STAFF NEWS & ANALYSIS
Wall Street Mulls Suicide by Tactical Allocation
By Staff News & Analysis - December 27, 2011

Not Going Tactical Could Pose Real Business Risks, Advisors Fear … Following the twin market implosions of the past decade—first tech, then real estate—many retail financial advisors are looking for more tactical, meaning active, asset allocation solutions for client portfolios to dampen volatility, improve total returns and avoid market catastrophes. At least some of them fear that if they don't dramatically change the way they allocate client portfolios, moving away from traditional buy-and-hold investing strategies, they could lose clients. So say a handful of advisors and an investing expert. Things could get especially bad if another bear market hits, says Ron Carson, founder and CEO of Carson Wealth Management Group. "[Investors] are hanging on by a thread right now, and I don't think they're going to forgive." – Registered Rep

Dominant Social Theme: We need to show you new ways of investing, though we don't want to.

Free-Market Analysis: Is it time for Wall Street to fall on the ceremonial sword of tactical asset allocation? In the long-term, this is the only strategy that works, but for the last ten years – as for much of the rest of last century – Wall Street has proven impervious to its blandishments and even conspired to withhold the strategy from investors.

The reason is simple. To suggest tactical asset allocation (and to explain it properly) one actually has to grapple with some of the fundamental issues of the modern, Western monetary economy. The big firms that most Wall Street and "independent" brokers work for would rather chew their own (figurative) arms off than engage in these discussions.

Yes, the idea of explaining that modern central banks are a kind of Ponzi scheme that collapse every 15 or 20 years and that gold and silver are historically valid money metals is not the kind of palaver that Wall Street's bosses want to engage in.

Of course, they should engage in it because every couple of decades millions of people who have bought into the Wall Street investment paradigm are stripped of their hard-earned assets – assets that are not going to return to people in their 60s or 70s.

Of course, the defenders of the Wall Street paradigm will explain that brokers are not wedded to stocks but when the stock market is sputtering, fixed income instruments are recommended. There is only trouble with this sort of strategy – in a REAL money metals bull such as what we have today, bonds likely don't perform much better than stocks.

Corporate bonds aren't apt to perform well because companies generally are in the doldrums. As far as Treasuries go, well … savvy Wall Streeters know darn well that central banks will keep interest low during a bad "bear" market. Thus money becomes cheap, devaluing the bonds that people are holding if they want to sell them. (And many may have to sell because of hard times.)

In looking over the wreckage of the modern financial industry, one must almost inescapably come to a conclusion that a kind of crime has been committed. For a decade now, US stock markets have moved down, sideways and occasionally up. But the carnage is much worse than has been reported.

Stock market averages are summaries of overall performance and not representative of individual stocks. Mutual funds and other formally regulated entities have been savaged by the bull market in money metals – just as they were degraded back in the 1970s.

To argue that Wall Street's collective memory does not extend back some 40 years is a non-starter, in our view. The collective brain-trust that inhabits Wall Street knows exactly how the modern economy works. It's their business to know.

"They" knew back in the early 2000s what was going to happen. If a bunch of disorganized bloggers could predict it, so could Wall Street's top brains. In fact, knowing what was going on, Wall Street collectively made the decision to HIDE it.

How did they do this? The way they always do. They kept talking up the regular investments – stocks, bonds and even real estate. They kept referring to Modern Portfolio Theory and to the benefits of "buy and hold." The persuasiveness of Wall Street's money salesmen collectively cost American consumers trillions.

People listened to their brokers and held down, down, down … Down until many of them were wiped out. And still they held! They were told that if they held on long enough the market would "come back." This was just a lie, and continues to be a lie. Consumer-driven stock markets are probably NOT coming back, or not for many more years, because the business cycle won't allow it.

This is another kind of crime committed by Wall Street. The determination not to provide consumers with the valid essentials of Austrian economics leaves people defenseless. The additional layers of regulatory supervision give people the idea that investing is essentially riskless. Maybe a few percentage points may be lost but they'll make it up in the long run.

But as we have pointed out in the past, US consumers in particular have been subject to a kind of "Dreamtime." Central banking itself producers this Dreamtime because the over-printing of money-from-nothing creates euphorias that can last for years, even decades (on and off). People get the idea that the good times will never end, and that they financial geniuses because their decisions are working out.

In reality, in our humble view (and we know this is not a mainstream perception) it is all a cold-blooded hustle. A vicious deception. The gray-suited technocratic thugs that push this sort of financial, money-from-nothing crack are ruining households and bankrupting families with the same malicious efficiency as that wielded by a bloody shooting war.

The carnage in terms of broken lives is similar – and death from financial dislocation may come more slowly, but perhaps in some sense even more agonizingly. Ask someone who has lost his job, house and family if he is enjoying life – or wishes to die – and the answer may well tend toward the latter.

And make no mistake. The Dreamtime myth that one could "save" for retirement is just that. It is a kind of obscene joke for many middle and even upper middle class people who have been eviscerated by this decade-long bear bull-metals business cycle. Here's some more from the article:

A Natixis Investor Insights Study found that 63 percent of investors are now paying more attention to risk than ever before. If the market nose-dives, advisors are going to want to have a different story to tell. They can't just tell clients to hang on and wait it out like many of them did in 2008.

Meanwhile, clients are expressing specific interest in tactical solutions. "Clients have a very hard time [increasing their equity exposure] because of the experiences that they've been through the last few years, and if you can find something that's a little more tactical, then it's little more palatable to a client today," said Don Phillips, managing director of Morningstar. "You can have the greatest paper results in the world, but if your clients don't stay on board, it's all for naught."

According to a survey by Cerulli Associates, the number of FAs using either a pure tactical allocation or strategic allocation with a tactical overlay is now at 61 percent, up 8.3 percent from 2010. A Jefferson National survey from September 2011 found that 75.5 percent of advisors believe that active portfolio managers can outperform an index over the long term. In Jefferson National's 2010 survey, 66 percent of advisors said clients were more confident with a tactical asset management strategy, while only 34 percent said clients were more confident with a traditional buy- and-hold strategy.

Cerulli defines pure tactical allocation as the advisor's ability to alter a client allocation without any preset bounds based on forward-looking market expectations. Under a strategic allocation with a tactical overlay, the advisor starts with a long-term client allocation, but makes short-term deviations from the long-term strategic weights to capture alpha or move away from risk, Cerulli says …

"I think that the fact that we had these two big blowups in short sequence, I do think it poses a challenge where we really do have one more shot at this," said Lee Munson, chief investment officer of Portfolio, an RIA, and author of Rigged Money: Beating Wall Street at Its Own Game. "And we are, in a sense, fighting for the soul of the U.S. investor."

Darn right, Wall Street is fighting for the "soul" of the US investor! And likely Wall Street is going to lose just as it did back in the 1930s and 1940s. People don't know anything about the history of Wall Street because it's been hidden – on purpose, in our view. But that's what happened – not that they like to talk about it.

But here at the Daily Bell, our elves spent about a decade investigating the "money business" and we know full well how it was set up. Things were so bad in the 1950s that the NYSE organized "road shows" to convince people to invest in stocks. It wasn't an act of charity, either.

Wall Street is merely one arm of the massively tentacled Money Power that resides in the City of London with outposts in Washington, the Vatican and Tel Aviv. The factions may fight among each other but at the end of the day they have the same goals and use the same facility to realize their goal of world government – run by them.

The facility, of course, is central banking. It is a central banking Dreamtime that has infected the world, especially the Western world, especially America, which has been a target of Money Power for 300 years. People have been tricked into believing that government can provide social services, that political "leaders" can "create" jobs, that a massive military is necessary to keep them "safe."

None of it is true. The Anglosphere power elite seems to have spun this fantasy based on access apparently to hundreds of trillions of central-banking paper dollars. This allowed them to reshape the world with such massive trickery that not until recently – thanks to what we call the Internet Reformation – has the truth gradually been revealed.

And now, like an alcoholic facing the next day's horrible hangover, Wall Street faces the unappetizing task of explaining to investors that "tactical" asset allocation is preferable to bankruptcy. The only trouble is that to explain it – to REALLy explain it – is to participate in an educative process that will eventually fuel additional dislike (hatred, more likely) for the "money business," especially in America where the nonsense is most advanced.

To explain tactical asset allocation properly, Wall Street brokers will have to explain the essential destructive nature of central banking. They will have to clue in their hapless clients to the idea that stocks are basically a manipulated monetary medium – and that the modern "stock" would likely not exist without central banking.

They will have to explain that government bonds are not really much more trustworthy in the long run than corporate ones. They will have to explain that for huge chunks of time – up to several decades − the idea of buying and holdings stocks, even blue chip stocks, is a recipe for slow bankruptcy.

And finally, the real "topper" – if they are any good, they will likely have to explain that at some point in the future (perhaps the near future) buying horrible, little gold and silver mining juniors may be the surest way to wealth.

That's because as the business cycle turns the money mania continually commences. First physical gold and silver are bid up and then paper metals and finally mining stocks and junior miners. It has nothing to do with the VALUE of junior mining stocks, only with the mania of the incipient blow off.

Now, the chances of your average broker explaining to his clients WHY they should consider buying junior mining stocks is probably fairly low. And if they DO explain, the chances are they won't really come clean. Two reasons: One, they likely don't fully understand themselves, and two, they certainly don't want to admit that the entire business is a racket and that they work for facility of that racketeering element.

After Thoughts

We will end with the point we made in this article's title. For Wall Street's intrepid money men to tell the truth about the money business and the advantages of tailoring one's portfolio to the business cycle, one has to ADMIT there is a business cycle and that, as the Austrians have explained, it is a FUNCTION of central banking. And then when the inevitable questions come − Why do we need a money business that facilitates this rotten system and its ruinous central banks? − the answer will be …

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