers under perform the S&P 500. True or not, the perception is most brokers, advisors, CFP's and other novel title positions, have not led many to financial independence. Some also feel that financial information found on the Internet, is their equalizer to judge whether the advice they have been receiving is true or not. Because the Internet has been only around for a very short time compared to human advisors, I think there's a natural tendency to think it is reliable, honorable and you are in control, unlike when dealing directly with an advisor.
Unfortunately, there's a big difference between a 50 yard front row seat and being in the huddle as a player. You see in all of life there's a building pattern. It starts with information, which after properly digested and given appropriate accurate guidelines to follow, can become knowledge. The difficulty is then transferring the knowledge into wisdom. And wisdom is usually reached after a series of experiences, which in most cases did not have the desired outcome.
Robert Leavitt said, "People don't ask for facts in making up their minds. They would rather have one good soul-satisfying emotion than a dozen facts."
Many of the financial ads today, are ingrained with half-truths, twisted facts, and smoke & mirrors. They show so-called average people, using the Internet to make investment decisions and execute trades, all the while pictured on some big boat or in front of a big house, which implies only success by engaging their services. The dialogue has been crafted to sound awesome. They have reduced the professional advisor to a little poor guy who rides the subway and pitches old ladies on the phone. How about that couple who have fun tossing out of their homes mortgage brokers because they now can do it easily, and suggestively more honestly, on the Internet. There's one commercial where a big Wall street type player suddenly sees his stock tanking and cries out, "who has that power?" The scene shifts to some regular guy at home and what looks like him completing a trade on the Internet when his wife calls out to him. The impression is to think that this little husband outwitted the big Wall Street guy. And who hasn't seen the commercial with the crazy looking geek named Philip, where the scene begins with him photocopying his head, only to be called into the boss's office to help the boss execute a 100-share purchase. Let me ask all of you who own a business or have people working for you in real life; how long would a guy like Philip last at your place of work? Mark Twain was right when he said, "Few things are harder to put up with then the annoyance of a good example".
These slick ad campaigns have invigorated the public to believe that all this information out there is not only accurate, but gives them an edge over professional advisors. I liken it to casinos that give free liquor to all gamblers. Do they do so in order to give you what you need to succeed or to increase the advantage they already have over you? I met someone who told me they just had all their retirement planning done online and via the phone with a household name discount broker and fund company. The best part was he said it didn't cost him anything. When I began to quiz him, I discovered he first filled out a questionnaire that led to a score of some type, which led to an investment approach based on the scoring. Here too, I liken this to online casino gambling, where the online casino company has written the software. Gee, I wonder who wins, the software creator who controls how many times you win, or the person gambling on it?
In a few moments, I am going to tell you why I believe traditional financial planning doesn't work period. But first let me finish up on this person who received this so-called free retirement planning. He was most proud to mention that his biggest single asset was no-load mutual funds. The fact that they virtually all bore the name of the financial institution that was giving him "free" advice, seemed to matter little to him. He then went on to tell me how between their Internet site and customer service, he will have all the support he needs.
Let's not argue for now that there's an information overload on investments on the Internet, or suggest that having information and gaining the wisdom to enact it appropriately is not as easy as buying low and selling high. Let's just address this customer service point. Many ads note someone being available 24 hour 7 days week. Now for starters, I can't see why having someone available at 2 am on Sunday is important, but saying for a moment it is, exactly who is it I am speaking to? And if they're really truly qualified to help me, why do they need to be working for far less than they could make if they were as smart as the ads suggest they will be? Whatever happened to the belief you get what you pay for?
There are four well-known ways to plan money decisions. The first two are no planning at all or occasional planning, which believe it or not, is still how most people go about it. Occasional planners mean well, but don't stick to any one plan. Whether it's some financial institutional marketing piece, or the latest hot idea in a financial magazine, these folks use a band-aid approach, which all but certain, leads to major surgery down the road.
Now the next two methods are what 99% of professionals employ. It is usually wrapped around some fancy pie charts, graphs and lot's of state of the art information overload, but when you peel all the bells and whistles away, it's either what is called needs-based planning or the grand-daddy, "financial planning." Needs planning focuses on meeting only one need at a time such as saving for a house, college tuition costs or retirement income. All worthy goals but are not addressed until the need is present or obvious. This approach doesn't come close to satisfying people's wants and desires because it gives little attention to cost efficiency or optimizing potential. Even if one need is lucky enough to be met, a new one will take its place with its own new demands for additional money.
Now for the granddaddy. Financial planning focuses on meeting predetermined needs and goals. Remove all the bells and whistles, and it comes down to this. The professional asks how much money do you want to have at retirement? Then they ask how much do you have now? Once these two factors are determined, the only thing left is to determine how long of a time to retirement, a rate of return that you need or the need for additional capital and/or risk to achieve the target. Is that not what occurred to anyone who has had a so-called financial plan done for them or have done it themselves?
During the last twenty years, how many professionals or individual investors do you think accurately foresaw the movement of interest rates, inflation rates, investment rates of return, changes in income tax rates and other mathematical variables that the real world presents each and every day? I certainly wasn't one of them. If a handful did it would be a lot, so the fact is, despite most of us not wanting to face it, financial planning is only a hit or miss approach because these variables simply can't be predicted. By choosing to focus on how much money is needed to acquire a predetermined fixed need or goal, which many times requires higher risk for higher returns, little attention is paid on the efficient or effective use of money. Benjamin Franklin was correct when he said, "what we anticipate seldom occurs, what we least expected generally happens". This is why I feel it's only a question of when, not if, most financial plans will come unglued. Please understand I in no way suggest or imply any professional has been dishonest. In fact, I believe we would find the vast majority sincerely believed in their method and had your best interest at heart. It's just after 16 years of believing in the traditional ways and helping tens of millions of dollars to flow into the financial institutions I worked for, I was shown a certain process that can increase ones own wealth by using the velocity of money. This is the very strategy financial institutions that trained me and those other planners to capture assets, use for their own wealth creation. So why can't the consumer do the same thing, without any additional risk or out of pocket expense? They can, but these institutions would sooner keep things just the way they are. At first, I was in disbelief as it tore big holes in the financial strategies that the media and financial institutions have promoted. I literally wanted to refuse recognizing what was clearly in front of my eyes.
In my heart of hearts, I think all that I have gone through was so I could become an advocate for this process- which some have called "personal financial engineering". I sense an extremely spiritual good feeling when I discuss it, unlike the secular world desires that seem to engulf me in my past career as a gatherer of assets. I can assure you that becoming an advocate for a process that calls into question the very financial tools just about everyone says is the only way to go, is about as easy as it was Columbus to convince someone the world was not flat. Machiavelli said, "there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things."
So up to now, I have noted that despite some fame and high living, I ended up learning to put my pants on one leg at a time like everyone else. I suggest that one's views on social, economic, political and that ever-increasing politically incorrect belief in God, must be taken into consideration when it comes to ones financial strategies. I have implied that the methods the vast majority use to implement financial plans are doomed from the start because the pieces to the puzzle will change in size and form and virtually no one over time will be able to foresee all these changes. I believe we must learn how to make one dollar do the work of several dollars (this is known as velocity of money) through a process called Personal Financial Engineering.
If I had to choose just one secular world factor that has greatly negatively impacted us as a society, it would be without a doubt the media. Let me share with you what a Journalist named John Leo wrote in two articles for U.S. News & World Reports recently. It created quite a stir within most newsrooms. The essence of the two articles was that reporters and editors of the mainstream media are becoming increasingly part of the social and cultural elite, and thus, driven by the conventional values of that wealthy, secular and insulated class of people. He emphasized a belief, I wholeheartedly agree with, that these journalist simply do not share political, religious or monetary values with the general population. Most interesting was the results of a poll of journalists countrywide. The journalists were not from The New York Times or Washington Post, but from much smaller areas like Dayton, OH; Tulsa, OK; Syracuse, NY; Redding, CA; plus Dallas and Fort Worth. It found that compared with other Americans, journalists are most likely to live in upscale neighborhoods, have maids, own Mercedes and trade stock. The next part didn't shock me but was very disappointing. The poll showed they were less likely to go to church, do volunteer work, or put roots down in the community. The days of a reporter with a pencil resting on his ear, a tie half undone, a creased shirt and pants and taking the subway home to his apartment are obviously gone. Not surprisingly, so has the once high standard practiced by people like Edward R. Murrow and Walter Cronkite.
This is incredibly important to all of us. The media and the news it reports is what so many base their every day lives on. We have become so conditioned to news being bad, that one station, UPN News in New York, actually broadcasts a segment each night called Good News. Does this suggest that the rest must be the opposite of good? And if so, are they telling us that all the good news in a day is just 5 minutes and the bad 55 minutes?
Our society has become what is now called a "cultural relativism", which is based on the theory that different cultures create their own differing moral standards and the institutions that express them, and there is no way of judging those that transcends each culture itself. An example would be like a culture where human sacrifice is a good idea in certain situations. It wasn't too many centuries ago where such sacrifices occurred. If it were taking place now in the world, our society would tell us people who would disagree simply have no basis for objecting. Instead, the only reasonable response that can be made is if they think human sacrifice is a good thing, then no doubt it's a good thing for them. Simply put, live and let live.
This is why Clinton has managed to survive so many taintings that in years past would have driven other Presidents out of office. "Ronald Reagan said " Politics is supposed to be the SECOND oldest profession. I have come to realize that it is becoming a very close resemblance to the FIRST". The media is a big part of this culture. They support this belief which effect is to progressively undermine and ultimately dissolve social institutions and relationships based on ideas like "natural and nature, true and truth. Society thus is reduced to a state of flux. And worse: In this state of things, where nothing is permantly true and all things are perpetually up for grabs, the only means by which society can arrive at decisions as sometimes it must, is through the manipulation of public opinion (propaganda) the use of naked force (coercion), or the combination of the two.
The media plays a big role in this and the Internet will only greatly enhance and speed up the process. In terms of the investment world, the media has greatly favored those who paint the cup half full. I have no problem with that, providing it is indeed half full. I would like to say I only laugh when someone shows me an article from a Money magazine or similar publication. Unfortunately, I tear up a little as the masses have accepted what is stated there as the gospel. In a publication whose pages are full of mutual fund type company ads, is it any wonder I don't recall any article that shows mutual funds in anything but the best light? The front page of a recent Fortune magazine noted an article on top stock picks from Wall Street's smartest guys entitled, "Let them make you rich." The article begs the following question; even if the picks are accurate, will the publication follow up with an article when to sell these recommendations? The answer is almost always no. We have witnessed that some commentator's say one thing in one publication, and three months later suggest the opposite in another. Unless you read both, how do you know? And if you read both, which one do you listen to? Adlai Stevenson was right on the mark when he said, "There was a time when a fool and his money were soon parted, but now it happens to everybody".
Please do not lose sight that the way society conducts itself will have a direct impact on your financial life. When Michael Douglas played Gordon Gecko in the Movie Wall Street back in 1987, his "greed is good" line from the movie became a catchy phrase. Now, it's a way of life for the "me, myself and I" society we live in.
In a country where we still place our hand on the Bible, swear to tell the truth in court and where it still says "In God We Trust" on our money, a lot of that trust & money is being applied to things God would have a tough time justifying. An example would be the shows "Survivor" and "Big Brother." These shows have become instant big TV hits, especially among the 18-34 year old age group. Anyone in advertising will tell you this the group most sought out by advertisers. Paul Sweezy said "The real danger from advertising is that it helps to shatter and ultimately destroy our most precious non-material possessions: the confidence in the existence of meaningful purposes of human activity and respect for the integrity of man". Mr. Sweezy couldn't have said it better regarding the "Survivor" and "Big Brother" shows. The premises are the same. A group of strangers are cut off from the outside world. Their lives and intimate interactions are filmed. Each week, a contestant is eliminated from the show. Whoever is left at the end wins a million bucks. Simply put, you do everything you can to survive, at the expense of your fellow human being.
My mother asked me to never forget two things; My Jewish heritage and, that a little more than a half-century ago, millions of Jews were literally exterminated. Not only must we all never forget that or let it happen again, but we also mustn't forget that tens of thousands of Jews volunteered to be put to death to meet the so-called quotas of the day so others could survive. Now we endorse (with our precious God given time) these shows where contestants and networks sacrifice personal dignity and decency for the viewers' voyeuristic taste. Worse yet, we have made celebrities out of the show's participants.
Take the show "Who Wants to Marry a Millionaire", where young women compete to marry a millionaire on the air. The winning couple ended up getting their marriage annulled, but not before the male was able to jump-start a career in stand-up comedy. The female simply expose herself to Playboy Magazine that is, to the tune of $500,000. Please note she publicly said she discussed this with God. Why do I have a tough time believing it's the same God our money says we trust? "Ernie Kovacs said "Television is medium because it is neither rare nor Well-Done!"
People were once described as "successful" or famous. That is, their renown was tied to their ability, or accomplishment, or office held. Now the word celebrity has taken over and to achieve it, the difference between notoriety and notorious has meant little.
So what does it all have to do with financial world? The dramatic changes within our society make comparisons to markets of years ago somewhat obsolete. The fact is we have become so reliant and conditioned on what is told to us by the media. They themselves are a major peg in this "Wheel of Fortune" game now played out on Wall Street and Main Street America. The media has helped fuel this, "we only go around once so grab all the gusto you can" mentality.
In terms of the financial arena, let me state that I believe the stock market to some extent, has become a pyramid game. What was originally a place where one had the opportunity to become part owners of companies, and management's only concern was to grow the company to enhance shareholder value and not worry about quarter-to-quarter performance, has instead become a place where literally tens of millions of lives depend on the continuing viability of the market at any cost. In any pyramid scheme, the need to continually have new players come in with fresh money is vital to those already in the game. While it's true an occasional takeover or merger occurs that brings real value to the shareholder, by in large, one needs others to pay higher for what they own in order to profit. Yes that is capitalism, and if companies do well the value of their shares should rise. However, the combination of greed and the internet has swung the doors wide open to unnatural, and many times, illegal ways, to prop up share prices in a manner unrelated to underlying economic fundamentals or factors that use to be important. Keynes was so right when he said, "Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone." Just rent the movie "Boiler Room." It's far more realistic than many on Wall Street would like you to believe.
I have felt for quite a while now that many were not recognizing two bullish market factors that didn't exist in previous New Eras. The first is the fact that through a variety of qualified plans, billions of dollars are directed into the market on a regular basis. Because a large chunk of it flows into mutual funds, and many of these individual funds require to be fully invested or at least 90% invested at all times, no economic, social or political event has taken place to detour this one-way road.
It has also greatly helped those Evangelists of a new economy who are zealous believers that science and technology can create a cornucopia of financial and social benefits. They have received lots of media attention. Hopefully you now appreciate where many in the media are coming from and can at least understand why it seems the song, "Don't Worry, Be Happy, has become the theme song on Wall Street. I fully expect to hear one day that the "Ten Commandments" have been reduced to the "Ten Suggestions."
Abba Eben told us " History teaches us that men and nations behave wisely once they have exhausted all other alternatives".
Before anyone thinks this time it's truly different this time on Wall Street, let me throw out the year 2011. No, it's not the year the Jets finally make it to the Super Bowl, but it's when the baby boomer generation turns 65. The $64,000 question (no excuse me, Regis Philbin has forever changed that to the million dollar question) is will these boomers begin to shift their asset allocation from equity-dominated portfolios to other seemingly more secure and fixed income type investments? There's also some concern that the expected work force by then won't have enough disposable income to absorb this transfer of wealth. In this day and age, 2011 might as well be 3011, but rest assured this event will begin to become a factor long before 2011
Our friends down in Washington are no dummies. Ever since seeing how people are willing to wait on lines in order to pay a tax which states have called the lottery, our friends have looked for other ways to sneak Trojan horses passed us. The move underfoot to increase IRA contributions and other retirement plans may appear to be solely for the benefit of us. However, I believe it's also setting the stage to eventually end social security, as we know it. In 1945, there were 42 payers for each recipient. Now there are only 3.4 and in 15 years it's expected to be down to 2.8. Besides a shrinking base of payers, the increasing array of benefits and the lengthening of life spans posses a serious threat. Survivors and disabled people now get more than one third of social security payments. This means one third of the money isn't available for retirement plans yours or anyone else's. Hard to believe that the annual maximum social security tax has gone from $60 a worker to $9,448. I, and many others, have argued that the social security contribution made by employers is really the employee's money; meaning some 80% of U.S. workers pay more social security tax than federal income tax.
Let me ask you a question. Wouldn't one expect the media, who in theory is supposed to be working for the masses, to be all over a political move that will only help less than 3% of the population? No, I am not talking about Vermont's legitimizing gay marriages, but Congress' desire to remove estate taxes. We all know that if this tax is removed, chances are another way to raise funds will be sought out. One would think the media would be up in arms over this tax break for the so-called wealthy, even though starting at $675,000 is not wealthy to some in this day and age. The second part of the proposed change didn't receive anywhere near the coverage, yet will have a profound effect on far more then 3% of the population. You see if the estate tax is removed, the desire is to also remove the stepped up tax basis one has been able to use upon inheritance. So if mom or dad die and leave their shares of Cisco or Microsoft, which they purchased years ago, their original cost will now be used versus the price around inheritance time. The taxes owed by the 3% of Americans who fall into the estate bracket is minuscule compared to the unrealized gains most Americans are sitting on.
I have always believed that Wall Street and the media do a great injustice to the public by publicizing an investment theme or particular subject and make it into a one size fits all opportunity. Each and every person's financial make-up and capabilities is different. Therefore, I like to refrain from more specifics until I know a case individually. I do believe that most investors are overweighed in growth-oriented equities and would likely be better served to adapt a value-oriented investment theme. Consider companies selling at decent discounted market multiples and whose shares are substantially off from their highs. Over the last twenty-five years, International stocks have been the best performing group seven times, versus only 5 times for U.S. large-cap stocks, Yet most portfolios are seriously under-weighted in this area. Be careful not to confuse what are called world stock funds versus foreign stock funds because world stock funds can be 50% or more in U.S. based stocks. This also causes many portfolios to be overlapped with certain individual issues. 401k investors need to watch out if their fund choices are limited to one family of funds. Why? Not just because no one family will ever have all the best performing categories, but some individual funds are not what they state. I know of a few where it would state it's an aggressive growth fund, but in reality, the monies placed in this fund get subdivided into all kinds of different investment vehicles- including income-oriented. The 401k arena is fast becoming the single most important investment next to a house. We are now seeing the introduction of 401k's that will allow individual equity purchases. Trading one's 401k will be like playing Russian roulette only there will be more than one bullet in each chamber. I implore you to realize you will need more then just some quarterly reports or access to an Internet site, to give your 401k all the help it will need.
Investor expectations are just an accident waiting to happen. A recent study by the Institute of Psychology and Markets, states the average mutual fund investor expects to obtain an average annual return of 18.1 percent over the next ten years. Our younger investors are even more optimistic. A recent Gallup poll of investors under 35 years of age showed that they are expecting a 22.9% average yearly return from the stock market over the next 10 years. In the last 63 years, the DJIA has only return more then 18% five times. Could the second greatest cumulative return in history of 196% between 1994 and 1999 be giving these folks a false sense of security? Perhaps reminding them that the single greatest five-year period was from 1924-1928. The cumulative return was 214%. A little thing called "The Great Depression" followed. It took as much as a couple of dozen years before investors were made whole again. Just imagine what will happen to all those financial plans, which were "hypothetically" forecasting double-digit returns year after year. Unusual expectations are not abnormal in the stock market. However, a comment made to me recently would be hilarious if it wasn't so typical. The gentlemen I work for and I were having lunch when we couldn't help but overhear a conversation four other gentlemen were having. The gist was if they just keep buying stocks like Lucent, Cisco and some Internet darlings, they couldn't lose in the long run. The so-called richest guy among them (they claim he was worth over ten million), stated he could easily average 20% a year for the next ten years. I interjected the fact that the Dow Jones Industrial Average has only risen more then 18% five times in the last sixty-three years. Do you know what he said in response? With a hard steer and a facial expression that eek of giving me a lesson, he said, " who's talking about the DJIA. I am speaking about the Nasdaq. If you can't do 20% a year there you're a dummy. Well, get me my dunce cap or just maybe that rich man my not be so rich in a few years. We have seen stocks rise after a company announces major layoffs or write-offs on the theory that losing propositions are now gone. Would removing the management that made the poor judgments that led to those layoffs and write-offs be a better action? And it always amazed me that the death of an old-time key executive brings a rise in share price on the basis with that person gone, the company may be bought out or go in a different direction. Does that mean this company was revolved just around one employee? I stated at the beginning, that there are only two types of advisors, those who say what they think and those who say what they think you want to hear. Well, actually there's a third type, and no commentary I have ever read in 16 years could better portray this than the following from a well-known bullish market commentator.
He said, " We've been in a bull market since 1789! The bull market is here to stay and it has to stay. Economic growth is integrally tied to a strong stock market. It's simply a function of the capital formation process. Without it, no growth, no jobs, no stock options, etc. Without it there would be social unrest and ultimately war. We will go through periods when things look nasty, and that's how the system works, but in the big picture the clouds are silver-lined. DJIA of 16,000, 20,000 or even 40,000 is not out of the realm of possibility in the years ahead. Will we see the Dow first decline 40% first? That's the big question." Granted, there has never been an over-supply of sanity on Wall Street, but a careful review of what this person said is worth taking. The first is that the bull market has been on-going since 1789, or over 200 years. So, I assume that The Great Depression, or the loss of 90% in over the counter stocks in 1973-74, was only a figment of our imagination. He should try telling that to the millions of people who owned stocks during those periods that were severely hurt or wiped out. What he says in essence is that the stock market must be allowed to go higher and higher at any cost. Why? Because if it doesn't and actually declines, it would "lead to social unrest and ultimately war." Hidden in this amazing double-talk commentary is some good factual information. The stock market has indeed become so entwined with our economy. However, I think of the three outcomes he suggests would occur if it became weak, no growth, no jobs, or no stock options, the no stock option part goes a long way in telling who really has benefited from the stock boom company insiders and upper management.
The Wall Street Journal had two articles recently that went a long way in supporting my argument that despite the boom, it isn't the average American who has handsomely profited but instead those who sell financial products to them. One article noted how Wall Street made $1.4 trillion in fees by bringing to market internet stocks that by usual past methods employed by these underwriters, would not have merited going public. One wouldn't want to speculate that it had anything to do with the fees earned by the underwriters? Speaking of merit, the other article called into question the fact that some financial firms were unloading large quantities of shares they acquired at very low prices, while their research staff was issuing glowing reports on the very companies whose shares they were dumping at tremendous profits.
Finishing up on that bullish commentator, he ends by wondering if the Dow must first fall 40%. Let me let you in on a little secret. Many market commentators would be lost if they couldn't use words like if, maybe, or however, which effectively allow them to double-talk and hedge themselves. On one hand, he plays to the current bullish mood by throwing out 40,000 on the Dow. Who would not want to miss out on that? But he also alludes to the Dow possibly going down 40% first. Which begs the question; can he later point to either side of the coin and suggest he called it? One must also ask, if the 40% declined occurred, how many people would be hurt and not benefit from the eventual rise to 40,000? That is where the slogan, hold for the long term comes in. To some, I am certain they see it as prudent advice. To others, they use the unknown future as supporting mechanism to achieve a rule personal financial engineering teaches you about financial institutions; they want us to give them our money on a regular or on-going basis and hold on to it for as long as possible while giving us back as little as possible. No example of this is clearer then simply depositing your money in the bank. Does anyone know what a bank does with our money?
Whoever said they then lend it out several times through a variety of loans, at rates higher then they paid us to deposit it with them, is correct. This is called the velocity of money and personal financial engineering teaches you how to make one-dollar work like three or four dollars. Willie Sutton said he robbed banks because that's where the money was. You don't need to put a mask over your head to beat the bank. You just need to learn about personal financial engineering.
So in conclusion, Americans feel more prosperous, but at what cost? American household debt levels have increased 60% in the last five years. This suggests that the prosperity has been used to acquire more tangible assets on the back of higher debt servicing costs, at a time when Americans have grown richer, but at a cost far greater than most realize. We have witnessed substantial increases in income, stable prices, low unemployment rates, higher life expectancy and more freedom and opportunity than ever before. Yet, since 1960, the divorce rate has doubled, teen suicide has tripled, violent crime has quadrupled, prison population has quintupled, and the absolute surest sign that wealth and a better material life is not the cure all the incidences of depression are 10 times higher then they were at the last turn of the century. Numerous studies have shown that Americans are less happy today than they were 40 years ago despite the fact that they make two and a half times more money. No book has hit the mark on this more than a book out now called, "The American Paradox, Spiritual Hunger in an Age of Plenty." It is not a religious book by any stretch of the imagination. It does suggest that the moral & spiritual backbone our Founding Fathers built this nation on has been chiseled away at by small zealot-type groups who the media has seemingly given carte-blanc attention to at the expense of those of us who claim a belief in the Almighty- but have been told expressing it is now politically incorrect.
I know to some I am politically incorrect. I know to others I suggest things that rock the very foundation financial institutions have been built on. When you add such a strong belief that most financial plans will not reach their desired goals or outright fail, you don't exactly place yourself in the running for "Man of the Year." Thankfully, some in the media and Wall Street have held onto their principle values, but they are clearly on the endangered species list.
W.C. Fields said, "there comes a time in the affairs of men when we must take the bull by the tail and face the situation." I come to you not as the "Wall Street Whiz Kid" I was once referred as, but as someone who through the grace of God was humbled and wants to see others avoid the mistakes I, and others, fell prey to.
From the bottom of my heart, I want to thank you for allowing me to share my thoughts. Whether we like it or not, were all in this together. I know that the vast majority of people possess true compassion, love and understanding, but somewhere along the line, by expressing such Godly ways they have been hurt, financially, emotionally or physically. By fearing such hurt again, we as a society have allowed a very small group of people to tell us what is right and wrong. We may disagree, but choose not to speak out because of potential lost. Our fore fathers took great personal risk by forming our country around our constitution and Bill of Rights. Thank God they did as it led to the greatest nation in the history of mankind. I pray we can all keep it that way.
Before I ever spoke of my depression and had the gall to say I made a wrong investment decision, checkbooks use to spring open after I had spoken. I know the views expressed here will not be well received by some. However, if just one person is moved to seek help, or realize the path they are on will never bring true peace no matter how many earthly possessions they accumulate, then it will have been worth it.
"Whoever trusts in his riches will fall, but the righteous will thrive like a green leaf." Proverbs 11:28.
Editor's Note: Peter Grandich was one of the most popular and colorful speakers at major investment conferences around the world. His forecasts and opinions were always candid and to the point. This past January, he wrote an article here entitled, "Wall Street Veteran Sees Trouble Ahead." By the looks of things, it will be most interesting to hear what he has to say in a follow-up. Anyone who ever had the pleasure of knowing Peter should attest to his market savvy. While he will be missed on the investment circuit, we know his devotion now to "The Good News Ministry of Howell, New Jersey" will be an admiral one. Peter can be reached by calling 1-732-364-6158, or by email goodnews@cybercomm.net or write, Good News Int'l, P.O. Box 380, Howell, NJ 07731
