CRASH PROOF COURIER

VOLUME II ISSUE II SPRING 2012

2.1 FUZZY MATH

When Is 9% Really 3%? And Other Stock Market Mysteries.

In our Summer 2011 issue, we reported on the real world returns from Crash Proof-type vehicles, as documented by a major academic study at the University of Pennsylvanias esteemed Wharton School. Though we always understood the growth potential in vehicles of the Crash Proof type, the returns charted by Wharton for the years 1997-2010 were even more robust than wed expected. Subsequent in-house calculations based on the Wharton teams original data extend the chart through January 2012 and confirm that financial instruments in the Crash Proof class beat the Dow handily in total account growth: A starting $300,000 Crash Proof portfolio would have ballooned to nearly $700,000 over that 14-year span. By contrast, a $300,000 investment in the broad S&P 500 would have topped out at $519,000 after 14 years. But the story doesnt end there. Since 1976, Boston-based Dalbar, Inc. has arguably ranked among the nations premier sources of accurate, up-to-date statistics on real world stock market returns. In 1994 Dalbar began releasing its unique Quantitative Analysis of Investor Behavior (or QAIB), which represents an exhaustive annual analysis of trades. The QAIB indicates that the average private investor can expect to fall well short of the officially quoted returns for the S&P 500, regardless of whether his investment is in stocks or mutual funds. Here are just two eye-opening highlights (or lowlights?) of Dalbars comprehensive research from different years: ! Stock investors vs. the broad market: For the 20-year period ending Dec. 31, 2010, the S&P 500 quoted an overall average annual return of 9.14%. In reality, the typical private investor in stocks achieved an average annual return of just 3.83%. (please turn
page)

ARTICLES :
2.1 FUZZY MATH STOCK RETURNS

When is 9% really 3%? And other stock market mysteries. (Page 1)

2.2 SHAMS & SCAMS SENIOR SCAMS

If youre retired, the biggest threat to your wallet could be...(Page 2)

2.3 IN THE MEDIA FLEECING ON FILM

The securities industrys greed and dishonesty have not gone unnoticed in Hollywood.(Page 4)
2.4 CONSUMER REPORT IS WALL STREET PUMPING YOU DRY?

Gas prices have made retirees think twice about...(Page 5)

2.5 WHATS GOING DOWN BONDS SAYING BON VOYAGE

Traditionally municipal bonds were seen as rock-solid investments, but no more...(Page 6)

Q&A QUESTIONS TO THE EDITOR (Page 7)
www.crashproofretirement.com

LOU HARVEY
DALBAR FOUNDER

Founder and CEO of Dalbar, Lou Harvey is relentless in his pursuit of real world metrics that consumers can use in planning their investments.

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Mutual fund investors vs. the broad market: For the 20-year period ending Dec. 31, 2008, the S&P 500 quoted an overall average return of 8.35%...but the typical private investor in stock-based mutual funds achieved an average annual return of just 1.87%. Inflation averaged 2.89% per year during that time.

Psychological instincts having to do with basic

human nature inevitably lead to bad investing decisions.

Or as Dalbar puts it in its QAIB: When the times get tough, investors panic. Bottom line, if the actual S&P wouldve returned $519,000 on a $300,000 investment over 14 years, chances are your individual returns wouldve been substantially less. So if youre chronically falling short of the index, doesnt someone else have to be beating the average? Yes. Its the giant investment firms trading in their own accounts, according to Dalbar founder Lou Harvey. These guys are making huge amounts of money literally being on the other side of the mistaken [small] investor, says Harvey. He adds that the odds are overwhelmingly against any private stock speculator who hopes to compete with a Goldman Sachs or a JPMorgan. Which begs a simple question: if the investing deck is that stacked against youwhy play?

These findings are not flukes. An earlier study by giant mutual fund rating company Morningstar showed that between 1989 and 1994, when mutual funds were experiencing dramatic growth as accumulation vehicles, the typical stock mutual fund quoted an average return of 12.5% per yearbut the average investor in those funds lost 2.2%. Dalbars research suggests several related conclusions: You cannot successfully time the market. You get on too late or get off too soon or vice versa. Your guesses about major market movements are likely to be wrong much of the time.

2.2 SHAMS & SCAMS

SENIORS ARE TARGETED:

Scams targeting retirees have risen dramatically in recent years. Roughly 40% of the complaints that come into the Philly FBI office on a daily basis involve some kind of internet fraud or scam that will typically target older Americans by looking to get access to their retirement income. Brian Herrick, Head of FBI Cyber Crime Unit , Philadelphia

If youre retired, the biggest threat to your wallet could be that smooth voice on the phone or that alluring email promising you anything and everything. Although retirees still control much of the accrued wealth in mainstream America, their $2 trillion loss in 2008 alone, coupled with ongoing inflation, can cause them to be tempted by the promise of easy money. Scams targeting retirees have risen dramatically in recent years.
www.crashproofretirement.com

Roughly 40% of the complaints that come into the Philly FBI office on a daily basis involve some kind of internet fraud or scam that will typically target older Americans by looking to get access to their retirement income, Brian Herrick, head of the FBIs local cyber-crime unit, told Phil Cannella last year in an exclusive Crash Proof Retirement Show interview. The scams fall into several categories:

Phishing Scams: The most prevalent scams rely on whats known as phishing. Scammers use this tactic to obtain from unsuspecting retirees personal information such as Social

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Security numbers, ATM PINs and bank account and credit card information. Phishers use a number of specific methods to get what they want, but usually resort to phone calls, emails, or posts on online social networks in which they claim to be with a government entity or other organization. One recent phishing scam told retirees that they would be subject to a $10,000 fine if they failed to file their taxes by January 31st. Marks were then directed to a phony Internal Revenue Service (IRS) website and told to input personal information. The IRS issued a warning informing taxpayers that the IRS would never send unsolicited emails and would never ask for personal information through the Web. Also keep your eyes peeled for emails that seem to come from known tax-prep software companies like TurboTax or TaxACT. Scammers will hijack logos from these companies to make their emails appear genuine. They will often begin with Dear Sir/Madam or Dear Customer rather than your namea common phishing tip-off. Tax-season scammers will also assume the identity of a trusted financial institution or an investment bank. Besides the tax frauds, the following are just several of todays more popular scams:

Social Security Scam: This occurs when someone

claiming to be from the Social Security Administration (SSA) contacts you and offers a bigger check in exchange for a filing fee. Be aware: Actual SSA employees will never initiate this transaction, are not allowed to charge filing fees, and would be subject to criminal penalties if they tried to.

Real Estate S c a m s : In one

especially insidious scam, youre persuaded to transfer your title or sell your home below market value to a so-called foreclosure rescuer. Struggling homeowners have been assured that they can stay in their homes as renters, then buy the home back at a later date. Tragically, the scammers evict the victim and take the house. These scams represent just a small sampling of what youre up against; the FBIs Herrick reports that there are also auction frauds, work-at-home frauds, prescription frauds, etc. Retirees who want to avoid being victimized must remain informed, vigilant and, sadly, skeptical of anyone and everything. The FBI hosts a web site, www.lookstoogoodtobetrue.com, which lists dozens of the most common schemes. Take a good long look.

Sale of Unregistered Securities: Con artists

will sell unregistered securities to those with self-directed Individual Retirement Accounts (IRAs). These types of IRAs allow consumers to invest in assets unlike ordinary stocks, bonds, or mutual funds. Some unscrupulous financial advisors have led IRA holders to believe that unregistered securities are a good way to make fast money before retiring. In reality, the retirees are participating in a felony and have zero chance of making any money. The Securities and Exchange Commission (SEC) has issued repeated warnings to investors about these scams.

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VOLUME II ISSUE II SPRING 2012

2.3 IN THE MEDIA FLEECING CAPTURED ON FILM The securities industrys greed and dishonesty have not gone unnoticed in Hollywood. Several recent documentaries and feature films have tackled the topic of the 2008 Wall Street meltdown and its causes. We suggest you watch these films, if you havent already.

Inside Job (2010): Oscar winner, Best Documentary. If youre not howling for blood by the time you finish this film, you probably work for Goldman S a c h s .T h e hit film chronicles the 2008 economic crisis from the 1980s deregulation of banking to the creation of murky and ultimately disastrous financial derivatives like collateralized debt obligations (CDOs). Writer/ director Charles Ferguson uses interviews with major players in the economic collapse to paint a disturbing portrait of the climate of corruption surrounding Wall Street as well as the industrys infiltration of politics and academia. The skillful narration of actor Matt Damon provides the connective tissue. While many of the guiltiest parties refused to be interviewed, Ferguson manages to keep his interviewees talking long enough to say something incriminating (or ask for the camera to be turned off). Too Big to Fail (2011): Based on the book of the same name, this HBO offering casts William Hurt as Treasury Secretary Henry Paulson, one of the biggest players

in the 2008 crisis. The film opens with the collapse of Lehman Brothers and follows those involved as they attempt to contain the damage. Unfortunately, the script is far too kind to the real-life players in this saga by portraying them as heroes who prevented a total meltdown of the economy. Some might say those heroes were largely responsible for the crisis. Margin Call (2011): Another dramatized version of the events of 2008, Margin Call is arguably b e t t e r constructed and boasts a better cast than its aforementioned 2011 counterpart, Too Big to Fail. Director J.C. Chandor drops the pretense of telling the true story, instead focusing on a fictional Wall Street firm and its CEO, John Tuld (whose surname may be a play on the name of reallife former Lehman Bros. CEO Dick Fuld). In the movie, Tuld and his senior employees scramble to

unload toxic assets in the early days of the meltdown before the investing public can learn the truth. Margin Call explores the crisis of conscience doubtless experienced by some Wall Street insiders when they were forced to bankrupt their clients in order to save their jobs.

Wall Street Conspiracy (2012): The lowest-budget film in this group, Wall Street Conspiracy nonetheless manages to pack a punch with its matter-of-fact documentary style, and by delving into areas that other films glossed over. Principal among those areas is the common Wall Street practice of naked short sellingthe shorting of stock shares that you do not actually own. Laws against this tactic are seldom enforced. What Conspiracy lacks in frills it makes up for by telling the stories many havent heard, including the heartbreaking tale of activist Darren Saunders, who lost his battle with cancer while fighting naked short selling. The film is available for streaming at www.thewallstreetconspiracy.com.
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VOLUME II ISSUE II SPRING 2012

2.4 CONSUMER REPORT

IS WALL STREET PUMPING YOU DRY?

Gas prices have made retirees think twice about those quick impulse trips to see the grandkids. Relief is not expected anytime soon. And evidence suggests that the pump pain is being inflicted by a now- familiar villain: Wall Street.

U.S. retail unleaded gasoline averaged $3.94 per gallon on April 9, 2012, according to the U.S. Energy Information Administrationup about 57 cents since January 1. And with peak travel season on the horizon, the American Automobile Association (AAA) estimates that prices could climb as high as $4.25 per gallon for regular unleaded in the coming months. Clearly this is a particular problem for those living on fixed incomes. Adults 58-and-over engage in 36% of all leisure travel in the U.S., says the U.S. Travel Association, which represents the domestic tourism and travel industries. Pennsylvanias 1.6 million drivers aged 65-and-over make up about 18% of all of the Commonwealths drivers, according to AAA. The mainstream media usually imply that skyrocketing gas prices are due to supply shortfalls stemming from diplomatic sanctions and/or increasing public demand amid an improving economy. The facts, however, do not support such claims; some data even suggest that oil and gas prices should be trending downward. Dramatically ramped-up gasoline production in North Dakota as well as totally new production areas in Texas and Utah could spur a new U.S. oil boom. Canada is poised to take on added importance as a U.S. supplier in the coming years. Meanwhile, Saudi Arabia says it will increase oil supplies to offset any supply disruptions in the Persian Gulf. All of these factors should cause gasoline prices to fall, not rise. But gasoline priceslike all energy costsalso respond to another major influence: Wall Street. Large investment banks and hedge funds actively participate in the energy industry. They routinely trade energy futurescontracts that allow anyone to buy and sell oil, natural gas, heating oil and gasoline on the New York Mercantile Exchange (NYMEX). Many of these
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traders are actually speculators bidding on behalf of a Wall Street firm. The Wall Street companies have no interest in owning any actual gasoline; they shed the contract before theyre scheduled to receive or deliver a commodity, making money off the price spread in the interim. Commodity Futures Trading Commission (CFTC) data show that major speculators have increased their holdings in gas contracts by 38% since the start of the year. More interest in gasoline futures equals higher prices for the underlying commodity. Wall Street has lobbied hard against the implementation of limits on such speculative trading envisioned in 2010s Dodd-Frank Banking Reform Law. And as we know from so many other episodeswhat Wall Street wants, Wall Street often gets. So if youre sick of high gas pricestell your broker.

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VOLUME II ISSUE II SPRING 2012

2.5 WHATS GOING DOWN

YOUR BONDS ARE SAYING BON VOYAGE

Traditionally municipal bonds were seen as rock-solid investments, mostly because they were supported by a strong tax base from which cities could draw as needed to meet obligations. But no more...

Traditionally municipal bonds were seen as rock-solid investments, mostly because they were backed by a strong tax base from which cities could draw to make interest payments. Times have changed. !The 2008 financial meltdown sent home values plummeting and also contributed to high unemployment. That erosion of the tax base has made municipal bonds so unattractive that the Federal Reserve in March 2010 released a statement interpreted by insiders to mean the Fed was bearish on munis and would no longer be purchasing them. Other factors have had an impact on municipal bonds fall from grace. As was also true in the disastrous mortgage-backed securities market, muni bonds have been propped up by insurance companies. What really matters is whether the municipalitys finances are in good shapenot whether the municipality is able to find insurance for its bonds, says Joann

Small, CEO of First Senior Financial Group. When investing in munis, you need to look at the actual credit rating of the municipality, apart from the bond insurance that can make iffy investments seem like a sure bet. Although some municipalities do have AAA credit, many do not. Harrisburg, Pennsylvania and Jefferson County, Alabama, are just two municipalities that have filed for Chapter 9 bankruptcy protection in recent years. The Jefferson bankruptcy was the largest in U.S. history and stemmed from losses incurred in a shady deal with JPMorgan. Jefferson had turned to JPMorgan when it needed help managing debt from the construction of a sewer system. The county worked out a deal where its $3 billion debt would be converted into complex financial instruments that not only proved to be essentially worthless but were riddled with hidden million-dollar fees. For its role in the boondoggle, Morgan paid penalties of $25 million to the SEC and $50 million to Jefferson County. Morgan also agreed to forgo $647 million in termination fees it had sought against the County. As the debt saga continued, it came to light that

Jefferson County officials had accepted bribes to sign off on the deal21 officials were convicted. According to Small, many American cities teeter on the edge of bankruptcy, but investors may be misled by insurance that can give Triple-A ratings to toxic bonds. It doesnt take much for a city to fall over the edge,says Small. Keep in mind that a bond insurer may not be required to make good on all those missing six-month interest payments until the maturity date of the bond, which can be 30 years into the future!! The only way to dig out of this mess is to get back the tax base that made municipal bonds such a strong investment in the past, says Small. No easy task when you consider that municipalities rely heavily on real-estate taxes. With property values down and homeowners still walking away from their underwater mortgages, tax shortfalls are commonplace. These uncertainties may continue to make municipal bonds a dicey investment for years to come.

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Q&A
Questions to the Editor :
As the tri-state areas leading consumer advocacy firm for those in retirement years, First Senior Financial Group welcomes your questions and comments. Were sure that many of your general concerns will be addressed each weekend on The Crash Proof Retirement Show with company founder Phil Cannella, CEO Joann Small and their special guests. The show airs Saturdays from 11 a.m. to 1 p.m. on WPHT Talk Radio 1210AM. But if you have more personal questions about retirement finances, Medicare, real estate, or a con or scam youd like to see investigated, email Director of Retirement Media Steve Salerno: ssalerno@retirementmedia.tv. Or just call 1-855-34-TRUTH (1-855-348-7884), and press option 2. Steve and his team will get you the information you need! In the meantime, we thought wed ask ourselves a few common questions just to get you started.
How long has First Senior Financial Group been in business?

now to where it will end up, at the major firms we use to safeguard your financial security.
Then how do you make money?

Phil Cannella formed First Senior Financial Group in 2005, although he has been operating companies with the same Crash Proofing goal continuously since 1976. If you have been to one of Phils educational programs, you know that in January 2008 he made the cover of an important trade magazine, Senior Market Advisor, for the remarkable achievement of Crash Proofing $40 million worth of assets. Later in 2008, when Phil saw millions of American retirees being devastated by market conditions, Wall Street greed and the economy as a whole, he created The Crash Proof Retirement Show to educate retirees about safe alternatives to the risk of stocks, bonds and mutual funds.
You say there are no fees for First Senior Financial Groups services. How can this be true?

If you apply your Crash Proof education and all documents have been signed and approved, First Senior receives a one-time fee from the companies that Crash Proof your nest egg. They consider this a marketing fee. However, again, not one dime of this marketing fee comes out of your principal. Your nest egg goes to work for you to see you through your retirement without market risk or ongoing market feesguaranteed.
How experienced are First Seniors advisors?

It is absolutely true. You will never pay a dime for your Crash Proof educationnot at any stage of the process. And, you can walk away from our three-appointment process at any time with no further expectations on our part. We ask only that we be permitted to keep your Crash Proof recipe on file so that one year later, we can compare how you actually did during that year with how you would have done, had you gone the Crash Proof route. And for the record, First Senior never touches your money, which simply moves from where it is

We like to joke that some of our Crash Proof educators are recovering securities addicts. That is to say, they have extensive backgrounds in securities sales with such brokerages as Merrill Lynch, Oppenheimer, E*Trade, Prudential Securities, Janney Montgomery Scott and Shearson/Lehman/American Express, to name a few. Other senior advisors have extensive backgrounds in insurance and/ or financial management.
How can we nd out if your company is reputable?

First Senior Financial Group values transparency above all. We invite you to check us out with the Better Business Bureau (BBB), the Financial Industry Regulatory Authority (FINRA), and the Attorney Generals (please turn page)

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Q&A
Questions to the Editor: (continued)
offices in Pennsylvania, New Jersey and Delaware. We are proud of our firms record of helping consumers just like you safeguard their irreplaceable nest eggs, and we invite you to schedule a visit at our King of Prussia headquarters for a full tour. All senior staff are available to answer your questions.
Are there any studies that validate your Crash Proof methods?

Yes, and there is more research being done all the time. In particular, a study done by a team from the Wharton School, published in 2009 and updated in 2010, shows that in rolling five-year averages, vehicles of the Crash Proof type have easily outperformed the S&P 500 since 1997.
Dont all investments carry some risk?

offer the best option for combined wealth protection and growth. In addition, unfortunately, there are products with similar names that are loaded with fees and/or offer vastly inferior performance. We prefer to take the time to explain these products in detail rather than to try to summarize them in a thumbnail form that might lead to mistaken impressions. Remember, we invite you to bring your present advisor along so that he or she can become educated as well. We will be happy to answer any questions from advisors outside of our industry. Or from financial journalists, for that matter.
THIS MUCH Phil Cannella and Joann Small personally

guarantee: At the end of the process, your nest egg will be Crash Proofed against market risk and ongoing market fees.

All securities carry some risk. But unlike securities, the investment vehicles we work with DO NOT lose value in a declining marketeven during an all-out crashso you can be assured that your principal will never sink beneath the water line. Whats more, the statutory corporations in the industry in which we work cannot legally file bankruptcy, so consumers need not worry about the sorts of catastrophic losses experienced, for example, by investors in Lehman Brothers or GM.
Why cant you be more specic about the product youre selling?

First of allwe dont sell anything. We will terminate any advisor that we discover to be selling a client. First Senior Financial Group educates consumers about the best options for safeguarding their nest eggs. More important, the Crash Proof process is not about a product. It is about a matrix, a complex recipe that will involve different ingredients in different combinations according to the needs and goals of each client. Third, theres a great deal of misinformation and public misunderstanding about some of the products that

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