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Pay No Attention to That Man Behind the Curtain!

Saturday, 01 Mar 2008 05:06 PM

I've been investing in the financial markets for more than 20 years. Yet I've never heard such an extensive degree of poorly researched, misleading — even nonsensical — investment advice as I've heard from Wall Street economists and investment portfolio managers during the past few months.

For example, earlier this week one so-called "expert," a man with surely a very impressive resume, said that he's now concerned about a potential recession and rising inflationary pressures.

Interestingly, this same economist, who previously served at the Federal Reserve and as the chief economist for a major Wall Street investment-banking firm, claimed repeatedly over the past several months that the U.S. economy was on sound footing and that inflation wasn't a concern!

It makes you wonder: What, or who, has changed here?

Another well-known and often-quoted "expert," a former senior manager at several mutual funds and financial services companies, said in an interview recently that he's now concerned about inflation.

Up until a few weeks ago this same "expert" said that there was no inflation.

Again, what has changed? Not the economy. It just doesn't change from one week to the next.

Perhaps the most laughable comments lately on the state of the U.S. economy come from a former Federal Reserve Board Governor who also previously served as the chief economist and managing director of a major Wall Street investment-banking firm.

Although this esteemed economist has been pleading over the past few months for the Federal Reserve to significantly cut short-term interest rates, this past week he suggested that the Fed should now hold the target Fed Funds rate steady at its current level of 3 percent

Why? Well, because of rising inflation concerns.

Apparently, this so-called "expert" somehow just didn't realize that the Fed's 225 basis point cuts in the federal funds rate since September 2007 would result in a big decline in the exchange-value of the U.S. dollar.

With the dollar's decline, you get accompanying significant increase in inflation rates. This is Economics 101, folks. Amazing, truly amazing. Some expert he turned out to be!

The whole thing reminds me of the movie The Wizard of Oz. With his booming voice and flaming cauldrons of fire, the Wizard was very impressive, even frightening.

Eventually, though, Dorothy, the Lion, the Tin Man and Scarecrow uncover the cowering idiot moving the levers behind a curtain to create the Wizard's image and booming voice. Discovered — and embarrassed — he cries out, "Pay no attention to the man behind that curtain!"

But Toto, the dog, pulls the curtain away, and the Wizard is discovered for what he is: A showman, and nothing more.

So, here's my response to the useless comments that are often made by many Wall Street experts, most of whom warn investors about negative economic and financial developments after — rather than before — they occur:

Any junior high school student would easily be able to tell by merely glancing at my charts on the U.S. economy that growth has slowed considerably over the past few months and that inflation rates have risen.

And I wouldn't need to pay that student a penny for his "analysis" of the situation!

The problem with the type of coincident analysis is that it is of no value in helping investors to protect and grow their capital.

In fact, my experience has shown that your personal investment portfolio would have declined significantly in value by the time most Wall Street experts reach their conclusions — far too late.

So, why are the supposedly well-trained economists — and indeed most so-called investment experts — always so late in discovering important economic developments?

Unfortunately, I really don't know the answer to this conundrum. My guess is that they either spend too much time in textbooks rather than analyzing real-life scenarios, or that they have their own agendas for purposely misleading investors. Perhaps their superior academic training is flawed.

One thing that I do know is that my investment models have forecast every major turning point in the U.S. equities market since 1970. Those same models strongly indicated in July that economic growth in the U.S. would slow considerably during the ensuing months and that stock prices would decline significantly.

My models have thus far been very accurate in determining the direction of the economy and stock prices. However, I'm not trying to suggest that I will ever be able to forecast every major economic development, nor daily movements in the stock market.

However, here's what I have to say to the so-called experts, many of whom claim that no one can accurately forecast future economic developments or changing stock market trends:

You — the so-called expert — can't accurately forecast economic and financial developments either! If an expert shows himself to be of no value in helping investors to protect and grow their capital, my suggestion is for those very experts to find a new line of work.

Maybe, they should try selling used cars!

I too make mistakes and readily admit that forecasting future economic and financial trends is sometimes difficult. I've been wrong before and I'll be wrong again. I've made money in the financial markets and I've lost money.

But, I've never purposely misled an investor. And, by the way, my investment recommendations have significantly outperformed the major U.S. stock market indices.

Go Here for more of David Frazier's market insights and investment advice - Get the 'Secret Code' today!

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DavidFrazier
I've been investing in the financial markets for more than 20 years. Yet I've never heard such an extensive degree of poorly researched, misleading — even nonsensical — investment advice as I've heard from Wall Street economists and investment portfolio managers during the...
Who,to,listen,to
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2008-06-01
Saturday, 01 Mar 2008 05:06 PM
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