It’s easy to hate on The Government.
It is too big.
It is inefficient.
Among the archetypes, “bureaucrat” and “politician” rank somewhere near “proctologist” and “used-car salesman.”
It is, too, a necessary evil.
The ongoing debate over the contours of “limited government” – a phrase that appears, by the way, in the Articles of Confederation but not in its successor and our operative founding document the United States Constitution – is both necessary and healthy.
We’re going to set that debate aside for purposes of our discussion today.
And I’m going to shift into an argument that’s bound to raise hackles.
Here goes: There are indeed necessary and good government rules and regulations.
Good Governance? Good Grief!
Take, for example, a topic I addressed in last Tuesday’s edition of Wall Street Daily Insider: the ongoing debate over replacing the “Suitability Standard” with the “Fiduciary Standard.”
As I noted, “The Wall Street Establishment… is lobbying very, very aggressively against a regulatory update that would better align stockbroker and client interests.”
New legislation is now before Congress that would force brokers to act as non-conflicted fiduciary advisors when helping investors with their retirement accounts.
In other words, brokers will still be able to make money. They won’t, however, be able to steer clients into higher-priced options they don’t need but that give the broker a better payout.
This is a common sense move that would mitigate the perverse outcome whereby brokers are better compensated for selling products that cost clients more in fees and lost performance.
The “Fiduciary Standard” is common sense regulation. It’s not “Communism” or “Socialism” or “Big Government Liberalism.”
Those who make arguments to this effect – or who say the new paperwork and record-keeping requirements would mean higher costs for consumers – are captives to campaign contributions from the Wall Street Establishment.
The Council of Economic Advisors estimates that the current suitability standard costs U.S. households some $17 billion in excess fees and adverse performance.
A combination of 10 independent studies put the true cost between $8.5 billion and $33 billion.
There’s a lot of money on the line. Zero surprise, then, on the level of opposition to the new rule.
Implementing the “Fiduciary Standard” is a reasonable step that will save regular American investors literally billions of dollars.
It’s not unlike other steps taken to level the playing field between Wall Street and Main Street.
In today’s Saturday Spotlight, Senior Analyst Greg Miller talks about his approach to buying a new car.
Interestingly, “There are a lot of similarities between how to buy a car and how to buy a stock.”
To wit: When initiating research into a stock, you might first check out what analysts are saying about it.
You’ll then move on to assessing the company’s competitors. Perhaps there’s information from regulatory agencies that helps you understand the particular market you’re researching.
You’ll also check relative valuation. So, Greg wants to know, “Is it a good stock but too expensive?” Or, “Is it a bad stock, and is that why it’s cheap?”
The evaluation process for an automobile is pretty similar.
Greg is not a “car guy.” So he had to start at the beginning. And that’s Consumer Reports and Car & Driver as well as various reviews available on the internet.
He also looked at prices.
Is it priced high because it’s a good car with strong reliability? Or is it living off an old reputation?
One of the first things Greg did when shopping for a new car was actually one of the last things investors do when studying a stock – if they even do it at all: He went to automakers’ websites to hear sales pitches directly from sources.
He wanted to know what Ford Motor Company (F) says about the cars it manufactures.
That helped Greg form his own thoughts – even when he disagreed with certain aspects of the automakers’ pitches.
Greg is nothing if not a methodical researcher. His work is on full display as Wall Street Daily Founder and Publisher Robert Williams’ lead analyst for Extreme Alpha.
A Level Investing Field
Greg also discusses “Reg FD,” which is short for “Regulation Fair Disclosure.”
Reg FD was promulgated by the U.S. Securities and Exchange Commission in August 2000. It requires all publicly traded companies to disclose material information to all investors at the same time.
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Meanwhile, the “Safe Harbor Rule” was a key component of the 1995 reforms of securities class action litigation. Congress sought “to encourage issuers to disseminate relevant information to the market without fear of open-ended liability.”
It gives publicly traded companies a little bit of leeway in providing forward-looking outlooks; it means they can’t be sued if they make minor mistakes in their disclosures.
The combination of this regulation and this rule means that when a company pitches its stock to Wall Street portfolio managers and analysts as well as institutional investors, you as an individual investor get to see it too.
“This used to be a very private process,” a preserve of the well-connected, according to Greg. It used to be critical information that was simply unavailable to investors like you and me.
That’s no longer the case.
You Are the Mucky-Muck
So here’s a simple tip that’s easy to follow through on.
After you’ve done your normal due diligence, including visiting the company website to download quarterly and annual financials, check out that section of the “Investor Relations” (IR) page devoted to “Events & Presentations.”
That’s where you’ll find the company’s pitch to Wall Street mucky-mucks. You get to see what these mucky-mucks see because of Reg FD.
You’ll have access to all the slides that comprise the presentation. You’ll often find transcripts of actual presentations. And you can also access webcasts of major presentations to sponsored conferences.
You’re basically on equal footing with the mucky-mucks when you make your investment decisions.
As is the case when you’re shopping for a car, you need to wear your “skeptic” hat at all times.
C-suite managers and IR professionals put their best feet forward in these presentations.
As Greg notes, “They’re not going to say, ‘Well, in fact we think we’re getting our lunch eaten by the competition.'”
In the rare cases of such candor, you’ll want to listen carefully for an explanation of why it’s happening and what management plans to do about it.
And, of course, we know that managers can simply be wrong about their company’s prospects.
These presentations offer the “maximum view” of what the company is thinking and what management is trying to achieve.
Used in conjunction with public filings and other sources of information, they can be a window to a company’s soul.
Even as markets have gotten off to a rough start in 2016, funding records are being broken for heavily hyped technologies.
See what Wall Street Daily Chief Technology Analyst Louis Basenese has to say about virtual reality – a next-generation technology whose time may be now.
Lou identifies one company that’s “largely been flying under the radar up to now,” according to TechCrunch.
Indeed, our analyst named it “one of the most promising startups” in virtual reality a year ago.
Talk of ZIRP – zero interest rate policy – has turned to NIRP – negative interest rate policy.
In February, Japan’s 10-year government bonds traded with a negative yield for the first time in history. And Germany’s 10-year bonds are yielding 0.24%.
And yet Chief Income Analyst Alan Gula points out that the 1.89% rate on 10-year U.S. Treasuries “offers a smorgasbord of yield.”
At the same time, it is absolutely essential that income investors take into account the impact of inflation on yield.
We need to talk about the “real interest rate.” And Alan does so in his typically enlightening fashion.
Senior Analyst Jonathan Rodriguez, in addition to being the in-house optimist, is also our go-to guide to technical indicators.
In yet another compelling piece on what charts can tell us about stocks’ reactions amid specific conditions during particular time periods, Jonathan breaks down the meaning and utility of the 20-, 50-, and 200-day moving averages.
“By themselves,” writes Jonathan, “each of these moving averages tells you something important – and different – about a stock’s trend. But when you combine them, things get really interesting.”
You definitely want to get to the bottom of this story.
Global Markets Analyst Martin Hutchinson eyes the wreckage of the mining industry and identifies tantalizing opportunities among junk bonds.
As Martin points out, “There’s no such thing as a safe mining stock or bond. Some are quite solid, but others are very junky. Their value depends on the price of the commodity being mined, and that can vary.”
Martin names three issuers at various positions on the risk spectrum.
Income-seeking investors will surely want to dig in.
Martin continues our political coverage with a look at one of the most consequential decisions facing what appears to be the likely GOP nominee for November’s presidential ballot.
Who will Donald Trump choose as his running mate, and what does it mean for his leadership and the country?