Sadoff - Monthly Newsletter

Below are the definitions of the various "environments" from the bottom of page two of our monthly newsletter. If you would like a copy of our current newsletter please contact us or call us at (414) 352-8460.

1) The MONETARY ENVIRONMENT focuses upon whether the Federal Reserve is providing an accommodating monetary policy. The Fed is the supplier of money and credit and a major force behind interest rate levels. The Fed can cause a recession or economic expansion. What power! What the Fed does today impacts the economy 4-9 months from now. The stock and bond markets, which also look ahead 4-9 months, are on the same wavelength. Certainly, the Federal Reserve influences the trend for stocks and bonds.

2) The PSYCHOLOGICAL ENVIRONMENT examines the interaction of "smart money" investors and "dumb money" investors in buying, selling and shorting stocks. Is the "smart money" bullish or bearish? Put yourself in the lap of these "smart money" investors. Many contrary indicators help shape the psychological environment.

3) The TECHNICAL ENVIRONMENT x-rays the internal working and "buy/sell" signals emitted by the stock market itself. This subsurface behavior of the stock market often provides an excellent roadmap.

4) The ECONOMIC/BUSINESS CYCLE ENVIRONMENT monitors inflationary pressures and the health of the business cycle. Yes, recessions are unpopular, but often they help calm inflationary pressures and credit demands. This leads to lower interest rates. Meanwhile escalating inflationary pressures can lead to higher interest rates.

THE BOTTOM LINE

UPTRENDS A major uptrend for stocks and bonds will unfold when these four influencing environmental factors are bullish. Clients' managed funds will be fully invested when this "reduced risk/high potential" environment prevails. Participation in the profitable uptrends leads to investment success!

DOWNTRENDS A major downtrend for stocks and bonds will unfold when these four influencing environmental factors are bearish. Clients' managed funds will be safely invested in very liquid cash equivalents when this environment prevails. Why own stocks and bonds if they are heading lower? Avoiding the major bear markets leads to investment success!