How to Save $833,058.54 Per Minute

The U.S. consumer is responsible for approximately 70% of our country's economy. In short, we need consumers in the United States to continually spend in order to keep the economy healthy. Remember how immediately following the 9-11 terrorist attacks we were encouraged to demonstrate our patriotism through shopping.

Gasoline today is hovering near the infamous $4.00/gallon mark. It will be interesting to see what kind of impact if any of this creates for retailers. For each one cent uptick in the cost of a gallon of gasoline, there is a corresponding $1 Billion of consumer spending that is redirected away from other retail establishments per year, according to Credit Suisse analysts. Gasoline prices are directly siphoning billions of dollars out of our economy, not to mention the security implications and military expenditures associated with being so energy dependent.

Presently, the world consumes about 89 million barrels of oil per day. This costs $3 Trillion per year, of which $1 Trillion passes to OPEC. The vast majority (70%) of oil is consumed for transportation. Many U.S. presidents have made energy independence a promise on the campaign trail, but since 1948, our country has consistently been a net importer. Not only does such an imbalance result in uncontrollable price hikes, shortages, compromised foreign policy decisions, but also tremendous environmental threats as well.

Today, there are somewhere around 250 million vehicles in the Unites States alone. The government has not come up with a viable plan for reducing our foreign energy dependence in over six decades. Whether you like him or not, or agree with all his points, T. Boone Pickens is a real pioneer with a radical plan to achieve this ambitious goal, which has been unachievable through government. He is a businessman and not a politician. His focus is on natural gas for several reasons. His detailed analysis shows that on average, it costs a third less to fill a vehicle with natural gas than traditional gasoline. And, since 98% of the natural gas used by the United States is domestic, he argues that it is free from outside political and economic pressures.

Pickens believes that we should continue to develop multiple sources of domestic energy, but we should utilize the natural gas with which we are endowed while researching and developing other alternatives. Although there are numerous potential environmental impacts relating to the fracking process for accessing natural gas, Pickens points out that natural gas is 25% cleaner than oil, and it does not require refining. He also makes reference to the fact that the U.S. has three times in natural gas what the Saudis claim to have in oil.

Switching over to natural gas would require a lot of costs to the average American consumer as well as require tremendous infrastructure expenditures. As a result, the Pickens Plan focuses on the approximate 8 million 18-wheelers of the 250 million total vehicles in the United States. By retrofitting these heavy duty trucks to run on natural gas, Pickens estimates that the U.S. would reduce its imports by 3 million barrels per day. With light crude oil costing $106 per barrel, reducing imports by a factor of 3 million, would result in a savings of $318 million per day and over $116 billion per year. The net effect of retrofitting these heavy duty vehicles would decrease our imports of oil by 25%.

In 2011, the total cost of imported oil was approximately $454 billion. That is equivalent to our spending $833,058.54 per minute with foreign countries, many of whom are not our allies. Reducing our foreign oil imports by a third would mean $150 billion staying within our borders. The multiplier effect would be enormous. The U.S. consumer would directly benefit from lower transportation costs, significantly greater national security, and a much stronger currency, not to mention thousands upon thousands of high paying U.S. jobs. Due to improved technological means for extraction, the present supply of domestic natural gas is enormous. While a unit of natural gas cost $13.00 in 2008, today it is trading at just a little above $2.00. Retrofitting heavy duty trucks and installing natural gas pumps along truck stops of major thoroughfares would go a long way simultaneously towards improving our economy and the environment. Renewable energy sources such as wind and solar both come with shortcomings in that they are intermittent. Clearly developing and encouraging greater production and consumption of renewables is most noble, but with natural gas prices at historic lows, they are not economically competitive, and are therefore not currently feasible from a practical matter.

Energy imports currently account for nearly half of our entire trade deficit, and reduced energy costs would certainly boost American manufacturing, exports and improve our trade balances. Nothing is perfect, but we possess the technological and natural resources to fundamentally change the geopolitical landscape of the Middle East by crushing the stronghold of oil-rich nations AND save us $833,058.54 every single minute!


Greg Gann

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Another Reason to Roll

Facts: A client's husband died in 1999 at age 75 with a 401k plan from his previous employer. Since age 70, he had been withdrawing the necessary distributions required under the tax code and paying taxes on those withdrawals. The wife (client) was age 66 at time of husband's death.

Options: Wife could have rolled husband's 401k into her own IRA as a tax-free transfer or she could have kept husband's 401k and it would be treated at husband's death as an inherited 401k account.

Implications: Wife elected to keep the 401k plan intact. Wife is now over the age of 70 and she is required to take taxable distributions from the 401k plan each year. The distributions and associated taxes typically increase each year. Furthermore, the distributions are throwing her into a higher income tax bracket, and state and federal taxes are consuming 33% of the entire distribution.

The IRS uses different tables to calculate the required minimum annual distributions. And, the table required for a 401k distribution may result in significantly higher distributions than what would be required by the table used for an IRA. In this wife's case, the difference this year is equivalent to almost 82%. She does not need the income today, is concerned about what her future needs might be, and is distraught to see so much of the 401k corpus be eaten away by taxes.

Here is the point. By maintaining the 401k account, the client is limited to the investment choices provided by the plan. Those choices may fit into only two or three broad categories with limited options for diversification to help mitigate downside risk. Also, by maintaining the 401k, she is required to withdraw 82% more money each year, pay taxes on that money, and lose the tax deferral on that distribution. Simply rolling the 401k into a self-directed IRA in her own name would result in more investment alternatives and result in less current income taxes. The different tables required to calculate the required minimum distributions, along with other estate planning and income tax benefits, are additional reasons to consider an IRA Rollover. We perform these calculations for clients, and can analyze data on your behalf. Investment management involves more than simply managing investments.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Forks Over Knives/Tactical Over Static

I recently watched a documentary that was very impactful. The film is entitled, Forks Over Knives. It mainly highlights the extensive research of two physicians, Dr. T. Colin Campbell of Cornell University and Dr. Caldwell Esselstyn of the Cleveland Clinic. Both challenge the protocols of traditional western medical treatments. Although the conclusions of both doctors were remarkably consistent, one of the doctors reached his conclusions from a scientific framework, while the other was influenced by his clinical experiences. There is almost a cinematic irony that both doctors were raised in households whose livelihoods were farming, considering the fact that both practically vilify the cattle and dairy industries.

The gist of the film is that the single most important ingredient for good and prolonged health is diet, and one that is based on eating vegetables and other whole foods. Many case studies and patients who were overweight, had high blood pressure, cholesterol, diabetes, and heart damage were featured in the narrative. For over twenty years, Dr. Esselstyn of the Cleveland Clinic has treated patients with extensive heart disease. One of the patients shared that the physician who had treated her prior to Dr. Esselstyn advised her to go home and prepare to die due to the severity of her heart condition. She and several others under Dr. Esselstyn's care are today still thriving some twenty years later. And, what is most remarkable is that the treatment has come in the form of substituting vegetables and whole foods over eating animals. Hence, the title, Forks Over Knives. The title provides a double entendre because consuming foods which can be eaten exclusively with forks might also minimize the likelihood of having to go under the knife.

In further seeking to prove that an animal-free diet yields significant health benefits, the film cited unintended health benefits that resulted when the British were forced to ration meat during World War Two as a result of the Nazis commandeering livestock in Norway. When the Brits were eating much less meat during the war, rates of disease plummeted, only to return to pre-war levels once hostilities ended. Also, eastern cultures have far less incidents of cancer than their western counterparts. The documentary also highlighted more affluent, urbanized areas within China whose diets had evolved to include more animal protein, and there was a direct link with incidents of disease.

Perhaps the conflicts of interests which were revealed in the film most impacted me. Our federal government creates and endorses the food pyramid. In doing so, it encourages us what to eat. And, in doing so, it financially rewards certain food industries. The government subsidizes certain crops such as corn to feed the livestock that Americans eat. Lobbyists for agribusiness control our national food policy. Big business that sells chemicals that are pumped into livestock and poultry are very happy with the status quo. They are not particularly concerned by the fact that some forty percent of Americans are obese or are addicted to fats, salt, sugar, or corn syrup. They also influence what foods find their ways into public school cafeterias. There are also biases from medical professionals. There are some 500,000 bypass surgeries in the US every year. Few physicians prescribe nutrition over pills or procedures.

All of this got me thinking about the biases and self-interests within the world of investments. I have never met a stock broker who articulated that this might not be the best time to buy stocks. I have observed that very few brokers actually have a plan to navigate markets on a proactive basis. If they did, investors may not routinely experience big losses during market downturns such as in 2001 and 2008. Instead of actually taking responsibility for navigating markets, a great number of investment brokers simply load a client into a pre-fabricated, computer-generated static investment model. The problem is that the model is based on reasonable allocations for a time frame of eighty to one hundred years. It does not distinguish between market conditions of say 2007 when performance soared or 2008 when everything crashed.

Brokers have justified their use of static models by trying to convince the public that no one can effectively navigate the market. They say things like, "It's time in the market, not timing the market." They encourage investors to stick with their models even when things are seriously moving south. They routinely show charts showing the effects of missing out on the ten best trading days, but they conveniently neglect to show the impact of avoiding the ten worst trading days. They rely on the computer to allocate and rebalance, and they remove themselves and current conditions from the decision making process. I understand this. By limiting human interaction and decision making, they limit liability. Investing with a cookie-cutter framework definitely leads to greater scalability. My premise is that the computer serves as the financial advisor in this scenario, not the financial advisor. Computers offer precision, but they rarely can account for subtle market trends, which can be crucial to recognize. Tactical investing involves the art of navigating allocations based on indicators that the market is providing in real time, and responding in an agile and nimble way. Tactical investing is not about forecasting where the market may move, but rather navigating based on objective signals that it objectively presents.

I believe in being tactical. And, I am outside the norm of the investment Establishment. Just as you might think modifying your diet might be too simple a remedy for good health, especially when The Establishment promotes otherwise, you might similarly question whether a tactical investment approach could be more prosperous than a static approach. I always say that if what you are doing is working, then stick with it. The reality is that today's youth is on a path to be the first generation not to outlive its parents, according to Alliance for a Healthier Generation. Additionally, I believe that today's youth is the first to most likely accumulate less real net worth than its immediately preceding generation. Sometimes, the most simple solutions are the most difficult to comprehend. After all, we ask ourselves, "Could it really be that easy?" I think it can!

Changing your diet to include more whole foods might augment the entire course of your life. Similarly, the right investment strategist might also enhance your prospects for a life of meaning, purpose, and happiness. And, that is at the core of our mission statement.


No strategy assures success or guarantees against a loss. Tactical investing may involve more frequent buying and selling of assets and will tend to general higher transaction costs. Investors should consider the tax consequences of moving positions more frequently. The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, you should consult a financial advisor prior to investing. Past performance is no guarantee of future results.

Don't Invest in Stocks or Bonds Today. Invest for Income.

I know lots and lots of people. I am sure you do as well. I know people from where my kids go to school, from where we worship, clients, lawyers, doctors, teachers, retail store owners, non-profit personnel, people from my neighborhood, from Facebook and Linkedin. The list goes on and on. And, you have your connections as well. I'm sure your web casts as far as mine. And, here's the thing. I don't know one person out of this long list of characters who is not paying his or her mortgage, or car loan, or business loan. Nor do I know anyone who is not paying his or her lease for office or warehouse, or business equipment, or is in default of any business loan. And, I am going to venture to say that you do not know anyone or at least not many people who have just walked away from their obligations, and are willing to sacrifice their assets and security.

Small businesses pull themselves up from their bootstraps, innovate, persevere, streamline, work more hours, and maximize efficiencies to survive. Survival for a business means meeting its obligations. The world has great economic challenges today, without question. Fear, uncertainty are today's mainstays. News at times is dire. The media evokes sensationalism, and sensationalism can lead to irrationality and panic. Regardless whether the stock market bounces back from what many might deem the abyss, I do not think this is a period to concentrate your investments in the stock market. This is a period to invest in areas that have withstood the test of time, including the Great Depression of the 1930's and the Great Recession of 2008. Even in the worst of times in the Great Depression and Recession, the vast majority of business owners paid their mortgages and business and equipment loans. Very, very few actually default. A business would much rather incur a round of layoffs and furloughs rather than to have its assets taken over by its lenders.

We keep hearing about all the cash that companies today have in their coffers, and the strength of their balance sheets. Particularly because traditional bank sources of lending have been curtailed as a result ever-increasing regulations, real opportunities exist right now to finance businesses in a variety of areas.

Our clients are taking advantage of this climate by participating in a variety of investments that are providing very strong cash flow that will continue regardless what happens with the stock or bond markets. Today might not be the time to load up on traditional stock and bond investments. Markets are sometimes risky, volatile, and irrational. Today is a time to learn about investments whose performance is not linked to the stock market. Today is a particularly important time to invest in areas that produce income and cash flow, not necessarily linked to stock market gyrations. For both personal assets as well as retirement plans, today is the time to invest with us.

So, if you are interested in learning more about the specifics of any of these opportunities, you should call or email me.




Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor's portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential loss.


The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, you should consult a financial advisor prior to investing. Past performance is no guarantee of future results.

Just When You Thought It Was Safer To Stay In Cash

Bank depositors are certainly dissatisfied with the interest they are earning on their savings. Things may go from bad to worse, however. This is because banks may soon start charging their customers for the privilege of banking with them.

On August 4, 2011, Bank of New York Mellon announced that it will charge large depositors for the privilege of allowing the bank to hold onto their money. Why would the Bank of New York impose such a cost on depositors? Simply put, it was losing money. How was it losing money? As part of the Dodd-Frank Bill that was established to strengthen banks and limit future runs on banks, fees assessed by the Federal Deposit Insurance Corporation (FDIC) increased, and they are now based on the amount of excess capital held by a bank over a threshold. With so much economic turmoil, investors have been increasing their cash deposits with banks. And this has resulted in greater costs to the banks.

Currently, this applies mainly to institutions who hold the largest cash reserves. However, charges affecting institutional investors have a way of costing the public. Also, according to Dan Geller, executive vice president at Market Rates Insight, "It's very likely that this trend will trickle down to retail customers."

Stay Tuned. It is never boring.


The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, you should consult a financial advisor prior to investing. Past performance is no guarantee of future results.

Warning: Your Gold Might Be Taxable

For a variety of reasons, gold, precious metals, grains, and a variety of other commodities asset classes have been on a roll over the last several months. Some commodities like copper or iron ore soar in response to development and prospects for growth in the world economy. Other commodities, and gold in particular, rally when fear is pervasive in the global economy. If a country's sovereign debt has roiled out of control to the point where you might question the true value of its currency or its real purchasing power, then gold really shines. The extent to which all types of commodities have rallied is indication of the schizophrenia in today's global economy and financial markets. For everyday investors, a vast majority of this commodity exposure has come from allocations to funds that come with little known tax implications.

Commodity exchange-traded funds come in three varieties: funds that invest in bullion or the physical commodity held in a vault, funds that invest in futures contracts to garner commodity exposure, and exchange-traded notes that some financial entity issues to guarantee the performance of an index. Each type of fund has a separate tax consequence.

Funds that invest in the physical commodity to be held in a vault issue a tax form 1099, but they do not benefit from the reduced preferential long-term capital gains treatment, which is currently 15%. Instead, they are treated by the IRS as "collectibles", and taxed at the 28% rate attributed to collectibles. This collectibles rate is applied to any gain associated with owning the fund even if it were held over the twelve month period required to take advantage of the long-term capital gains rate.

A futures contract is a contract between two parties to exchange a specified asset at a specific established price today with delivery occurring at some specified future date. Investment funds seeking commodity exposure most commonly invest in futures contracts. There are several tax consequences associated with investing in these types of funds which are little understood. First of all, let's say that you bought a gold fund of this type in January of the year. And let's say the value of your fund increases 30% for the year. Well, even if you do not sell your fund at the end of the year, you are taxed on the market value of the fund at the end of the year. Imagine getting a tax bill without collecting the proceeds! As disruptive as this may be, the tax rate on the gains, regardless of the holding period, is 60% at long-term capital gains rates and 40% at short-term capital gains rates, which are substantially higher. To make matters even worse, this type of fund issues a K-1, which is very concerning because companies can issue the K-1 well into the following tax year, substantially beyond the issue date for the more common 1099 form.

Exchange traded notes are the third type of commodity-based fund. With these an issuer guarantees to match the performance of an index and issues shares in accordance with that guarantee. This type of fund is guaranteed by the financial viability of the issuing company. It is not protected by the price of the underlying commodity. It does however, issue a more favorable 1099 tax form and the gains that it generates qualify for the preferential long term capital gains rates.

The point of this outline is to be aware and educated, and to appreciate that the world of investing is not as simple as your father's Oldsmobile. Beyond supply and demand, and relative strength, and sector rotation, there are several underlying variables that can directly impact your returns. Without such knowledge, all that glitters may not be gold.


The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, you should consult a financial advisor prior to investing.
Past performance is no guarantee of future results.

The fast price swings in commodities and currencies will result in significant volatility in an investor's holdings.

Precious metal investing is subject to substantial fluctuation and potential for loss.

Principal risk: An investment in Exchange Traded Funds (ETFs), structured as a mutual fund or unit investment trust, involves the risk of losing money and should considered as part of an overall program, not a complete investment program. An investment in ETFs involves additional risks: not diversified, the risks of price volatility, competitive industry pressure, international political and economic developments, possible trading halts, Index tracking error.

Structured notes may not be suitable for all investors and involve special risks such as risk associated with leveraging the investment, potential adverse market forces, regulatory changes, and potentially illiquidity. There is no assurance that the investment objective will be attained.


Investors should consider the investment objectives, risks, charges, and expenses of the investment company before investing. The prospectus contains this and other information about the investment company. You can obtain a prospectus from your financial representative. Read the prospectus carefully before investing.

Baseball and Investments

Last fall, Shane Justis joined Gann Partnership, LLC. In Shane's previous life, he played professional baseball for both the Los Angeles Dodgers and the Milwaukee Brewers. As a child, Shane was intrigued with investments, and always planned to go into the profession after baseball. When he interviewed, my first question for Shane literally was, "why in the hell do you want to go into this crazy business?" When Shane immediately without any hesitation responded that he truly wanted to help people, we knew that we had found the one. I had been interviewing other strong candidates for over two years, and this was the answer that I was seeking, but only heard from Shane. Shane has integrated very well, and he is a vital member of our team.

Shane has made numerous comparisons as to how he managed his baseball career and how we manage clients' assets. Even I, who was never a jock, am now thinking in terms of baseball references, and wish to share some of the insights that Shane learned on the baseball field and how we are applying these principles into our field of investment management.


A) Going for Singles and Doubles and Avoiding the Strike Outs

Our investment mandate is first and foremost to do no harm. This means that above all else, we evaluate the global macro and domestic micro economic conditions, including trends, breadth, relative strength of specific market sectors, supply and demand, and institutional investment participation to determine how and where we should allocate to avoid losing principal. Achieving steady, consistent positive returns is the holy grail for true investment success. The power of compounding is magical. But compounding works in both directions. It is overwhelmingly favorable when returns are positive, but it is extremely destructive and often fatal when returns are negative. The batter who consistently hits singles and doubles has a much better batting average and is a more valuable member of the team than the batter who swings for the fences each time at bat, but gets fewer hits. There are times where we hit investment triples and home runs, but when we approach the plate, we are swinging for consistent hits and avoiding strike outs.


B) What's a good batting average

A baseball player with a long career of earning a batting average of 300 can easily qualify for acceptance into the Hall of Fame. This average indicates that this player is good for a hit 3 out of the 10 times he bats. It also means that even though he fails 7 out of 10 times to get on base, he is nonetheless a hero and likely a Hall of Famer. An exceptional batting average would be 330. A weak average would fall around 250, and an average player's average would be somewhere between 250-275. This is huge for two reasons. First, it shows that there is not that big a difference numerically between being average and being exceptional. Second, it is proof that you don't have to be profitable on every investment decision to still be a "hall of famer". We are consistently seeking ways to increase our investment batting average with full awareness that not every trade, regardless of the logic behind it, will work out.


C) Owners, General Managers, Coaches and Players

Teams in professional baseball are comprised of owners who appoint general managers, who hire the coaches, who in turn recruit the players. In many ways, we are structured very similarly. We are the investment general managers, who work on behalf of our clients, who are the owners. As the general manager, we assemble and monitor the investment management teams and determine the appropriate asset class mix and investment strategies. The investment management teams which we appoint and monitor serve as the coaches, who pick the "players" by analyzing and selecting the specific investment opportunities based on a disciplined investment process. We pull the team together and make changes to the lineup as markets and opportunities evolve. The pitcher is clearly an integral part of a baseball team and its success. Team managers must not only be on the prowl for good pitchers to add to their club, but to consistently win games, they must know when it is optimal to pull the starting pitcher from the mound and have a relief pitcher ready and able. Just as there is a right time to pull a pitcher from the mound in both winning and losing situations, there are times when we must reassemble our investment teams. Being independent and not tied to any one investment firm is critical to being objective and remaining unbiased to make the right changes on behalf of our owner clients. Investing for us is a team effort, and there is great power in having a strong team.

D) The Science Behind Baseball and Investing

Ted Williams is recognized as "the greatest hitter who ever lived". He was the last player in Major League Baseball to bat over .400 in a single season. He also holds the highest career batting average of anyone with 500 or more home runs. Although Ted was born with innate talents, there has never been a more devoted student of the art of baseball hitting. In fact, Ted Williams is the author of The Science of Hitting where he enumerates 77 zones of hitting. He approached baseball as a science, and studied it from all angles.
Good baseball players have to study the strengths and weaknesses of opposing pitchers. And fielders have to study the strengths and weaknesses of batters. For amateurs, baseball might appear mostly as raw talent intersecting with luck and randomness. However, for professionals, it is a game of study and practice.

As investment professionals, our work similarly may appear to be luck and random. However, in reality, mastering our art involves a tremendous amount of discipline and study. Wayne Gretzky, arguably the best hockey player ever, is known for his quote, "I skate to where the puck is going to be, not where it has been". Knowing what investments have done requires no skill. Studying markets to project what they will do, is the true art of investment management. Sports, like investments, can either be a game and a hobby, or they can be studied from a variety of disciplines, and mastered as a profession. Knowing where the market is likely to trade requires as much dedication as knowing where the "puck" is going to be or the baseball is most likely to be hit.

We invite you to forward this to others who would appreciate the analogies between sports and business. And, if you are curious and want the inside scoop on what life is like for a professional athlete, or wish to speak directly with Shane about how specifically he is incorporating his on the field baseball skills into the field of investment management, we invite you to call our office.

Wishing you all the best,

Greg Gann