The Tycoon Report

Makes My Blood Boil

Monday, June 25, 2007 | Wayne Mulligan

Today I want to talk to you about something that really makes my blood boil – I mean seriously gets me angry to the point where I want to become physical with somebody…

But before I get into that I’d like to apologize very quickly.  Today was supposed to have been the day the new Tycoon Report web site was launched.

However, we ran into some unexpected technical difficulties over the weekend and therefore had to push our debut back by a day or two.  But I assure you, you’ll be receiving an announcement from me within the next 48 hours when the site is ready for the public.

You’ll be happy to know that the site is coming along better than expected and we already have several great articles that other Tycoon readers have prepared for you – I always knew smart people read this newsletter, but I’m really surprised to see how much investing and writing talent is out there.

Let me just say that you’re in for a big treat once the site is ready!

So now back to my story…

Just this weekend I decided to head out to my grandparents house for some dinner – I love my grandmother’s meatballs – and it seems like every time I’m out there they want me to look at their brokerage account statements.

When I was a broker I used to manage some of their money but they had most of their retirement assets invested with a bulge bracket bank.  However, due to the fact that I don’t want to get sued, that bank will remain nameless.

Being that he managed the vast majority of their retirement assets it’s pretty obvious that his objective for their account should’ve been “preservation of capital”.  Meaning, he should’ve been trying to keep their account fairly stable – try to stay away from volatile investments.

For the most part they held a lot of bonds, mutual funds, etc.

Like I said, every time I’m there they have me look at their account statements anyway, just to see how “stable” their account is I guess.

So I’m going through the usual set of mutual funds and bonds, not thinking much of anything until I come across a shocking site…something I’d never thought I’d see in my grandparent’s retirement portfolio…ever!

Their broker had recently put close to 15% of their assets into tech stocks!

And while I’m a huge proponent of the tech sector overall, for a couple in their late 80’s, that’s just criminal!

Why on earth would my grandmother and grandfather, who live a relatively comfortable life in retirement, need to be involved in high growth stocks?

Answer:  They wouldn’t, but I’m sure their broker convinced them they should.

And that’s what kills me – I know they didn’t call him up one day and go, “Hey, we’d like to really roll the dice this quarter…put us in some high-flyers that can show us a triple-digit return in a few months!”

Quite frankly, they don’t need the money and they don’t even like “the action.”

This guy called them up and pitched them to get involved in these companies for some reason or another.

Bottom line is – if your relationship with your broker consists of a one-way dialogue (in other words, a monologue) where he or she just tells you what to buy, then you’re in a dysfunctional relationship with your broker.

That’s what needs changing in this industry more than anything else – the communication between advisor and advisee needs to become more of a conversation and less of a dictation.

Brokers should be educating their clients and clients should be asking for an education.

But then again, if that were the case then we’d probably be out of a job.

Well, that’s about the end of my rant for the day.  Needless to say my grandparent’s broker will be getting a call from me in a few hours at which time he’ll get the same rant you were just subjected to.

Have a great week, and keep your eyes peeled for the announcement about the new site launch – you won’t want to miss it!




Wayne Mulligan
Contributing Editor
The Tycoon Report


 MARK YOUR ECONOMIC CALENDAR – What's ahead for the week of June 25th

Monday, June 25th, 2007
10:00                Existing Home Sales: Consensus 6.00M
Big Picture: Home resales reached a three year low in March and a lower level in April.  The weak sales pace left a 8.4 month supply of inventory -- a new  cyclical high.  But lower mortgage rates and prices help improve affordabiity and demand as median prices have risen the last three months to leave an annual decline of just -0.8%.   Existing sales include condos/coops which make up about 1/8 of the total.  The National Assoc of Realtors expects existing home sales to bottom in the second quarter -- they may be too optimistic.  The upturn will be slow as sub-prime foreclosures add to already bloated inventory.

Tuesday, June 26th, 2007
10:00                Consumer Confidence: Consensus 106.0
Big Picture: The index reached a five and a half year high in February and stands -3% lower in May.  The recent equity gains and the tight labor market support confidence despite the weak economy and rising gasoline prices.  The index continues on a upward longer term path.  Conference Board's survey is far larger and more business heavy than the household-heavy Michigan sentiment index.  The index is presumed to provide an early read on consumer spending which is far better previewed through interest rates and income growth.
10:00                New Home Sales: Consensus 925K
Big Picture: New home sales reached a low in March and rebounded 16% higher in April.  The warmer spring weather and an expected boost from New Orleans have provided the lift after very weak first quarter sales.  The National Assoc of Realtors expects new home sales to trough in Q4.  Prices have been swinging wildly as an -11% yoy decline in April compares to the 8% yoy rise in March.  Inventories have fallen off the 8.1 month high in March.  Still waiting for signs of improving demand for residential investment to provide a delayed lift to new construction given the large supply of inventories.

Wednesday, June 27th, 2007
8:30                Durable Orders: Consensus -1.0%
Big Picture: Durable goods order growth has returned to an annual gain (3.1% yoy) after yoy declines in February and March.  The stall tied to weak capital investment appears to be improving as flush corporate balance sheets, high capacity use and rising exports remain strong underlying factors.  The downward effects from autos and housings continue.   Inventory downsizing adds to the weaker demand but appears well along its path.  Recently stronger manufacturing production and the annual high in the ISM index show signs of improvement which Briefing.com expects to continue.

Thursday, June 28th, 2007
8:30                 GDP-Final: Consensus 0.8%
Big Picture: Q1 leaves the last four quarters with average growth of just 1.9% as the Fed targets sub 'potential' growth (3%) to cool inflation pressures.   The forward risks appear to be fading as business investment shows signs of stronger growth as the housing sector decline is expected to fade over the year.  Consumer spending will remain strong given full employment and moderate income growth but will fall off the strong 4% pace of the last two quarters.  Inventories are currently overbuilt but the recent drawdown shouldn't leave a large further adjustment.  Stimulative fiscal policy contrasts with restrictive monetary policy as economic growth has softened but remains self-sustained.  Inflation risk comes from food and energy prices as the core edges lower.  Little slack in the economy and  remaining inflation risks are the Fed's concerns.

8:30                 Chain Deflator-Final: Consensus 4.0%
Big Picture: Q1 leaves the last four quarters with average growth of just 1.9% as the Fed targets sub 'potential' growth (3%) to cool inflation pressures.   The forward risks appear to be fading as business investment shows signs of stronger growth as the housing sector decline is expected to fade over the year.  Consumer spending will remain strong given full employment and moderate income growth but will fall off the strong 4% pace of the last two quarters.  Inventories are currently overbuilt but the recent drawdown shouldn't leave a large further adjustment.  Stimulative fiscal policy contrasts with restrictive monetary policy as economic growth has softened but remains self-sustained.  Inflation risk comes from food and energy prices as the core edges lower.  Little slack in the economy and  remaining inflation risks are the Fed's concerns.

8:30                 Initial Claims: Consensus NA
Big Picture: Initial claims had been following a subtle upward trend which has again been challenged with the recent low levels.  Aberrations are watched for clues on the labor market and economy as the recent levels reflect an even tighter labor market.  Continued claims also falling off its highs.  Claims provide a nearly real time read on layoffs and the labor market as the low 4.5% unemployment reflects the broader read of layoffs and hiring.

Friday, June 29th, 2007
8:30                 Personal Income: Consensus 0.6%
Big Picture: Consumer spending averaged 4.3% in Q4 and Q1 as the drop in energy prices left fuller pockets and less drag from the inflation deflator.  The pace softened in March and April as higher gasoline prices provide the opposite effect.  While we expect spending to run at a more moderate 3% pace it is the key factor for economic growth given its dominant weight (70%) in GDP.   Strong employment and income growth provide underlying support.   The Fed's favored core PCE price index fell to 2.0% yoy in April -- the upper end of the Fed's 1% - 2% "comfort zone".

8:30                 Personal Spending: Consensus 0.7%
Big Picture: Consumer spending averaged 4.3% in Q4 and Q1 as the drop in energy prices left fuller pockets and less drag from the inflation deflator.  The pace softened in March and April as higher gasoline prices provide the opposite effect.  While we expect spending to run at a more moderate 3% pace it is the key factor for economic growth given its dominant weight (70%) in GDP.   Strong employment and income growth provide underlying support.   The Fed's favored core PCE price index fell to 2.0% yoy in April -- the upper end of the Fed's 1% - 2% "comfort zone".

8:30                 Core PCE Inflation: Consensus 0.2%
Big Picture: Consumer spending averaged 4.3% in Q4 and Q1 as the drop in energy prices left fuller pockets and less drag from the inflation deflator.  The pace softened in March and April as higher gasoline prices provide the opposite effect.  While we expect spending to run at a more moderate 3% pace it is the key factor for economic growth given its dominant weight (70%) in GDP.   Strong employment and income growth provide underlying support.   The Fed's favored core PCE price index fell to 2.0% yoy in April -- the upper end of the Fed's 1% - 2% "comfort zone".

9:45                 Chicago PMI: Consensus 58.0
Big Picture: The index rebounded to an annual high of 61.7 in March and returned in May after holding below 49 (in contraction) in January and February.  A volatile regional measure reflects the stronger outlook as business investment refires and the fading downward effects from the auto and housing sectors.  The manufacturing sector moves in sharper cycles than the overall economy and the regional measures move in even shorter, more volatile patterns.  Briefing.com expects the mid-expansion stall will be just that with stronger capital investment as 2007 progresses.

10:00                 Construction Spending: Consensus 0.2%
Big Picture: Vastly different factors driving the 3 components of construction spending:  residential, business and public spending.  Business structural investment has surged over the last year and leads the components in yoy growth at 16%.  The plunge in residential spending is lightening as the yoy decline stands at -14%.   Public spending is motoring along at 9% yoy.  Residential provides about  half the weight in the index and leaves the overall measure in decline at -2% yoy. 

10:00                 Mich Sentiment-Rev.: Consensus 84.0
Big Picture: The push to a two year high in January was largely tied to the drop in gasoline prices as equity prices may have helped in May.  Fears about housing, higher gasoline prices and now higher interest rates are partly offset by the strong labor market.  The University of Michigan survey is significantly smaller (500 phone calls, just 250 in preliminary) than the Conference Board's, includes a longer outlook (for expectations) as questions are focused on the household compared to the business heavy CB survey.  The index far better tracks the consumers' mood than spending habits better indicated through interest rates and  income growth.
(Source: www.Briefing.com)