You may be wondering why Ben Schott, our fearless Tycoon Editor, who usually writes to you on Mondays isn’t writing to you today.

Well, there’s no easy way to say this but Ben is going through a very tough time right now.  His mother is extremely ill and he’ll be taking the next few weeks off from the Tycoon Report to deal with family issues.

The only thing we ask is that you extend your prayers to Ben and his family in their time of need – he’s not only part of this company, he’s part of our families as well.

For the time being I’ll be taking over some of Ben’s responsibilities. One of which is to write to you every Monday morning.  It’s extremely coincidental that this shift in responsibilities happened just now because we had recently made another important decision about the Tycoon Report.

Not only will I be writing Ben’s weekly column on Mondays, I’ll also be writing my usual “Wednesday” article on Mondays too.  So from now on you’ll get to hear from me twice in one day – don’t be too disappointed though, Ben will be back before you know it.  :)

But in all seriousness, I want to talk about something very important today.

Now I know that none of us here at Tycoon have ever promised you anything with respect to investing.  We’ve never given you any sort of guarantee.  But I’m going to do that today – I’m going to give you a rock solid guarantee.

I guarantee that we will do anything and everything in our power to supply you with the right tools and the right sources of information that will help you make the most informed investing decisions possible.  And I also guarantee that if you’re willing to take those tools and put in the required work then you’ll become a better educated, and in turn, a more profitable investor.

Now that may lead you to ask , “Isn’t that what the financial services industry is here for – to help us invest our money more wisely?”

Well, that’s what it should be here for, but alas things aren’t always how they should be.  So I’d like to talk about why we need to drastically reinvent the financial services industry.

Reshaping an Industry

And by “financial services” I’m referring to anything that has to do with advising people on how to manage their money.  Throughout the industry there are some serious issues that need to get resolved.

Here are the main problems with the financial services industry as I see it:

1.    Broker/Client Interests are NEVER Aligned

You may be asking, “Well if I make more money doesn’t my broker make more money?  And isn’t that good for the both of us?”

Theoretically, yes.  However, as long as an adviser is paid based on the number of trades you make or the amount of money you keep in your account then he or she is NEVER motivated to do well for you. 

They are not paid based on how well your stocks perform – whether or not your account goes up or down they still get paid a commission every single time you buy and sell a stock.

That’s like having a car mechanic who gets paid for the number of times he fixes your car – he’ll just make sure it stays broken for as long as possible and will continue to steal your money!
 
2.    It’s Never About Making You Wealthy

The other thing to realize is that the people who work on Wall Street don’t want you to become insanely wealthy.  If that happened then there’s a chance you’d leave them.

There’s a chance you’d stop playing the game.

So why would they try to make you wealthy?  Answer:  they won’t!

Instead they feed you products like Mutual Funds and Index Funds so you’ll just mimic the market and do average!  Not good, not bad, just average.

3.    They Always Keep Control

And one of the biggest scams that Wall Street has going for them is that they convince the investing public that investing on their own is dangerous.  They convince everybody that in order to do well you need an army of analysts and bankers to tell you which stocks are good and which stocks are bad.  Then, and only then, can you profit in the market!

If that were the case then why do most Mutual Funds have a tough time beating the market?  And on the flipside of that argument, why does the most successful investor in the history of the world have an office of only 8 people?

Bottom line:  There’s no good reason why you can’t do just as well investing on your own if you equip yourself with the right information!

Blurring The Line

As you can see there’s a serious problem in this business – there’s always a clear line in the sand: “you” and “them”.  It’s never “us”.

We need to change that and we need to change it fast.  We need to come up with a way where you and those you take advice from are sitting on the same side of the table.

The only way that gets done is if we change the nature of the client-advisor relationship – it can no longer be a “one way relationship”, it has to become a relationship of reciprocation, a “two way relationship”.  Let me explain what I mean…

As of right now what happens when you buy a stock? 

Your broker calls you (or vice versa) and rattles off a couple of stocks – you pick the one that sounds best and you buy it.  That’s a one directional relationship – your advisor pushes information toward you.

Now, think about it this way – what if you could sit down at the same table as your advisor and have him teach you his process for digging through stocks?

Well, we know that would never happen due to the reasons we talked about before – if they gave away the “secret sauce” then you wouldn’t need them anymore.  If they showed you how to invest, then you could go off and do it on your own.

Well, for most established companies in this industry that logic makes a lot of sense – it wouldn’t be in their best interests to make you a great investor.  It would be in their interests to make you dependent upon them.

Tycoon has a distinct advantage here and that’s why our perspective on the situation is dramatically different from most.  Our business isn’t predicated upon keeping you under our control.

Learn to Fish

Do you know the old saying, “You can give a man a fish and feed him for a day, but if you teach him to fish you feed him for a lifetime”?

Well we operate under the same premise – we’re trying to teach you how “to fish”.

And the better you become at fishing the more successful you will be.

And that’s what our new mantra is at Tycoon:

 “To educate and to empower investors”

So we’ve been working day and night over here trying to do that for you.  We’ve tried to make the Tycoon Report the most comprehensive free newsletter on the market.  We’re drastically overhauling our website and are in the process of putting the finishing touches on some exciting new features.

We Need Your Help

And now we’re reaching out to you!

We want to know what you’d like to see here.  And I don’t mean the usual suggestions like “more stock recommendations.”  Because at the end of the day listening to our recommendations won’t help you one bit down the road.  You need to arm yourself with education and information because information is power!

So think about it before telling me your answer – would you like a specific type of education product?  Would you like to hear one of the editors go deeper into one of the articles they’ve written?  Would you like a new area on the web site that can help you find better information? 

Whatever it is, think it through and let us know.  We need you to help make Tycoon better for us all!

We’ll have some very important announcements next week with respect to this new mission so be sure to keep your eyes peeled.

Have a great week!




Wayne Mulligan
Chief Investment Officer
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Tuesday, June 12

14:00 - Treasury Budget (for May): Consensus -$60.0B

Big Picture: Strong tax receipt growth continues to lead the path toward lower deficits given the stronger economy, profits and income growth.  Spending remains stronger than desired (6% yoy growth over the last year) as fiscal discipline is needed.  The FY05 improvement sliced away a quarter of the record $413 bln FY04 deficit as FY06 sliced away another $71 bln.  FY07 has already sliced $103 bln through April as the 12 month total of -$145 bln may be a better estimate for the FY red ink than the dated CBO and White House estimates.  Spending restraint is needed to continue to slim the budget.

Implications: The monthly Treasury budget data follow strong seasonal patterns which produce huge month-to-month fluctuations in the deficit.  These fluctuations tell us little about long term budget trends.  To the extent that the market analyzes the monthly Treasury data, the focus is on year/year changes in receipts and outlays, since the data are not seasonally adjusted.  Only in April, the most important month for tax inflows to the Treasury, does the market pay any attention to this report.  The data can be predicted with reasonable accuracy by using daily data in the Daily Treasury Statement.


Wednesday, June 13

8:30 - Export Prices ex-ag., Import Prices ex-oil (for May): Consensus NA

Big Picture: Import prices are decelerating partly due to the effect from petroleum prices and the prices from the Pacific Rim, which show declines from a year ago.  Export prices are on the rise as agricultural (19% yoy) and food prices reflect the increased demand for grains that are now being increasingly used as alternative fuels.

Implications: Economists typically look at import prices excluding oil and export prices excluding agricultural.  In each case, the category in question is excluded because prices for those items are volatile and the swings are unrelated to foreign exchange rates.  Oil prices tend to swing in response to OPEC decisions, and agricultural prices are often affected by weather, neither of which say much about long-term trends in traded goods prices.

8:30 - Retail Sales (for May): Consensus 0.6%, Retail Sales ex-auto (for May): Consensus 0.7%

Big Picture: Retail sales are slowing under the weight of a high Fed policy rate as the current rise in gas prices again drags alternative sales.  Strong retail sales growth had been fueled by low interest rates, vehicle discounting and mortgage refinancing, as those forces faded in late 2005 and 2006.  Despite the improved employment and income growth, the Fed tightening and high energy prices have had a deflating effect on consumer spending and big ticket durable goods purchases particularly.  Strong income growth and low unemployment provides support, and is the best read on the future sales pace.

Implications: The retail sales report is a measure of the total receipts of retail stores.  The changes in retail sales are widely followed as the most timely indicator of broad consumer spending patterns.  Retail sales are often viewed ex-autos, as auto sales can move sharply from month-to-month.  It is also important to keep an eye on the gas and food components, where changes in sales are often a result of price changes rather than shifting consumer demand.

10:00 - Business Inventories (for April): Consensus 0.2%

Big Picture: The inventory to sales ratio stands at 1.27 months from the record low 1.24 months in January 2006, as inventory gains (5% yoy) compare to a 4% yoy rise in sales.  Expect a continued slow pace of inventory growth (a lower I/S ratio) to modestly slow production.  The long trend toward smaller I/S ratios and the tighter range leaves less effect on economic growth.

Implications: The inventory-to-sales (I/S) ratio measures the number of months it would take to deplete existing inventory at current sales rates.  A relatively low (high) I/S ratio may mean that manufacturers will have to build up (draw down) inventory levels.  Depending on the strength of final demand and the degree to which recent inventory changes have been intended or unintended, this can have an effect on the industrial production outlook.  Note that this information is much more useful to market economists than it is to other market participants.


Thursday, June 14

8:30 - Initial Claims (for 06/09): Consensus NA

Big Picture: Initial claims had been following a subtle upward trend, which has again been challenged with the recent levels.  Aberrations are watched for clues on the labor market and economy, as the recent level reflects an even tighter labor market.  Continued claims is 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.

Implications: Initial jobless claims measure the number of filings for state jobless benefits.  This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signalling slowing (accelerating) job growth.  On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four week moving average to get a better sense of the underlying trend.  It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.

8:30 - PPI (for May): Consensus 0.5%, Core PPI (for May): Consensus 0.2%

Big Picture: September 2005 PPI growth of 6.9% yoy stood at a 15-year high and has more than halved to 3.2% yoy currently.  The core stands at 1.5% yoy from July 2005's decade high of 2.8%.  The stronger pipeline pressures of the last year are not providing much lift to finished goods as energy prices and now food prices provide the volatility.  The directional trends for goods-based producer prices have turned toward lower yoy growth and hardly contribute to the service-based pressures in consumer prices.

Implications: The Producer Price Index measures prices of goods at the wholesale level.  There are three broad subcategories within PPI: crude, intermediate, and finished.  The market tracks the finished goods index most closely, as it represents prices for goods that are ready for sale to the end user.  Goods prices at the crude and intermediate stages of production often provide an indication of coming (dis)inflationary pressures, but the closer you get to crude goods, the more that these prices track commodity prices which are already available in traded indexes such as the CRB (Commodity Research Bureau).  At all stages of production, the market places more emphasis on the index excluding food and energy, referred to as the core rate.  Food and energy prices tend to be quite volatile and obscure trends in the underlying inflation rate.  Though the market reaction is determined by the month/month changes, year/year changes are also noted by analysts.  The index is not revised on a monthly basis, but annual revisions to seasonal adjustment factors can produce small adjustments to past releases.


Friday, June 15

8:30 - CPI (for May): Consensus 0.6%, Core CPI (for May): Consensus 0.2%

Big Picture: The core rate of consumer inflation reached a decade high of 2.9% yoy in September and has eased off to 2.3% yoy in April -- in line with the Fed's 'comfort zone'.  The sticky prices for shelter, medicine and tuition will continue to hold firm as flat yoy core commodity prices offer no pressure.  Energy prices provided the drop in overall CPI in late 2006.  In the big picture, it's aggregate demand which provides the price direction, as sub-potential (near 3%) growth is easing the core inflation pressures over time.  The Fed more closely watches core PCE prices as an inflation guide, which stands at 2.1% yoy.  Overall CPI reached a 14-year high of 4.7% yoy in Sept '05 given the push from energy prices, and now stand at 2.6% yoy.

Implications: The Consumer Price Index is a measure of the price level of a fixed market basket of goods and services purchased by consumers.  CPI is the most widely cited inflation indicator, and it is used to calculate cost of living adjustments for government programs and it is the basis of COLAs for many private labor agreements as well.  It has been criticized for overstating inflation, because it does not adjust for substitution effects and because the fixed basket does not reflect price changes in new technology goods which are often declining in price.  Despite these criticisms, it remains the benchmark inflation index.  CPI can be greatly influenced in any given month by a movement in volatile food and energy prices.  Therefore, it is important to look at CPI excluding food and energy, commonly called the "core rate" of inflation.  Within the core rate, some of the more volatile and closely watched components are apparel, tobacco, airfares, and new cars.  In addition to tracking the month/month changes in core CPI, the year/year change in core CPI is seen by most economists as the best measure of the underlying inflation rate.

9:15 - Industrial Production (for May): Consensus 0.1%, Capacity Utilization (for May): Consensus 81.5%

Big Picture: Industrial production is showing some lift after the weakening in late 2006.  Strong December, March and April gains in manufacturing output fight off the declines to leave 6 month growth back in the black after declines in early 2007.  Weak factory order trends provide the risk.  Slowed construction related output is added to by weaker capital investment and the wide range of industries affected.  We believe the fall off will only be considered a mid-cycle stall a few quarters from now as concern fades.  Weaker business confidence in the economy is creating the slowing in capital investment.  Capacity use stands at 81.6% -- below the level historically consistent with inflationary pressures -- as manufacturing shows a growing amount of excess capacity at 80.2%.

Implications: The index of Industrial Production is a fixed-weight measure of the physical output of the nation's factories, mines, and utilities.  Manufacturing production, the largest component of the total, can be accurately predicted using total manufacturing hours worked from the employment report.  One of the bigger wildcards in this report is utility production, which can be quite volatile due to swings in the weather.  Severe hot or cold spells can boost production as increased heating/cooling needs drive utility production up.  In addition to production, this monthly report also provides a measure of capacity utilization.  Though the rate of capacity utilization is seen as a critical gauge of the slack available in the economy, the market does not completely trust this measure.  Capacity is very difficult to measure, and the Fed essentially assumes that growth in capacity in any given year follows a straight line.

10:00 - Mich Sentiment-Prel. (for June): Consensus 88.0

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 the economy and housing are partly offset by the strong labor market.  The expectations component is up 14% since the August high in gasoline prices as the present situation component is flat.  The University of Michigan survey is significantly smaller (500 phone calls) 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.

Implications: The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading.  Like the Conference Board index, it has two subindexes -- expectations and current conditions.  The expectations index is a component of the Conference Board's Leading Indicators index.



Source:  www.Briefing.com