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Donald Christensen

Author and Newsletter Editor

"Surviving the Coming Mutual Fund Crisis: How You Can Take Defensive Measures to Protect Your Money"

Transcription of Audio Interview, January 18, 2003

Editor's Note: We have edited the interview in this transcription for clarity and readability.

JIM PUPLAVA: Joining me on the program is Don Christensen. He’s developed a reputation as one of today’s most outspoken and highly accurate observers of the changing forces in the investment world. He’s editor of the respected Wall Street newsletter - The Insider’s Outlook. Back in 1995 he published a book called Surviving the Coming Mutual Fund Crisis. This book dared to tell the truth about mutual funds, new high risk investment policies, including the use of exotic derivatives were radically changing the way the mutual fund industry invested your money. His book has recently been updated.

Don, I want to start out our interview with something that you wrote in your first book, which has been updated, called Nine Milestones On the Way to Crisis. You talked about some of the things that we are now seeing as headlines. But let’s start with one of those milestones which you call "Financial Displacement." Tell our listeners what that is.

DON CHRISTENSEN: Financial displacement means that people have their money in one place and because of circumstances, changed it, and they had to find another place to put the money. The beginning of the Mutual Fund mania of the 1990s really started back in the 1980s when people were putting their money in CD’s. Remember the mania for CD’s? They were moving their money from one Savings and Loan company to another, trying to grasp higher and higher interest rate. We know what happened there. The Savings and Loans kept trying to build up the amount of interest they were paying and then they collapsed. But happily, there was insurance that insured those people who could have lost their money. So, when the money and interest rates started going down, and there were changes in laws about what happened in pension plans, a lot of money moved from one type of financial instrument to another. It moved into mutual funds. Specifically, it moved first into bond mutual funds and then into stock mutual funds.

JIM: Another thing that sparks rallies in the Stock Market is when some kind of event theory or in this case, in the 1990s, it was the new economy, the new paradigm theory. It sparked a confidence in the future. I wonder if you might talk about that because certainly we were seeing advances in technology throughout the 90’s. Computer chips got faster, computer screens got smaller, and we had cell phones. All of this technology came on board. I think we got caught up in a lot of hype. And that hype was used to justify higher prices for stocks.

DON: Well, and also Russia fell, Communist countries fell. We thought, well now Capitalism won, so anything we do, everyone will think is great. We won in Operation Desert Storm in 1991 and this gave us a sense of confidence about everything going forward. So anything that you would think of was going to be great. There already had been 15 years of some very good success stories in the Mutual Fund area. And then everybody started jumping on the same idea that was successful for another group of people earlier.

JIM: The other thing that we saw, speaking of mutual funds, is the majority of the money that came into mutual funds came into the Market after 1995. And so you’ve got a broad based group of people, who for the first time were investing in stocks, and that was, as it turned out to be, the final one-third of the Bull Market. In other words, during the first decade of this Bull Market all the way up to 1995, these people were in other things as you mentioned CD’s in the 80’s and Bond Funds in the early 90’s. All of a sudden now, they were stock investors.

DON: This was also due in part because of the changing nature of pension plans within corporations. The 401k became very popular because the sub-pension has disappeared. In essence, corporations were going to their employees saying here’s the way to invest your money, or this is how you’re going to get secure retirement by putting it into 401k’s, which are almost all made up of mutual funds. There were very few options, other than mutual funds by that time. An enormous amount of money went into that and now as we see as we go into a recession, there’s fewer people putting less and less money into those funds. As interest rates went down, people were looking at the supposed great returns that other people were enjoying in the Stock Market and said, "Oh, I’m not happy with 6% in a CD anymore. Look, I’m going to get rich somewhere else." Even though they knew nothing about what it would be to choose a mutual fund or what it was like to experience the ups and downs of the Stock Market. So as more and more inexperienced people got into the market, it made it worse and worse. The mutual fund managers, as more and more of this money came in, took on greater and greater risks to accommodate this money, in a way that 20 years before, they would never have considered to have invested that money.

JIM: This is the surprising aspect about the latter, or the last decade of this Bull Market in the 90’s. These fund managers, who went to school, were educated. A lot of them went to Harvard and went to The Wharton School of Finance. They were taught value. In other words, what a P/E ratio means or what a dividend yield means. In the 90’s a lot of these long established standards of value and risk assessment were rejected by the industry itself.

DON: In part, because they had to accommodate the money coming in. And also they too started believing that it was a new economy. It was a new world -- a new era -- just like they said in the 1920s. They said it also in the 1960s. All the rules of the past were irrelevant. Because this was all changed because of higher productivity and technology. All of the Internet was going to create this tremendous wealth. Everybody believed it up to a certain point. Until it became obvious that what they believed wasn’t true. Also the amount of money coming into the market was starting to slow down.

To keep a Bull Market of that nature going up and up and up, the amount of money coming in had to come in faster and faster, at a greater and greater amount and that didn’t happen. Eventually it ended. It always happened like that in the past. The mania of the 1960s during the Go-Go years was like that when mutual funds enjoyed this kind of mania before. It happened in the late 1920s in exactly the same manner.

Now what I was trying to do in my book, was to point out, look, this is what happened in the past, at least twice before, and everyone said, well most people said "Oh, those people didn’t know what they were doing. Now we’re smart. Now we’ve been educated. We know how to analyze these companies." But as it turned out, the Mutual Fund managers who had promised their shareholders that they were looking out -- that they had the professional know how to analyze what companies to buy and what the standards were -- and we end up with, for example, Enron. Who was analyzing with all of these professional managers, analyzing what was going on? How did Enron happen?

JIM: The other aspect that continues to this very day, which is a big concern of mine, is that we saw the proliferation in the 80’s and in fact more so in the 90’s of new innovative financial products. In particular, derivatives, which are grown exponentially. I wonder if you might talk about the danger that these high risk, elaborate type of financial instruments pose -- not only to the financial system, but also to the funds themselves.

DON: Twenty years ago, ten years ago, fifteen years ago, using these esoteric financial instruments didn’t exist. They’re very complicated and we haven’t even fully experienced all of the negatives about them. We see them in money market funds and they’re in bond funds. You don’t even know what types of instruments are going on. A simple example of how mutual funds raised their risk level was when for example, most mutual funds decided to change their policy. They were allowed to invest in what is called, so-called, unseasoned companies or companies without a track record of three years or more. They were able to lower that standard which had been the standard of the industry for a decade to allow them to buy into new companies, which were the dot com companies as it turned out in the 90’s, to use the money, but it raised the risk level. Now for awhile as those stocks are going up in part because the professional managers kept buying the stocks and pressing the prices up, it looked great. But eventually, the business part had to match the fantasy of the price. That is a small part of the many, many high risk techniques that the mutual fund managers started taking on in the late 1980s and into the 1990s. We’re not completely done with the potential downslide of the risk that was taken on in the 1990s.

JIM: In your chapter, "The Final Scenario," you talk about nine milestones. Your last one I thought was so prescient, which is the Revelations of Fraud. Now, you wrote this in 1995 before we were talking about the Enron’s and the World Com’s and the various issues. Talk about that for a moment and why, in your opinion, did Wall Street miss this?

DON: Well, as it is always in a Bull Market, a lot of people want to look the other way. Everybody’s getting rich. They don’t ask questions. Some people ask questions. Some people will rant and say, "Wait a minute. This is not possible." And others will keep the fantasy going. The fantasy has to keep on going and eventually, illegally, the fraud goes on. But what really happens after a Bull Market is somebody has to get the blame. That’s when you realize in retrospect that things were not on the up and up. And so The Revelations of Fraud. Fraud goes on all the time, but somebody has to be punished.

We now see a few individuals in the whole scheme of things. It’s really only a few individuals being singled out for a special punishment as if those are the people that caused the problem. It wasn’t just those people. It was the whole atmosphere. Everybody was guilty. Everybody involved was guilty, because they wanted to believe that an Enron or the dot coms as analysts at some previously well-respected brokerage firms were handing out great news on these fantasy companies. They wanted to believe it, because they were getting rich. The evidence that they were getting rich was just to look at their daily portfolio value.

So, what happens after is there’s a shake out -- always after a major Bull Market. I don’t see that the shake out is completely over. It says to me with the downside of what we’ve seen so far, we haven’t reached the depth of disillusionment that would match the fantasy of illusion that we experienced before. So, I think we have a way to go, particularly in the mutual fund industry. The mutual fund industry and professional managers who are supposed to look out for the so-called little guy, didn’t do their job. So far they really haven’t been punished. People are walking away. They're their taking money out of mutual funds. We haven’t seen the punishment that we saw in the early 1970s against mutual fund managers and in the early 1930s when the same kind of phenomenon happened. So, we’re not there yet. I still see complacency.

JIM: This surprises me too. Your comment about how people were believing that it was just a few bad guys -- the guys that ran Enron and WorldCom -- was very similar to me to the S&L crisis where everything was Charles Keating’s fault, rather than the industry itself. That’s what I want to get to today. One of the problems that I see in this industry, and I see it also in the financial industry as a whole including the financial media, is that we continue this charade of reporting every quarter. I call it the earnings game, where these managers will get on cable channels and they’ll say, "Oh, this is a great market. This company beat estimates." One of the examples that comes to mind, is in the third quarter of last year, I think it was October 9th, the day the year-end rally began, IBM reported their earnings and they beat estimates by three cents and yet their real earnings were down 18% year over year. This is one problem. I don’t know how you view this, Don, that I see in this industry today. We’re still not talking about real numbers, where real problems are on the balance sheet with debt that isn’t disclosed. We’re talking about inflated balance sheets that have a lot of worthless goodwill on it. So we still have a long ways to go to clean this up.

DON: Yes, on the other hand, there’s still a lot of money in this market. Anytime there’s a glimmer of good news, it will rush over there. Until we really get to the bottom and really start looking at these things very carefully, then you’ll know you’re near the bottom.

I think the sudden emphasis that we got from the President’s decision or plan to remove taxes on dividends is a very interesting development. Because who cared about dividends in the 1990s? All we cared about was capital appreciation. See, now we’re getting to the point of looking for something tangible. In the early 1970s and in the 1930s following the mania of the same kind of capital appreciation, the emphasis went back to dividends so that they could count reality. I think we’re going to see, if dividends become celebrated, then we're going to see more and more companies paying dividends. What happened in the past was, oh paying out dividends is a bad idea because we want to use that money to build our business so we can encourage growth. So, now we see a little shift to tangible income, which I thought was a dramatic development. It’s a shift away from the emphasis of capital appreciation. So, in a way, it’s kind of a good little sign, this is looking at dividends. Who talked about dividends four years ago? Nobody.

JIM: Has it surprised you to some extent, that we have now had three years of back to back negative returns, something we haven’t seen in quite some time and yet the vast majority of investors still remain invested in their mutual funds unlike the 30’s or the late 60’s when the Bull Market ended. Investors abandoned mutual funds or unit Trusts, as they were called in the 20’s, or for example, in a similar way in Japan in the 90’s.

DON: That’s why I believe there’s still complacency out there. There’s still the belief that this is going to turn around fast. Some people are down 50, 60, 70% in their investment, and a lot of it is in their retirement funds. That’s a lot of money and they haven’t given up yet or they haven’t cashed in yet. I believe we’ll see the bottom when people actually do cash in. Now in the 1970s, people really dumped their mutual funds when there was a little bit of a recovery in the market. That’s when they sold out. In 1974, 1975, after there was a recovery, people said, "Well I’m getting out now." while they weren’t whole, but they were a little bit better. That’s what we’d like to see again.

JIM: I suspect that’s what we’ve seen with some of these rallies, like the late rally that started in the last week of July and October. I was noticing mutual fund out flows. Money was coming out of the market in July and August and September and October. So the old idea, buy on the dip, seems to me you have some of those individuals that are saying, "You know, what if I can get back a little bit more? I’m getting out."

DON: Yeah, sell on the rally. We’re seeing that among corporate insiders. They’re selling. They were selling the last few months, and they’re selling when their shares are going up a little bit. Which is, if they’re bailing out of their own company, that’s a bad sign. So, we’re told it’s only been twice before in this century where there were three years in a row of a down market. Now I believe there was only one time where it’s been four years in a row and that was in the 1930’s. So everyone’s thinking well, it couldn’t possibly happen again. The complacency of such a thing will prove a lot of people wrong.

JIM: This is one danger that I see here, in the sense that we’ve had three years of back to back losses for the Stock Market. But on the other hand, Don, people have seen the price of their homes appreciate, so maybe they're not feeling the full impact of the Bear Market? But what would happen if for example, things don’t go well in Iraq, the fourth quarter earnings don’t come in as expected, and all of a sudden the little guy finally decides, I don’t know what event it is, but finally decides to go over the edge and says, I want out. Then this trillions and trillions of dollars of mutual funds will have to come out of the market and a lot of these fund managers own illiquid securities, which you talk about in your book.

DON: The percentage of those illiquid securities has happened a couple of times this year already. Where the funds are required, by law or by their investment policies, to only have say 15%, but as the assets decline, the amount of illiquid securities of the percentage of the portfolio gets larger, then you find out that to sell those illiquid securities is almost impossible. This makes the value of the fund almost collapse. You’re going to see more of that as that happens, because who wants to buy those illiquid securities? When the funds bought them a couple of years ago, or whenever they did, there still was a market. But as there is less and less money floating around, or willing to take on the risk of a illiquid security, there will be fewer and fewer buyers. So what is the value of those illiquid securities? It is very difficult to determine. Then there will be a moment of real crisis. When that happens, could happen even in the Money Market Funds. Unless you’re in a say, 100% Treasury Money Market Fund, what else is going on in those Money Market Funds? So far we haven’t had what is called breaking the Buck. In other words, the money market managers are still redeeming each one of those shares for a dollar, as you put in. At some point of the future, and I don’t know when it will happen, if the crisis gets worse, there’s going to be an obvious pricing problem with some of these money market funds. Then you’re really going to see a problem. It might be at that point, if the Fund companies don’t jump in and say we’re going to save this fund so it doesn’t break the buck, that could be the time when people get really concerned about the mutual fund concept.

In the meantime, I don’t see any widespread blame. Of course one of the problems is that the mainstream press, like Kiplinger’s Financial Magazine, or Money Magazine, or some of the mainstream press, they’re the ones who promoted these mutual funds with little question. And now when the problems are coming up, are they going to turn around and say wait a minute we missed all this themselves? See that’s part of the problem. We’re not looking at all of the problems that are going on with the mutual funds and the secretary of the press doesn’t want to report it. On some of these television and radio shows, when you talk about quarter-to-quarter analysis, some of these places would describe trends every hour. What was happening by the hour!

JIM: I wonder if part of this was conflicts of interest. I used to do television news back in the early 90’s and a lot of my stories were canned on the evening news because of various advertisers that we had on the program, You mentioned some of the financial magazines, I mean most of the advertisements in those magazines, come from the fund industry itself. One of the exercises I do every year, Don, right around Christmas time, is to get all the financial and business magazines. I take a look at their forecasts for the year. They’re forecasting the same thing. Another good year for the market -- another good year for the economy. Nothing has changed in the last three years.

DON: Right. What did they say in March of 2000? I always ask that. What were people saying then? Who said what and if they were saying whatever they said then, which was probably very positive, why are they being asked again? Who keeps believing it? However, I will say that the subscriptions for those magazines have dropped considerably. Even the magazine Mutual Funds went out of business. It was one of the hottest magazines in the 1990s. Well it went out of business earlier this year. That magazine, by the way, gave my book a very bad review when it first came out. I wonder why?

JIM: I want to talk about another risk that I think investors may not be aware of and that is the warning that you talk about in your book about misnamed funds or misleading investment objectives. I think a lot of people would be surprised to look at some of their money market funds and find out that they're using derivatives inside the account. I had an individual that had come in to see me. He was looking for income. He had retired, received social security and a pension. He was living off of his bond investments. I pointed out to him that one of the reasons he had lost a lot of money was that in this bond investment, the words "High Yield" implied that he was invested in low quality, low credit junk bonds. He had no idea that he was carrying that kind of risk inside the fund.

DON: It’s almost impossible to analyze what the fund has anymore. As I mentioned before, the fund companies in the early 1990’s changed their investment policies. It was quietly done during a period when people were happy with what was going on. So once upon a time even bond funds --they call it investment grade bond funds--well it was truly an investment grade bond fund. Then they changed the regulations so that they could include a high percentage of junk bonds within the investment grade bond fund and what the mutual funds hoped to do was, well if I juice it up with some junk, then I’m going to get on the top of the performance list, I’ll get more money. Little caring, apparently, that what that meant in raising the risk for the individual investors, who were trusting the people who ran mutual funds, that the name was correct.

You’ll see that everywhere. You’ll see it in so-called dividend or income funds. With dividend funds -- well some of those funds if you go down the list, you’ll find out they have very few stocks at all that are paying dividend. It’s very difficult. That’s why from my point of view, if you want dividend paying stocks, it’s easier to put together a portfolio of seven to ten stocks that are really good stock paying dividends, than it is to try to go through this list of hundreds of mutual funds to determine if they're doing what they really want them to do because you can never tell by the name. That’s a real scandal that seems to be glossed over.

Then there are funds that are called blue chip growth funds. You find out that they have new companies in it. There’s a kind of euphemism within the mutual fund industry and the press is, oh that was a style shift that the Mutual Fund managers got off the track a little bit. What do you mean they got off the track? The shareholders are the ones who hire these people to do what they were expected to do or what they were sold as and it didn’t happen. You can never tell from day to day. As you know, there are more funds than there are actually stocks. It’s more difficult to sort through. It’s impossible to sort through those funds.

JIM: Two other aspects that you point out in the book, that investors may not be aware of (and this probably explains a lot of the "group think" that we see on Wall Street today), is this concentration of investment decisions in the hands of a few professionals. And then on the other hand, the power of those fund managers or professionals to force companies to enhance their stock values.

DON: Exactly. That’s whatever the standards of the moment are for enhancing stock values. In the 1990s it was all capital appreciation, growth, growth, growth. Every company had to show that they were growing, growing, growing at some certain percentage every year. If they didn’t, they got punished. The professional managers dumped that stock and that stock plunged. Then they ran over to what the darling of the day was.

If you were really to sort the number of people who control most of the money that’s going into the stock market, it would be just a few thousand people. In the days when the individual investor owned stocks and held onto them without having to pay a fee, by the way every month to someone else, there were hundreds of thousands of people determining where the money was going, with thousands of different perspectives. But now because it’s so concentrated and in a relatively few hands, the mind set is all the same. Again, whatever the flavor of the month is for determining what the value of the stock is, that’s where everyone runs to.

Now, it may become as I mentioned earlier, dividends. The higher the dividend, the better. Now everyone jumps on to the dividend story, then after that runs its course or becomes silly in it’s own right, then they’ll run off to some other thing. It has become more dramatic and some volatility of the market and portions of the market within the market become enormously up and down crazy. It didn’t used to be like that in the 50’s and even in the 70’s when the mutual fund concept wasn’t as strong as it was in the 1990s.

JIM: Well let’s turn the coin a bit and flip it over to the other side. What can an investor do from a positive defensive measure to protect their money if they’re going to be invested in funds?

DON: Well, in part, many people have to be in funds because they're in 401k plans. Most money is in 401k plans. If you look at American money and those funds within the offering that you get at your company, they aren’t necessarily the best within those categories. People are going to have to spend. I think we’ll start seeing a little grass root thing going on where people start questioning what their company is offering them as part of the fund. When you’re faced with those very limited selections, what you have to do is to look at what those selections are and see if indeed, as best you can, do they match the objective that they claim to be? And if they seem off the wall, you’re going to have to do some research looking at those prospectuses or do some reading of analysis of the funds like Morningstar or other analysis. If you don’t feel comfortable with them, then you’re going to have to go down the next tier of the risk exposure. So, analyze within the 401k if you’re limited by the offerings that you have by your company.

Beyond that, it’s looking at the turnover in the portfolio. That has to be listed in the prospectus. What’s the turnover that this portfolio does every year in the stocks they buy and sell? Some of them are up to 200, 300, 400%. The standard is if it’s over 100% or if it’s nearing 200%, that tells you that you’re going into a fund where the mutual fund manager is actually acting like a day trader, just flipping these things trying to find a little capital gains there, in which case then, you’re exposed to in taxes. So, that’s one portion.

Another part is looking at the fees. Because fees can really eat away at your return no matter which way the Market is going. For example with a stock mutual funds, try to keep between one and one-and-a-half% as the fee. So these are a couple of little tricks you can look at. Also, are they using margin? Because there are some funds using margin, buying stocks on margin. Those are a couple of the little things you would look at.

For me, I think it’s easier to do an analysis, if you want to own stocks or to own a portfolio stocks on your own. Do that analysis. You look at those 500 stocks on an index fund, well you know, all those 500 stocks aren’t worth owning. It’s easier to look at those 500 stocks and decide, well maybe I’d like to be in stocks and this is the criteria I would use, than it would be to look at 4,000 funds and try to determine which of those funds would I be in. So, I’m still an old time guy who thinks that being an individual investor isn’t so bad.

JIM: Well certainly today if, let’s say a person’s looking for a dividend income or looking for something that is going to be much safer, you can certainly be more specific in what you are to achieve in your investment portfolio. As you pointed out, one of the problems with some of these fund managers is not only just the turnover, although this is a more volatile market, but what you think the fund is doing on Monday may be entirely different in what they're doing on Friday.

DON: They might even have a different manager. You can’t even keep track of who the manager is. A lot of them are being fired left and right. So you don’t know who’s in charge anymore or what they’re invested in. It’s just a mess. I think it’s a mess. The mutual fund industry needs to go through a period of reform. It went through a period of reform in the 1970s. It almost went out of existence by 1974. It went through a period of reform in the 1930s, which led up to the Investment Company Act law in 1940 and the mutual fund industry has not acknowledged as yet that they had a part in this nonsense. I think they're getting closer, because they know that they’re getting less and less money. At some point, people are going to turn against them. In the meantime, I keep seeing these adds where they're this is the five-star fund and that’s the four-star fund. What were those starred funds? How did they do? Is there no memory? Do they think that people have no memory of how much they lost? But we haven’t gotten to the reform part and that’s why I say we’re not done yet.

JIM: You wrote this book in 1995 and it was well ahead of it’s time. Certainly if somebody had picked up that book, they could have saved themselves a lot of grief and loss.

DON: It’s funny. A couple of weeks ago, The Kansas City Star, picked up this book, buying the 1995 and thought it was a new book. They said why is he telling us stuff that’s already happened? So they thought I was rehashing old things, because it had already happened. In reality, I had written it seven years before it happened, but they reviewed it as a new book.

JIM: Now in the new edition, which has been completely updated and is called Surviving the Coming Mutual Fund Crisis, what have you added and what has changed since the first publication in 1995?

DON: Well, the things that have changed are the addition of Roth IRA and some of the inflation index bonds that didn’t exist in 1995. Those were great instruments when they were created and very few people wanted them. Now they’re looking at them. Now they’re even coming up with inflation index bond funds. But six years ago, when they were invented, nobody wanted them. The principles remain the same from when I first wrote this book. The standards for determining whether something is of value, or P/E ratios, or dividend yield and all these kinds of things remain valid.

The difference is now we have to really start applying this, because going forward we can’t afford to lose or keep losing money like this. People have been burned and probably they’ll be fewer people in the future going back into it. But the fear I have is about something else, some other speculative financial instrument. Maybe it’s already been, like real estate, and it will rise up and then they’ll be another mania there. And then people will lose their money again in something else. It could happen to gold. I don’t think we’re there yet with gold, but if you start seeing gold get a little speculative interest here because it’s tangible. Usually that’s what happens afterward. Beware of any new thing that seems to be, oh that’s the answer and everybody runs to that, because there isn’t any financial idea that can make everybody rich at the same time and that’s what you have to remember.

JIM: Don, in your years of monitoring the investment scene, what would you say is the most important thing that you have learned?

DON: Well, the most important thing I’ve learned is to disbelieve just about everybody and find out what it is that you’re truly comfortable with and where you want your money. It doesn’t mean, the biggest mistake I made when I was a youngster and a lot of people keep making is to think, "Oh I have to be in the perfect place to make the most money right now." And if I’m not, I must be a fool. That isn’t how you do it. You find out what it is that you’d be comfortable with and understand what the potential is. Don't try to always be at the right place at the right time, because you never will be. If that means that volatility level of risk that I’m willing to take on, means I can only have double savings bonds or treasury bills or treasury notes or CD’s, then that’s fine. You can have a happy life planned based on that level risk. Don’t always think that you have to be in the place that makes the most money at that moment.

JIM: And finally Don, before we end this interview, tell our listeners about The Insider Outlook. What do you write about?

DON: The Insider Outlook is a newsletter, or market letter that follows the trading activities of corporate insiders, the buying and selling of what corporate insiders buy and sell. That information is made public and I track that to see what they’re buying and selling. There has not been much buying in the last several months. There was a little bit of buying earlier in this year, but not enough to get excited about. Now in this late year rally, there’s been a lot of selling, which is not a good sign.

JIM: Now that should tell you something when the pilot and the co-pilot of the plane have jumped out with their parachutes, where does that leave the passengers?

DON: Exactly. There’s a difficulty with corporate insiders. They get most of their stock through stock options, which for many of them now are worthless.

JIM: The name of the book is called Surviving the Coming Mutual Fund Crisis. It’s by Donald Christensen about how you can take defensive measures to protect your money. Don, I want to thank you for joining us on the Financial Sense Newshour.

DON: It’s my pleasure.

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