A participant in the morning Working Capital Model (WCM) investment workshop observed: I’ve noticed that my account balances are returning to their (June 2007) levels. People are talking down the economy and the dollar. Is there any preemptive action I need to take?

An afternoon workshop attendee spoke of a similar predicament, but cautioned that (with new high market value levels approaching) a repeat of the June 2007 through early March 2009 correction must be avoided— a portfolio protection plan is essential!

What are they missing?

These investors are taking pretty much for granted the fact that their investment portfolios had more than merely survived the most severe correction in financial market history. They had recouped all of their market value, and maintained their cash flow to boot. The market averages remain 40% below their 2007 highs.

Their preemptive portfolio protection plan was already in place — and it worked amazingly well, as it certainly should for anyone who follows the general principles and disciplined strategies of the WCM.

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But instead of patting themselves on the back for their proper preparation and positioning, here they were, lamenting the possibility of the next dip in securities’ prices. Corrections, big and small, are a simple fact of investment life whose origination point, unfortunately, can only be identified using rear view mirrors.

Investors constantly focus on the event instead of the opportunity that the event represents. Being retrospective instead of hindsightful helps us learn from our experiences. The length, depth, and scope of the financial crisis correction were unknowns in mid-2007. The parameters of the current advance are just as much of a mystery— today.

The WCM forces us to prepare for cyclical oscillations by requiring: (a) that we take reasonable profits quickly whenever they are available, (b) that we maintain our “cost-based” asset allocation formula using long-term (like retirement, Bunky) goals, and that we slowly move into new opportunities only after downturns that the “conventional wisdom” identifies as correction level— i. e., twenty percent.

So, a better question, concern, or observation during a rally (Yes, Virginia, seven consecutive months to the upside is a rally.), given the extraordinary performance scenario that these investors acknowledge, would be: What can I do to take advantage of the market cycle even more effectively— the next time?

The answer is as practically simple as it is emotionally difficult. You need to add to portfolios during precipitous or long term market downturns to take advantage of lower prices— just as you would do in every other aspect of your life. You need first to establish new positions, and then to add to old ones that continue to live up to WCM quality standards.

You need to maintain your asset allocation by adding to income positions properly, and monitor cost based diversification levels closely. You need to apply cyclical patience and understanding to your thinking and hang on to the safety bar until the climb back up the hill makes you smile. Repeat the process. Repeat the process. Repeat the process.

The retrospective?

The WCM was nearly fifteen years old when the robust 1987 rally became the dreaded “Black Monday”, (computer loop?) correction on October 19th. Sudden and sharp, that 50% or so correction proved the applicability of a methodology that had fared well in earlier minor downturns.

According to WCM guidelines, portfolio “smart cash” was building through August; new buying overtook profit taking early in September, and continued well into 1988.

Ten years later, there was a slightly less disastrous correction, followed by clear sailing until 9/11. There was one major difference: the government didn’t kill any companies or undo market safeguards that had been in place since the Great Depression.

Dot-Com Bubble! What dot-com bubble?

Working Capital Model buying rules prohibit the type of rampant speculation that became Wall Street vogue during that era. The WCM credo after the bursting was: “no NASDAQ, no Mutual Funds, no IPOs, no problem.” Investment Grade Value Stocks (IGVSI stocks) regained their luster as the no-value-no-profits securities slip-slided away into the Hudson.

Embarrassed Wall Street investment firms used their influence to ban the “Brainwashing” book and sent the authorities in to stifle the free speech of WCM users— just a rumor, really.

Here we are once again. For the sixth time in the thirty-five years since its development, Working Capital Model operating systems are proving themselves to be an outstanding market cycle management methodology.

And what was it that the workshop participants didn’t realize they had— a preemptive portfolio protection strategy for the entire market cycle. One that even a caveman can learn to use effectively.

About the author:
Steve Selengut
can be contacted: sanserve (at) aol.com

Emphasize tradition and heritage in your advertising campaigns and don’t cut prices, said marketing guru, Martin Lindstrom, as he revealed his top 10 tips for the advertising during the economic downturn.

Brands that invest in marketing during a recession tend to gain market share as their competitors lose focus on their overall strategy, he said. Lindstrom was speaking in the run-up to his Buyology Symposium, held recently at Dubai. The symposium – the first time it was held in the Gulf – will cover the impact of subliminal advertising and the revolutionary influence of neuroscience in marketing.

The book, Buyology, which was released in October, is the result of a groundbreaking study on NeuroMarketing, which studied thousands of volunteers and was the largest of its kind ever taken.
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The three-year study, which uses the latest brain scanning technology to reveal the science behind what makes consumers tick, is the single biggest breakthrough in marketing in decades, according to global experts. The pioneering research will turn advertising and market research approaches on their head, and refute most of what we thought we know about why people buy.

Here are his top tips:

1. Don’t cut your prices – research how’s that by discounting your brand during a recession it will take you 7 years to recover to your original price level.

2. Focus on your brand strengths (real not imagined!), and emphasise heritage and classic/traditional values – while the crisis is on people tend to hark back to the memories of the good old days.

3. Do exploit the fact that your competitors may have shrunk their advertising spending – you can rapidly win back mind share as well if you have the courage to act now. Then rely on your operations and product teams to keep you ahead long-term.

4. Brands that invest in marketing during a recession tend to gain market share when the recession ends. It might seem wrong to splash out on a new advertisement campaign when you are cutting staff, but if the message is right and the campaign is well executed, the investment will pay off in the long run.

5. Bundle up: instead of cutting prices on your top brands, offer something for free as an add-on to your core (non-discounted) brand. So if you happen to sell bags, don’t discount your bags but throw in a free keyring instead. Create strategic alliances with matching products or brands. If you happen to sell jewellery, then team up with the local flower store. Let the flower store promote your jewellery and ensure you’re promoting their flowers whenever a couple comes to you to buy an engagement ring, for example. The result? You double your reach and marketing budget – for next to nothing.

6. Play on the practical dimensions of your brand. Does the product you sell last longer or stay fresher, or can they be used for multiple purposes (for example, if you sell jackets, can you turn them inside out and suddenly have a second colour option)? During recessions consumers are practical – make your brand practical too.

7. Make your agency more accountable for strategic decisions as well as costs. Take advantage of the economic downturn to make your agencies work and think harder for their fees.

8. The overriding influence of the global ad agency or mother brand in campaigns is over. Local agencies and marketing teams within the organisation must have an increasing influence on marketing strategy to ensure campaigns speak directly to their consumers – so listen to them!

9. Don’t spend money on a flashy new logo – you’re not going to need it in five years time. Instead, spend the money on making your marketing communications adverts appeal to more than one of the senses (the sense of smell is far more effective than sight!!!)

10. The Buyology Symposium, is expected to tour more than 50 countries Lindstrom will appear live and in person at each event.

Can lawmakers who don’t have the courage or intelligence to outlaw texting while driving really be expected to create a saner tax structure? Hmmm.

Developing a fairer tax environment is much less an economics problem than it is a political dilemma and, as many of you observed, it is unlikely that anything “tax” will be improved upon until there is some serious facial (and cultural) change in Washington.

Politicians focus on one issue at a time, and pretend to have problems dealing with inter-related programs. Tenured politicians have a vested interest in resisting any change that involves their spheres of influence. Both parties are embarrassingly mired in twentieth century class warfare that stifles all forms of productive debate.

Tax cuts don’t just benefit the rich. In fact, they provide the opportunity for everyone to attain greater wealth. Demand directs resources far better than punitive taxation. Money in consumer hands will fuel social and environmentally friendly change.

“You cannot eliminate revenue from one program without replacing it from another, equally complicated, one”, career politicians will say philosophically.

They have little to gain from simplifying the tax collection system — yet it is obvious that a whole new approach would solve most of the economic woes plaguing us today, domestic and international.
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So what would become of all the CPAs, tax attorneys, and offshore laundries— new jobs as consultants, auditors, and regulators perhaps?

Survey responses outlined constructive and manageable solutions to our multiple tax problems. If they could only be dealt with as a whole “New Deal” (catchy phrase), a fairer tax structure would be in reach.

Several basic concepts need to be accepted: (a) don’t tax the job creators, (b) tax consumption instead of income, and (c) regulate shareholder abuse in the form of obscene executive pay. Then, enforce compliance with the intent of a simplified tax code.

A smarter tax system would allow more people to become wealthy honestly; smarter regulation of thieves in high places would improve the image of big business (and big government) significantly.

There are 44,000 pages in the Internal Revenue Code (IRC) alone, 5.5 million words, incomprehensible at best. Obviously, there is a lot more to be said about each of the ideas that follow. Here are the top survey ideas; the first two were discussed in previous results articles as consumer spending enhancers and job creators, respectively.

One: Social Security. Replace it with a plain vanilla, individually, and flexibly funded fixed pension program. Every person has his or her own personal pension plan for both mandatory and limited voluntary contributions — limited to a maximum percent of income.

Two: Corporate Taxes. Eliminate income and Social Security taxes and all other nuisance fees and charges that increase corporate expenses and lead to higher prices— a “Free Trade Zone” only policy. Monitor employers to assure that their savings are translated into new job opportunities and/or lower prices.

Cap total compensation (all “perks” included) at mid seven figures. Allow one year-end bonus split among all employees and shareholders. Invade every boardroom with well-paid and expert compensation auditors.

Three: The Fair Tax. Adopt the plan that has been negligently ignored by congress for decades. It replaces the entire IRC with a Federal Sales Tax, and without Social Security, a number between 10% and 12% would probably work.

It’s easy to understand, eliminates the lobbyist gifts and bonuses that current IRC loopholes produce, taxes the underground economy, and gives back (with necessity only debit cards) to lowest tier wage earners. All businesses would be audited to assure collection compliance, and a cap would be set on the total take for all levels of government.

There would be no sales tax on food, healthcare, and educational expenses.

Four: The Flat Tax. Institute a 10% Federal income tax, with no exclusions, exceptions, deductions, credits etc. All income, regardless of source, is taxed at the same level, and the total from all levels of government capped at 15%.

A combined Flat Tax and Fair Tax environment would increase jobs and spending, while reducing tax fraud and credit abuse. Any number of approaches could be used to assist the lowest wage earners, and Social Security benefit payments would be tax-free forever.

Compensation creativity such as stock options, country club dues, and first class airfare, need to be dealt with to protect shareholders and employees from their leaders— new jobs for those displaced professionals.

Total annual employment compensation above $5,000,000 would be subject to a flat tax of 55%. This would apply only to employees of publicly traded companies and elected public officials. Entrepreneurs, celebrities, lottery winners, etc, must not be penalized for their creativity and good fortune.

It is likely that both new taxes will produce returnable surpluses quickly.

Five: Death & Gift Taxes. Give them death; they deserve it.

Six: Property Taxes. Reduce them each year for all persons receiving Social Security benefits. Retirees would pay no property taxes after ten years.

Seven: Tolls, Licenses, & Fees. Eliminate all collections and charges for government provided public transportation (roads, bridges, tunnels) and recreational facilities (parks, museums).

Eight: Value Added Tax (VAT). Several of the suggestions above should reduce the prices of American exports. But if our trading partners assess a VAT on those exports, lets negotiate elimination or return the favor.

Healthcare reform is next, with tons of ideas not being considered by Congress.

Steve Selengut
sanserve (at) aol.com

If you serach for online casinos at the moment there are thousands of casinos around at the moment, both online and land based.  But can it be done? If you search or visit the best online casino can you find a source of betting systems that don’t require you to pay $100’s up-front with no proof that they work? Can any betting system work at a casino? This site offers listings of top rated online casinos including those that accept US players and features a forum.

With the right system, and most importantly, the right discipline, it can be done. Casinos typically work to a ‘House Edge’ of 1 to 5%. For every $100 gambled, the player will lose $1 to $5. It doesn’t sound like much, but in a multi-billion dollar industry it’s enough to make online casinos some of the most profitable sites in the world, and to build Las Vegas up from nothing in just a few years.

A whole lot of people will tell you that it is impossible to overturn this edge, and from a purely mathematical point of view they are correct. The Laws of Probability mean that you cannot turn a negative into a positive. If you are playing Roulette, and Black has come up 10 times in a row, the odds of it coming up next time are still 50/50. (Ignoring the ‘0′ and ‘00′) According to the Laws of Probability, there is no reason why Black cannot come up 100 times in a row. This argument, while scientifically sound, ignores the Law of Possibility, which means that in the real world, the chances of Black coming up 100 times in a row is so slight that it can be ignored.
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This doesn’t mean that you can gamble recklessly and expect to win. You need a good system, and the discipline to quit while you are ahead, which is where most gambling systems come apart. Set yourself the target of winning, say, $50, and quit as soon as you have achieved it.

Gambling is a game, a contest. When you gamble, you take a chance that you will increase your money. You give your money to a Golden Casino or other gambling venue and hope that you will get the right role, the right cards, or the right horse will win. You could make a lot more money or you could lose it all depending on whether or not something happens. There’s no way of knowing what will happen.

Blackjack is one of the casino games, which provides the greatest advantage to its players. In fact, in some variations of the game, the players have a slight better edge over the casino. There are many Blackjack strategy guides available online that teach you how to play Blackjack with the best chance of winnings. If you have not learned one of the Blackjack strategies that work best for you, it will be a good idea to get one of those guides and learn to master the skills before you play the game with your hard-earned money.

So, is investing the same as gambling? It can be. But if you diversifying your investments, have patience during the bad years, and match your portfolio to the time you have until you need the money you won’t eliminate risks, but you can eliminate the effect of those risks. That’s the way the casino owner can still smile when writing a $1 million check to a super-grand-mega-winner in slots. It’s because he’s looking at all of the other machines digesting a whole lot of quarters.

Actually, hindsight and the Investment Grade Value Stock Index (IGVSI) Bargain Level Monitor tell us that it died early in March 2009. More realistically, however, corrections don’t die quite so abruptly. They are supplanted by rallies— and vice versa.

The IGVSI Bargain Stock Monitor tracks the price movements of an elite group of New York Stock Exchange equities. Their “eliteness” is earned by a B+ or higher S & P rating, a history of profitability, and the fact that they pay dividends to their shareholders.

Unfortunately, they are the same companies whose boards of directors allow senior executives to pillage treasuries with obscene salaries and bonuses— and elite does not mean invulnerable to the whims of markets and governments.

But, for Working Capital Model (WCM) equity investments, they are just perfectly less risky (historically) than the others.

An IGVSI equity becomes a bargain stock (or “OK to add to your portfolio if it meets strict WCM diversification and price standards) when it falls at least 20% from its 52-week high. From 15% to 20% down, it is held in a mental “bull pen”, getting ready for the “bigs” after a few more down-tics.

The fewer IGV stocks at bargain prices, the stronger the market, and the more profit taking WCM methodology investors should be experiencing. The most important thing most investors fail to do during rallies is to prepare for their “supplantation” by the next correction.

Fewer equity bargains and higher prices should result in growing “smart cash” levels. Smart cash results from dividends, interest, profit taking, and systematic portfolio contributions.

Why smart cash? Its not reallocated to other classes of securities, it anticipates the next turn in the market cycle, and it patiently waits for new (and pre-defined) opportunities. Uh-uh, smart cash is never market-timing cash.

Here’s what the Bargain Level Monitor has been reporting:

* The 2007 monitor showed a decreasing number of bargains through May, followed by rapidly increasing numbers through year-end when nearly half the population was down 15% or more.

* The trend worsened in 2008, and at the February 2009 month-end bottom, a dartboard stock selection approach would probably have worked fairly well.

* Second Quarter numbers were the best in nearly two years— meaning there were far fewer investment opportunities to choose from. The Third Quarter figures surpassed them by 31%.

* September was the best rally month since early in 2007, with fewer than 8% of the entire IGVSI selection universe qualifying as “bargain stocks” by month end.

Here’s what the Bargain Level Monitor is telling you:

* The seven-month-old “fat lady” is signaling the death knell of the last stock market correction. WCM portfolios should be within striking distance of the all time market value highs achieved 28 months ago.

* We are absolutely in a potent rally, in both equities and closed end income funds. Profit-taking opportunities are staring you in the face, heckling, whispering to hold on for even greater returns.

* The last time we experienced six consecutive months with less than 20% of the IGVSI population down 20% or more from 52-week highs? Yup, the third quarter of a 2007.

So if you have not taken profits (and realized a few not quite as bad as they might have been losses in your major “thank you Mr. Congressman” disasters), one of these things is happening:

* You are being greedy by ignoring the WCM profit taking guidelines.

* You have no profits because you believed “the financial world is coming to an end thesis” and kept your stash in some form of mattress.

* You don’t want the tax burden associated with short-term gains or you think this new rally will actually last forever.

* You are waiting for the experts to pronounce that this upturn has become a new trend and that you may once again feel good about paying more for something than anyone else on the planet has ever paid— ever.

There is no question that we have experienced a powerful rally. The only unknown is its duration. So what do me do in rallies?

About the author:
Steve Selengut
sanserve (at) aol.com

My survey produced an interesting anomaly— several respondents felt that excessive consumer spending was the primary cause of the economic problems we face today, and that spending is not to be encouraged.

But the root problem they were correctly speaking to is the source of the spending money, not the spending itself. Spending is essential for demand creation, and increasing demand is what produces jobs.

So why we ask, does government remove the dollars from the economy before they accomplish the demand stimulus “thingie” (highly technical economics jargon)? Nearly half the survey responses observed that consumption taxes (The Fair Tax) are far more productive/creative than income taxes.

The other half wants to replace the IRC (Internal Revenue Code) with a Flat Tax on all forms of income. Both suggestions are simple, and quantum leaps better than anything being seriously considered by congress— “seriously” being the operative word.

A combination of the two— priceless, but later!
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The single, easiest, fastest, biggest, consumer-spending instant winner bonanza is not even a twinkle in an old politician’s eye— there are far too few new politicians. Replace the Social Security Retirement Program with a plain vanilla pension plan, pre-funded by smaller, mandated employee contributions.

The current methodology is simple: it takes money out of our pockets (and our employers) puts it though governmental blenders, and spits out IOUs for a meager benefit at retirement. Why not let the private sector provide pension benefits to all employees under the direction of a trimmed down Social Security bureaucracy?

How? By purchasing Social Security Retirement Income Annuities (SSRIAs). Google “A Capitalist’s Social Security Reform” for the nitty-gritty details, but here’s what we accomplish:

We stimulate spending immediately by only withdrawing 3% of income from 300 million pockets and pocketbooks, and nothing from employer treasuries. We provide demand-push spending money and reduce demand for consumer credit.

And, looking forward an article or two, we collect a tax on every dollar spent in the economy— except those for food, healthcare, and higher education; even from our friends and neighbors in the Underground and Internet economies.

Some SSRIA details include: (1) No sales commission, no more than 10% in an approved list of equities, no multilevel derivatives or open end Mutual Funds, and no speculations; (2) Limited voluntary contributions and unemployed dependent eligibility; (3) Phased in transfer of existing Social Security and government employee pensions (including congress).

Using life annuities + a 50% of cash value, pre-retirement, term-life insurance benefit could prepay retiree Medicare benefits as well!

There are several other ideas on the more-spending-money-in-consumer-pockets agenda, and some thoughts about consumer confidence. It’s tough to be confident, for example, when you click the links between congress and business lobbyists.

It’s tough to be confident when we see Wall Street control its regulators, constantly produce the same speculative garbage, and reward its senior employees and sales persons from the carcasses of mutilated shareholder-owners and “hostaged” taxpayers.

These confidence destroyers can be dealt with, but first the rest of the story, on increasing consumer spending without credit abuse:

One: Reduce the interest rate on all mortgages at least twenty-five basis points, and adjust monthly payments accordingly. The banks owe us, and will make-up the difference from increased business activity.

Two: Bring the credit card mafia to its knees by enforcing reasonable usury laws (a 15% APR cap, for example) and include all fees, late charges and other debris in the calculation. Make minimum payments include a percentage of principal, and treat credit abuse like drug abuse.

Three: Eliminate all nuisance fees, taxes, surcharges, etc, forced on businesses and passed through to consumer statements. A $65 motel room should be a $65 motel room.

Four: Reduce state and local property taxes 10% per year for all persons over age 65, and devise a way to prorate this into rents paid by seniors— i.e., require landlords to pass through their savings.

Five: Eliminate all toll collections on highways, bridges, tunnels, subways etc.— everyone benefits from our transportation resources, the green impact is obvious, and demand for gasoline would be reduced significantly.

Six: Establish a combined federal/state/local $1,000 per month tax-free program for all workers. (The first $12,000 of each person’s income is untaxed). Workers earning less than $12K annually receive the difference in bank account debit cards. Usage could be restricted to essentials (no alcohol, gambling, tobacco, guns, jet skis, etc.)

Seven: Establish a $750 per month workfare program for the unemployed actually seeking work, but requiring no less than twenty hours of community service per week. Offset would be reduced numbers of government workers, shorter unemployment lines, and lower employer overhead expenses.

Thank you again for participating. I hope you all appreciate how important it is for you to help get simple ideas like these into the legislative arena. Find the time to address some of them aggressively in blogs, networks, and communications with elected officials.

Wall Street’s “Emperors New Clothes” game plan has infiltrated the federal government. The financial community has no interest in protecting investors from speculation and our elected representatives seem interested only in expanding their power by catering to the most generous special interests.

Do I hear congressional term limits as a “write-in” candidate for number eight?

Author
Steve Selengut
sanserve (at) aol (dot) com
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

My recent survey produced a variety of ideas, but most of them had these common elements: replace the Internal Revenue Code with a simpler model, encourage businesses to increase employment, and insist upon tort reform everywhere.

It also brought two disturbing realities into focus: We are painfully apathetic (less than 1% of the people I contacted took the time to respond) and, although we have great problem-solving ideas, few to none of them are included in any of the reforms being considered by congress.

For those who participated, thank you again. I hope that you will appreciate how I’ve synthesized your thoughts and suggestions into the commentary. I also hope that you will find the time to address some of these issues more aggressively with blogs, networks, and elected officials.

Major changes are being proposed in six inter-related areas. All the dots cannot be connected in one article. Government revenue is cut in this article and the next without a hint about a replacement plan. I’ll get to that later, and painlessly for all of us.

So how do we create more jobs?

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Perhaps the first step in creating more jobs is to take a giant step backwards and define what a job is. In the simplest of terms, your job is the principal moneymaking activity in your life.

The more qualifications and skills you have (physical, technical, intellectual, etc.) the more valuable you are to employers, customers, and clients. Thus, more practical, job specific, education becomes a vital part of the jobs picture.

For the self-employed, the amount of effort expended, marketing skills, and the product or service itself is as important as the qualifications. But the objective of the job, the career, and the company, is to make money.

Government jobs are of a service, regulatory, and social problem solving nature— unquestionably necessary, but the primary motive is not to create personal wealth or economic gain, hence the thousand-dollar toilet seat scenario. These jobs are paid for by taxes collected from all employed people— except our friends in the “underground economy”, who pay virtually no taxes at all.

The more government jobs, the more taxation; the more government regulation, the more need for cost analysis of the regulations spewed forth. Consumers ultimately pay all of the costs of compliance, everywhere.

Most self-employed people start off working for others; large or small really doesn’t matter. What matters is that employers hire these people to make the enterprise more productive, safer, more efficient, and more profitable.

In theory, employees must contribute to profitability, and each is compensated based on his or her contribution, as determined by the owners of the enterprise. In larger organizations self-serving executives are able to pillage the profits of the enterprise, to the detriment of both owners and employees.

Employee benefit programs (health & dental insurance, pension & savings programs, investment education plans) were originally implemented to attract and retain the best employees.

Today, employers are reluctant to create jobs because the mandated non-productive “overhead” associated with each worker adds significantly to the cost of running the business— worker’s compensation, unemployment insurance, OSHA compliance, liability insurance, social security contributions, minimum wage/union pay scales, etc.

No job deserves to exist economically if it doesn’t add to the profitability of the business. The more costs per employee, the fewer jobs get created. So how do we create more jobs in this environment?

Corporate Income and Nuisance Taxes.

Politicians have succeeded in demonizing the large corporation by exploiting the greed of obscenely overpaid executives and employees, while ignoring their own complicity in the conflicts of interest and lobbyist graft that steer the legislation they produce.

What Congress, a long line of Presidents, and much of the population have lost sight of is the fact that even the dirtier businesses are job providers. They must be pampered, not pummeled; supervised and reined in but not tethered and broken.

Business income taxes are 100% inflationary; costs associated with employees (yes, even the minimum wage, which some suggest is the cause of our illegal alien problems) result in fewer employees hired. Period. Capitalism is not broken— its success formula has been compromised.

Repealing the corporate income tax, and prohibiting any and all levies, fees, charges, and taxes on any form of business could instantly produce millions of job openings, lower prices, and create new business opportunities throughout the economy.

Repealing business income taxes would instantly make export products more competitive in world markets, as businesses reduce prices while maintaining profit margins. Greater profits should translate into growth in economic activity.

Finally, the elimination of these taxes would make all businesses run more effectively because there would be no need to spend money (or create losing transactions) just to cut the tax bill.

Government Programs:

Tax dollars can create jobs when they are used to: protect consumers and businesses from fraudulent and disruptive forces, fund infrastructure repairs and improvements, protect shareholders from greedy officers and directors, provide free education to the most talented students in all fields, and provide seed capital for new public interest development projects.

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Still looking for your ideas on: growing consumer spending, lowering health care costs, helping the environment, reducing the size of government, and producing a fairer tax environment.

Steve Selengut
sanserve (at) aol.com

As impossible as it is to predict the future of the markets, it’s relatively easy to anticipate what you are going to experience when you view your next brokerage account statement.

Whether you go the discount route through Schwab, Ameritrade, Fidelity, etc., or enjoy a higher level of service through an independent like LMK Wealth Management, you should never be surprised by the market values reflected on your monthly statement.

None of the firms make it easy for you to examine asset allocation, particularly on a working capital basis, and most refuse to even acknowledge that Municipal CEFs should not be lumped in with the equities. Additionally, no brokerage statement ever includes a warning label about the dangers of margin borrowing. Surprised? Not.

But, you can be sure that all statements will emphasize (in every conceivable way) the short-term change in your market value. Any long term or cyclical analysis (if any) is reserved for the “we understand your long term objectives” propaganda that fills their prospect-only glossies.
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But, statement market value movements in both directions need to be anticipated and understood, not labeled bad or good (rhyming not intended). Investigation is required when you reasonably expect one direction and you wind up with another— with the emphasis on the reasonableness of your expectations.

Someone should provide a simple analytical mechanism that will allow investors to know precisely what to expect from the monthly statement opening ritual— and to have a fairly good idea of why the values have changed the way they have. No shocks, surprises, or indigestion.

I’ll take a shot at it, but you should know that IGVSs are those few “value stocks” (in the classic definition) that are also B+ or better rated by S & P, dividend paying, generally profitable, and traded on the NYSE.

The IGVS expectation analysis process will prepare you for the dreaded monthly account statement— whether you get there by password and click or by post office and letter opener.

Only four bits of information are really needed (for WCM users), and I’m assuming a 70% to 30% portfolio asset allocation— equities vs. income, respectively:

One: An increasing Investment Grade Value Stock Index (IGVSI) will lead to higher market values for the stocks in your portfolio, but not if you just think that you own mostly IGVSs in your Mutual Funds.

Two: When you are looking for stocks that fit your buying parameters (not hot tips from “Heard on the Street”, “Mad Money” or CNBC), a higher number of “bargains” will generally mean lower equity market values.

Three: If monthly (IGVS) Issue Breadth numbers are significantly positive, higher market values should be expected. For the uninitiated, issue breadth analysis compares the number of stocks going up in price with the number going down, daily.

Four: If there are fewer IGVSs establishing new 52-week lows than new 52-week highs, it is likely that overall equity market values are falling.

So how do you think you did in August— click, click, head-scratch?

The Investment Grade Value Stock Index was up for the fifth time in the past six months. The number of bargain stocks was below the average of the past six months. Issue breadth was positive. There were more 52-week highs than lows— only one new 52-week low all month.

In other words, all indicators point to a higher market value in August than in July and a continuation of the upward trend that started in March.

Additionally, in spite of conditions where interest rates cannot really go much lower, rate sensitive CEFs continued to move slightly higher— signaling further strengthening (for now) in the credit markets.

So what could keep you from having a better portfolio picture this month than last (from a short-sighted market value perspective)?

Well, Virginia, in the non-government world where most of us attempt to survive, disbursements in excess of income and deposits will do it every time. And when the market corrects, as it absolutely always will to some extent, the double whammy on the bottom line can be painful.

Tracking breadth, new highs and lows, bargain numbers, and an index that mirrors the types of securities you hold in your portfolio, can explain what is happening. Regular additions to your portfolio can soften the impact of a correction and help you prepare for the rally that inevitably follows.

Now if we could only convince the SEC to require that account statements be divided by security purpose (growth or income, for example) instead of by trading unit.

About the author:
Steve Selengut
Sanserve-at-aol.com
Professional Investment Management from 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

You knew it the moment it left the club, that spark at contact when you catch it just right. You look up. It’s just reaching the top of its climb— and heading down right at the pin, a pin positioned left of center on the elevated green, much too close to the water.

This could be the one! Four mouths hang open, not a sound. Then whack, the ball strikes low on the stick and disappears; the pin wobbles; the ball is nowhere to be seen—

Moe and Curley are certain it dropped into the hole as they hurry their tee shots and rush to their cart. “My buddy Stan holed out like that at Disney a few years ago”, you hear, as they search the cooler for four cold brewskis.

Larry isn’t ready to slap you on the back yet. “With my luck”, he says, “the ball would go dead left, down the hill and into the water”. He calmly puts his tee shot on the green, far to the right of the pin— about where you were really aiming. What are your expectations? What scenario fits your game today?
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If it weren’t for optimism, few of us would continue to be golfers. The perfectly struck ball can encounter a myriad of obstacles on its way to your target. Experienced golfers expect some adversity, even when they are playing well. For most of us, it only takes one or two good shots to keep us coming back.

High handicappers shout “golfshot”— as one word, when they think one of those has occurred.

Similarly, if not for optimism, few investors would have the courage to take advantage of the hundreds of opportunities that are created every time the financial markets hit the wall and tumble down Canal Street into the Hudson.

Are you headed for an ace or a double bogey, a nice solid profit or another disappointment? The decisions we make at the highs and lows of our experience are the most significant, always. Were you selling or buying six months ago— eighteen months ago?

Just as Moe and Curley are certain the ball is in the cup as they rush to the green, many independent financial pros were certain that the markets would rebound throughout what seemed like twenty rounds without a single par.

After months of hazards, tree roots, hardpan, lip outs, and high winds in their faces, investors are experiencing a string of “gimmie” birdies— in the form of a robust rally. Once again, Investment Grade Value Stocks and income producing closed end funds are leading the way.

Were you selling or buying six months ago— eighteen months ago?

Being optimistic is critical for long-term investment success. When things don’t seem to be just right, ratcheting-up your focus on basic principles, fundamentals, and the cyclical realities of the playing field is the type of practice session that gets those security (and club) selections back on track.

Optimism needs to be controlled or it morphs into speculation— and speculation breeds both losses and snowmen. Most investors miss the early hours of the new party because their gurus don’t think it will be much fun. Eventually, market cycles repeat; with practice, so will your swing. Don’t forget to leave the party before midnight, pumpkin.

Remaining focused on the QDI rules you’ve developed for your investment program, and the few swing thoughts that fine-tune your pre-shot routine, bridles the optimism and allows you to focus on the major hazards that could keep you from goal achievement.

In both golf and investing, too much thinking about too many inputs from too many experts is as bad for the game plan as simply doing the things that haven’t worked over and over again.

The key to attaining and maintaining a satisfying skill level is to understand what it is that you should practice. You’re not going to three-putt less often by complaining about it. Find someone who rarely three-putts and ask for help. Focus on how things work, and you’ll formulate more accurate expectations.

It’s easier and less expensive for golfers to practice than for investors and there’s a whole lot less at stake, financially. But practice means more than loosening up on the range and stroking a few putts before moving on to the “breakfast ball” or “Mulligan” that often describes your opening tee shot.

Practice means addressing the problem areas of your last effort before the next one. You need to be confident that you have it right so you can focus on the new challenges of today’s pin placements.

Investment practice sessions are different, and I’ve learned that investors are more stubborn, lazy, impatient, and fickle than golfers. Both crave shortcuts to success and gadgets that will instantly improve their performance. But few investors are able to bring their focused course management skills to the long-term financial playing field.

Golfers will spend thousands on instruction, gadgets, machines, clinics, magazines, lessons, drivers, and putters. Investors love the gimmicks, shortcuts, and expert recommendations, but they seem allergic to anything really educational. They must see it as a sign of weakness.

Golfers should be better investors. Investors need to introduce themselves to some basic education.

Hello ball!

Steve Selengut
Sanserveataoldotcom
Search – Kiawah Golf (or not) Investment Seminars
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

The White House has released another of its health care reform clarification emails— there will be more. It seems strange to me that the focus is on insurance coverage rather than on the spiraling costs of health care itself.

Frankly, the drafters of the insurance reforms have little, if any, understanding of insurance, risk assessment, or underwriting— and nary a clue about running a business. But why should they care? This is Robin Hood politics, not business. Why do we continue to re-elect them is a far better question.

Incidentally, I am not a health insurance salesman or healthcare professional— just a payer of far too much in small-group insurance premiums in spite of a crazy-high deductible!

Insurance is neither a cost of obtaining healthcare services nor an expense associated with those services. Insurance is an agreement in which a private company agrees to pay part of someone else’s medical expenses in exchange for premiums it collects in advance from all of its insureds.

If President Obama owned the New World Order Health Insurance Company, he would not be willing to insure an applicant with brain cancer nor would he be willing to pay an unlimited lifetime benefit to all insureds— not without a premium that reflects the risks to his personal bank account.

Theoretically, insurance companies collect enough in premiums to operate profitably while paying all the claims they have agreed to pay under contracts with the individuals and groups that they insure. If we add more risk, the insurance company has no choice but to increase premiums.

The persons who own the insurance companies (you and me, pal) expect them to operate profitably. The companies employ thousands of actuaries, healthcare industry expense analysts, claims adjusters, fraud inspectors, service personnel, underwriters, risk assessors, etc. to assure that this happens.

Insurance companies protect us by standing ready to pay “covered” expenses over and above whatever deductions, exclusions, and limitations are agreed upon in advance. There is a viable legal contract between the parties— financial disasters are avoided if we get really sick.

Within the terms of their agreements, insurance companies determine who is insurable, and at what premium. Their job is to pay covered medical expenses— and they have a vested interest in keeping medical expenses as low as possible. But do they really?

Just as the financial crisis was partially caused by business conflicts of interest so too are there conflicting interests in the insurance-healthcare-drug-medical supply industries. These conflicts reduce the natural desire to control the costs of all healthcare services.

We can control the industry to eliminate the conflicts of interest. We can (and should) police the boardrooms of insurance companies to eliminate “abuse of shareholders” through excessive salary packages.

Perhaps we should require health care insurers to be “mutual” companies, or maybe “network” doctors should not be allowed to bill patients for amounts above what the insurance actually pays. Maybe the annual deductible could be dealt with differently without increasing premiums.

We can tax for-profit hospitals higher to encourage more non-profit care facilities; we can keep doctors, insurance and drug companies from owning hospitals; we can cap jury awards for medical malpractice or error, and we can give tax relief to medical practitioners who provide free health services to the indigent and uninsurable.

But the government’s efforts to redefine insurance are counter-productive. As cold as it may sound, if we make insurance companies cover pre-existing brain tumors, the expense is coming out of your pocket in the form of higher insurance premiums or higher taxes— and it’s likely that the healthiest among us will be the ones paying the increased taxes.

The White House list of reforms, every one of them, would increase insurance company costs and our premiums while doing nothing to reduce the price of the medical services we receive. They only sound good to those who do not understand insurance.

Insurance is designed to pay the bills— reforms need to make the bills smaller for everyone. Does this plan cut any costs, or just increase insurance premiums for those who will still be able to pay them?

Group health (and even dental) insurance is a benefit used by many employers to attract and retain employees. I’ve heard rumors that the reform plan will tax employers who don’t provide insurance and tax those employees who receive the benefits. True or not, neither approach helps the economy or reduces health care expenses— both raise taxes for everyone.

Insurance can only be made more affordable by reducing the costs of the healthcare that is provided. Let’s focus on streamlined record keeping, controlling ambulance chasers, jury awards, drug company advertising, an army of lobbyists, and industry conflicts of interest.

We should also make all government employees, from the top down, dance to the same tune as the rest of us— that’ll do away with the tax on benefits. Then, next chance you get, do away with an incumbent.

About the author
Steve Selengut
Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”