There is a lot of money looking for a place to go right now. And that's going to increase in the near future. For example, the government cannot afford to support a lot of people on social security. It just cannot do it. And so the alternative is to encourage people to save for retirement and that's happening now. And all that money flows into mutual funds and those funds have to be 90% invested. That's just the way it is.

I still think there are a lot of negatives around (such as our huge debt and absolutely no sign of anyone doing anything about it), and we're still in a secular bear market (meaning PE ratios will continue to trend down). But that doesn't mean that prices won't go up with inflation or a shrinking dolllar.

However, the most important point is that the stock market was in a strong uptrend. We had a big down day, but that didn't even amount to a 10% correction. And the market direction looks like it is resuming up. Listen to the market.

Posted by Van K Tharp at 04:34 AM | Permalink | Comments (1) | TrackBacks (0)

We'll be publishing an article in Tharp's Thoughts shortly on the NON-Random nature of the markets. It's a simple, but very effective study. If you plot the percent changes in the market, they should be normally distributed. But they are not. The curve is very steep around the mean and has huge fat tails. This means that changes that you mght expect every 100,000 years on a normal curve will actually happen every 5-10 years.

Take the big move last Tuesday. It was one of the large point moves in the DOW, but only among the top several hundred percentagewise. Nevertheless, in one day it wiped out all of the profits for the year. And it all happened because of the global interdependencies of the markets. China blew up, Europe blew up and then the U.S. blew up.

I'd also like to point out that 1) the VIX has been at historical lows. 16 of the 50 lowest readings of all time on the VIX have occurred in 2007. This means that people are extremely confident about the market. At when the VIX nearly doubled.in a few days...news commentators were saying that everyone is panicking. That makes me laugh. The all time high on the VIX is 150... and commentators are saying that people are panicing when it hits 20.

Posted by Van K Tharp at 01:47 PM | Permalink | Comments (1) | TrackBacks (0)

The business section of USA on Friday had a feature article that said the Bull Market is just about over. They basically said 1) we've been in a four year bull markets since Feb 03; 2) bull markets seldom go beyond 4 years; and 3) the current uptrend of 9 months without a significant decline was almost unpecidented. And all that leads to a conclusion that the stock market is going down.

But USA isn't the only one. Steve Sjuggerud (whose 1-2-3 model finally turned from red to yellow light mode in January, signalling stocks will go up) now says we're in for a dismal 7-8 months for stocks Jeff Clark, who writes a trend following report called the Big Trend, also predicts a market downturn. Jeff isn't looking at trends at all. Instead he's looking for highly undervalued stocks that have the potential for a big move and if you look at what he's recommending, their charts look very "anti-trend."

So let's look at this four year bull market. First, it comes what might still be called the early stages of secular bear market in which valuations go down. And during the last four years, the PE ratio of the S&P 500 has actually gone down, confirming the secular bear effect. If this four year rally had come during a secular bull market it probably would have been 2-3 times as big. And this price rally comes during a time period when the dollar has moved down 15%, weakening the overall impact of the upmove. Furthermore, foreign stocks have generally outperformed the S&P500 by a wide margin.

So is the "bull" market over? If USA headlines say its over, then it probably has enough steam to at least last until all of this years pension money has flowed into the market (i.e., until May). Futhermore, I'm having trouble finding many negative efficiency stocks. But that says be long... it doesn't say run for the hills. So in my opinion, we're still in a huge secular bear market, but the current upmove (in which valuations are still going down), could easily continue through May.

But I'm just a psychologist/trading coach. I'm not a market predictor. What do I know.

Posted by Van K Tharp at 01:58 PM | Permalink | Comments (1) | TrackBacks (0)

In the mid-1990s I was on the board of directors of a new mutual fund that was designed to trade foreign currencies. I was asked to be on the board to supervise the trading, but we never got that far. Their basic strategy was to do something like the Max Yield Strategies (see Safe Strategies for Financial Freedom for how to do that) and the key emphasis was to convince regulators that this was a legitimate mutual fund product. However, the fund was born out of a Forex Trading company, rather than a mutual fund company and it didn't have big backing. It was done with a minimum of start up capital (like you might start a hedge fund) and that, along with a lack of worse case contingency planning, doomed it from the start. The fund probably started out with $500,000 and the accounting/auditing company was charging about $18,000 per month for auditing which was their MINIMUM charge for any mutual fund. And all these problems, unknown to me, existed when I agreed to be a director. Thus, most of our job as a board of directors was involved in winding the fund down and all the legal ramifications of that. It was a disaster.

I mentioned that in this post because suddenly I've been exposed to two sources of input about how to trade forex on the stock market. Steve Sjuggerud, in one of his great newsletters, has just recommended a mutual fund that's be around for a long time that basically does the max yield strategy. They must have been formed about the same time as the other fund only they planned better and were better capitalized when they started. They've earned double digit returns most years and have only had one losing year. See the January issue of True Wealth if you are interested.

But if you want to actually trade forex, Rydex has now introduced ETFs for that purpose. RIght now funds are available to trade the Aussie dollar (FXA), the British Pound (FXB), the Canadian Dollar (FXC), the Euro (FXE), the Swiss Franc (FXF), the Mexican Peso (FXM), the Swedish krona (FXS), and later this month the Japanese Yen (FXY). Notice the pattern to the symbols and they'll be easy to remember.

Anyway, despite the secular bear market, the stock market will not stop being the place to be because there are ETFs and funds available for you to invest in almost everything.

Posted by Van K Tharp at 05:23 PM | Permalink | Comments (5) | TrackBacks (0)

One person commented that I should not compare the U.S. dollar against the Euro because the dollar is the world's reserve currency. And that I should get my facts straight.

OK, 2003 was the best U.S stock market during the secular bull market, But our market that year was one of the WORST performing stocks markets in the world in 2003. Here is a direct quote from CNN's web site in early 2004.

Take Japan for instance, where traders closed out the year in grand style Tuesday, sending the Nikkei up 1.7 percent before the New Year break. The index posted 24.5 percent gain for the year -- its first win since 1999. Then there's the 36.6 percent jump in Germany's Dax, the 32 percent move in Hong Kong's Hang Seng, and so on.

Factor in the dollar's 14.2 percent drop against the United States' major trading partners (NOT JUST THE EURO) and -- from the perspective of U.S. investors -- the gains get even better. Morgan Stanley Capital International oversees a group of individual country indexes that are considered benchmarks for international investors. The U.S. index has risen 26.5 percent this year. In dollar terms, all but three of the remaining 23 country indexes (Britain's, Holland's and Finland's) surpassed that mark.
Morgan's index of world stock market performance excluding the United States is up 34.1 percent for 2003.

Does that make the point? For 2003-5 one of the best investment strategies you could have had was "anywhere but the U.S."

However, this is not to "knock" the U.S. Americans tend to be very isolated in their thinking. They just see the dollar and the American stock market as the only markets. One of my jobs as a trading coach is to help people see the forest rather than just a few trees.

Posted by Van K Tharp at 05:49 PM | Permalink | Comments (0) | TrackBacks (0)

I have been saying, since early 2000, that we are in a Secular Bear Market. Lately, with the Dow 30 hitting new highs people have been questioning that. But let me explain that by a secular bear market I'm not predicting lower prices. In fact, short term I'm not predicting or forecasting at all. And the secular bear market has nothing to do with prices and everything to do with valuations. So here's the bottom line, what I am predicting is a long steady decline in the PE ratios of U.S. stocks probably down to the single digit level over the next 10 years. And that decline has happened since 2000. I'm not sure about downloading a chart here, so I won't try, but if you could look at such a chart we've declined from PE ratios in the high 40s in 2000 to about 19 now. There was a slight upward blip in 2003, which might be called a mini bull market within the secular bear. But even 2003 is suspect. During 2003, the U.S. stock market went up 25%. But almost every other market in the world went up more than the U.S. market. And the dollar declined about 40% against the Euro during 2003, so if you were fully invested and matched gain of the market, you actually lost about 15% real wealth during that period.

Let's say that the U.S. government decides to inflate its debt out of existence and inflation climbs to double digit rates. People would scream. The dollar might be worth 5 cents in terms of todays dollar and the DOW Industrials might reach 40,000. But during that increase, PEs could easily decline to the single digit range and you'd actually lose a lot in terms of real money. If the dollar was worth 5 cents, then a DOW 40,000 would actually translate into a DOW 2000 in todays terms.

Now does it make more sense? This is not to scare you but to give you a perspective about how to make better decisions. Crisis always involves some opportunity somewhere.

But what about 2006 -- today's mini bull market. And where are some of the opportunities. Well, I'll comment on that in the next post.

Posted by Van K Tharp at 09:42 PM | Permalink | Comments (1) | TrackBacks (0)

Let's take a look at the other country I visited "down under" -- Australia. I spent a week in Sydney, nearly a week in Hobart (Tasmania), and another four days in Melbourne, so I got to see a good part of the country.

Generally, Australia strikes me as a hedonistic, fun-loving country. It's also going through a fantastic bull market, both in commodities and the stock market. For example, we had large numbers in attendance at my workshops in Sydney, which usually only happens during bull markets. I also learned about CFDs (contract for difference) which allow you do buy equities at a huge leverage -- and you pay interest on what you borrow. I heard lots of stories about people with $15,000 buying $15,000 worth of CFDs, fully leveraged with the idea of making a fortune, only to find that they lost their $15,000 very quickly. People just don't understand the risk in leveraged instruments. However, if you understand R-multiples and position sizing principles that I've already mentioned in other posts, you'll learn that 1% risk means 1% and it doesn't matter whether you are trading equities, futures, forex, options, or CFDs.

Hopefully, must Australian friends will all read those posts and make sure you understand that. My understanding is that CFDs are an export (to Australia) from England. They were developed by the gambling establishment because gambling profits are not taxed in England (and many other countries) so when it was possible to invest in something that was developed by the gambling community (instead of the brokers), everyone went for it.

Posted by Van K Tharp at 01:59 PM | Permalink | Comments (1) | TrackBacks (0)

I read an interview today in which the person being interviewed commented on effient markets. Although some people can consistently beat the market, 90% cannot. And what's always cited is the Morningstar data that 90% of the mutual funds cannot outperform the market averages so that you are better off with an index fund.

Okay, but let's look at how they define performance. Satisfactory performance is outperforming some benchmark like the S&P 500. And if you cannot outperform it, then staying close is okay. But let's look at the rules: 1) a mutual fund has to remain about 95-98% invested; they cannot go to cash because they don't like the market conditions; 2) the best way to stay close to the benchmark is to own the benchmark -- so they do. So let's say during the year, as a mutual fund, you are about 90% invested in the S&P 500. You give yourself about 3-5% leaway to try to outperform it. However, you also have 1-2% fees that your charge the public. What are the chances of you beating the market. Almost zero!

Thus, the evidence that people support for market efficiency is ridiculous.

Also with trillions of dollars, its very difficult to move in and out of things without moving the market. So big funds, by nature, should have a difficult time beating the market.

However, my belief is that anyone with a million or less could easily double their money each year. It doesn't take real genius to develop a system that could make 100 trades with an 0.8R expectancy, thus giving you about 80R per year in returns. The real genius is being able to be efficient as a human being and actually achieve that return without making mistakes. And if you want to know about mistakes, see my other posts (I still want to call them blogs because I make the rules on this one).

Posted by Van K Tharp at 06:14 PM | Permalink | Comments (4) | TrackBacks (0)

I just got asked an interesting question that I've never had before or even thought about. It was, "Could you please explain some position sizing errors of the U.S. government."

To the best of my knowledge, the government doesn't trade. If it did, it would be in trouble because I'm sure it doesn't understand position sizing.

But I think you might say that most of the errors that our government makes in terms of the budget and debt might be a position sizing error. (HERE I'M REALLY STRETCHING THINGS). For example, instead of making changes to reduce risk, it makes changes that makes the risk bigger but less obvious. And I'll give a few examples.

To hide the debt, the government got social security to buy the debt. So social security looks like a big fund that holds t-bonds. But instead, its just a way to account for about half of our debt (oh, it's in social security).

Each president looks for ways to make himself look better. Clinton's big coup was the Roth IRA. They came up with an idea that wasn't tax deferred, but everything you earned once you establish it was tax free. That was more attractive that the current way, so massive amounts of money were transferred from regular IRAs into Roth IRAs. The government got a huge windfall of money and Clinton looked like a genius for balancing the budget. Instead, he got current revenue at the expense of future revenue. And it all continues to make the overall situation worse and worse.

Best I can do on a complex subject.

Posted by Van K Tharp at 05:26 PM | Permalink | Comments (3) | TrackBacks (0)

In late 1979, the Hunt brothers controlled over 200 million oz of silver, half the world's supply. The Hunts had future contracts but they were always taking delivery. Major interests in the world had short positions, including many members of the CBOT. And when major interest get cornered and have a financial problem, they CHANGE THE RULES FOR HOW THE GAME IS PLAYED. And here's what happened.

1) The CBOT changed the rules and said no individual could hold more than 3 million oz of silver. Simultaneously, they raised the margin requirements.
2) The COMEX changed their rules and said no individual could hold more than 10 million oz of silver. The COMEX has always been a very suspicious exchange. The COMEX than susupeded silver trading. You could liquidate silver positions but you could not buy silver.
3) Lastly, the Federal Reserve stepped in and Volker raised interest rates. This means that the rates the Hunt Brothers paid for their siver went up dramatically.

The net result was that the Hunt brothers could not afford the margin costs of their positions. And they were forced to liquidate. In a period of several months, with all these rule changes, silver went from over 50/oz to under 10/oz. The Federal Reserve actually had to organized a billion dollar bailout of the Hunts to prevent a financial collapse.

Could it happen again? Of course, people who have money make the rules about money.

What's the next big rule change that will affect lots of people. I think I know, but I don't want to say here.

Posted by Van K Tharp at 09:07 AM | Permalink | Comments (3) | TrackBacks (0)

Here's is one of the comments to a recent blog...."But how to evolve spiritually when you think about losing your job and an insecure future "

There is a beauty to what you ask. Whatever you worry about tells you what you need to work on to evolve spitually. Let me give you an example. I realized recently that I had been a "victim" on a con artist and I became both angry and anxious. However, from a spititual evolution viewpoint, it was great. The very feelings that were coming up were what I need to work on.

I ran my thoughts about the person involved through an elaborate releasing program. And when I was totally clear about him (no thoughts of angry; no victimization; no wanting control; etc) then I was ready to take any necessary action, but only when I was totally clear.

Your feelings of insecurity create just that insecurity. Work on them until security is no longer and issue. Then you'll be ready for the next issue. And what's really great about trading (or poker) is that issues continually come up.

And how do you clear these issues. We'll that's covered in the Peak Performance Course, but if you are not a trader, then I'd recommend doing A Course In Miracles (which is available in German). Hope that helps.

Posted by Van K Tharp at 06:15 AM | Permalink | Comments (5) | TrackBacks (0)

Even thought we now had a pause in interest rate hikes, stopping after 17, my analysis of the market shows it to be in a clear downtrend. This weekend, I could only find 26 stocks with efficiencies above +10 and 2 with efficiencies above +15. Compare that with 91 stocks with efficiencies below minus 10. Lots of good short candidates.

The market pundits are now saying there is a 70% chance of a recession. And when the U.S. sneezes, the rest of the world seems to catch a cold.

Posted by Van K Tharp at 12:30 AM | Permalink | Comments (0) | TrackBacks (0)

Apparently, the St. Louis Federal Reserve is responsible for the timing of the release. The document was finished early this year, but they may have waited until just the right time (i.e., when the media was distracted) to release the document. What better time than when Israel invades Lebanon? What really surprises me is the fact that a lot of investment newsletters have not mentioned the study.

If you'd like to read it for yourself, go to research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf

Posted by Van K Tharp at 03:18 PM | Permalink | Comments (2) | TrackBacks (0)