for these monthly updates in the first issue of each
month. This allows us to get the closing month's data.In these updates, we�ll be covering each of the
major models mentioned in the Safe Strategies book:1) the 1-2-3 stock market model; 2) the five week
status on each of the major stock U.S. stock market
indices; 3) our new four star inflation-deflation model;
and we�ll be 4) tracking the dollar.
market correction seemed to bottom on my birthday (August
Federal Reserve finally lowered the discount rate and Wall
Street breathed a sigh of relief.And I found it interesting that right about the
time I hedged my portfolio, the market started to rise.However, to me, this is a very mixed market and the
future is still quite unknown.
subprime crisis is far from over.And if the Federal Reserve keeps lowering interest
rates, then what is going to happen to the dollar, which
is already at the brink of a cliff (i.e., all-time lows),
when people start going elsewhere for better interest
rates?It�s a very interesting situation.
let�s look at what the market did in August.
II: The 1-2-3 Stock Market Model Is in YELLOW LIGHT MODE
and That�s Good for Stocks
1-2-3 Model is borderline yellow light.The Fed is not in the way and has actually started
to lower interest rates.That�s positive.The market is not acting that well, but with a
slight change it could be positive.And, here�s the one I�m a little concerned
about: the PE ratio of the S&P 500 is at about
to the model Steve Sjuggerud developed (and we presented
in Safe Strategies for Financial Freedom), if the S&P
500 drops below 17, the market is positive.However, here�s my precaution about that one:we are in a secular bear market where PE ratios
expect them to keep falling until we get to single digits,
which may take another 10 years or so.As a result, I�d expect this variable to be
positive for a long time now, even though the market may
we�ve been in yellow light mode since December 29th.And the average yearly increase in the S&P 500
is about 10.9% during yellow light mode.
look at what the market has done over the last five weeks
and compare that with where the averages were December 31st
data are given in Table 1.
Table 1: Weekly Changes for the Three Major Stock
Notice that the market is still up for the year.In addition, even though the media claims that the
market is highly volatile, for the five year period from
1996 through 2001, the weekly change for the S&P 500
averaged about 2% and the weekly change for the NASDAQ 100
averaged about 4%.Compare
that with the so-called highly volatile data from the
month of August shown in the table.
The market reached a low in mid-August and then recovered slightly.I gave my comments on the sub-prime crisis recently
and I don�t think we�re out of danger by any means,
although the Federal Reserve is now injecting massive
liquidity into the market. No predictions on where the
market will go from here, but I believe we�re in a
secular bear market and we haven�t had the second major
leg down yet.Is
this the start of it or just a minor correction in the up
phase?We�ll have to see.
An interesting observation is that years ending in "7" have not been kind
to the markets historically as compiled by financial
astrologer David McMinn (his website is at www.
look at what has happened over the last 120 years.Is this just an interesting correlation or can we
expect a 10-50% drop in the DOW over the next few years?
BEAR MARKET YEARS ENDING IN
ending in 7
BM: Bear market fall >20%; CM: Correction
market fall >10%<20%; DJIA:
Dow Jones Industrial Average.
So will the pattern continue in 2007?
III: Our Four Star Inflation-Deflation Model
As I�ve stated many times in these monthly updates, we are in an
inflationary bear market.The bear market is not necessarily reflected in
prices but in PE ratios.PE ratios will continue in a downtrend even though
the Dow is making new highs.And the inflation is obvious, but simply masked by
government statistics.Okay, so now let�s look at the results for the
last six months.
We�ll now look at the two-month and six-month
changes during the last six months to see what our
readings have been.
model once again shows that inflation is winning slightly.
the May report, I said the Federal Reserve stopped the M3
statistic, claiming that it wasn�t useful.But it shows how much money the Federal Reserve is
current estimates for that figure run at 13% annually.
says there is a huge inflation underlying what is going
hasn�t been reflected in the price of gold because the
European banks have been selling gold to keep the price
down and make the markets look more stable.However, they announced on June 1st that
they would not sell any more until September.And now gold is moving higher.In addition the total score is at 3.5, which is the
highest we�ve seen since I�ve been tracking this
IV: Tracking the Dollar
The dollar hit a multiyear low against the pound when I was in
dollar in my opinion looks really weak and could now fall
at the data in the chart because it really says it all.
The dollar has fallen every month since the January close, although it
didn�t go any lower last month with the subprime crisis.During the year, the dollar has fallen 5.9%, so
that is real money that you�ve lost on a worldwide
the stock market is up on the year?No, with respect to the fall in the dollar, you are
not even covering inflation if you are matching what the
overall market indices are doing.
Tharp: Trading coach, and author Dr. Van K. Tharp, is
widely recognized for his best-selling book Trade Your
Way to Financial Fre-edom and his outstanding Peak
Performance Home Study program - a highly regarded classic
that is suitable for all levels of traders and investors.
You can learn more about Van Tharp at www.iitm.com.
and Big Banks: Making Things Purposefully Obtuse
by D.R. Barton, Jr.
good friend and market guru extraordinaire, Christopher
Castroviejo, suggested that I get up to speed on what�s
happening in the intricately linked worlds of conduits and
these terms are confusing for you, please read on, and
I�ll try to put them into simple English�
Christopher suggests something, I usually listen because
he�s adept at identifying big issues.And this issue of �off balance sheet�
liabilities for banks has all the components of a pending
involves staggering amounts of money.
is an area of accounting alchemy that has little to no
liabilities are easily hidden from investors.
potential problems are big enough that they will
require government bailouts if the situation in the
credit markets worsen.
those items got your attention, let�s look at a summary
of the issue and then clarify what�s going on.
have been providing �off-balance-sheet� guarantees to
do this to generate revenues in the form of fees paid to
the bank by the conduit company. But the off-balance-sheet
guarantees mean that the potential liabilities do not show
up (at least directly) in any of the bank�s financial
practice is actually legal from an accounting standpoint,
but the lack of transparency causes lots of issues.Usually, these conduit companies traffic in
extremely safe assets. They buy assets (like account
receivables and securities) from companies and then sell
short-term debt instruments (called commercial paper) that
are backed by the assets.For years, this has been a relatively safe, cash
generating monster for the banks.
more recently, several things have happened to make the
�safe assets� much less safe:
companies have moved from debts backed by a single
asset to ones backed by multiple assets and even
multiple asset classes, reducing transparency.
sheer magnitude of the assets being collateralized
(over $3 trillion).
rise of sub-prime mortgage assets that has infiltrated
many conduit companies.
short, banks are on the hook to guarantee massive amounts
of short-term debt that was once thought extremely safe,
but is looking more tenuous by the day.And the dollar figures are mind-boggling.
this day and age, we throw terms like billions and
trillions around pretty casually.But $3 trillion is a massive number.It�s so big that only two countries on the planet
have an annual Gross Domestic Product (GDP) that exceeds
that amount: the U.S. and Japan.
week we�ll look at how the pieces fit together and try
to simplify how all of this works.We�ll then look at the potential for this turning
into a real problem and why traders and investors should
care (and we should!).
About D. R. Barton:A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena where he is one of the most widely read and followed traders and analysts in the world.
He is a regularly featured guest analyst on both Report on Business TV,and WTOP News Radio in Washington, D. C., and has been a guest analyst on Bloomberg Radio.His articles have appeared on SmartMoney.com and Financial Advisor magazine.
are told that the intelligent way to make decisions is
to keep your feelings out of it. And it is practically
an unwritten law for traders not to feel their feelings.
Yet it is very practical and useful for traders to be
willing to feel their feelings. ~ Van K Tharp
Feelings� Nothing more
I am sure that even the thought of
the word can cause many �thinking� types to go into an
�I control my emotions; I don�t
do that mushy stuff� can be heard ringing through the
brains of sensible professionals everywhere, and even
better: �feelings are for women!� Now isn�t that a
doozy of a belief! (Did that push any buttons ladies?)
I believe that there is a distinct
misunderstanding about what feelings really are and some
people are actually fearful of their own feelings. This is
especially evident among the male population. (Did that
push any buttons guys?) What if feeling your feelings led
to a complete emotional breakdown? That could be a very
scary thought for people who have spent their lives being
It doesn�t have to be so drastic.
When Van teaches the psychological
exercises in our advanced Peak Performance workshops, one of
the primary objectives is to push people�s buttons and
stretch them outside of their comfort zones. When this
happens, we notice people�s reactions fairly quickly.
The thoughts that are racing around in their heads become
much more noticeable in the body language and behaviors
that start to show up in the room. Basically, people react
to things that make them uncomfortable and this
reaction is written all over them. Have you heard of the
only 7% of communication comes from our actual words, 38%
from the tone we use and 55% is communicated through our
body language. From what I have seen in the workshops, I
would definitely have to agree.
So there must be some type of feeling
going on inside of those bodies�
But getting people to recognize their
feelings, behaviors and reactions is a completely
different story. Many of us have become so attuned to what
we call �feeling� certain ways that we are completely
shut down to what the real �feeling� is and have
trouble explaining what is actually occurring in our
This week, let�s look for the
actual physical sensations rather than just using the
fluff words to explain what is going on. We can easily say
I�m feeling Stressed, Exhausted, Frustrated, Angry,
Moody, Excited, Nervous, Hurt, but how do we change them?
Maybe noticing what they actually
FEEL like physically is the first step.
Let�s look at the fluff word of
feeling �stressed.� Here�s an example of mine: When
I am feeling �stressed,� I feel tenseness and
tightening in my shoulders and in my neck muscles. I can
feel myself clenching my teeth and feel the tightening go
up through my whole skull, making my eyebrows furrow and
eyes ache. I feel myself leaning forward, hunching my
shoulders, causing my stomach to crunch up, which in turn
makes my breathing shallow. I feel myself swallow more
frequently and feel my fingers hitting the keyboard much
harder. When I focus on this �stressful� thought, I
purse my lips, my temples start to pound, and I
feel a deep ache in my stomach in one specific spot.
So what�s the point?
Ever had any of these feelings when
trading? Do you think that I can change a lot of these
things just because I am noticing them? You bet I can.
The more in tune we are with our
bodies and the more we notice the actual physical sensations that we
are experiencing, then the more aware we can be of
shifting ourselves out of the ones that aren�t useful.
Especially when trading.
In the instance above, I was able to
put myself into this feeling state very easily and I
decided to experience it while writing this article. But I
can just as easily shift out of these emotions and
feelings because 1) I am consciously aware of them 2)
I�ve practiced a lot, and 3) I �believe� that I can
shift out of negative feeling states.
So right now I�m actually feeling
quite happy (another fluff word by the way�).
Some feelings can easily be shifted
just by moving our bodies, changing posture, exercising,
thinking about something else, etc�and of course there
are a lot of deeper, emotional wounds and feelings that
require more intense work (but that is way too much to
So let�s just stick to the basics
for now and look at how many �fluff� words we use
about the way we are actually �feeling.� If we choose
to just say �I�m stressed� then we can keep
ourselves stuck there unnecessarily, rather than dealing
How many times do we ignore what is
going on and just make ourselves feel better by ranting
and raving, beating ourselves up or covering up these
feelings with bad habits? You know what I�m talking
This week, my challenge for you is to
recognize three fluff words that you use regularly �
especially those relating to your trading, and really
notice what is physically going on in your body.
See if you can �feel� a tingle, an ache, a tightening,
a pounding, a blush, grinding, burning sensation, dry
mouth, etc�so that you can relate it back to the beliefs
or thoughts that may be causing it.
Can you recognize when your buttons
are being pushed? How does that �feel?�
Here�s a hint�observe yourself
behind the wheel of a car when other drivers aren�t
behaving the way you want them to. What are your reactions
and what physical sensations occur in your body?
And guess what: these �feelings�
are showing up in other areas of your life too.
Additional Resources recommended by
Van has written a brilliant article titled Feeling Your
Feelings in which he goes into the subject of feelings
in depth including COEXs, alexithymia (a condition of not
feeling your feelings), and some of the models for change.
This article is used in our Peak 101 class and is
available as a 9-page special report for $39.95. However, I am
offering it to our readers for $9.95 so that you can
continue your studies about this subject if it really
interests you. Click
here to purchase a pdf download.
About Melita Hunt: Melita is CEO of the Van Tharp Institute. She has had a diverse career working in the fields of telecommunications, accounting, marketing and sales, real estate investing, and ultimately speaking, coaching and writing; which are her passions. Her energy and enthusiasm is the cornerstone of her writing and speaking success and she has a special interest in inspiring people to be the best they can be. She has an innate ability to simplify complex subjects and enjoys traveling the world and sharing her experiences. She has worked throughout Australia, in London and is currently working in the USA. You can contact Melita at