Worries about the extended impact of the Subprime debacle had the markets retreat and then recover over the first two trading days of the week.

Below please find the link to the most recent ETF Master list, which has been updated with yesterday’s closing prices. This will enable you to work with more recent data. You can download the file at:

http://www.successful-investment.com/SSTables/ETFMaster110607.pdf

Our domestic Trend Tracking Index (TTI) moved higher from last Friday’s close, while the international one moved slightly lower. However, both remain in bullish territory with the domestic and international TTI having moved above their long term trend lines by +6.81% and +3.43% respectively.

The Fed’s decision to cut interest rates by ¼ point has raised numerous discussions as to whether more reductions are a possibility or if that was it for the near term.

Michael Shedlock’s article “Rate Cuts: Is It Two and Done?” examines the effects of the rate cut on the economy, and he offers his thoughts on why he believes that more cuts are to come, but not for the generally accepted reasons.

Mortgage rates have not helped borrowers one bit, and he quotes Professor Linden as saying that it is now easier to arrange a golf outing with Tiger Woods than to get a mortgage. Don’t believe it?

Read this latest article in MarketWatch titled “Unprecedented tightening in lending standards.” Since the pendulum always swings from one extreme to another, I was not surprised to learn that even borrowers with the best credit have to jump through hoops to get approved.

If that trend continues, real estate sales will slow down to a crawl, prices will further decline and the economy and job growth will be affected very negatively. As always, Michael’s article provides good insight and is a must read.

Over the past few days, I received several e-mails from readers voicing their concerns about a variety of issues which might affect their investments. The topics ranged from anticipating a worsening of inflation to diversifying into Canadian funds and when to shift assets into better performing areas.

Reader Scott’s email is typical. He writes:

Are you optimistic for the long-term health of U.S. markets? I see several trends that make me pessimistic: demographic trends indicate larger numbers of retirees and fewer numbers of workers; political trends indicate larger government therefore higher taxes; greater worldwide demand for raw materials, especially petroleum; declining strength of the U.S. dollar. It seems like all the elements of the perfect financial storm.

And if such a storm were to hit, how can the small investor find safe harbor?

Sure, all if his concerns are valid and you certainly could add a host of others including the scandals I referred to in yesterday’s post. The problem is that you don’t know if and when those events come about and what effect they might have.

This only way to observe potential changes is by following trends as they happen. That does not mean trying to forecast, it means to actually track various investment orientations as I do with my weekly StatSheet. Since all funds/ETFs are now ranked, it’s easier than ever to observe which investment classes move up and which move down in the ranking food chain.

As time goes on, you can easily see which funds/ETFs are worthy of your attention by the position they occupy. If you use these rankings to make your investment choices and combine that with our recommended sell stop discipline, you will have the best of both worlds without having to guess how future events may impact market behavior.

This will also limit your risk at the same time and, should the market go against you (and it will), you know exactly when to exit and either stand aside or re-invest in a sector that is moving up.

My point is that all the uncertainties that impact your investment life ranging from inflation, deflation, deficits, scandals, high oil prices, wars and many others will be immediately reflected in the price of the affected or underlying stock/mutual fund/ETF. That is reality, which you can measure and track without having to resort to guessing, anticipating or forecasting.

Forget worrying about the perfect financial storm, it may or may not happen. Learning to follow trends and acting upon them might be the only thing to keep you sane in an insane investment world.

It was quite challenging this week to keep up with all the potential scandals brewing in the Wall Street community. There is no need for you to go out this weekend and spend money to rent an action movie when all you need to do is follow the business pages of your local newspaper. It’s free!

Looks like Merrill Lynch’s bull (no pun intended) is being morphed into a bunny, if you follow their story lines. There is the departure of CEO Stan O’Neil, who is now the fall guy for Merrill’s involvement in the mortgage market meltdown. Well, having to write off some $8.4 billion for the quarter is a little too much in order to ask for forgiveness to keep a job. Adding to that annoyance was Stan’s behind the back (without board approval) contacting of Wachovia to discuss a possible merger.

But don’t feel too bad for Stan, he’s the man when it comes to cutting personal deals. According to the Wall Street Journal, he won’t get a severance or a bonus (Really? I wonder why?), but he’ll take the proud walk with $161 million earned from various pension plans and stock grants. Should that not suffice, he’s eligible for a pension worth $24.5 million that could provide annual payments of up to $2 million. There’s also a little pocket change left in that deferred compensation plan of some $4.8 million.

If I were him, I would have left on my own some time ago, especially since the SEC is now alleging that Merrill tried to do some deals with hedge funds to delay having to report huge write-downs on mortgage backed securities. Translation: Hiding investment losses. Again, this is only an allegation, but I can’t help but catch the faint smell of Enron…

Then there was the story of WaMu (Washington Mutual) finding itself on the receiving end of a lawsuit filed by New York Attorney General Andrew Cuomo charging that eAppraisalIT colluded with WaMu to inflate values of homes nationwide. If this holds true, you will see an entire different side of the Subprime pig making its presence known. Depending on how far reaching this allegation is, it could add a whole new dimension to the mortgage and real estate debacle.

Not to be outdone, the stock of the mother of all banks, Citigroup, has been downgraded on the possibility of a dividend suspension or possible sale of some assets due to write-downs from, you guessed it, the Subprime crisis. Citigroup’s board has called for an emergency session this weekend to discuss whatever it is that they’re not sure about.

In my view, it is one thing to lose money with an investment, that is part of investing; but it’s quiet another not knowing what exposure your various investment vehicles have or what they might be worth. Even if they have become worthless, not knowing and not going public with it, is inexcusable.

You very likely have insurance for your most prized possessions such as life, health, car, property and a host of others. While you may not like paying the ever increasing premiums, you realize that you couldn’t do without it nor would you take that chance.

I was reminded of that, when I reviewed a portfolio with a client, a physician who is busy running his medical practice and not all that interested in day to day investment details. As we went over the sell stop discipline along with the trend tracking method, he said: “All we’re really doing is insuring ourselves against catastrophic loss in our portfolios.”

He is right, although I never thought of it in those terms. In essence, when you have a methodical plan to get in and out of your investments, you simply try to insure yourself against too much risk to the downside. Those who did not do that, paid dearly during the last bear market.

We pay our premium from time to time in form of a whip-saw signal that may get us out of the market unscathed and soon thereafter back in as the downside risk has been reduced. Such was the case back in August (8/16/07) when a Sell signal moved us out of our international positions. Three weeks later (9/5/07), the trend reversed, and we moved back in.

These types of whip-saw signals can provide us with an opportunity to re-evaluate the various available fund/ETF choices and make adjustments by moving to a better performer. That was definitely the case in September when our then primary fund choice (WASYX) provided us with a superior return.

Whip-saws are a part of investing when following trends. If you look at them as insurance against portfolio disaster to the downside, you may be able to better accept them as a necessary evil.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Despite Thursday’s sharp drop in the markets, the major indexes managed to keep the weekly losses manageable.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved to +6.35% above its long-term trend line (red) as the chart below shows:

The international index slipped but still remains +3.29% above its own trend line, keeping us on the buy side.

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.