Twenty-five years ago, without a high school diploma or even a day’s worth of training, I found myself working as a stockbroker. I know that sounds hard to believe, but it’s the God’s honest truth. My last job before entering The Street was as a warehouse manager where I stacked boxes, oversaw inventory, and managed a few employees. But on my own time — lunch break, at night, and any minute I could eek out in between – I studied the markets. The whole Wall Street phenomena fascinated me, which lead me to start an investing club that grew to over 100 members. That’s where I was “discovered” by an honorable man who owned a NYSE-member brokerage firm. At the ripe-old-age of 28 I took my self-taught financial acumen and entered the stock biz.
Unfortunately, this newbie salesman/broker stunk at the very lifeline to building a book of business: cold-calling. One hang-up and I was done for the day. Thankfully, my boss published an investment newsletter and suggested I try one, too. I had demonstrated some decent analytical skills and he thought that by putting my views in writing I might overcome my horrific phone talents. That’s how The Grandich Letter began.
The early letters were little more than my thoughts typed (as in, from a typewriter) on pieces of paper, mimeographed and given to mostly prospective clients
As they say, “one thing led to another,” and here I am twenty-five years later having spent those years in and around the financial industry. I spent far too much of that time being a legend in my own mind and turning the Ten Commandments into the ten suggestions. [You can read more about my background in my upcoming book, Confessions of a Wall Street Whiz Kid, to be published in 2010.] I had a couple of bouts of depression, one that took me to an eight count. Thankfully, through the Grace of Almighty God, I’ve been blessed by them and so many angels placed in my life that I’m living proof that Romans 8:28 is true: “We know that all things work for good for those who love God, who are called according to His purpose.”
Almost not a day goes by without me seeing why God put up with such a wretch like me. The knowledge He blessed me with was not to make my world a better place but to take the financial knowledge and trials I’ve lived through and share them in both my business and spiritual life. His manual for life, the Holy Bible, contains more versus about matters of money than just about any other topic. Thanks be to God, my selfish nature didn’t destroy me before I had an opportunity to see the true meaning of money and how God calls us to live with our finances.
This month is also the first anniversary of my newsletter becoming a blog through a working relationship with www.agoracom.com. It, too, has been a God-send, as it has taken my God-given abilities to a much faster and effective means of communication. It’s also allowed me to greatly expand my love of the markets and to share my views with a larger and larger global audience. While I’m extremely grateful for the performance, I know in my heart of hearts this sinner could never achieve this if the Creator of all things that are good didn’t allow it to happen. Praise God!
WHERE ARE WE?
“The distinction between the past, present and
future is only a stubbornly persistent illusion.”
- Albert Einstein
When I think back to my early years as a financial adviser, I quickly conclude how little I really knew. Experience is truly a great teacher. Unfortunately, some clients and readers back then must have paid for my learning experiences. That’s just one of the dark sides to the financial services industry. Proven experience is really a premium and, like anything that’s especially good, it usually comes in quality, not quantity.
One of the finest gentlemen I ever met in my professional life was newsletter writer Kennedy Gammage. I looked up to him like a father and he treated me like a son. He was a superb market forecaster and had a saying I adopted in order to remind myself and others about the realities of being a soothsayer: “Those of us who live by looking into a crystal ball end up learning how to eat broken glass.”
At best, someone like me can make a better “guess” and maybe be right more times than others. But not only do we put one pant leg on a time like you, we really don’t know the future. Only God does and I’ve come to think He must have a heck of a sense of humor knowing how us so-called soothsayers fumble and stumble our way to prosperity.
With this in mind, let’s do the easy part first – look in the rear view mirror. Take note: in order to move forward, one must first look in the mirror to see if the coast is clear.
It was just about two years ago when I made what so far is my most dramatic forecast in 25 years. On October 14, 2007, I issued a “Man Your Battle Stations” alert. I said to sell all stocks except those related to precious metals and shorted the U.S. Stock Market. This alert was hard for some to fathom since the DJIA had just made an all-time high only two days beforehand.
2008 would be the best year professionally for me but my worse year personally. Outside of sticking with junior resource stocks that got killed with the rest of the markets, my performance among many different markets was never better. Yet, shortly after celebrating the NY Giants winning the Super Bowl, I became so ill that taking my own life was a consideration. For six months I was in the battle of my life all the while seeing just about every forecast and recommendations do so well.
By September of 2008, the financial markets were facing the abyss. But for me, as quickly as my illness came, it went. Fortunately for me and the markets, we were both saved –again!
There’s good and bad news in all of this. The good? After 53 years, I finally get it. I’ve managed to learn how to spell H-U-M-B-L-E (by now I’ve got the H-U-M down, but do we ever really get the whole word?) The bad? It appears that despite visiting the edge of the abyss, Americans, as both a nation and as individuals, have not greatly changed their ways.
I believe we’re in the “eye of a storm.” To many, what we faced a year ago may seem like it’s gone, but the sum total of our many years of fiscal and political irresponsibility hasn’t even really begun to take its toll. Sadly, actions some hail as lifesavers will, IMHO, actually make our future worse.
After twenty-five years of providing advice, I can tell you there are only two types of advisers:
• Those who say what they think (even if it’s unpopular); and
• Those who say what they think you want to hear (and it sells).
One would think the world would flock to the former since most advisers are the latter. Unfortunately, there’s a serious bullish bias built into the financial services industry which I have coined the “Don’t Worry, Be Happy” crowd. I’ve compared these folks to a realtor who, after being tossed off the top of the Empire State Building, exclaims the whole way down, “So far so good!”
In my opinion, this bullish bias has led tens of millions of Americans to see their lives forever changed for the worse. Why? Because even if your financial advisor had the foresight to suggest selling just about everything two years ago, his or her employer would frown on such a suggestion. And, due to the advisor’s own financial needs (specifically, the fact that he/she only makes money when you’re investing with him/her), they would likely not be in a position to advise you to do so. Even if your advisor had suggested such a thing (assuming he or she was in the small minority of those who could still survive with little or no business), the sad fact is you probably would not bring yourself to sell because there’s a horrific bias that has us all of the mindset that you have to be “in it to win it.”
Before I talk about where we may be heading, I want to drive home one of the most important facts, IMHO, about investing. I’ve learned it the hard way more than once and seen so many fail because they couldn’t grasp it: the ultimate crime in investing is not being wrong, it’s staying wrong!
It’s critically important that you realize these are not ordinary times. What is unfolding before our eyes didn’t just pop up a couple of years ago. The ever-increasing amount of social, economic, political and spiritual difficulties facing us were seeded years ago and have been festering for years. For more than a year before the DJIA reached its all-time high in October of 2007, I was hammering the same line: that “Americans have been robbing Peter to pay Paul, and Peter is tapped out.” To drive the fact home, I embraced a man who I said was a true financial wizard and his campaign to warn America was the single most important thing investors needed to hear. I used this interview of his for many months afterwards, hoping to get listeners to realize exactly how bad things really were. Sadly, David Walker turned out to be absolutely correct. His latest video is yet another critical piece of information every single American needs to hear and grasp. I believe David Walker is a 21st century prophet.
To answer my own question, we’re in the eye of the greatest social, economic, political and spiritual storm ever to hit America. While the “Don’t Worry, Be Happy” crowd has given the “all-clear” signal, IMHO we’re just months away from seeing the other side of the storm. The fact that little or no real changes have taken place during the lull comes as no surprise to me. I find most Americans just “hoping” things get better. While hope is a tremendous gift from God, it’s the worst investment strategy and is employed by far too many investors and professionals alike. In the end, there are only three types of investors:
• Those who make things happen,
• Those who watch what happens, and
• Those who wonder, “What happened?”
Which one will you be?
“A pessimist is an optimist with more information.”
Just six months ago, investors on all levels were not even opening up their brokerage statements out of fear and disgust. Now, many of those same people are aggressively back in the markets. Sadly, like 9/11, the near financial meltdown is now being treated like a one-time event. The vast majority of professionals and investors alike are acting as if what took place was just a hiccup and not the plague many first feared. To those people I write an old phrase to be taken out again down the road: “Fool me once, shame on you. Fool me twice, shame on me!”
While being a perma-bear can be financially rewarding if you peddle hard assets, dry food, guns and ammo, cabins in West Virginia, etc., by and large it’s far more profitable and palpable to wear a perma-bull suit. Don’t believe me? Okay, turn on the TV or read a financial publication and tell me where just one perma-bull was taken to task for missing the biggest financial crisis in our history? Go ahead, I’ll wait…
The fact is, many of the very same people who are pounding the table to buy, buy, buy, and pounded the table in 2007, 1997 and so on, are still at it. Despite all the hoopla that “buy and hold” was given throughout the 1990s and again in the first seven years of this decade, stocks have greatly underperformed. What’s even more critical and almost never discussed (for fear the reality of it would kill the golden goose) is how much purchasing power has been lost by following these Pied Pipers. The tens of millions if not hundreds of millions who were sold this myth of buy and hold now see their retirement, child’s college education and their very lives in jeopardy because of it. Yet those very same people who led them astray are once again leading the sheep to slaughter. Like I said, fool me once…
“It’s better to be a live chicken versus a dead duck.” That’s the motto I proudly wear until further notice. Despite what the “Happy” people would like you to believe, these aren’t ordinary times. We didn’t just have an “ordinary” recession. We’re not experiencing an “ordinary” rebound. America is no longer the extra-ordinary economic power it once was.
In fairness to the Obama administration, America’s economic, social, political and spiritual crisis didn’t begin on January 20th. No one party is the cause and Americans themselves are all part of the cause. We’re a nation that has lived way beyond its means and can’t now just pay the bill and move on. There’s no magic cure. The longer we avoid the painful truth and avoid taking harsh measures, the tougher and harsher it will be when we finally realize there’s no other choice.
TOPICS OF CONCERN
While I have more concerns than Carter has liver pills, I’m going to focus just on a few main ones.
“I must say, I never expected to see the day
where I would be talking about anything
other than reducing the debt,
I’m running into the tyranny of zero,
which is where you can’t reduce (the debt) anymore.”
- Allen Greenspan
This comes from a man who many considered the second most powerful man in the world when he headed up the Federal Reserve. His predecessor took the baton and has greatly supported the greatest single period of expanding government debt in America’s history.
For many months now, I have encouraged people to watch this video hosted by one of my American heroes, Mr. David Walker. In 30 minutes, Americans can see not only how we got into this mess but what the ramifications can be if we don’t make the tough choices ASAP. Sadly, we’ve added another trillion or so to the bill since this video was made. America has become debt obese. Tragically, our current powers-that-be decided we could spend our way out of debt, which has only compounded the problem.
While much of our daily economic concerns centered on the national front, our state and local governments are hurting big time. California, one of the biggest economy’s in the world, is up a creek without a paddle.
Numerous other states are not that far behind.
Ironically, the one area the Obama administration spoke about in its earliest days as a means to stimulate and repair America, infrastructure, is literally crumbling all around us.
When I started in the brokerage business 25 years ago, I was told that if I wanted to be successful, there were three topics never to discuss:
• Politics
• Religion
• And other men’s wives
As a sinner who took the Ten Commandments and turned them into the ten suggestions, I ignored this advice as well from the get go. Like it or not, social, political and spiritual matters will impact your finances and must be spoken about no matter how politically incorrect it may seem.
A recent Pat Buchanan article shared many views similar to mine. A great divide is underway and to deny it would be equal to sticking our head in the sand – an event the “Happy” people specialize in.
The single greatest world event of our time is underway and almost no one in the financial community is remotely prepared for its consequences. It’s the ultimate politically incorrect belief I could discuss here but I believe it’s such a “game changer” that I’ll take the heat it will undoubedly bring by some knowing those who grasp and act on it will put themselves miles ahead of the pact. I first spoke about it in this past blog posting.
This world demographic shift will have profound impact on all aspects of life but as usual, the financial services industry either doesn’t know of it or if it did, wouldn’t dare discuss it fearing sales losses.
A must watch and buy video.
Last, but certainly not least on the geopolitical side of things is what I believe is the inevitable military attack by Israel against Iran that will be part of a dramatic ratcheting-up of violence in the Middle East. At the end of the day, Israel can’t allow Iran to possess a nuclear bomb. The “fall out” from them attacking Iran is far more palpable to them than knowing a madman who has called for their destruction has his finger on the button. This thinking is also politically incorrect but sadly it’s a question of when, not if, the Middle East dramatically impacts the financial markets.
No group of Americans has been more negatively impacted than seniors. The ability to live off interest rate-driven products has fallen so low most can no longer stay ahead of costs. Their assets have taken a big hit as well, thanks to the swoon in the stock and real estate market. And now their last “peace of mind” is being debated away as inexpensive and high quality medical care is no longer a certainty at a time when everything else around them is going against them. For the first time in America’s history, there are now more people over the age of 65 than there are people under 18. I believe as it becomes clearer that the only way to truly begin to put a dent in the unfunded liabilities of Medicare and Social Security is for the government to pay less and less, many seniors and their families will be facing some extremely challenging issues. Also, since seniors control most of the wealth in the nation and are very concerned about everything around them, look for them to become far more conservative in their investments. An aging population is yet another not if, but when big factors the world is not yet prepared to face.
Bottomline –
While America has backed away from falling into the abyss, it’s still dangerously close. Little or no real separation has taken place and even Regis Philbin has no more lifelines to save America. The sooner you accept your Uncle Sam for what he has become the better.
U.S. STOCK MARKET –
For many weeks now, I’ve spoken about a mini melt-up for U.S. Stocks. As more and more professional money managers and public-at-large conclude the market is getting away from them, the more convinced they should become that they must buy no matter how they truly feel about things. The media will fuel this thirst as we go through DJIA 10,000, which could allow us to get for my long awaited next great selling opportunity somewhere between 10,500 – 11,000. It was just about two years ago when I last issued a major sell. If we’re fortunate to get to this area, I don’t think we will then see a sharp fall like two years ago. Rather, a long sideways to down trend that I believe can last for years and leave us with a trading range of 6,500 to 11,000.
FOREIGN MARKETS –
I continue to find investors in North America way over-weighted in U.S. equities and grossly underweighted in foreign equities. You can never say definite or almost certain, but I find it very hard to imagine that U.S. equity markets can rise while markets like the BRIC and others don’t. I do believe it’s quite possible for the reverse. The worst case is they both go down but the U.S. should be among the worst performers.
U.S. BONDS –
I believe this report is a very accurate description of what has kept U.S. interest rates artificially low. I think it’s financial suicide to buy 10-yr. treasuries at 3.17%. Keep maturities very short.
U.S. DOLLAR –
Despite a few attempts to break above the top of a well-defined down channel, the horrific number of bearish fundamentals continues to bleed the dollar lower and to my long-term target of 70 on the U.S. Dollar Index.
PRECIOUS AND BASE METALS –
I continue to favor precious metals over base metals but believe both can be part of a portfolio. Gold remains in a secular bull market where, as previously noted, $1,000 will become the floor and not the top. Bear raids will remain a part of life but the great anti-gold crowd has forever been shown for what they really are: a paper tiger.
OIL –
We’re awash in it but a weakening dollar and for now a continuing uptrend in the stock market, continues to support oil. I do believe it’s only worth below $60 and continue to avoid any positions – bullish or bearish.
NATURAL GAS –
Has seen its low but looks like it can face heavy resistance above $6 for the foreseeable future.
Model Portfolio – It’s been an incredible first year for our blog and the result so far of my model portfolio.
On the open positions as of 10/7/09, 21 are up, one is down and one is flat. The average net gain is 46% in just a 6 month holding period (92% annualized).
There are currently 31 closed positions. 28 were profitable, two were not and one was flat. The average net gain was 41% in just a 3 month holding time (164% annualized gain).
Please note due to the inherent bias, I don’t include clients of ours in our model portfolio. Because Northern Dynasty Minerals and Taseko Mines weren’t clients when they were originally recommended, I chose to leave them in the model portfolio.
AND FINALLY…
Earlier today my good friend NFL Wide Receiver Chansi Stuckey was traded from the NY Jets to the Cleveland Browns. I know Chansi is really hurt by this as he absolutely loved the Jets, his teammates and being in this area. For me it will be a big loss not to see that energetic smile and willingness to help others leave the area but our loss will be Cleveland’s gain. God Bless you “Stuck”!
Having CNBC-TV as the world’s largest slaughtering house for pigs is more than enough.
Left – Grandich and Bruney Right – Grandich and Feely 
Even when he’s thrown a bone (technical buy on deeply oversold condition) he can only manage a feeble rally so far. Now we know what walking dead really looks like.