About this week’s show:
- U.S. dollar and bonds long term topping
- War cycle theory points to imminent war
- Gold to $2,500 on way to $5,000
- Exclusive offer from David Gurwitz: CLICK HERE
The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick
Kevin: Before we go to our guest, Dave, I think it’s worth talking about the two ways that people look at markets. You have what people would call fundamentalists, who are always looking at the news and saying, you know, the analysis of the news would make me do this. But you have the other side of the market, if we’re looking at extremes, the technical analysis, and they really don’t care what market they are looking at. They’re looking at a chart. It could be soybeans, it could be stocks, it could be gold. But really, what they are doing is, they’re looking for patterns in the chart, and I think sometimes it’s important to try to mesh the two, and understand the dynamic of what is a sort of symbiotic relationship between the two.
David: When we visited with David Gurwitz, I had the opportunity to do a Fox interview last year, and what was not immediately obvious to me then is his great love for music, mathematics, and things of that nature, and it makes a lot more sense now, his interest in technical analysis and order, there being a structure to things, and there being fundamentals, if you will, embedded in the technical picture. So, our conversation today, looking at super-cycles, looking at cycles of all kinds, but understanding that there is, again, a message embedded in the pictures that we look at, when we are looking at charts, and determining what we can learn from the past, and perhaps even predict into the future what will happen on that basis.
Kevin: One of the things I loved hearing him say when he was talking about charts and cycles on another program, he said, you know what? We don’t believe in randomness. We don’t believe these things happen randomly. We believe that God runs the show. And so, it goes very deep into his own belief system that cycles do repeat.
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David: Mr. Gurwitz, it’s great to have you with us. Charles Nenner Research is a group that looks at things, I think, in a very unique way, through a technical lens, but to limit it to that, I think, would be to ignore some things that are behind the scenes. You would, I suppose, say that there are fundamentals embedded in the picture, when you are looking at technicals. Maybe you can give us a little bit of a sense for how you approach technical analysis, cycle studies, and things of that nature.
David Gurwitz: Great question, David. Thank you very much for having me. I just want to say at the beginning, when you and I were on a show together, a year to a year-and-a-half ago, I think it was, I forget, Fox or CNN, and I really appreciated what you had to say, so I’m honored to be talking with you because I’ve become a fan of you and your vision, as well. So thank you very much, I appreciate it.
I met Charles twelve years ago. I say, former, athlete, I’m 59, I’m still an athlete. I was trained by a guy named Red Auerbach, who put the Celtics together. The reason I mention that is I was trained to be a talent scout. I met Charles, and I saw he was a genius. He told me he was working at Goldman-Sachs. He was a doctor, I didn’t know exactly what he did. He brought me down and he turned out to be one of the secret weapons at Goldman-Sachs for about 15 years, and no one knew about him because he was reporting to [unclear].
He discovered, in medical school, the power of cycles, from the Greek word circle, which is not the 9-year cycle, or the 4-year presidential cycle, but multiple cycles, meaning Apple copying every 3 weeks, 10 weeks, 14 weeks, whatever the computer finds in any data series. When all those top-to-tops in any stock, bond, commodity, currency or economic indicator, when you find, in effect, EKGs, that are equidistant tops, therefore predictable, and when 17 cycles are topping at the same time, you scratch your head and say, must be a top. Why? We don’t know, and we don’t care. And it turns out that it’s incredibly accurate, and he has been doing this 30 years.
I met him 15 years ago, we started our business together, we’re one of the biggest research firms in the world. We don’t manage money, and we don’t broker, so we just give honest advice about where things are going and he has made some of the best calls across the stock, bond, commodity and currency spectrum, and economic spectrum, which I look forward to discussing with you.
So we think cycles are fundamental. It’s a great question you ask. The word fundamental, generally, PE ratios, all the stuff that you talk about quite a bit, I’ve looked at your stuff quite a bit, too, but the cycles seem to indicate that the past patterns are going to repeat, and it’s something that removes free will, which is difficult for people to accept, but that is, in essence, what is underlying the “technical work” that you so aptly asked in your question.
David: So there are many perspectives on cycles. There are the war cycles, there are the folks that have written a book maybe in the mid 1990s, The Fourth Turning, which looks at a 100-120 year cycle, which takes on sociological, culture aspects to it. Really, we’re talking about financial issues, but you would say that all of these fit into the same picture.
David Gurwitz: Correct. I will even go one step deeper. I have a pretty big bookcase here, and I’m staring at a bunch of books. One is The Great Wave, Currency Wars, The Great Super-Cycle. People love to find these big things and hope that they are repeating, like the blood red moon that is coming any day now, thinking it is an indication of something. And yes, we find that cycle tops indicate something, cycle bottoms indicate something, from a social perspective, because humans get affected. Sun spot cycles have tops, and that’s something that indicates an effect on human behavior, according to Charles, and if you look at the NASA charts, and the sun spot charts, and the Dow charts, there is a lot to them that are similar.
And people laugh at it, but the reality is, it’s one of the things we look at. It’s not the main thing, obviously, the key is still cycles and target algorithms, which is based on rocket science, actually. It’s based on the decay and the trajectory of shooting a bullet out of a gun. So how did we know gold was going to go to $1900 after a 10-year run-up, and then call the top and it’s been down for 2 years, and we think the bottom is in a few months, which is the same idea about Apple, which calleded the top. There are factors around in physics that are all around that affect us, so why wouldn’t they be in markets, as well.
David: So let’s dive in to a number of the specific markets and sort of get a perspective, things that you would conclude, on which you see the long-term trend of the dollar, if you wanted to go back 100, 101 years now, since the inception of the Fed, it’s been down. And of course, we had the move higher to about 120, now we’re below 80 on the euro index, and many have called for a rally from here. The dollar is going higher. Where do you think the dollar is going, and how would you piece that together? Let’s start with the dollar, and them move to the treasury market and a couple of other markets.
David Gurwitz: Great. I’d like to address the dollar, and maybe some other currencies, as well. The dollar, we think, is long-term topping at the end of the 2nd quarter, beginning of the 3rd quarter, and down for a long time. So it will continue, what you said, this downward move, we think it is going to continue. When was the first Greek crisis, David? I don’t remember what year. Four years ago? Something like that, 4-5 years ago?
David: Sure, 2010, it basically peaked in 2011.
David Gurwitz: Right. So we called the euro at $1.51 three months before the 1st Greek crisis, and said that was the top, and said it was going to $1.22 per dollar then, which is exactly where it went. So the dollar strengthened during that time, and then of course, the Aussie and the Canadian we called to par when they were 68, and they went to par. So the cycles definitely influence currencies. It’s hard to trade currencies because they move so fast. But we think the dollar is majorly topping, which is why one of our long-term Dow predictions, which I will get to also, is that the next 5 years is down, substantially, to the end of the decade, and then the decade of the 20s is going to be an unbelievable up-move in equities, for that decade. It’s going to be one of the greatest, if not the greatest decade of equity moves up, after the next 5 years of not-so-pleasant.
And yet, if the dollar will be half the value, then even if the Dow goes to 80,000, from 5,000, crazy numbers in both directions, in effect, it’s only the equivalent of 40,000, because the dollar [unclear] today, so while it is a large up-move dollar-wise, it would behoove us to think about that, as well. So we think the dollar is topping, and we think the question is, which of the other currencies will be the better of a bad lot. And we kept everyone from shorting the euro about a year-and-a-half ago, and everyone really looked bad and it was very good call, and we think the yen, longer-term, is down, and we think there is going to be a real mess in the world, which is going to be played out, largely, in the currencies.
David: And then we’ve got the treasury market, and this, I think, brings in an interesting element, because on the one hand, we talk about the removal of free will in the context of these cycle studies, and yet, you have the imposition of will, kind of a top-down approach, if you will, from the ECB, from the Fed, from the Bank of Japan, extraordinary measures in the marketplace, and we know that rates are not where they should be. They’re lower, considerably lower, below a market rate.
And yet, I refer back to the days of Allen Shaw and Louise Yamada, doing technical work with Solomon Smith-Barney, some great stuff a decade ago, and they would say, long-term interest rates, we should be at the end of a cycle at about 32 years, and it should be going up. How do you factor in the U.S. treasury market, where it is? What is to say, in your mind, how would you address this issue? Why not keep rates at zero forever?
David Gurwitz: Great question. Let’s go to the last 200 years’ rates, because you are a historian, so it’s a pleasure to speak to you. Thirty years ago rates were high, the beginning of 1980. Let’s say you did two trades, 1981, 1982, you bought the Dow, which was 1000, now it’s 16550, and you bought a 30-year T-bill, and the rates were 18%, now they’re near zero. Two great trades. Had you just held them the whole time, it would have been great. If you did that same pair-trade in 1987, the bond trade would have been great, the stock trade, obviously wouldn’t have been. Same idea in 2000 and 2007. You have had those knock-downs in stocks, but bonds have pretty much been a great down-move all the way.
Let’s go 60 years ago. I just spoke to a client who is 82, and he remembers when rates were 2% when he was 22. So he remembers today’s rates from 60 years ago. That is a complete 60-year cycle. Go back 90 years, he wasn’t alive, but rates were high in 1914. Let’s go 1980 high, 1950 low, 1920 right after World War I, rates were high, in 1890 they were low, and the Civil War they were high, 1830 low, and 1800 they were high. There is a complete 60-year cycle in rates. So we do think they’re going up the next 30 years. However, we called the beginning of this year, short-term, to be long bonds, which we still think now, up through the summer.
So you are right that it seems like the Fed or the ECB steps in and changes things, but in essence, they seem to act in accordance with the cycles, because they wouldn’t have had to step in four years ago when we were begging people to buy the 10-year at 4%. And they’ve stepped in now, and the last 5-year stock run-up seems to be attributed to that, but in reality, cycles indicate when something is going to happen, not just what happens afterward. So we still believe that the cycles overpower the free will. The free will seems to come along at that time. Carter was elected at a cycle top, and Reagan was elected at a cycle bottom, and one of the things Charles likes to say is there was a subconscious picking, or maybe a candidate comes along at that time to make it a top, or make it a bottom. It’s so deep below the surface of what’s going on with the cycle analysis. Rates will be down for the next year, we still think, so it seems like that 60-year cycle is stretched out, but it doesn’t change our point of view that we’re going to get a massive increase in rates going forward. So in effect, stocks will be down and bonds will be down over the next five years, which is going to make it really interesting for investors, according to us.
David: Is it fair to say that there is some variance, let’s say it is a 30-year cycle, is there an allowance, a 5% variance, a 10% variance, where a 30-year cycle could be 27, or it could be 32?
David Gurwitz: Yes, yes, that’s for sure. Yes. I’ll give you an example. I just saw a film with Charles in the Sovereign Wealth Fund, and he was saying that we have a wedge formation in the Dow, and so it looks like June is the top in stocks. And cycles are topping. And also, we’d like to line them all up, not just cycles, not just target, but other “technicals,” wedge formation, MACD oscillator, Elliott Wave, if they’re all lining up, we feel very comfortable that everything is telling us something. But things get stretched, and they don’t always work in accordance with what we think, and when humans come up with a system, by definition, it can’t be perfect, because we’re not perfect.
But generally, if we have to look back over 200 years, and I would just say I’m working within 12 years, it’s accurate about 80% of the time. Not always. I’m not saying that. So, yes, things do get stretched, they just do. But overall, they are strong enough and accurate enough that we stick with it until we’re proven otherwise. But this is our big picture, stocks-wise, bond-wise, we think it’s going to be very, very rough on people. Gold, we think, is bottoming in the summer. Grains, corn, which we should talk about also. We just called a coffee bottom a few months ago, and that’s up until January next year. All these things are following cycles. So, people attempt to say that there is some intervention that is doing something, or high-speed trading, or this and that, but we think it’s all built in to the overall system that they don’t control. But, you’re right, it does get stretched out sometimes.
David: Let’s talk about gold because the call at $1900, there were probably reasons for that. And again, maybe not all of your studies line up exactly the same. Maybe the Fibonacci numbers would have had it going into a higher level than $1900, but your cycle studies, in aggregate, said $1900 was the top.
One question, because certainly this last trade, I know you expected some resistance at $1400, and there you are at $1390, and then backing off of those numbers. Some people have said there’s a double bottom at $1180. And of course you have Goldman and Société Générale saying, no, no, no, come one, you’re going to $1000, you’re going to $800, you’re going considerably lower on the gold price. Could you address that?
David Gurwitz: Great question. We don’t see that, but we definitely see a strong down move before that longer-term tradable low in June. So that target down, really, the question you are asking me is a great question. How do you determine targets? And the answer is, we need a move in order to see where it’s going. We called this move from $1300 up to $1400. Now, a bounce down, we see a little top, actually now. But we think there is going to be one more knock-down, and I’d love to get back with you then, when that is, but I will even put you on the research you can actually discuss it and see when we finally get a down-target, we’ll give it, and then when we get to that target, assuming that the level gets there, and the date of the cycle-turn, because cycles only give you direction and timing, they don’t give you level. And then, that’s a great time to plan to buy options going the other way, because we think that gold and silver will retrace to their highs again, which is quite a move. But we don’t have that down-move yet, although $1180 is not a crazy number, we actually saw that.
But we show in crude, which we’ll talk about in a second, we see $122. Nobody else has that number. And we see it starting in summer. Does it mean war? Could be, because we have a war cycle, which we will talk about also, bottoming a year ago. And if you look at the last year, while there hasn’t been major war, there has been a lot of stuff lining up that could be, all over the world, actually. And that also follows a cycle that is difficult to follow.
David: I want to come back to gold. A tradable low, in looking at a return to the highs, $1900, what we’ve seen in about the last ten years, the dollar market has shed, basically, one-third of its value, and gold has moved up 250-300%, and that factors in massive correction. It’s been a tremendous out-performer relative to equities, relative to a number of other asset classes. The challenge is to imagine gold only being at $1900 if your dollar call is correct. If the dollar, over the next 2-4 years sheds another third, or even half, again, it would be difficult for me to conceive of gold at $1900 only.
David Gurwitz: You’re correct. We see it going $2500, its first stop, and then we show a higher number after, but we want to get to that first number and see where we are holding, but we definitely see $2500. That’s a big move, obviously! (laughter)
David: I understand.
David Gurwitz: But when it was $1900, David, it wasn’t such a big move. It had been 10 years up, and everybody figured it was going to go, especially Australia and Western Canada, who bought coins all over the world. Once things go for ten years, it’s hard to get used to it going the other way. Apple, we called the bottom at $199, then we bought puts at $702. We still think it’s going to go back up, starting in the summer, opposite the stock market. So what does that mean? Maybe Apple takes over the whole TV industry, I don’t know. That’s how we look at cycles, we say something is going to happen, then we figure out what it is.
David: So, again, there are fundamentals embedded in the picture.
David Gurwitz: As you correctly stated at the beginning, we think it’s the most fundamental. Maybe that’s why it is so difficult for people to accept, because it’s so deep. It means it’s not random.
David: So gold, the sort of the step-sister, or little sister, if you will, of the gold market, is silver. And then I would like to transition to industrial commodities, copper, and some of those, but silver has been along for the ride. It sort of extended the trend, spring of 2011, peaked earlier than gold. Now it’s been on its back for some time. It went from $4 to $50, back to $18-19. The gold-silver ratio is 65-to-1, with highs of 100, and lows, if you want to go back to the Hunt brother days, of, say, $15, which is more in keeping with the in-ground ratio. Give us some perspective on silver.
David Gurwitz: We think it’s going to follow gold, a little bit weaker now, long-term, actually, stronger, but we think it’s going to follow in the same pattern as gold. We called the top in silver, also. It was $49-something, David, whatever it was that the gold top was.
David: Yes, $49 and change.
David Gurwitz: So that was the same thing, but we think long-term it’s going to be a similar pattern to silver. Copper, of course, different animal. We called the top in copper two years ago. We had one of our sovereign wealth clients. They don’t invest for two years. (laughter) It’s 70 billion, 80 billion, they’re thinking a long time. They wanted to buy a ton of copper, and we strongly suggested they don’t do that, and we were right. And so, we just covered copper. By the way, any of your listeners, I welcome to write to charlesnenner.com and say that we spoke and they’ll get a free month of the Research Report that come out 4 times a week.
David: So generous, thank you.
David Gurwitz: My pleasure. That’s Charles Nenner Research. So, copper, we just wrote Sunday, the copper cycle is still down, has a downside target of around $292, closed above $310 needed for it to cancel, it’s self-signal, we called two years ago, it was topping, and it fell to a 4-year low. I’m looking back now, in February we said it’s under pressure until May. So longer-term, copper does not look like it’s up, so we think there is still going to be tremendous deflation.
Also, we sent a report last Sunday, Charles and I wrote, that I’ll send out to all your listeners who write in on deflation, when crude hit $147, on CNBC Charles said we’re going to have deflation, and that has moved up from $19 to $147, it took about 6 years, and they thought he was crazy, because who bought deflation then? And sure enough, crude came down to the high $30s, until now it’s been in this range, but we still see deflation for the next few years, despite all this printing. And then eventually, the inflation is really going to kick in. So anyway, that’s the story with copper, that it’s been down and continues to be down.
David: And certainly, the copper price is supportive of that deflationary trend, a slow business cycle, a global economy that is not really doing what everyone would like it to do, or what many of the central banks around the world are saying, that we are sort of moving toward full-blown recovery. Copper tells a different story.
David Gurwitz: Right.
David: Then let’s look at crude first, and then the equity markets. Crude, you say 122 on the horizon, and that would not be an indication, I guess, of supply and demand. We’re swimming in supply; demand, maybe more or less strong, but again, the technical picture may have some embedded information in it of a geopolitical nature, perhaps.
David Gurwitz: Right. Let me answer crude in the form of nat gas, and then we’ll go to crude, if that’s okay, because they have some connection. And you’re questions are great, David, it triggered something that I forgot. Years ago, natural gas was $12, went down to $6, everybody thought it was going to go back to $12, and we just started covering natural gas at that time. We really never did. And Charles said, “I know this may seem crazy, but it’s going to $2.” And everybody said, “How’s it going to go to $2?” He said, “Just based on cycles, it’s going to go to $2.” So what happened was, a bunch of Canadian banks lent some nat gas producers a lot of money at $6, and then natural gas went to $5, went to $4, and then went to $3.50. It’s like a house under water, the bank is sitting around in their office thinking, we made a loan at $6, now it’s $3.50. It’s like, you made a loan to a house that was $500,000, you lent them $400,000, now the house is worth $280,000, you’d better go do something.
So they contacted a bunch of the natural gas producers and said, “You’d better sell, you’ve got to start paying our loan, you’re violating the loan covenant.” And they started selling. And what happened was, the newspapers said ‘natural gas sales caused by bank pressure.’ And we said, ‘that’s not true, natural gas sales caused by cycles coming down, and then the banks didn’t realize it, and they caused the pressure.’
So natural gas came to $2, and then we’ve called this run-up, and then we think a little bit more to go, and then back down to $2 again. So that is our natural gas picture. Having said that, crude, which again, we just did a chart, and I’m scrolling down now to answer that, but crude oil, we see a nice bull market in crude starting in the summer. And you see this chart going back to 1990, so you have a 25-year chart, even though crude has been around 100-some-odd years, and it’s a very clear bottom in July of 2014, up for years.
Now, why would that be? I consider you an expert economist, by the way. I’ve listened to a lot of your stuff, and you think, which is a pleasure, and obviously you come from a man, your father, that I am a big fan of also. But you look at the crude, it’s up for a couple of years, but if things are going to be bad, why is that? Must be war. And that’s not pleasant, and yet, that’s what it looks like. The bottom is clear in the summer of 2014.
Now, five years ago, if you remember the bull movement in stocks, and then kind of pull the circle together, the summer of 2008, things looked great. Charles sent out something that said, things look great, but I just don’t like it, get out of the stock market. And everybody was very upset with him. And then the summer of 2008, the fall of 2008 was horrible, and the beginning of 2009 [unclear]. Everyone was begging the world that crude would go up, because that would be an indication of economic activity. Now, we are worried if crude goes up because it’s an indication of war.
So I think your question is a great question when you say there are fundamentals embedded in the technicals, because depending what time you are, what year you are, where you are in the cycles depends on how the world is viewing that particular asset class. And we, who try not to put it all together, even though it’s hard not to, because the cycles show crude, they show natural gas, they show interest rates, they shows stocks, they show gold. We don’t want to say, well if that’s bad, that’s bad because maybe we’re making the wrong interpretation.
Of course, it’s hard not to do that, but the VIX, for instance, has become a thing people didn’t really focus on until the last maybe 7-8 years, and we cover that, as well, in our report. We see crude going up opposite natural gas. Now, there was a lot of fracking that didn’t exist seven years ago. Like you say, the world’s sloshing in supply, why would it go up? And you correctly said, it’s probably geopolitical. And according to cycles, the geopolitical comes along at cycle bottoms and tops.
So, in effect, according to us, as crazy as it sounds, cycles predict weather, they predict wars, they predict interpretation of events, not what the price is. Because what we think it’s supposed to be, like you said, some people think the rate should be higher. We don’t know what it should be, we just know what it is based on how humans vote. And since they voted in the past in certain patterns, they’re going to repeat it, like lemmings. That’s kind of what we think, and the deeper manifestations of public events come along at those cycle tops and bottoms.
David: So, there are a variety of things that affect human behavior. Today, we see people very enthusiastic about stocks. Margin levels at all-time highs for 166 billion as a percentage of GDP, and for the first time in all of history, we’re above 3% of GDP. You look at that and you say, okay, well, maybe the Fed can print, and the ECD can print, and the Bank of Japan can print, and even monetize and go directly into the equity market and drive prices higher. From your perspective, you see a top coming in stocks and as you have said, it’s not that you have specific levels in mind, but perhaps direction and timing involved in these cycle studies. Where would we go from here? Would this be a mild 10-15% correction? It’s very common to have 20% corrections, no one likes them, but that’s pretty common. Or is this something that’s more of a long-term issue?
David Gurwitz: Great question. I’m going to say, we do have levels. We think we’ve seen the top in stocks. It’s going to retest it a few times, but we’re not going any higher. We have a real level. We picked “Sell Apple, 702.” And yes, this is down for many years. Big picture, next five years, stocks are down. Does it mean it’s going to be all the time down? No, there will be years up 40% during that time. But if you are advising your clients, which I know you are, and I am too, except we’re not investment advisors, we don’t manage or broker, we just say here’s what we see, and depending on your risk tolerance, go do what you think.
But we think this is a major, major top in stocks coming up in June, and that people should hedge, or be very concerned about being in stocks, and we also think while short-term bond rates will stay low for another year or so, we think that is also, long-term, going to be a problem. I don’t know where there is going to be an easy place to hide. Food prices will be good. Food, corn, gold, silver, gold stocks, silver stocks – which obviously have been beaten up. I spoke at the Canadian convention for gold companies two months ago. You see a lot of beaten up companies the last two years, because they had no access to capital. But they hope, they pray, that the bottom is coming, and we think it is.
Just an idea of peak oil? We have peak gold, and it’s a similar concept. They’ve kind of dug all the easy-to-get gold, and now it will be harder to get. So I think stocks, to really focus on your question, from what Charles is saying, because it’s really what I expressed, have reached the top. We’re going to retest it again, we’re not ready to short yet, we’ve kept everyone from shorting the last several months, but look, obviously, the end of last year we called the rally up to the level, the S&P, particularly the futures, the high 1800s, and we’ve got a couple of bounces up to retest, but after that, I wouldn’t be in stocks. I think we’re going to have a long-term correction down. Next year gets very ugly.
David: It’s interesting to me, the conversations we have with folks that focus really exclusively on the fundamentals and say, I don’t like pretty pictures, I don’t like technicals, but I can tell you, when I drill down on a company or on a market, what the value is. In our conversations with Andrew Smithers this last fall, and I meet with him here at the end of the month in Scotland, his view is that we are 70% over-valued in the stock market, looking at Tobin’s Q, looking at the cyclically adjusted price earnings multiples, and actually, Robert Shiller has gotten on board. They attribute the cape to him now, the Schiller PE. Richard Fisher from the Fed, two weeks ago in Hong Kong was basically saying, yes, if you look at the Shiller PE stocks are way over-priced, way over-valued.
So what I find interesting, in the conversation we’re having today, David, is that we come to some similar conclusions, but we may arrive at those conclusions on a different basis, and just like your cycle studies, if there is one cycle study, it may have your attention, but if there are 10-15 things pointing to the same conclusion, you’d better pay attention. 17 cycles overlapping and pointing to one conclusion, you should be sitting up. Is that really what I hear you saying?
David Gurwitz: That is exactly what our system is. Let me give you some calls Charles has made, since I’ve been working with him for ten years, and people should go to the site and watch – everything he has done is there. He said on CNBC, Dow from 1008 is going to 14,500, it went to 14.2, took everyone out. And they said, “Why are you going out?” He said, “Cycles have topped, lay off.” So that was a pretty good call. And then, he called the Dow, and then in 2008 he took everyone out, and we’ve been long, more or less, out of the last 63 months, we’ve been in a buy signal about 52. About 80% of the time. Not always, not everything always right, obviously.
At one point, Charles got on TV and actually said he thought the Dow’s move to 5000 was beginning then, and then he didn’t get back on to say he changed his mind, but he did, and we went long, so we got out at 14-something, the S&P, and went back in at 13-something, but the press didn’t pick that up, so we rode it back out. But our clients knew, and our clients were still happy. We took them out in December 2008. But you’re right, the whole idea is to take data going back a long time, so what shows up today doesn’t surprise everyone.
One of the people I read is Mauldin, in economics. He is a very bright guy and he was bringing somebody else who was saying there seemed to be an iron curtain that came in trading January 3rd. Like all of a sudden, the last year’s good news on all these different indicators seemed to change. And we predicted this. We said this in our cycle work that we will be approaching a top mid-December, end of December, beginning of January, and it did. So the perception of things changed, which is really, in essence, is what you correctly keep asking, is what the cycles show, is that there is a perception that is influenced by cycles, that Charles taught me when I met him. The human interpretation of events is what the cycles show. So if IBM comes out with earnings at a cycle top, it will be viewed negatively, and at a cycle bottom it will be viewed positively. Same news.
And you have gotten, the last four other people you mentioned, who I also follow a little who are very bright, they also say the same things, but people are afraid. There’s no time to go short yet, but we think this June, if you put everything I’ve been saying together, to summarize, top in stocks, bottom in corn, bottom in gold, bottom in silver, bottom in crude, top in the dollar, and a few other things, it’s going to be a very interesting time. Could be war, could be some type of blight that comes along indicating crop failure, could be weather issues, we don’t know. We can never say what it is, it just gives us a look to get a sense of when something, it’s time to plan one’s portfolio. We like to have people plan in advance. We’re not so into our daily update, which goes out Monday, Wednesday, Friday, covers 14 different areas, and people can trade very day, every week, every month. We give levels, parameters, buy signals, sell signals. But we like to point people, two months from now you should be thinking, four months from now, two years from now. I think people like it.
David: I think when we consider the next 3, 5, 7 years, we’re really talking about one of the largest upsets in expectations. If anyone is predicating the future on the immediate past, stocks are going higher, bond rates are going to stay low, you’re going to see elevated bond prices, there is sort of an extension, if you will, just almost drawing a line on the chart, whatever direction it’s going and trending, we’re just going to assume it’s going to continue that way. Actually, that was a question that I asked the analyst at Société Générale when I was in Shanghai a few month ago, and that was basically his conclusion. If prices are going up, we think they’re going to continue to go up. If prices are going down, we think they’re going to continue to go down. (laughter)
David Gurwitz: David, I’ll tell you what’s crazy, I’ll give you a joke. You remember Bob Hope? He was a great investor. He bought a ton of property in L.A. He kept saying, I would just drive to where the houses stopped, and I’d buy the next tract of land, because I just figured at some point they were going to buy. You’re talking 30 years ago, he was buying, 40 years ago, so he became a very rich guy. So that’s one way to invest, but if you just keep looking at 200-day moving averages, which is what a lot of people do, the 50, the 80, the 200.
What does 200 represent? It’s a kind of a year, because how many trading days in the year? 200-some-odd trading days. How could something ten years ago be factored in? Even 25 years ago. Go through this bond cycle that I mentioned, the 60-year cycle. Go through the last 30 years I mentioned, the trade from 1980 to 1981, and the bond trade would have been great, and the stock trade would have been hit three times. If you don’t consider those in today, look at gold. It had a run-up for 10-1/2 years, 2 years, we said it would only [unclear]. If people don’t look way back, to consider it has an effect today, which I think is part of the problem, you don’t have a historical perspective in the world. They have too many machines making us think we’re smarter. We have more information, but I don’t know if we’re smarter.
I come from a long line of rabbis. I study Talmud all the time, but the Talmud was written down 2000 years ago, written down, over several hundred years. And the wisdom they had then, they didn’t have these machines, (laughter) you know, they didn’t have electricity, but they had wisdom that we don’t even touch now. So, we’re used to thinking very long-term, and assuming it has an effect today, whereas what you just said, the analysts think if it’s going up, it continues. Now, they’re going to be blindsided all the time.
And look what happened last year. If it was up 30%, why not assume it’s going to continue going up 30%? And yet, this year, we already know, is going to be hard and difficult, and it seems to have hit right away, who predicted it? Well, we think we did. We said cycles were topping, but that implies multiple cycles, meaning effect of some type of vibrational event going back years. And people don’t seem to factor that in. Take a look at Putin, what he’s doing. There’s an argument, of course, look at the historical record of Russia. Of course, that has some effect on what he’s thinking. And people don’t like to think historically.
And yes, crude is very expensive over there, to get, and all the different things I’m sure you have written about and spoken about. He is very aware of war cycles. He’s not a dumb person. The world doesn’t seem to want to look back, or accept it, and that’s one of the issues we have with people who are following short-term perspective. That’s what I like that people think so far back and say it actually has an effect.
David: It seems that the next 3-5 years represent a tremendous opportunity, as well as a very harrowing time if you are on the wrong side of the trends, and there is this coalescence between fundamental and technical analysis. We find, reflecting on psychology, sociology, human behavior, human nature, and a look at history, because that’s what we’re looking at when we dig up market data. It’s not just data, it’s a track record of human behavior, the way people have voted, and there are reasons why they have done what they have done at those particular periods in time.
That’s what we’re talking about today, is those things coalescing into a picture, and coming to some hard conclusions, but conclusions that have some predictive value.
David Gurwitz, thank you so much for joining us today, and would encourage our listeners to go to Charles Nenner Research, and if you mention the program, as David has suggested, they will provide a month’s worth of research, complimentary.
Thank you so much for that offer.
David Gurwitz: A pleasure, David. I also want to end by saying I’m a big fan of you. (laughter) Your clients are very lucky to have somebody who is so open-minded, to consider a lot of different views, and to be thinking that way at such a young age. Well, maybe not so young, but you seem that way, and I just want to thank you. As I mentioned at the top of the show, after I saw you, I looked up and watched a lot of your TV and media things, and I was very impressed with your point of view, how you got to things without us, without the cycle work, you got there, and I was really impressed. It’s not easy. So I just want to compliment you. I think your listeners were very blessed to have you as an advisor.
David: Well, listen, I think we would have benefited tremendously had we been reading your research.
David Gurwitz: (laughter) Well, now you will.
David: Exactly. That has begun. So, thank you so much. We look forward to all of our future conversations.
David Gurwitz: Likewise.
