THE MARKET FORECASTING SERVICE WITH A
100% ACCURACY RECORD FOR FORECASTING
LARGE CHANGES IN MARKET DIRECTION
“I’ve been surprised by the accuracy of Jim’s market predictions….so diametrically different from the rest of the market timers. They all get more bullish the more the market rises and more pessimistic the further it falls. But not only is The Shepherd Investment Strategist different, but it is correct as well”
·RN A foreign subscriber consulted by a previous U.S. Administration on economic policy
Over the last 19 years Jim Shepherd has become one of the highest paid market forecasters with subscribers at our upper level of service paying a minimum of $10,000 per year for his guidance in the overall direction of the U.S. market.
Our subscribers are never
Past Performance Does Not Guarantee Future Results
The Shepherd Investment Strategist, A Service
of JAS MTS, Inc.
PMB # 149, 1314 S. Grand Blvd., Suite 2, Spokane, WA 99202-1174, USA
TEL: (509) 777-2500 FAX: (509) 838-4953 email: [email protected] WEB: www.jasmts.com
Knowing the future directional changes in the US markets is probably the most valuable tool that an investor can have at their disposal. Long-term investors can be comforted when the bull is alive and well, regardless of short-term fluctuations that sometimes bring doubts. Buy and Hold Investors must be aware of circumstances that are going to substantially reduce their portfolios. There have been times when investments have taken decades to return to their former values. After making a high in 1929, the markets did not regain their former values again until 1953. Those investors who are approaching retirement must be aware of a coming market change that will either substantially reduce their retirement funds or force a set back in their retirement date. Short-term traders will benefit by knowing which side of the trade is the safest regardless of whether were in a bull or a bear market.
"I have been in the market since 1958, and was a broker from 1967-2001 (34 years).
I have utilized many technical services in my 34 years, but I rate JAS #1. If more brokers knew or utilized technical analysis (editors note: The model does not only look at technical analysis), maybe their customers might have some money left.
JAS told people to liquidate Oct 99 - Excellent Call!
Your track record speaks for itself.
·Mike Z. Brenan, retired Morgan Stanley Dean Witter Broker. Feb 5, 2001
Having a scientific mind, Jim Shepherd decided to do some homework to determine if major market moves could be predicted. That homework went on for years until he had developed a Model. You can imagine his delight when the Model successfully back tested (every major move, both up and down) over a 100-year period. It took him over 6 years to arrive at a point where he could start testing it in real time. During the early years of the 1980s it gave him three clear signals. Since those three it has given eight more in 'real time' that have been used by our clients. It is important that all eleven signals came prior to any indication in the markets that there was about to be a change in market direction.
The first big success was when the model issued a sell signal 41 days prior to the 1987 Crash. Jim and his clients took leveraged positions awaiting the crash and many of them became millionaires on October 19th.
Although there have been a number of signals and short term advisories through the 1990's which we could detail, I'm sure that you would rather read about more recent events. So lets move forward to 1998 with one of the more recent signals which got our clients back into the market on September 25th 1998. This signal came at a very negative time in the market when most thought that the market was finally going to crash. The market went on to gain over 40% and made new highs in the next few months.
This is a re-typed version of the excerpt from the actual newspaper article of Oct 14, 1988, for simplicity of reading
Black Monday Wasn't Black For Everyone - Options Traders Win
By PRISCILLA LISTER
San Diego Daily Transcript City Editor
Friday, October 14, 1988
The stock market crash didn't hurt everybody.
In fact, some people bet on the bear and came out of Oct. 19, 1987, far richer for it.
Two of those bettors were James A. Shepherd, 33, and David V. Blanton, 39, who with some partners made a mint on that Black Monday.
After the crash, Shepherd and Blanton formed J&D Commodities and have become commodities traders in La Jolla who buy options on futures contracts. Last year they had specifically traded on the S&P 500 Index.
Before Black Monday, Shepherd and Blanton had bought put options that expired the third week in December on the S&P 500 Index that gave them the right to sell those contracts at 270 points. Then the market collapsed Oct 19 and the S&P 500 Index dropped to about 180 points. They sold their contracts when that index averaged 210 points. While they had bought their positions at an average cost of about $200, they sold them off at about a $30,000 net per position.
While they wouldn't say how many contracts they had, they did say they had anticipated a 50-to-1 return and got even better - some 70 times their original investment. They both made millions.
Such commodity trading, especially on the S&P 500 Index, is often called hedging, often used by institutional traders. Some blamed the crash on the computerized program trading that used hedging; it came under the scrutiny of the Brady Commission following the crash, but so far no regulatory changes have altered the rules.
Such trading is also acknowledged to be highly risky; many investors can lose their entire stakes.
And while many program traders used computerized buying and selling of stock index futures to hedge against market losses, many still lost money during the Crash of '87. So commodity traders, like Shepherd and Blanton, will say it wasn't program trading that caused the crash.
"It's easy to make claims that the October situation was caused by computer program trading and portfolio insurance firms taking positions, "Blanton said last January. "But they didn't cause the crash; they added to the speed but the fundamental problems of the economy (were greater causes)." And Shepherd added, "Had there not been portfolios to hedge, (October) could have been worse."
They pointed out that they had paid attention to those fundamental economic benchmarks which told them when to enter and exit the market.
Shepherd created a computer model that has tracked influences on the market since the late 1800s. He said it has never been wrong since 1880. "It has never failed to track the top or bottom of the market within a 4 percent accuracy," he told the Transcript last January.
And just as that model is proprietary, so is his position in the market now.
"As far as the direction of the market, we don't want to predict," Shepherd said yesterday. "We don't make predictions because we want to maintain our integrity with out clients so that we don't give that information out freely anywhere else."
But he would say that he and Blanton have become licensed as commodity pool operators and commodity trading advisors, and that their firm, J&D Commodities, is currently engaged in investing funds for both a "substantial pool and a large number of individual clients."
THE PRECEDING IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE RELIED UPON TO MAKE INVESTMENT DECISIONS
NOTHING HEREIN SHOULD BE CONSTRUED AS A SOLICITATION TO BUY OR SELL ANY INVESTMENT VEHICLE NOR IS IT TO BE TAKEN AS A RECOMMENDATION TO MAKE ANY TYPE OF INVESTMENT
Excerpt from an 11 page article entitled: "The Humbling of the DOW" by Virginia Butterfield
This portion of the article dealt with James A. Shepherd's results based on his model:
BUT NOT EVERYBODY lost. Two young commodity brokers in a San Diego brokerage house who had developed a "model" - a group of financial indicators they were confident would predict the market - decided to bet on the downturn - against the man with the dice, so to speak. Jim Shepherd and David Blanton watched throughout that critical day as their relatively modest investment in futures options, pegged to benefit from a dropping Dow, grew into multimillions - 70 times their original investment.
Earlier in the autumn their model had been flashing sell signals, but Shepherd and Blanton were waiting for a final indicator to flag an absolute sell signal before they made a move - which it did on September 7. On September 8 they began to buy positions in the futures market that gave them until mid-December for the market to reach a certain low.
"I never dreamed it would do it all in one day," said Shepherd. Did he leap around in celebration? No, he didn't even smile. "I've been in this business a long time." No one in his brokerage office knew he was suddenly a multimillionaire. Who did he tell? Nobody. "My wife was out of town. She knew we were positioned to profit from declines in the market and she called when the market was down 200 points." By the end of the day, when he had exited all his positions - meaning cashed in all his options at unbelievably high figures - he called his wife with the good news.
Shepherd and Blanton are now moving into new quarters in the Hahn Building in La Jolla, where they will conduct a commodities partnership with pooled funds from investors. Within a week of the crash, the new firm of J & D Commodities had clients who had committed in excess of $500,000 to their care.
The same article quotes people like Geraldine Weiss, Richard Russell, Robert Prector and companies such as Lazard Freres & Company.
Summary of the Shepherd
|Sept||1987||SELL||Market Crashed Oct. 19th
|May||1988||BUY||Market rose 50% to July '90
|Aug||1990||SELL||Market fell 20% in 3 months
|Jan||1991||BUY||Market rose 52% in 3 years
|Mar||1994||SELL||Market fell 10% in 2 months
|Jan||1995||BUY||Market rose 140%
|May||1998||CAUTION||we intend to step aside in June
|July||1998||WARNING||Voice update of July 10, Jim warned of a down move
coming. Market dropped 19% starting July 17.
|Sept||1998||BUY||Market rose 40% in 14 months
|Oct||1999||SELL||Sell Equities Buy Safe Investments
|Dec||2000||Advisory||Short-term rally advisory issued Dec 18, specifically noting that the rally would be limited to blue chip technology issues, certain financials and other big-cap stocks only. THIS WAS LIFTED IN MID JANUARY 2001, when the overall sell signal's influence became predominent again. The prime aim of this advisory was to warn those subscribers who may be short the market, in those areas outlined, to step aside until further notice.|
|Our subscribers are currently awaiting A Critical Mass Signal of an Impending Crash, confirmation of a Bear Market or a new Buy Signal. Only current subscribers will have access to this signal until approximately 6-8 weeks after the signal is received from the Model.|
Recent Activity and Volatility
Volatility continues at an elevated level. This is always the case during major changes in market direction. Even though it is expected, the volatility this time has surpassed even our most exaggerated expectations. It is truly mind-boggling!
Volatility can, and is presently confusing both the bulls and the bears. Some who are still bullish view negative days as a buying opportunity. Those that are bearish view positive days as an opportunity to sell before the market drops any further.
The changes in underlying factors are seen well in advance and taken into account by the Model. This is the only reliable manner in which we may actually predict market direction. The underlying economic factors in the market always overtake the noise of news events of the day in the end.
In fact the news is practically always the opposite of the facts when it comes to the market. To react to news events is to court disaster. Using only technical work is often unreliable at major market turning points.
"In his book Love Against Hate, Dr. Carl Menninger states 'The most difficult task for human beings is to raise children and to trade the markets.' Dr Menninger wrote these words in 1934 - little did he know how true this statement was. ...Your 'critical mass' message is one of the best things that can happen to a trader ...In short (after a long letter) I would like to thank you for a very valuable service ...
G Feuer Queens, NY Feb, 2000
On June 27, 2001 the Federal Reserve took the unprecedented action of lowering the federal fund interest rate for the sixth time in less than 6 months. The rate, at 3.75%, is at a seven year low and still has not had a positive effect on the economy. As we approach mid-year, layoffs are increasing, industrial production is falling, personal debt defaults are growing and consumer confidence is weakening. A disaster that started in the dotcom/tech sector is rapidly spreading throughout the economy. There are some brief monthly aberrations in these statistics but it is apparent that the trends are worsening when viewed on a year-over-year basis. The Model is presently warning of a very dangerous situation in an economy that is presenting almost insurmountable challenges to a stock market struggling to maintain its current level. As each new piece of encouraging news is turned into another rally, sellers soon reverse it as they again move in to take their funds out of the stock market.
A Sell Signal
During 2000 most investors, brokers, and Wall Street Analysts refused to accept that an era of ever increasing stock prices had come to an end. The longest running bull market in history was capped off by one of the largest bubbles the financial world has ever known. All this was nearing an end when, on October 25th 1999, Jims Model issued its first all-out Sell signal since 1994. A Caution and a Warning were issued prior to the 1998 Asian and Russian economic problems but these were to alert subscribers that the Model was signaling a correction in US equities was about to get underway. Because Jims Model was not signaling a Sell, some of our subscribers sold and others held their positions to avoid income tax implications. At the depths of the correction in September 1998 the Model issued a new Buy signal and ten days later the market turned around gaining another 40% over the next 14 months.
Following the Sell signal of October 25th 1999, Jim advised subscribers to sell all stocks, including stock mutual funds, and to purchase long-term government bonds for safety and appreciation. Although the main doctrine behind everything Jim recommends is always the preservation of capital, safety and growth can often be combined. He knew that following the sell signal, stocks would become very dangerous but bonds would increase in value as interest rates began to fall. As stocks fell during 2000, these bonds continued to rise and by the end of the year, they had increased in value by over 21%. During this same period a bear market mutual fund was also recommended for subscribers who wished to profit from falling stock prices.
"I'm grateful for signing up with your service and I enjoy listening to Jim's audio updates. I'm much more cautious in my investing approach and your recommendations have saved and conserved my investments. Because I signed up with your service after the March 2000 NASDAQ crash I've "only" lost 20% from the March high's. But I've gained 14% so far through investments as recommended by your service and short funds that I went into. Had I stayed in stocks, I would be down more than 50%."
The next step in the process is to closely monitor the Model as it edges ever closer to what Jim refers to as critical mass. Critical mass is the point at which things become so negative in the economy that a stock market crash is imminent. Although the Model has issued 4 Sell signals, a warning and a caution since 1982, it has only reached critical mass on one other occasion. That was three weeks prior to the 1987 crash.
It is a fact; ninety five percent of fund managers don’t beat the indexes! And few beat them 2 years in a row.
But we do beat the indexes by using the Model and by a significant amount too.
The graphs below show that since 1982 our results are approximately 300% better than when an investment is left alone to rise and fall over time using the buy and hold strategy. Our results were attained by either stepping aside during coming dangerous times in the stock market or by moving into alternate investments. We have been invested in stocks approximately 90% of the time, and very important, none of our indicated results include dividends or huge profits from leveraged instruments. Our results are based on actual investments and do not include forward projected hypothetical returns based on guesswork, as is the common practice by many forecasters. The Model’s track record speaks for itself, it’s accurate, timely and is never qualified. And unlike many other forecasters, who today speak with only a few years behind them, we have a proven19 year history in real time to rely upon.
"...writing to let you know that I re-subscribe every year to keep in touch with your proven indicator's signals, keep up the good work"
· S.S. Massachusetts
The Model identifies changes to underlying factors in the economy well in advance and takes them into account to accurately predict market directional change that are so significant that they should not be ignored. Being out of the stock market and into alternate investments at the correct time can make huge differences over the lifetime to investments that are so important to retirement plans. By losing 50% of a portfolio, an investor then has to make a 100% gain in order to regain it’s previous value. Large losses in portfolio value in the years just prior to retirement are usually impossible to replace and result in a delayed retirement or a lifestyle that is greatly reduced.
The Model’s signals have proven that Stock Investment doesn’t have to be a gamble……using its signals it becomes a science.
The topping process is in place and we are presently seeing the end of what has been described as the greatest bull market in history
In Jims own words, Let there be no doubt, this time is different, it is my contention that we are transitioning to a bear market- the first time I have indicated this since 1982.
This is the end of one of the greatest manias in history. We can look at previous manias to get a feel for how far it may fall. The Japanese market mania ended in 1989 and the Nikkei fell over 60% from 39,000 to approximately 15,000. The 1929 stock market went down more that 89% (Dow 41.22 from 381.17). The world is replete with examples of how manias have ended in other markets such as real estate and collectibles. Markets will normally settle at least 40% from their recent highs. Another important point is that once a market moves below its support level it almost always goes down below fair market value. Using any of these comparisons it is fair to assume that this market will probably get close to the Dow 6000 level after it starts its final fall. It could just as easily penetrate that, going down until it reaches its next support level. It should be noted that after the 1929 crash the market recovered slightly then drifted lower for 3 more years before starting its 20-year recovery.
It is Jims contention that one of the finest buying opportunities in our lifetime will soon be upon us, both on the short and long side. In fact there are likely going to be several excellent opportunities during a more contracted period than has been in previous bear markets. It will be absolutely essential for the safety of your capital that you have a guide to navigate the turbulent waters that lie ahead.
Knowing what is and what is NOT an approaching crash! The indices making up the Models readings were quite different prior to the correction in the summer of 1998. The Model gave a Warning in advance, but never gave a Sell signal. Although the Model gave a Sell signal over a year ago, it has not reached critical mass, the point at which a crash would be imminent.
If critical mass is reached, Jim will advise subscribers on a special update. At that time several recommendations to subscribers would be made and depending on their own desire for safety or risk could result in varying degrees of profitability. These recommendations could vary from leveraged instruments to different types of bonds. Although leveraged instruments are not recommended for everyone, Jims clients who used them in 1987 realized an average gain of 6700%. One person, a barber, realized a $1 million return on a $10,000 investment. A similar drop in the S&P would have much greater leverage because the index is so much higher now than it was in 1987 and a 25% drop would result in a much larger point loss.
This service is designed for people that want to know in clear and concise terms what is going to happen in the U S markets while not taking much more that 4 or 5 minutes in an average week. Although the service does not cover individual stocks, on a weekly basis, certain large caps and sectors are covered at appropriate times when they may present opportunities.
You will get a 1 or 2 page Communiqué each month. You will be able to listen to a verbal update, either by telephone or on Real Audio, each Friday after 6 PM EST. Additional updates will be done on days when the Dow closes after a 250 point change and is currently being done on Wednesdays also, because of present market conditions.
“…content has been right on!”
What We Will Not Be Sending You!
…a newsletter per se.
You will not get a ream of pages every few weeks to go through, which in the case of most other newsletters are “attempts” at forecasting the market and justifying the charges their subscribers pay. The subscribers to some of these newsletters are paying anywhere from $175 to $1395 or more per year, for everything from a few pages to small books or information to be sent to them every three or four weeks. They usually represent a review of what has already started to take place and do not give a clear view of what the future is going to bring.
Although our main focus is the US stock markets, commentary will from time to time also cover other asset classes such as bonds, inflation hedges (gold and silver, real estate) and other commodities that may be about to present special opportunities for profit.
Getting your money’s worth? There are hundred’s of advisory newsletters to choose from. Some are cheaper and some are far more expensive than this one. Most will miss a timely exit from the market and a great many will be years too early. Many are confusing to understand and do not clearly delineate the proper action that should be taken. Our service, at this level, is designed and priced to attract the majority, who want to control their own investment decisions.
A complete reprint of a very revealing and well written letter by a repeat subscriber who was consulted by a previous US Administration on economic matters.
Dear Stu (Employee of The Shepherd Investment Strategist, A Service of JAS MTS, Inc.):
When I first became acquainted with JAS MTS I had a fairly jaundiced view of services offering investment advice. Over the years, like everyone else, I have encountered many. Among those I took the time to investigate all made extravagant claims about their track records. In real time, however, they seemed to be at their most bullish at the top and most bearish near the bottom.
In one case a major bank advertised an outside service asserting it had a historical return of 30%, even in relatively quiet markets. My interest aroused, I called the bank and asked them if they had verified the advertised track record. I was unable to locate anyone prepared to admit they knew anything about it.
Of course I was skeptical, but if this really was for real it would be stupid on my part to ignore it. Periodically in these matters I have to refresh my memory about the difference between gullibility and open-mindedness. So, I contacted the principals involved and suggested that if they really were capable of sustaining a 30% return they ought to start a "hedge" fund and charge a performance fee. I further indicated that I would be happy to help them with that if they wanted including putting the data on their previous recommendations together in a form that could be marketed.
They happily sent me the data and I went back through hundreds of trades to verify the accuracy of the claimed performance record. In particular I checked every transaction with a daily stock chart to verify that each trade really could have been executed at the price claimed. Unfortunately, the rate of return turned out to be 2% per year before commissions, during a period where the market return had been between 8% and 9%!
Then I found another service claiming a similar 30% performance. I made the same suggestion to these people. Their data showed that all their superior performance had occurred in the 1970s (for which they could no longer provide supporting evidence) and since that time had performed pretty much in line with the market (not bad I suppose since 85% of professional money managers under perform the market!). They later started a mutual fund.
Then a friend recommended I subscribe to a market letter from New York that he said had a tremendous track record - it also boasted a 30% rate of return (what is it about 30% that everyone seems to think they have to use that particular number?) This time I actually paid to subscribe to it, and then asked for the background data. This time the kink was different. If you believed the prices at which he said he bought and sold, certainly he had a track record of 30% before commissions. But when I checked the prices at which the stocks had traded on the Monday following his weekend telephone updates I discovered his claimed entry prices were fictitious. It appeared that usually he waited for some large stock to rise at least ten percent on a Friday then he recommended it be bought on his Sunday telephone hotline. But the price recorded as his purchase price was usually the LOW price on Friday, while the stock had closed at least 10% higher than its low. If you looked at a weekly or monthly chart you often could be persuaded to believe he really could have bought at the price indicated. But not if you looked at a daily chart. Since he had a policy of using a 10% trailing stop, recording his buying price at least 10% below Friday's close meant that he would never RECORD a losing trade!
Later I analyzed an investment service that claimed to have an 80% success rate in its trading recommendations. After managing to get historical data on this service, it turned out to be so complicated that I had to write some software to do my analysis. I determined that the advertised 80% success rate was actually quite close to being true. Nevertheless, because of the ingenious way they did their trading, believe it or not, despite the 80% success rate an investor would still have gradually lost money year by year by year using the service - even before commissions! (Even with the market rising at 25% a year, lately!) I paid a subscription for that service too!
All the above services were advertised, incidentally, in reputable media. So it was in the above context that I came to hear about JAS MTS! You might say I felt a twinge of skepticism when I heard Jim's extravagant claim that he had a model that would have caught every bear market within 5% of the top, and got back in not far from the bottom. Notwithstanding my skepticism I investigated further in the interests of open-mindedness, and with a clear understanding of the enormous profit potential of correctly predicting the timing of the peak of just one good bear market! Many things appeared different about this service. First, Jim had constructed a model. I have much modeling experience and know that if you work long enough at it occasionally one can figure out a technique which enables one to forecast things no one else can. Second, Jim was well versed in the history of market excesses and understood we were in the middle of what may perhaps be the greatest excess in all of history. Third, Jim was aware of the potential of trading options in down markets. Fourth, Jim had evidence that suggested he really had predicted the 1987 crash. All this indicated Jim should be taken seriously, and just might, therefore, possess the elixir of bear markets! For me, if Jim really did possess a technique for predicting the timing of market tops it would be the one final stone I would need to complete my bridge. Indeed, it is the keystone. Without a good call for the top of the market most of the profit potential in a bear market could be lost.
But still I was skeptical. So I subscribed and I listened. I have been surprised by the accuracy of Jim's short-term market predictions. He has predicted a number of corrections with an accuracy that has startled me. In two recent minor panics - the original Asian panic in 1997 and in the correction that accompanied the Russian default - Jim steadfastly maintained this was definitely NOT the start of the bear market while many better known market oracles predicted disaster (and a couple of my friends bought index puts near the bottom).
On one occasion the correction turned out to be larger than Jim had predicted and suddenly he came out with a buy signal. Within a few trading days the market hit its low and (despite the market's already hypoxic altitude) then rose 30% in a few months. Human nature being what it is, displays of shear guts like this are unlikely to originate with someone who does not have a very firm guidepost to hold on to.
For quite some time in early in 1999 Jim had been warning that 8th May (1999) would likely be the next short term peak. Within four trading days of that date the market peaked and is still falling today as I write. But now, as the market falls Jim is predicting another sizeable rise. This is so diametrically different from the rest of the market timers. They all get more bullish the more the market rises and more pessimistic the further it falls. But not only is JASMTS different - most of the time, not a minor detail, it is correct as well.
There is one other factor that impresses me about Jim's approach. I have found in life that there is often much more CONTENT contained in HOW a person says something than in WHAT they have said! To give an example from every day life: Suppose you have a box of fertilizer in the garage and are not sure whether you should apply it to your rhododendrons or not. You might decide to call the local garden supply center and ask them. The problem is that you do not know whether the person they put you through to will know anything about fertilizing rhododendrons or not. Unfortunately you also know that whether they know anything about rhododendrons or not they are going to give you an answer. If they know nothing about rhododendrons the appropriate answer would be "I don't know". But of course it is rare to find an employee who is prepared to admit there is something they do not know.
So what is the solution to this problem? Simple, 99% of the time you can tell whether you should listen to their advice not by what they say but by THE WAY THEY SAY IT. Many clues are to be found in the manner an answer is given. The tone of voice; the degree of conviction; indications of sincerity; additional information offered which would not be known by someone who doesn't know what they are talking about; and others also.
The relevance of this to JASMTS is this. Listen to Jim's commentaries for a few months and see whether you think he knows what he is talking about. I am a repeat subscriber!
·RN Foreign subscriber consulted by a previous U.S. administration on economic policy matters
Latest Signal in Model: 10/25/99 SELL, S&P 1294
|July 13, 2001|
This being Friday the thirteenth, I thought it would be appropriate to discuss some of the interesting methods of prognostication that are currently in use among the various economists and advisors. Although I put no faith in tealeaves or crystal balls, I am afraid by their records that some must. How else could such dismal records be considered normal? For example, it is a well-accepted notion that the stock market always discounts the future economic environment by adjusting prior to the actual unfolding of that particular environment. Obviously, I accept this to some degree, but the idea that this is a perfect mechanism is nonsense. If it were perfect, we would have had a much different environment now than we actually do.
Back in December 1999, for example, I wrote about Yahoo!. This was shortly after the initial sell signal in the model and just before the tech wreck began. Since I want to demonstrate that indeed it is possible to accurately predict the future direction of the market if you are objective, I am including an excerpt of the piece I wrote December 10, 1999. I wrote: However, when the pendulum swings to such wild extremes as in this case, we can be sure the end is near. Of course, Yahoo! is heralded as one of the giants of the Internet world going into the future. No doubt it has good prospects, but do these prospects warrant a P/E ratio of 1360?!!! I dont think so. Furthermore, how can anyone logically justify a valuation of this company, regardless of how rosy the future may look for it, that eclipses the likes of General Motors, Ford Motor Company, etc.? This is sheer nonsense
Now the point of this is that if the stock market were a perfect discounting mechanism, shouldnt Yahoo! by now be earning massive profits as forecast by its enormous valuation back in late 1999? Well, as I am sure you all know, Yahoo! just released its earnings for the latest quarter and they came in at a penny a share. How exciting! Furthermore, their revenue dropped nearly $100 million from the previous year to $182 million. Now it is true that the stock price has been decimated and currently stands at around $18 per share (from its high of over $200) so you could argue that the decline in the stock price did accurately predict the declining sales and profits. Yet what about the flip side? Where were the earnings that were supposedly forecast by the lofty share prices of a year-and-ahalf ago? Obviously they didnt materialize and the only things that got the share price up so high in the first place were faulty logic, improper forecasting of the companys true potential, and massive speculation. Dont forget, however, that this company still has a market cap of around $14 Billionthis for a company that is earning a penny a share. What does that tell you? You wont need a crystal ball to figure that one out.
Speaking of earnings, there is one subject that irritates me very much concerning the reporting thereof. I have written about this issue in the past, and it is so misleading that it borders on immoral. The media constantly hypes that they beat the Street, or they met the Street when a company provides a good earnings report. To the average viewer, listener or reader, this sounds like a positive report. In reality, all it means is that the company met or beat the estimated earnings that were forecast by the various analysts that follow the stock. The company may actually have performed dismally compared to last year or last quarter and yet everyone gets excited because they beat the Street. The previously mentioned Yahoo!, for example, beat the Street by a penny (it was forecast to only break even). Motorola beat the Street by a penny, losing just 11 cents a share compared to the expected 12 cents! Microsoft, which ignited the rally yesterday by indicating that its fourth quarter sales would come in a few percent higher, also included some bad news that was pretty much ignored. (Of course the bad news was not really mentioned by the media to any extent). The company said that it would record an investment loss of $2.6 Billion, which would cut its estimated earnings for Q4 from the previously forecast 42 cents to just a penny a share! Not exactly the stuff sustainable rallies are made of. So, the point of all the above is to remind you that what you hear and see often has no basis in reality. Stock prices often fluctuate dramatically, with no real relationship to earnings, because speculation and its counterpart-- irrational selling, sometimes take over. In a perfect market, this would not be the case; in a market that is composed of human beings, it is inevitable.
Now, what does all this mean to us? Well, first and foremost, as I always remind you, we must ignore the hype that is meant to merely increase the coffers of the brokerage and advertising communities. We must remain focused on a reliable source of predicting market direction, namely the model, and not get caught up in the hoopla that is so much a part of the modern investment culture. So, at the present, we must look with a jaundiced eye at the forecasts that are again calling for a bottom. With the readings in the model still at 99.8 out of 100 with respect to critical mass, it is still much too dangerous to even consider any forays into the stock market. Furthermore, there are other dynamics at work now that have not been in place for many years.
As previously discussed, the stock market does tend to discount the future economic environment. To the extent that it does, what does a decline of 70% in a major stock index tell you about the future? Obviously, it is telling us that we will see much more weakness than we have so far. Furthermore, there is mounting evidence that the malaise is spreading to other areas of the economynot just technology. Layoffs are rampant and more are planned. New claims for unemployment were reported yesterday at a nine-year high. Debt is crippling companies and individuals as their asset bases have declined in value, forcing liquidation and refinancing. With this dramatic a slowdown, it is no wonder the consumer is starting to feel nervous. As spending slows, unemployment rises and sentiment sours, it is very likely that the economy will continue to deteriorate. And with share prices still far too high relative to previous barometers of Price/Earnings, a declining economy will certainly make these numbers (and consequently the share prices) unsustainable.
Now, lest anyone get the idea that I have a gloomy disposition, let me assure you that nothing could be further from the truth. I assure you I am only interested in making sure that my clients and subscribers maximize their profits with the least risk possible. After all, when I was getting my first business experience (working part time as a realtor while attending University) it was with a company founded by a man who began his fortune during the Great Depression of the 1930s. He would buy property for cash, knowing that eventually prices would go back up. They did, making him very wealthy. Just like him, we must look for opportunity where it is, not where the crowd hopes it is. There will be great opportunities for us in the near future when and if we get to critical mass, and even greater opportunities later on when we can buy stocks at bargain basement prices. The only thing that could hurt us would be losing our capital by being too impatient and jumping into things just for the sake of doing something. I assure you that I will continue to advocate waiting for the proper time and then taking massive action. That is the formula that will separate us from the crowd!
Position. From the time we recommended new subscribers purchase bonds when the yield was at 5.67% (now at 5.61%) a fairly nice rally has taken place. We continue to recommend that new subscribers, who have not yet purchased bonds, may buy direct holdings of US Government 30 Year T Bonds at this time. Those still holding stocks, which have been decimated, may wish to remain in those stocks in case there is a rebound prior to the Critical mass reading being hit. This last is general only, and if you are aware of any particular future further weakness in a particular stock you may be holding you will need to act accordingly.
Meanwhile, take care and have a great weekend. And just to be on the safe side, maybe you should stay indoors until tomorrow (when Friday the thirteenth is over). Well, just joking.
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My name is John Moser and I began subscribing to your service back in October of 2000. After a few weeks of listening to your updates I cancelled my subscription and received a prompt refund. Your staff was very courteous and issued the refund immediately. However, I now regret my decision to cancel.
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- In the late 1970's Jim Shepherd started developing a Model to predict major moves in the US stock markets.
- The model was successfully back tested over a 100-year period.
- From 1982 to 1986 the model was tested in real time and gave 3 signals. Eleven correct signals have been received up to Oct. 1999.
- The model started to indicate trouble in the spring of 1987 and gave a sell signal on September 8th 1987. The market Crashed on October 19th making many of Jim’s clients millionaires.
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·Mr. Geert Debakker, Belgium. Oct. 2000
Our clients have been in safe alternate investments that have returned over 35% since the Models last signal. They are currently awaiting the Model’s next signal that likely will indicate a Crash is imminent. At that time our current investments will explode in value and those wishing to use leveraged instruments may listen to what Jim has advised his managed accounts in this regard (the use of leveraged instruments is not recommended).
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