I control the economy. Vote for me forever.

As for out-of-control gub’ment spending, Rich Lowry in the New York Post today writes, “As a share of GDP, spending has been at post-World Warr II highs throughout [Obama's] term. If fiscal probity is truly his aim, Obama is a miserable failure of a skinflint.”

Here is what our friends at SEI found: “In a recent survey conducted by SEI (Nasdaq: SEIC) of more than 125 advisors, most want Mitt Romney to win in November while a majority believes that Barack Obama will win. This offers an interesting insight into advisor sentiment, but perhaps more importantly advisors should be considering how the eventual outcome could effect the markets and their clients’ portfolios.

“Advisors were also asked about a number of broader issues related to the overall state of the economy. An overwhelming majority believes that the economy will recover but that it will take time while two thirds of advisors believe that the pessimism bubble is here to stay.”

About the study: “SEI conducted the survey in May 2012 at its National Strategic Advisor Conference for more than 125 advisors that partner with SEI. The advisors, evenly distributed around the country, are industry veterans primarily managing large books of business. Half of the advisors have been in the business more than 20 years and an equal percentage manage more than $150 million in assets.”

Bove writes: “Rupert Murdoch’s Wall Street Journal believes it knows how to invest JPMorgan Chase’s venture capital funds better than JPMorgan does. Plus, the newspaper is totally against big banks providing funds to new companies or to innovation in the U.S. economy in general.

“In this view, it is consistent with the United States government and banking regulators who also believe that providing funds to new, small, and innovative companies or troubled companies should be penalized. It should be noted that there are only five companies in the United States that make more money than JPMorgan Chase. Plus, if the SNL Research numbers are correct no bank in the world makes more money than JPMorgan Chase.

“Conversely, Rupert Murdoch’s Wall Street Journal is not among the top earners nor is News Corp (NWSA/$19.38/NR), Rupert Murdoch’s flagship company. No matter, Mr. Murdoch’s paper believes it can better assess JPMorgan’s investing and lending activities than JPMorgan can. Therefore, the paper published a lead article today [May 25] criticizing the bank’s CIO venture capital investments.

“Since venture capital by its nature is investing in ‘risky,’ small, and innovative companies, the paper is basically objecting to this type of investment. Presumably, it believes that the bank should only invest in large companies like News Corp, for example. The Journal article objects strongly to the bank investing in challenged companies using the Volcker Rule as a basis for the objection. This view is seconded by an academic, again, someone from a business (higher education) that is bankrupting America’s youth. [Emphasis added.]

“At the heart of these objections is whether banks should make funds available to smaller and/or challenged companies. It is argued that the government through the Volcker Rule does not want this to be done. The risk weightings applied to loans to these companies under the Basel Rules confirms this view – i.e., banks should not support innovation nor should they seek to aid troubled companies. If they do their capital requirements should be raised according to the rules. These capital requirements are lowered if banks invest in the U.S. government, an insolvent entity. [Emphasis added.]

“The view that the paper, the academics, and the regulators take is to let troubled companies fail and let their employees collect unemployment insurance or seek jobs with large companies (who employ workers overseas). The concept that in America risk taking is key to the success of American companies is not a view that these naysayers accept. They want to shut off bank funds to the innovators and risk-takers. This is another example of the mindless attacks on this bank and banking in general.

“The idea is to attack for the sake of attacking itself. There is no thought as to what the meaning of these attacks might be – i.e., closing off funds to the innovators in this instance. It is thoroughly discouraging. If this bank did not know what it was doing it would be making less money than News Corp. It is not; it makes more money. At some point, someone should consider how much money JPMorgan actually makes and why it makes this much money before suggesting that they could do better.”

Like the pump and dump? (Suckers)

MSSB, you’ll recall from our Features Editor Kristen French’s report last week, that MSSB proudly offered Facebook shares to all retail clients. Here is what she wrote on 17 May:

“A couple of days ago, Morgan Stanley Smith Barney told its financial advisors that all clients who had expressed an interest in Facebook IPO shares should get some, within reason, according to financial advisors at the firm. It also set a maximum on the number of shares any single investor could receive at 500, though this went out the window Thursday afternoon, with some advisors getting allocations of 2,000 or more shares for certain clients. The minimum is one share.

“The firm, which is the lead underwriter on the deal, made the fix to comply with wishes expressed by Facebook CEO Mark Zuckerberg that his company’s stock get into as many hands as possible, said the advisors. Facebook’s offering is expected to price today and begin trading on Friday.

“Morgan Stanley declined to comment.

“Morgan Stanley clients had been clamoring for shares ever since the IPO was announced, but it was, until now, unclear who would be eligible to get them. Financial advisors said the new policy meant revising their allocation plans, going back and checking emails and documents about which clients had expressed an interest, and then notifying those clients that they are now eligible to receive shares.

“So what happened was, everybody had to get on the phone and tell clients, ‘There is a change of plan. We may be able to get you stock in the deal, and it would be worth filing paperwork to get it.’ We had to be careful not to tell anyone new about it though,” said one financial advisor. “I had maybe 20 or 25 people we had put in for originally, but now that number has grown to about 60. I looked back at all the emails and calls of people who had said they wanted in.”

Now, it’s not just Nasdaq, which screwed up trading, and the investment bankers who allowed Facebook to increased the amount of shared offered at the last minute by a greedy 25%. We hear that MSSB brokers are getting hammered by angry clients who feel that once again they got beat by the smart money.

One consultant I spoke to says he is getting panicked calls for guidance on what to tell angry clients. The first rule: Remind them that one trade does not a relationship make. Two: You have to stress that three days of trading may not indicate the true value of a company, that investors must stick to their game plans, and that over the long haul Facebook, with its 900 million or so users, may actually have been worth the investment. Also, FAs should remind clients that you have added value before Facebook and will continue to add value after Facebook.

In my opinion, the Facebook offering was literally treated like a Super Bowl, with coverage on CNBC a fawning, hyped-up embarrassment that merely stoked the animal spirits.

Again, I have no idea what Facebook is worth, but remember Google’s Dutch Auction? It was a flat IPO. Where are Google shares now? In the stratosphere.

Any port in a storm? Teacher says yes.

Stan Luxenberg says: “When markets crashed in 2008, many investors were furious with their advisors. Why didn’t you do something to protect us when we needed you? clients asked. Clients believed that advisors should have shifted cash just before the downturn. The desire for a last-minute rescue may be unrealistic, but there are a few funds that do aim to hold more cash when markets sour. Stadion Core Advantage (Ticker: ETFRX) can hold up to 100% in cash. Other funds that sometimes hold cash include Weitz Partners III (Ticker: WPOPX) and Snow Capital. While the funds excel in downturns, they often lag in bull markets. That may leave some clients disappointed, but the funds can provide important diversification.”

Submit to the will of the mob or I will criminalize you.

Here is Rochdale Securities financial services analyst Dick Bove’s compelling comments: “On the other side of this debate is JPMorgan Chase. This company’s pretax income in 2011 was $26.7 billion. If the statisticians at SNL Research are correct, this bank generates the highest profit of any bank in the world and it does so by a significant margin. In last year’s Fortune 500 ranking, JPMorgan appeared to be the 5th highest profit generating company in the country. It created more profits than Apple ($553.17/NR) or IBM (IBM/$199.04/NR). It generated more than Wal-Mart (WMT/$59.33/NR) or General Electric (GE/$18.40/NR) or Berkshire Hathaway (BRK.A/$121,425/NR).

“JPMorgan was able to assist the United States government and its taxpayers in two instances in the recent financial crisis by buying legacy Bear Stearns and Washington Mutual. It did not want, and rapidly paid back, the TARP preferreds at a meaningful profit to the government. It is clearly one of the most successful best run companies that the United States has ever seen.

Debate Issue
“The academics, journalists, and politicians are arguing that JPMorgan is a failed institution that cannot be managed and that it must be restrained or broken up and they know how to do it. JPMorgan argues that it is creating jobs and facilitating economic growth in the United States.”

And in the Wall Street Journal recently, Jonathan Macey, of Stanford’s Hoover Institution, wrote Losing Money Is Not a Crime:

“After the $2 billion in losses, J.P. Morgan still had $127 billion in equity. This means that J.P. Morgan could lose another $100 billion and creditors would still have an equity cushion that could absorb 10 times the losses that the bank suffered on this trade. The trading loss wasn’t close to apocalyptic even for shareholders. J.P. Morgan’s shares dropped 9.28% in the wake of the loss. A shareholder with a $100,000 investment in J.P. Morgan would see the value of his investment reduced to $90,720, hardly a financial Chernobyl.”

The CFA Institute’s Jim Allen, says this today:

The JPMorgan mess highlights another problem, as well: the difficulty in distinguishing prop trading from other legitimate and permitted activities. In this case it was hedging, but there also are concerns with market making. When CFA Institute wrote its letter to U.S. regulators otherwise supporting the idea of the Volcker Rule, we expressed concern about its implementation, due to difficulties distinguishing prop trading from legitimate market making, particularly in the fixed-income markets. Rather than ban market making, we suggested moving such activities to a separately structured and capitalized broker/dealer affiliate, and insulate (ring-fence in the parlance of the Vickers Report) the bank — and taxpayers — from such trading activities.”

“If you have a working telephone and an affluent zip code, you have likely been getting all kinds of calls from brokers over the years, but none so insidious as the one I’m about to reveal.

“The bucket shops in lower Manhattan, northern New Jersey and Long Island simply couldn’t watch the Facebook & social media IPO desperation blood orgy from the sidelines without springing into action.

“Brokers have a NASA-calibrated schmuck-seeking radar and it hasn’t set off this many schmuck alarms since the aftermath of the Netscape deal in the mid-90’s.

“The frenzy for the Facebook debut is a target to fire at the size of Mike and Molly’s haunches laid end to end and believe me, the brokers want to hit that target hard. ‘It’s a fuckin’ layup,’ I’ve been told by a few of my former colleagues, “as soon as they hear the word Facebook it’s a done deal, I’m getting their social security numbers.”

“So here’s how it’s going down…

“For the past 9 months, low-rent broker-dealers have been accumulating shares of Facebook and Twitter from the fringes of the employee pool of these companies. Some are free-trading but most are 144 insider shares (which cannot be sold right away). They’ve created private funds to hold these shares, named them, packaged them and set them up as Reg D vehicles. They’ve exhaustively beaten the story into their sales forces, gotten the brokers all hopped up on promises of large inside commissions (the kind the clients don’t see) and the potential to ‘become monster producers’ as a result of what these IPOs will do upon launch – ‘your clients are going to make MULTIPLES on their money!’

“What they’ve not explained in great detail to the ‘kids in suits’ who are being mobilized to sell this shit is that their clients aren’t actually getting pre-IPO shares. What they’re getting instead is shares in a fund that may or may not hold a good amount of these shares. The funds are loaded with all kinds of contingencies and miscellaneous fees and caveats. They are also able to do whatever they want with the money raised, including taking shots on other venture deals that sound social media-y enough to qualify. The PPMs (private placement memorandums) are written so as to protect the firm from everything and anything that could go wrong (and it will all go wrong). The money is being held in escrow and the clients are signing their lives away.

“Making a deal with the devil is child’s play compared to doing principle business off-exchange with a third-tier boiler room brokerage firm.”

For the complete blog post, go to Brown’s blog. He also recommends these sources.

Are You Being Scammed By Your Broker? (Benzinga)
Every Lie Told By “Gryphon Financial” Better Than The Last (Dealbreaker)
If I Were a Broker, Here’s How I’d Sell Facebook (TRB)

Pay your fair share.

Bear in mind this has been going on for a two decades, with the biggest gap occuring in 2000, when the government took 19 percent more from its citizens then its citizens spent on these essential expenditures.

To be fair, if you add in healthcare and transportation, Americans spend more on thes basics than on taxes. Also, there is some double counting. Money is taxed, redistributed and then consumed by other in federal programs on these basic items. Still, the statistic is alarming. The tax burden, its complexity and the desire for people to control their own property (i.e. to pass their money on to their heirs) is one reason why our sister publication, Trusts & Estates, exists! And has been published for more than 100 years!

That said, we reported recently, “But studies by Morningstar and the Investment Company Institute (ICI) suggest that fund shareholders may not be so dumb after all. According to the latest data, investors gravitate to low-cost funds with strong track records. ‘People make reasonably intelligent choices when they pick active funds,’ says John Rekenthaler, Morningstar’s vice president of research.”

Buy high, sell low.

Here is what the ICI says: “Equity funds had estimated inflows of $927 million for the week, compared to estimated inflows of $44 million in the previous week. Domestic equity funds had estimated outflows of $1.60 billion, while estimated inflows to world equity funds were $2.53 billion.

“Hybrid funds, which can invest in stocks and fixed income securities, had estimated inflows of $995 million for the week, compared to estimated inflows of $1.21 billion in the previous week.

Bond funds had estimated inflows of $5.68 billion, compared to estimated inflows of $4.85 billion during the previous week. Taxable bond funds saw estimated inflows of $4.85 billion, while municipal bond funds had estimated inflows of $825 million.”

On the other hand one could argue that Americans are too invested in the U.S. and not enough world wide. After all, the U.S. market cap is less than half of the world’s total. Of course, in some European countries, investors are very parochial in their asset allocations.