Tharp's Thoughts Weekly Newsletter (View On-Line)
My Spiritual Journey to the Van Tharp Institute
The Markets Are Indeed Complacent — What Next? by D. R. Barton, Jr.
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My Spiritual Journey to the Van Tharp Institute
I grew up in Maryland in a middle class family, the youngest of three boys. My mom and dad were loving, generous parents who were brought up during the Great Depression Era so you can imagine money was never wasted on frivolous items. I wasn’t showered with material items but the three of us boys always managed to get what we needed. Though my parents took us to church every Sunday, they never attended services themselves. I questioned my parents as to why they didn’t go with us but never knew why until I was much older.
My parents had different answers. My Mom said she belonged to a church in Ohio and didn’t much like the ones around where we lived. My Dad witnessed some horrible tragedies during WWII and it was his belief that a loving GOD wouldn’t allow that to happen. He served all over Europe, Africa and also was there during the liberation of the concentration camps. I have a box full of pictures he took during the liberation of the camps and it was a nauseating, emotional experience for me to look at them.
Much of my spiritual growth as a boy was facilitated by a Methodist church with about 15-20 members. I went to this church for about 12 years until I enlisted in the U.S. Army. In my first few years of duty, I didn’t attend church services so my spiritual growth began to drop off the scale. As a combat medic, I saw lots of lives lost and I could see within me an alignment begin to develop with my dad’s opinion that a loving GOD shouldn’t allow this to happen. I remember thinking this can’t be what GOD is like but I wasn’t sure how to find out.
Around that time, my older brother attended a Baptist Seminary to become a pastor. I always thought he was going to be a Hell, fire and brimstone type of preacher and that he really needed to lighten up, especially once he began to be this way with the rest of the family. So once again I wondered about God but felt empty from what I saw.
Fast forward a few years, I had married my high school sweetheart, we had 3 wonderful children, and we thought they should grow up in a church setting. In our search for a suitable church, we found one we thought was adequate even though it left me feeling very empty about my own spiritual path. My daughter went to a Catholic elementary school and I remember being pleased with that. My two boys didn’t want to attend the same school as their sister so it was off to public school for them.
Then our lives drastically changed. My lovely wife experienced some serious health problems and began to lose her identity. She declared she couldn’t handle the stress of being a wife or a mother anymore and ended up leaving me with the children. She had to go search for herself and find out who she was. Shortly afterwards, I had three unfortunate accidents which resulted in severe closed head injuries, a severely damaged neck and right knee which needed surgery.
My most vivid memory from that period was my second accident; I fell down the basement steps hitting my head on the concrete floor after which the fire extinguisher on the wall also fell on my forehead. I remember having the feeling of being up in the basement ceiling; floating and watching the EMTs below who were trying to revive me. To this very day I can still vividly feel the powerful, warm and loving white light that enveloped me. Then I saw what I imagined to be the Lord watching over the world and a saintly woman asked me if I wanted to stay or go back. My immediate thought was, “Who will take care of my kids? I have to go back for them.” and instantaneously, I was back in the basement ceiling watching my own death unfold below. Then it seemed as if the life was brought back to my body and I was inside it once again.
I couldn’t respond or do anything. I remember hearing what was going on. I remember the helicopter flight to the trauma center. I remember hearing the neurosurgeon order an MRI and saying, “I’ll be back to operate after I finish the surgery already on the table.” I remember being afraid of becoming a vegetable for the rest of my life. The worst part was not being able to talk or respond at all.
I remember waking up a few days later wondering, “Where in the world was I? What happened?” The environment was frightening because I could hear patients who had been shot and others who had had traumatic amputations after car accidents. In addition, it seemed as if all the patients were screaming at the top of their lungs as noise of any volume seemed to send me through the roof. I couldn’t help but think of the saintly woman who asked me with such love if I wanted to stay in Heaven or go back. Remembering how nice I felt in her presence really helped me live through this stage.
Unfortunately for me I had near total memory loss and I couldn’t even seem to remember how to do the simplest things like eat or take a shower. I lost 45lbs very quickly and I was sleeping 23 hours a day. The medical staff wanted me to go into a resident program to recuperate but I refused as I was worried about my children. Little did I understand at the time that the doctors had decided that they would only discharge me from the trauma unit if I agreed to move in to my mother’s house and stay with her.
I also remember that the neurosurgeon, psychiatrist and neurologist told me that I would face almost certain suicide if I didn’t immediately start taking antidepressants. They said all the data supported this fact and that fact alone made me feel depressed. They also said that if I didn’t go to rehab on a daily basis I would probably never be a highly functioning person again.
I began a 16-month path to learn how to read, write, do simple math problems and learn how to express myself and come up with full sentences. For the first six months, I was in a hard neck brace and on crutches. Mentally, I felt like a 2 or 3 year old. My boys were in middle school and wouldn’t let me out of their sight as they became very protective and extremely supportive of my rehab process. My daughter wanted to return home from her Master’s Program at Pitt but I was dead set against her leaving school, my ego wanted her to finish.
I was determined to get back to functioning normally again as an RN in the emergency room and cardiac cath lab but I must admit some days of the therapy were very trying and I had some doubts that I would make it. I still had trouble with making sentences and at times couldn’t come up with the words that I wanted to say. On the positive side, after getting my neck brace removed and a very successful knee surgery, I started rebuilding my loss of muscle. I finally was able to walk without crutches and my memory was starting to come back. Sometimes I must have looked like a zombie daydreaming when in fact I was seeing memories return, some of which were very vivid.
One night while sleeping, I remember the saintly woman from my stair accident appearing again and saying to me at the foot of my bed, “Don’t give up, you haven’t even begun to fulfill your purpose here on earth. Keep working hard at your recovery.” I shared this with my brother, the pastor and I remember him looking at me like I was crazy. He asked me to repeat what I told him but he didn’t have a comment. I remember being disappointed since he was supposed to be a spiritual guide.
I kept asking for the saintly woman to reappear and talk to me as I had a lot of questions for her, but I didn’t hear from her again. In time, I made a full recovery and eventually, as I had done before the accident, I started trading options. Soon I was attending a Vector Vest user group in Pennsylvania where I met a gentleman named Bob who took me under his wing. At one point, Bob suggested to me that I needed to look at the Van Tharp Institute in Cary, NC in order to reach the next level of trading.
I was looking at the Van Tharp Institute web site one day and thought I needed to call and figure out how to become a more successful trader. I called and spoke with a receptionist. I remember Jillian was so full of life and happiness and it was such a pleasure to talk to her. We talked about where I could start and she explained the first workshop I might want to take was the Oneness Workshop. I asked her what made her so happy and she pointed me back to Oneness. She also said Oneness would help me open up to my Divine. I wasn’t sure what that meant exactly but it intrigued me so I thought, “Why not? What do I have to lose except a weekend?”
I began this next part of my journey in Cary, NC during September, 2012 to investigate what made this girl so happy hoping it might help me feel clearer about spirituality and get me closer to my Divine. I had no clue what I was about to experience or how much this workshop would impact me.
...To Be Continued...
New Two-Day Version of Tharp Think Coming in September
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The Markets Are Indeed Complacent — What Next?
I have several friends and acquaintances who regularly trade volatility for their own accounts, their fund or their newsletter. In the last 8 – 10 weeks, almost all of them have tried in some shape or form, the “volatility can’t get any lower” trade. And with one exception, all of them have taken a recent beating in these trades. I believe that one exception (my business partner Christopher) has not taken a beating because he has been realistic in his expectations about volatility not getting lower and he was agile in his trading.
I’ve read so many takes on low volatility and corresponding market tops lately that my head is spinning. Let’s see if a few interesting graphics can provide some perspective that may help us understand what the market might do.
Yes, Volatility is Low
As the major U.S. indexes continue to make new all-time highs (or multi-year highs in the case of the NASDAQ), volatility as measured by the CBOE Volatility Index or VIX is hugging the bottom of the chart, just having hit the lowest level of the last eight years. Only during the grinding bull of 2003–2007 was the VIX in the range of its current levels. Here’s a monthly chart of the S&P with the VIX:
Many pundits call VIX the “Fear Barometer” – when market participants are fearful, VIX is high. The opposite of fear, in this case, is complacency and that is certainly what the markets are experiencing now. During times of complacency, market participants tend toward risk-on assets (though this year, they’ve been doing that in cycles).
We See It In the Spreads Too
One very tangible way traders can see this risk-on behavior is in the bond markets. When fear is high (and the chance for default on higher-risk assets goes up), spreads between riskier assets and U.S. Treasuries widens. When all is well, these bond yield spreads tighten. So I was a bit intrigued when I saw this interesting chart, as tweeted by Jake Freifeld:
This chart shows a time series of Emerging Market bond spreads on the “Y” axis and the VIX on the “X” axis. A spread is the difference between the bond in question and the “risk-free” rate, which is usually corresponding U.S. Treasury security. The Y axis units are basis points – there are 100 basis points in each percent of yield.
The current spread somewhere below 300 basis points is as tight as it has ever been historically. Combining that with the current ultra-low VIX reading puts the pair right on the chart’s black best-fit regression line. Hence the author makes the assertion that EM bonds are fairly valued.
Others pundits commenting on this chart, however, see the current point as a warning sign that the risk premium for EM bonds is too low and that a market correction is imminent.
My take? The risk premiums ARE too low, but in the current quantitative easing environment, market relationships in general and especially risk premium relationships have been thrown completely off their normal ebb and flow cycles. Nothing is imminent.
To paraphrase Keynes a bit poorly—risk premiums can remain squeezed and equity valuations can remain outsized for far longer than we can remain solvent. My friends that have traded the VIX expecting otherwise have found this out – again - the expensive way either with personal money or firm and client funds.
Let’s relook at the first chart with an eye toward the VIX level and time-frames:
Note that I’ve added a second horizontal line on the VIX chart at a somewhat arbitrary value of 12 as an indication of ultra-low volatility. Note how many months in the 2005-2007 time frame where the VIX dipped under that line. With the exception of March 2013, you can see in the last two years that there has been very little action under that line until the last two months.
The Bottom Line?
This grinding bull, with the support of central banks around the globe, is likely to disappoint the bears for a while longer. If you are looking for a significant correction in the second half of 2014 (and I expect one), wait for the first signs of key support levels being broken instead of trying to anticipate its arrival. As my friends have found out recently, trying to anticipate this coming break can be expensive.
As always, your thoughts and comments are always welcome - please send them to drbarton “at” vantharp.com
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