"Hi David and Eoin, hope you are both well.

"I loved the latest offering from PFP Wealth Management. I always feel spoiled for choice when I go through your Comment of the Day.

"I've been investing and trading for close on 40 years (and I'm only a bit older than that) and I've never seen a more challenging economic environment. It's a minefield out there.

"The "bold $1 trillion dollar rescue by the European Union" (which took some serious gloss off my carefully accumulated hedge short positions) gave me that uneasy "deja vu all over again" feeling.

"Those canny Europeans have found a way to go that extra mile, or kilometre, down the debt superhighway! In an exercise reminiscent of Wall Street's recent financial alchemy, as I understand it they're going to take a bunch of bad credits (the guarantees of 16 EU nations), toss them into a pot (the European Commission) and issue prime rated securities (ie more debt) to bail out the weaker members and the largely European banks that have been caught holding their bonds. Contagion has been avoided and the banks have been saved (again) for the time being, but no solution to the sovereign debt overload and wall-to-wall deficits is apparent. They're rearranging the deck chairs and you have to wonder how much firepower the EC, the IMF and the Federal Reserve et al will have left after this one. The lucky ones will at least have a printing press at their disposal and a currency of their own to decimate.

"Which brings us to what is seemingly the last remaining pillar supporting the global economy - China and the small cohort of relatively young and healthy "developing" nations. When you boil it all down, China's continuing success is dependent, I believe, on the continuation of its export model. I see the shift to consumption as a longer-term process that probably won't happen fast enough to compensate for the wave of unavoidable austerity that is now upon so many "developed" nations. I see a bump in China's future and that does not bode well for anyone, particularly Antipodeans like me who have fared quite well until now.

"I guess my point is that although the recent weakness is a "reversion to the mean", it is increasingly looking like something much worse. If you will pardon a modicum of hyperbole, this looks like a slow motion train wreck that no amount of button pushing and lever pulling (of which there will be
plenty) can fix.

"I have been on the resources bandwagon for many years, but am becoming increasingly wary and, like PFP Wealth Management, increasingly fond of the shiny yellow stuff because I'm running out of alternatives."

David Fuller's view Many thanks. We are doing fine, mostly enjoying the market challenge, and Eoin is looking forward to two lively chart seminars against this fascinating financial background. Thanks also for a terrific summary of events, presented in a word-perfect email. The latter also matters as I can just copy and paste your email, without wasting time on formatting.

Regarding, "I've never seen a more challenging economic environment", perhaps, but part of the reason behind that feeling is that most of us did not know very much 30 or 40 years ago. We were primarily reliant upon intuition and quick reactions. Today, we probably know a great deal more, including how much we still do not know. Some of us may also feel that we have increased responsibilities.

Therefore it is important that we remain aware of the risk of allowing ourselves to be emotionally overwhelmed by challenges. Similar to an athlete in the latter stages of a career, it is important not to be stressed out by what I will call feelings of last chance syndrome. When in the markets, we needs to remain emotionally resilient.

How do we do this?

It helps me to see the humour in any given situation, especially when forecasts are dire. It also helps to balance market preoccupation with relaxing family time, exercise and healthy social/cultural activities. We need to pay attention (successful investing and trading can be hard work) but obsessive screen watching never helped me.

I trust in the markets to provide many clues and numerous opportunities, provided that I pay attention, monitor charts and think analytically rather than emotionally. Even if there is a slow motion train wreck out there, it won't be for the first or last time, and most subscribers have both the common sense and experience to see opportunities which may be the flipside of what others perceive as risks.

Lastly, it is important to pare leverage in times of volatility, at least until markets show signs of becoming more stable. My guess is that they will become more rather than less stable over at least the short term. Spikes over 40 by VIX are associated with climactic selling more often than not. The dramatic exceptions occur when a crisis is rapidly deteriorating. I believe that the European sovereign debt crisis has been contained for the medium term.