“We don’t tell our clients what to put on, we just tell them the information and then they decide how to do it.” – David Gurwitz (Tweet)
In this second part of our conversation, we dive into the specifics of how Charles Nenner and his team make their predictions, and what they predict in certain markets like Crude Oil, Copper, and Natural Gas. We also discuss the cycle of a major war at the beginning of each century, and David’s personal story of why he is just as curious today as the day he started.
Thanks for listening and please welcome back David Gurwitz.
In This Episode, You’ll Learn:
- How they predict the price, and how the price and cycles work together.
- The fifth category they predict on is economic indicators.
- What is happening when a market is not behaving as the cycle they show indicates.
“I find that people overtrade.” – David Gurwitz (Tweet)
- What are some of the indicators of a big event like 9/11.
- Where he thinks Natural Gas is going.
- What he thinks about Copper.
“Sometimes you miss a cycle. It’s still human interpretation, we are not just a black box.” – David Gurwitz (Tweet)
- The battle between inflation and deflation and where he stands on those terms.
“We don’t use terms like bull market or bear market.” – David Gurwitz (Tweet)
- About the 100 year war cycle and what he predicts for the next war.
- The cycles of infectious disease.
- Why they don’t have a fund that trades off of their predictions.
- The different types of clients they have.
- Why he does the job that he does.
- Why it is important to listen well.
“Most people don’t hear what you’re saying – they are listening and thinking about what they want to say.” – David Gurwitz (Tweet)
- Why he thinks that thinking and listening are a lost art.
Resources & Links Mentioned in this Episode:
- Read the article David mentions in this episode featuring his work in Oil & Gas Investor.
- David recommends reading Chaos by James Gleick.
This episode was sponsored by Swiss Financial Services:
Connect with Charles Nenner Research Center:
Visit the Website: www.CharlesNenner.com
E-Mail Charles Nenner Research Center: email@example.com
Follow David Gurwitz on Linkedin
“Why do I do this? It’s like a painting that never ends.” – David Gurwitz (Tweet)
David: Every once-in-awhile at 3:55AM or 4:02AM Charles will call me and go, “You see it went right to the level?” That means he’s still a kid. To me, I appreciate that Charles more than anything else, has shown me a different way to see the world from my own professional training. So this is a very different way of looking at things and that in and of itself requires someone to be intellectually curious and let us have our say and be heard beyond the money.
This is David Gurwitz, Managing Director of the Charles Nenner Research Center, and you’re listening to Top Traders Unplugged.
Introduction: Welcome back to Top Traders Unplugged where the best traders in the world come to share their experiences, their successes and their failures. Let's rejoin the conversation with your host, veteran hedge fund manager, Niels Kaastrup-Larsen.
David: …. very difficult process having lived through a pretty good run.
Niels: Of course I’m not going to let you off that lightly, but before we go there, I want to understand something, and then I think we’ve covered all the bases. We talked about cycles, how and why and so on and so forth. The other thing I just want to find out a little bit more about is your price targeting because on one sense, for me at least, cycles means that you must believe that time is more important than price, and so on and so forth. Cycles you can by observing them and overlaying them and all that, I can see that. I can understand that. Price, on the other hand, is to me much more difficult to predict. How do you know if it’s going up?
When I look at the charts that I receive from you, I see the cycle, and I see the price of the market. What I don’t see visually and maybe it’s because I don’t see it correctly, I don’t know. What I don’t see necessarily, is just because you are showing a big move in the cycle, that that necessarily corresponds with a big move in the price or vice versa. Sometimes the cycle is showing it’s going up, not dramatically, but then you have a dramatic move in the price. How do you predict the price and how do the price and the cycle, when you show it on your material, how do they work together, if at all?
David: That’s a great question. What we usually show is just cycles because it’s very difficult to show how we calculate the price.
David: It’s too complicated. It basically utilizes quantum physics. I’ll try and explain how much I can explain.
Niels: Please do, please do.
David: I’m going to let you think that we do have some proprietary stuff here, right? It is based on reduced propulsion in a move, and it takes into account other things that happen in the physical world. So therefore, I’ll give you examples!
Niels: Yes, please. But actually, also examples that may explain that because there were a lot of fancy words that I didn’t understand much of.
David: Yeah, OK. I went to a public Bronx High School Science, so I feel for comfortable… Let me read you the research. So I’ll give you each category how we… Well Crude, when it went to $97, we said get out. The first target is $60 something, and the next target is high $40s. That’s exactly what happened. Now how’d we get there? Keep in mind, the program has 50,000 plus lines of code. It’s smarter than us. We don’t fully understand ourselves when we explain it. You draw lines; it’s complicated to do price. For a while, two years ago, the VIX, which has become a very popular thing, it wasn’t several years ago. Our cycles were OK, but the target was incredible, so we focused on the target.
So that is part of our job to know which is better, the chicken or the fish? To know which thing in the kitchen is going next. It’s the art of this. It’s scientific with an artistic piece to it. So it’s very hard, and then when you combine them, which is really what we say we want to go long something only on a close above that level. I’ll say it as an example.
The TSX said on Wednesday, Canada is a close above 14720 to give a buy signal supported by daily cycles up, projecting a high by mid-July. Bonds we’ve been waiting for the low on July 7th and then closes above 152.08 for the 30, 126.14 for the 10, 119.35 for the TLT and needed to cancel the sell signal.
So we just gave you two bits of information: a date where we’re looking for the low, with no price in mind and yet at levels. If it closes above there, if you’re short you don’t want to stay short. That’s a level piece separate from a timing piece, separate from a cycle piece. So combining those is hard. I’m going to have to tell you; I don’t do this work. We have Charles and one or two other people that do this work who are really brilliant people, and they don’t do this in two minutes.
They’re sitting and looking at all sorts of stuff. The Euro reached a short-term high and then we wrote a close below 111 gives a sell signal for longs, but not to go short. Goldman said about two months ago; they said the Euro was going to par. We vehemently disagree, and we were right. Will it go to par at some point? Could, but we’re just focusing on the short term. For most of the trading clients - theory is great, but they want to know what to put on and we don’t tell them what to put on, we just tell them this information then they decide how to do it.
Niels: There’s something that you mentioned here that I just want to go back to some other historical examples before we move into what you are expecting here and now. You mentioned a couple of things in the research that I see. One is, as you just said, it could be a trigger, so don’t get long until we’ve seen bonds move above this level. You also talk about markets being on a buy signal, markets being on a sell signal, what does that mean? That almost sounds like, if people were managing money according to your advice, they would just follow the buy and the sell signals, but I don’t know whether that’s the case or not?
David: They do, they do, buy the way a lot of people use our levels and the buy and sell signal. A sell signal, according to us, it’s a term of art in the industry. We didn’t make that up. A sell signal means… Let’s just say it closes above 152.08 on the 30 year. Don’t be short. That’s kind of what we’re saying. Things overall are going to push it up. Canceling a sell signal. Things go either buy or sell, buy or sell, the signal is a word meaning a lot of things are aligning up here pushing up or pushing down. It doesn’t mean go short. If you say this is a major top and then we give a target, everybody is different. The big funds are not going to go short for a 2% move. We have a lot of those clients.
We have guys that trade all day, every day, they’re in and out all day, and we’re not a day trading advisory service. That’s very hard to do, because you need daily data, you need hourly data. We have it, but it would be a lot of work. So the answer to your question is a lot of things are sideways.
Vol has been not such a great thing to trade lately for a lot of different categories. The currencies obviously move the most. Again Europeans… This Sunday – we send out a Sunday report around 6PM New York time, because that’s when the markets open overseas, and money will go from dollars to stocks to currencies to crude in an hour. They’ll just metastasize that’s how fast the money changes.
A couple of years ago the whole board was running off crude. Very often you’ll see a currency trade that’s basically in lieu of a crude trade. That’s the mindset of traders. The traders who are listening know this better than me. I have enough trading clients that taught me this, and that’s not our focus. Our focus is what we see based on the pattern recognition and level interaction that we’re trying to combine, and they’re better than we are at combining them given their own risk tolerance and their own focus.
You’re right that we write much more than we can show in a picture. It’s too complicated. This is done from six screens worth of work. It’s very hard to show it. We actually show more than most people. We actually show the charts on Sunday. We’re showing what we see. So someone will write in and go, “This looks ugly.” We’ll go, “Yeah, it looks ugly. It looks ugly to us too.” Does it mean go short? No. That’s been a big thing now, the last seven years, anyone that tried to go short got beat up in stocks.
Well in crude, how many people went short in ’97. They didn’t believe it would come down. How many people went short gold?
I’m going to answer your question… The way that so many people are playing, and there’s so much institutional systematic trading that I find people over trade. If you really want my… I don’t know how many people check their own trading records to see what their batting average is. I don’t know yourself when you’re doing… I find most people don’t even bat 50% on the trades. Now if they keep the losses short and they keep the gains a little longer, they can do fine. But it’s very hard, I find, overtrading from what I hear.
Niels: I think that’s true, and I think… I come from the world of trend following and fondly enough, cycles are either those who create the trends, or the trends create the cycles, it doesn’t really matter. Clearly there are two schools of thought in my industry.
There are the newer breed of managers who focus on the shorter-term timeframe, but all the evidence I’ve seen, including the firm I work for, where there is a 42 year track record and it’s pretty amazing. So for me at least, the longer term trend following seems to be at least, what I‘ve seen, very robust in dealing with different times of market behavior and different market environments. In a sense, it kind of confirms what you do, because trend followers wouldn’t be able to make money if there weren’t cycles.
David: Right. You said two weeks ago on a fifth category. So we mentioned stocks, we’ll come back to them; we mentioned bonds; we’ve talked about commodities; we’ve talked about crude; I’m going to tell a Nat Gas story in a second; we’ve talked currencies, I mean there’s plenty more to talk about, but there’s a fifth category which we do which originally I didn’t understand and neither did Charles, how it could work. It’s called economic indicators. They also follow cycles.
Again, anyone writing in can contact you, and I’ll send them what we sent last week on five economic indicators. All sell prices, GDP, monthly unemployment, monthly CPI (Consumer Price Index), and monthly ISM (that’s a purchaser’s gauge). Then we also covered dry docks which are a stock that indicates shipping activity. Then we start with that.
We think about that also. Cycles on the Dry Docks DRY has continued down, GDP doesn’t look good, inflation looks weak, we don’t think the economy is going to pick up. So that’s that. Then in the first five we mentioned quarterly wholesale prices topped. Project lower prices into 2019.
Niels: Maybe Janet Yellen is reading your stuff since she’s not willing to increase rates right now.
David: No, no, no, that’s a whole discussion we’ll have off-line. Number two, GDP cycles look toppy. Number three, monthly unemployment cycles are near their projected cycle low. Unemployment, meaning they’re going to go up, unemployment is going to go up. Monthly CPI cycles are near top. Project a lower CPI for the next five years. You don’t see inflation yet, obviously, and monthly ISM cycles are high by March of 2016. So that’s our economic indicators and we actually have clients that they don’t see that anywhere else because I also look at it.
The numbers are coming out… Charles used to tell me at Goldman he would predict what the numbers were before they came out, but they didn’t want him to send that stuff out. They wanted to do the moves after it came out, and yet predict that stuff also. It’s a set of numbers. It’s not random, like you said at the beginning of the show, which is itself very hard to get your grasp around, the free choice factor that people have is not what we think.
Niels: So let me just ask, so I’m clear on this at least, when a market is not behaving as the cycle you show indicates, is that because you of X number of cycles that you run on that market have chosen maybe to focus on the wrong subset of cycles, is that correctly understood?
David: That’s one possibility. Another possibility is the data is bad.
Niels: How can the data be bad?
David: Oh yeah, talk to anybody, data can be bad. The data comes in. We have people that check it. Sometimes the data is bad. That’s number two. Number three, as you mentioned before, cycles sometimes invert. You don’t always know when. Number four, no system is perfect. I want to stress that. After all these years, we’re usually right, that’s pretty good, but it can’t always be.
Having said that, it’s extremely robust because the theory allows it to go forward and having worked now15 years with Charles who has now done this thirty-something, it’s right most of the time. Is it right all the time? No system is right all the time. So, you’re asking when we make a mistake. I‘ll tell you another thing, sometimes you miss a cycle. You don’t find something in looking at it, or you eliminated the wrong one that would have changed things. Then you look at it again a month later and go, “Oh, I missed that one.” You look at it monthly because sometimes the monthlies don’t show clearly whereas the weeklies do. So it’s still human interpretation. We’re not just a black box.
I wish it were, and you could press F3 and F10 to get everything. That would be nice, F3 and F10, and you’ve got the whole system. It doesn’t work like that. Then when you’re combining it with target, it’s not simple. Then you’re overlaying wedges, as you’ve seen and candlesticks and all these other things. The goal is to get them to all line up. Yes, some people have claimed (and I’m not so sure they’re wrong) that with all this government stimulation of the last six years in certain markets, it’s so knocked a lot of technical people for a loop that it really… Now we think, according to our system, it doesn’t work that way. Our system is if cycles bottom and market go up, something is going to come along to make it happen. If it’s QE, it’s QE. We didn’t know that. As I said, in 2008, I’ll never forget in Bloomberg. It’s on the site. People can say, markets are going to bottom in 2009, so they did. Apple was 200 before the split, and that was a cold bottom and it’s 702.
Blackberry the system called the top at $84 and regret not going short then, but our system isn’t really ‘go short’, ‘go long’. We give you targets; we give you this, and everybody has a different risk profile, so they deal with it separately.
The family office clients that we have, some are all over the place. Some are out with managers, some part with managers and do some on their own, and they take X dollars and just follow us. They also hedge. One strategy, assuming that we’re right that stocks are down over the next several years and then way up in the 20s. Let’s say somebody has a big gain position now. Let’s say he had 3 million dollars, now worth 20 in America. Long term gain, right? Not short term gain, and let’s say he says, “You know I want to hold it for 15 years,” which by the way there’s an argument don’t do that because the tax rates when you sell it could be 75%. That’s another risk that’s not thought of.
Niels: Do you do cycles on tax rates?
David: No, we really should. I never thought about it until just now. We should do cycles on tax rates. That’s too much work. Getting too old for it. If you take a look at that, then maybe what he would do is put on a hedge for five years, so he’s down on his positions, up with the hedge and then take the hedge off. Again, assuming we’re right, and then go for the run again and he wouldn’t have paid any tax, and taxes are the major thing for people as you know.
Niels: You know, speaking of taxes. I saw recently a very nice little image of I think it was the comedian Bill Murray who wanted to explain how do we explain to kids about tax? His answer was; you just eat 40% of their ice cream.
David: Can I tell you something, the Hebrew word for tax and the Hebrew word for death sound alike? There’s an expression, “Nothing in life, but death and taxes.”
Niels: That’s right. Speaking of these major events, I know the listeners are dying to get into some of these things which we are slowly moving towards. So I’m not trying to stall it but I do just want to cover two more things before we go there. Now a lot of these predictors, if I put you in the category of people who are predicting things in terms of markets going up or down, but not what causes it, a lot of people will say, “Oh, but we predicted 9/11,” Maybe they did, maybe they didn’t but I know also that 9/11 is something that, in sense, Charles has talked about. What I’ve seen him explain is that it’s not so much that he predicted 9/11, he just predicted that something was going to happen. Actually he forbid his wife, I think it was to go on the subway for a period of time.
So when you see these big events in the world, what are some of the indications of a big event that you try and look at? Do you have any examples of that? It might lead to a terrorist attack, I understand, but it’s not really what you’re looking for. There’s something else that triggers that for you is my understanding.
David: Well, first of all, let’s talk about 9/11. The markets were down before the first plane hit. I don’t know if you know that. They were down a lot, so something was going on. That’s all I want to talk about 9/11. We don’t get cycles are up, cycles are down, and generally regardless of what causes it, assuming it’s correct. If something is going to cause it to be down it could be something bad and so do you want to avoid being in a place that could be more hit during a time of down cycles?
Niels: OK, but the other thing I wanted to ask you, just much less dramatic, for example, you mentioned a couple of companies: Lehman Brothers, and I guess Bear Stearns is another one, but I mean there were certain companies during the crisis that went out of business. How can a cycle indicate that you’re actually the company is falling apart? That to me is a little bit more difficult to understand.
David: We used to have coral Sunday night, years ago with a bunch of hedge funds and (no names) Lehman was 35 and the system showed, I’ll never forget, the system showed it was going to go to 5.
Niels: OK, so it was a price target essentially. It’s not saying it’s going to go out of business, just a very, very, very low price.
David: 5 and then some. We didn’t know. I want to answer your question. I know I think what you’re really asking, I think, and correct me if I’m wrong, I’m not going to get so exact going forward because we have clients. You know what I’m saying? They always like it… they pay. So I’ll give you the rough of what we’ve done to get here. So that’s to give you an idea roughly like I’ve indicated, we think rates are going to go up and therefore bonds are going to go down for a long time, it’s just a question of when.
Stocks, as I said, we called in 2008 to get out and went long 2009 which said it’s going to bottom then, and I’m not always correct on going up, but caught a lot of it or most of it. The other things such as the currencies and the commodities have been extremely accurate. We think going forward stocks are going to be much more challenging until the end of the decade. Bonds will be challenged for far longer. Then the 20s look really good for stocks. That’s the big picture. Crude we definitely called $147 down to $49, we called $97 down I’ll send the article and show it. Now we think it’s going to go longer term back up to its… around $100 and more so. Why? Don’t know.
Nat Gas I want to tell a story. It’s something relevant to the whole picture. We’re talking about grains which we think longer term will be up, and then we’ll talk currencies, and those are kind of the main things. We don’t want to talk about real estate because that’s not something we cover that much because it’s more of an illiquid thing, and it’s harder to have enough data on moves in real estate, for us.
Nat Gas and fracking, I know right now in the next year and half there’s going to be tremendous conclusion of construction of depots all through America that’s going to have trucks and everything, refill stations all in Nat Gas. So the demand and supply world is really going to change in about a year for Nat Gas. Years ago Nat Gas was nothing. Then it went up to $15, and then it came down to $6, and everyone thought it was going to go back up again. We have a lot of clients in Canada, and some banks and the banks asked us, they actually shockingly said, “What do you think Nat Gas is going to do?” We think it’s going to go down to $2, and they didn’t listen to us, so they made loans to western Canadian Nat Gas producers when Nat Gas was $6. Nat Gas had been $15 prior. It had come down. It had been $12 prior. It had come down.
I remember this, we said to them, I think you’re making a mistake. If you’re betting collateral value on just the fact, you think it’s going to go back to $12 now. That’s not what we see. So they made these loans, and these are substantial loans. Then the Nat Gas price went $5.50, $5.00, $4.50 and a lot of people, I mean the listeners here it may be different. There’s such a thing as an underwater mortgage in America. I don’t know in Europe; it’s a different game in mortgages and personal guarantee. In America, you can have a house worth half a million and mortgage worth $700,000 and you’re under water. That also works with corporate loans. They make a loan to a company, a chocolate company, and the price of Cocoa goes down and all of a sudden their loan is underwater base on the value. It happened with Nat Gas.
So the banks went to the Nat Gas producers and said we have a problem here. We made you a loan at $6 it’s now $4 I want to start getting repaid. So what did they Nat Gas producers do? They start selling. They had to pay back the loan, $3.50, $3.00, $2.50, what did the press say? Bank forced Nat Gas producers selling leads to price reduction. What did we say? Cycles had topped, something was going to come along to cause it to come down.
So that explains how we see the world. We don’t look at it as why something or when. So QE came along at a cycle bottom. I didn’t event QE. I didn’t know it was going to come. Did QE drive up the stock market? Probably, that’s a pretty fair statement. All that money, did the money generate economic boom around the world? I don’t think so. Are there some very positives going on? Yeah, there’s some positives all over. Look at medical, look at Tech, look at Internet, I mean there’s a lot of positives. That energy, down the road, will probably be very strong. That’s maybe an argument why the stock market will go up so much in the 20s.
That’s not something we specialize in or have confidence that we can predict the A implies B. The recurring pattern, or patterns I should say, that’s really what we do differently is recurring patterns that we try and combine along with the price, seem to indicate that it isn’t going to be so easy the next several years in stocks or bonds. That’s kind of the big picture whereas crude and Nat Gas? Well, they have both come down. We think they are going to go back up again. We think food prices, not tomorrow, but they will go back up again. There are going to be water shortages. There’s going to be war. Which we haven’t spoken about. We’ll come to that because war is in essence for the last 20 centuries there has been a major war in the second decade of every century.
Niels: We’ll definitely come to that.
David: If they’re listening to an hour and a half, they’re probably bored out of their minds, but if they want to talk about that, we can talk about that.
Niels: Before we go to those kind of… there’s just a couple of sort of on the market side. I just want to ask your view on the things that you mentioned for bonds and stocks and so on and so forth often there is one market that people look at when they talk about, as an economic indicator, and that’s actually copper. What do you think about copper and is that kind of confirming some of the other things that you see?
David: Copper, hold on a second. I’m going to tell you a story from several years ago. A Sovereign Wealth Fund, copper we covered in May, so I’m going to look at it. It looked toppy again, that’s what we said in May. Several years ago a Sovereign Wealth Fund from another part of the globe asked us… They suggested that they were thinking of running long with copper, and what do you think two or three years from now, because those are the questions they ask. They don’t care next week. They’re ship is hard to turn around. We didn’t like copper, and we told them. I don’t know what happened, but the guy is still working there, so he didn’t get fired for buying it I guess, right? I don’t know it the culture there if you’re running 150 billion dollars and make a mistake, what do they do to you? I don’t know culturally. So copper we said in May, copper cycles look toppy again.
I’m not projecting now in the next five years copper again; that’s now what I want to do on this show. We can give you an opinion, we may be right, we may be wrong. We were right a few years ago. Hopefully, we’d be right again. That’s what we said in May. Let me look at the chart while I’m talking to you, and anybody wants to write in, I’ll send this all to them so that they can see it.
Niels: So while you do that, I’m going to bring up a topic that I want to, also before we go to the war cycle, I want to talk to you a little bit more in detail about the battle between inflation and deflation and then the word hyperinflation, I want to bring into the conversation and just to see how you stand on these terms, if at all. Obviously that is something that people have been quite surprised about that all of the stimulus hasn’t really been picking up and showing up in inflation numbers. Obviously I’m sure the cycles are at work here, so I just want to get your opinion on that.
David: Charles has been calling for deflation for quite a while. So he’s been right. We don’t talk about inflation and deflation much, even though people think about it. We want cycle tops and bottoms and levels and what people can do with the money. Saying gold goes up or down in deflation, the realities over the last 800 years Gold has gone up when there was deflation, mostly. So you can’t say there’s a correlation there.
Niels: Nope, and I appreciate that they’re separate cycles. Whatever these cycles do are not necessarily what other market cycles are, so I just wanted your opinion about how long this deflationary period might last in your opinion?
David: Well that’s something again, it could be quite a few more years, especially… I just mentioned two weeks ago, all those indicators are down. So it’s not inflationary at all. Down the road we think it will be. “Hyper,” I don’t know what that means, you know what I’m saying, in terms of all this. Again, we don’t use words like bull market or bear market; we’re looking at where’s the top and bottom.
By the way, I’m looking at the copper chart, and I’m willing to send it to anybody. 2011 copper was $9,400, and now you’re talking $6,300, right, down 50% in four years, 3.5 years, so it looks like a bottom is later in the year. Without giving levels or anything, it looks like a bottom.
Niels: Let’s talk about the war cycle. We mentioned it. I know it’s something that you have an opinion about. So why don’t you describe, and I know you even touched upon it – the 100 year war cycle, but why don’t you talk a little bit about that because clearly we live in a world today, at least for most of us who didn’t live under the last World War, so we don’t have any experience in that, but maybe you should share some of your findings.
David: Ok, let me find what I just sent to you and I sent it to myself, so I can go through the last 20 centuries, how’s that, that would be nice, right?
Niels: Yeah, you can go back to the Romans in 208, that’s fine.
David: Actually I’m going to. (laugh)
Niels: That’s good.
David: I lost a brother in World War II, so I have a bit of a… I was born afterward, but my brother I never knew was killed in World War II, so it’s a little bit personal. Let me get to the war cycles here.
Niels: While you do that I will just say to the listeners that we will, and it’s on purpose. I will tell you exactly how to get some of this information and there is actually also a bonus at the end of all of this so just stay with us and we will get to all of that, how you can essentially get a peek inside the work that Charles and David are doing. So did you find your?
David: Got it, ready? Here we go. No one has to take notes.
Niels: No, no, just give is an overview.
David: Here we go. I wrote this January of this year. Three years ago he was on the Neil Cavuto show and mentioned war cycles in 2011 that it’s going on. “As most of our subscribers know I was born and raised in Holland. I never understood why I had to learn so many languages and so much about European history. Today I understand. I’ve been talking for several years about the 100-year war cycle, and that it usually occurs in the second decade of a new century. We went back through our history book, and we found the following. Let’s go backward.
Now I don’t have to explain what’s going on, People see what they see. 100 years ago was WWI; 1812 was the follow-up of the 1802 Napoleon war; 1713 was the Spanish War about the Spanish successor in the Jacobi Rebellion; 1618 the beginning of the 30 Year War; 1517, I don’t know if it was a war, but Martin Luther started his Reformation; 1415 was the Battle of Agincourt - part of the 100 Years War; the Brits beat France in 1509; The Polish Moldavia war in 1415; 1320 was the Byzantine Civil War; 1202 to 1214 was the Anglo-French War (boy those guys have been fighting for a long time); 1109 Battle of Głogów, Poland; and in 1013 the Vikings attacked England.
I’ll tell you a story about the Beatles, I was just in London six weeks ago for business and I’ll tell you a whole story about the Beatles and Liverpool relating to war.
907 was the Russian Byzantine War; 814 Charlemagne United West Europe for the first time since the fall of Rome; 711 Muslims under Tarrick invade Iberian Peninsula; 618 China collapsed Sui Dynasty; 526 Iberian Wars, Justinian Dynasty starts; 410 the Goths attack Rome; 320 the Civil Wars of Tetrarchy and the Roman Empire; and in 208 to 210 was the Roman invasion of Caledonia.
Niels: So there’s a cycle there.
David: Something like it. People could rip it apart and say well… Was someone leaving a message each time? Check a 100 years from now? That’s the whole point about cycles that they repeat because maybe there’s something self-conscious that is going to happen and it’s unavoidable and it’s not something where we live in an age where we think we have free choice, and we don’t want to accept it but here are facts. It sounds like this could be war.
Is that a reason why Crude will go up, and the market will go down? Could be, we haven’t talked about infectious disease, we have cycles on that. I don’t really want to talk about it, but there are cycles. There was a time not that long ago that the flu killed 50 to 70 million people in Europe. We look at that stuff. There are certain clients that pay us to do that stuff.
I don’t think that they invest with it; they just want to know. So you mentioned before that some people are gloom and doom. I wouldn’t call us gloom and doom, I would call us realistic and if things look like they’re bottoming and they’re going to go up, we’ll say that as well. We think the market in the ‘20s is going to be very strong, so a lot of the strategy now is don’t blow it the next five years, which is itself a whole strategy for the longer term families and things like that and how to do that.
We never understand why you give a target, and it comes close, why you stay in. You’re close, get out. That’s our thinking, but a lot of people don’t think that way. They’re naturally… There’s a whole mindset to do trading, which we’re not experts in. We know quite a bit, but, because we’re not in the trading business, we just tell you what we see, and we want to step back. I don’t even want the clients… Well, often they do, but if they don’t want to tell us what they have, that’s fine. We just tell them what we see. Very often they’ll tell us we’re thinking that. That’s a lot better. A lot of the time they’re in the middle of something, and I wished they wouldn’t have done it. A bunch of people did some very big VIX trades because they thought something was going to fall apart, they went short early. A lot of times we ask them, just tell us in advance so we’ll at least tell you what we see before you do it.
Niels: Can I ask you about that David? I think it’s interesting. You have this tool, methodology, whatever we call it. Clearly it’s been proven to work over a very long period of time. Yet you have to go out and convince people to subscribe to your services whether it be a newsletter or much more personal advisory service. If you instead, 15 years ago had started a fund, invested according to your own advice, you would have made a lot of money.
This is where I’m getting to, so there’s sort of two schools of thoughts here, one is that having positions, doing the trades, might influence in some way the predictions. Or alternatively people would say, “Well if it’s that good, start a fund and show us a track record.” How do you reconcile these kind of… I’m sure you meet these kind of comments along the way.
David: All the time. We’re not traders. Traders are traders, you know what I’m saying. Charles does research. I do marketing and research and client business; I’m not a trader. I don’t make any pretensions to being; I have no desire to be. I’m good at explaining all this and editing and making sure people are aware of the thinking involved so that they can plan.
Trading is a whole head. There are people who are very good at it. I’ve listened to a lot of the people that you interviewed, and they sound really bright. I’d give them money. So at the end of the day, track record, there are some funds that just follow us that have done great. Very few, because you have to have a very skilled ability to understand this and most don’t.
Your deeper question is what is about people that they don’t get this and the answer… I’ve been asking that question for 15 years. The answer, I think is, especially now-a-days, with the overflow of information. I know myself, I’m 60 and I’m pretty good at information flow. I was an athlete. I was a baseball player, basketball, I watch, I can handle stuff, but it’s coming in more than ever. The amount of stuff that I have to read, the amount of stuff… Thank God our business has grown to these people. How do you think straight? How do you value, even if something is honest and correct, how do people get the value?
Again we have quite a few clients in all those categories I mentioned, the Family offices, Sovereign Wealth. There’s not that many Sovereign Wealth Funds, and hedge funds. There’s so many of them; we can’t get to all of them. We have small percentages of anything, but it’s still a big business. Will most people get this? Like Charles said in my Bloomberg presentation. There’s no way most people are going to run their life assuming this is the way the world works even though it is the way we think it.
Niels: But you know David, it’s funny you bring it up in that way because in a sense, in the world that I come from, and many of my guests come from mainly the systematic trading world, the point is that even if we gave our rules to someone. There is probably no guarantee or very little guarantee that they would get the same results. The reason being that part of the secret of being successful in trading, and even in the rule based area is the discipline to do the trades. I guess in some sense you might give great advice away, but of course there is no telling what they will use it for: which trades will they take, which trades they wouldn’t take. It’s impossible to know.
So in some sense you could say it would be much easier to have a fund, and we do all the trades and we do these trades. I understand your point, and that’s not really where I want to go. I want to go to the last section of my…
David: Niels, let me answer that. I’m going to repeat to you, again I’m not going to tell who it is, what someone did with our stuff in April. So there was something called the British pound, cycles had topped. The person bought pound when it closed. He gave a sell signal and took profit at 1.53. It was a Fed day and month end, so the trade was profitable immediately and for the whole two weeks they had a 3% trade. I’m just saying they did that. Right, not a core thing.
Then they bought the Aussie. FXA calls and the research had said something, and it gave a black signal, so the whole thing was the Aussie. So he was long the Euro, long the Aussie, the other way on the pound, long Crude, all In April, long Nat Gas, short S&P vol, long TLT and it was a loss in the TLT. Short dollar/Yen and OK, the Yen trade didn’t work. So that’s an example of someone who has a tremendous record following us.
I think what you are saying is correct. Not everybody can cook as well as everybody else, not everybody can plan piano, and not everybody can trade. You have a guy, 40 years upgrade, how many guys can to that? How many people are Warren Buffet? How many people… so you’re right, you’re right that our information I think it’s proven. It’s mathematically right most of the time. Does it mean that everybody can trade it? No, they can’t, and it’s…
Niels: Which is I guess why we’re going to get to the bonus where people can have a tryout.
I want to jump to the last section which I call general and fun. It’s a little bit away from all of the things that we talked about today, but it’s staying on the topic for people to get to know you a little bit better. I’m just curious, after all these years of doing it and clearly I’m sure that there're a lot of great moments in doing it. You’re also a busy man, and there’re a lot of people who will dismiss cycle work like there are lots of people who dismiss systematic trading, so what keeps you motivated? Why do you do this?
David: Well, we make a lot of money, that’s number one, number two it’s like a painting that never ends. To give you an example: What’s going to be with the Euro? It’s a good question. It was 1.51, it went to 1.22, 1.18, not that long ago, four years ago, alright, before the first Greek crisis, like I mentioned before. It didn’t crash a year and a half ago everybody wanted to short the Euro, remember? We said no, don’t, so we’ve been right? What’s it going to be now? Now there're people who are betting it’s still Las Vegas at the end of the day. This is all betting. Everyone is gambling about all of this stuff. We like to give educated gambles, basically. So that’s the Euro story. S&P, the bonds, the bunds, the VIX, so in one sense it’s a painting that never ends.
Niels: So it’s your own curiosity about what happens next do you think to some extent?
I’ll tell you one of the nicest things every once in a while at 3:55 or 4:02 Charles will call me and go, “You see! It went right to the level.” That means he’s still a kid, and as an athlete trained by this gentleman Red Auerbach, he used to pick people that loved to play. They just played well, and they ended up winning championships because they played so well together. So there’s got to be a certain play aspect to this no matter what age. Think of all the older people that you know that are like kids and the younger people are like old people.
I’ve got four kids, and they’re all different, and grandchildren, so I think the real deeper answer to your question is you don’t do it if you’re not making money. You like having happy clients. Not everybody is happy, not everybody stays. It’s not for everybody. Most do, again I’ve got friends in all the cotenants and all over the place.
I think that’s also nice, that you’re dealing in our case with people with money of all different types. So they tend to be more respectful of what we’re doing because they know, I tell them, just because they have money doesn’t mean they’re smart. You have money. Now they happen to be, a lot of them, so we have a good time. They respect the intellectual aspect of this. There’s a deep intellect to this.
They see it, you, Niels, we’ve known each other a couple of years now, you know there’s a lot of thought to this. We’ve talked about it, not just now, but in the past and so I… OK, I have three degrees, I guess more than most, three post-graduate degrees. I come from a long line of Rabbis, and I study, and I’m a musician, and an athlete, and I find this absolutely fascinating in the scheme of everything. There're a lot of sports to this because you’re watching the back and forth.
Then I have the media to have to deal with. I say that in a literal sense because I meet people that way. I met you that way, in fact, so I can’t knock it but is it as good as this? No. Is the media going to give me two hours to tell jokes and talk about this? No way. But in the meantime that’s I think several reasons why, we keep doing it. I never find it boring. Look the market’s been up a long time. It’s been up seven years, it really has, so it’s been, in that sense, a lot of people missed it. A lot of people missed it. That happens everywhere, but here when you talk about war cycles, it’s not pleasant because it could be right.
You talk about negativity the next several years? Not pleasant, and it could be right. You talk about water shortages, water stocks, there’s drugs, infectious disease, these are not such pleasant things to talk about. None the less it’s an honest appraisal of what’s happening in the world. To me, I appreciate that Charles more than anything else has shown me a different way to see the world from my own professional training and again, as a musician, I’m a pianist playing by ear. I don’t read music. I’m sensitive to hearing and what people can and can’t hear.
Most people, regardless, can’t hear. They don’t hear what you’re saying. They’re listening and thinking what they want to say. So this is a very different way of looking at things and that in and of itself requires someone to be intellectually curious and let us have our say and be heard, beyond the money. Hopefully, that answers your question.
Niels: Sure, sure, that makes sense. In your career, if you were going to recommend a book to someone that has either made a big impact on you in your business, or just on a personal level where you think that helped you or gave you inspiration or something like that, what would you recommend people should read?
David: That’s a very good question. I’ve read hundreds of books, so when I study. I mean the Bible helps. I read it all the time, and the Talmud, it’s pretty deep stuff, but in terms of business or personal?
Niels: Yeah, it could be one or both or it could be whatever you feel like.
David: See business I’ve read a lot of the trader books to see what the trading guys have done. I’m looking at my bookshelf. There're books on cycles. I’m looking at my bookcase now, and I actually open the stuff which I don’t want to admit, but I actually read it. There are several interesting things I would recommend probably… I read a lot of math books. So people are not going to read that.
Niels: I don’t think that’s going to fly well on this program to be honest.
David: I read math books because I’m thinking math all the time with this. Everything influences me, actually. I read about history because I think the cycles reflect that. There’s a book called Chaos by James Gleick and he authored Genius and Isaac Newton, and he was pretty fascinating talking about chaos with all these different… Chaos is not chaos based on this gentleman Mandelbraut who found order in chaos. That’s kind of my mind, but I’m a Bronx science... I don’t think most people are going to read it, but it’s pretty fascinating because it’s all about patterns.
Niels: Sure, but this is about getting to know you and if this is a book that you get inspired about then that’s good enough for us.
David: I don’t know how many people will read it, but it’s… It opens your mind; that’s for sure.
Niels: You never know. Now I know you have four children, David. You mentioned that earlier, so if you could only pass on one of your own skills to your children which would that be and why?
David: The ability to listen. I’m not talking about listening meaning don’t cross the street. I mean listen, zone into other people. If they need something, very often they don’t know how to express it, so it’s not just what they say, it’s what they don’t say and try and see somebody’s need before they ask you.
I do a lot. If you’re asking, I played concerts around the world for kids. I played for Special Olympics; I played for homeless kids in Canada. Raised a lot of money. So God’s been very good to me, and I try and help. I’ll tell you one thing, my father was born in Poland and when the Nazis marched east he wound up fighting in the Partisans and in the Russian Army and his father had been a wealthy man. In 1930 something, he had bought a car to feed poor people. There were no roads, and my father was mechanical and took the car apart. There were no parts. There were no oil or parts stores then.
So when he joined the Russian Army they had just gotten trucks, and they asked does anybody know how to drive? Who knew how to drive a truck in 1942? Nobody grew up like we did. So my father, he saw me taking the car apart, so he said I think I can learn it overnight and overnight he learned it and he drove a truck and it saved his life because he was at the back of the lines.
He became a truck mechanic, so I grew up with a truck mechanic. I was taking cars apart, and my father, had he not become a truck mechanic because his father bought a car to feed poor people, so I’m only alive because of the kindness of my grandfather. He wanted to feed poor people and bought a car and wound up, unplanned saving his mechanical son’s life and his less mechanical grandson’s life.
I’m not bad with the old cars, but I can’t do anything with the new cars. I don’t think anybody else can. They’re all computers anyway. So that’s a big mindset here. We’re constantly trying to help people. Everyone here in the company is, and hopefully that explains. So being this now world-renowned musician, people go to my site, DavidGurwitz.com I do a lot all over the place and I generally don’t do it for money because there is no money to be made in music anyway, so you might as well do it just to help people.
Niels: Sure, absolutely. I know you talked a lot about different things that you’ve done and maybe we’ve extended all of those options, but I’m going to ask the question anyway because I do that with all of my guests. That is, is there a fun fact about yourself that you can share that even people who know you may not know about you?
David: A fun fact?
Niels: Yeah, again, often people say I’ve got this talent or I’ve got that talent, but we’ve already covered a lot of that and I don’t know whether there are any more talents left in you. I’m not sure but is there something that people, even people who know you don’t know about you that you’ve?
David: I’ll tell you one of the things… I’ll answer with a joke. OK? My Rabbi said he speaks to certain prisoners, and he goes to the jail and he said, if I could give you one thing, just to list all the thing you wanted, and they said give me more paper. So if they have one thing, there’s probably 30 things I could answer that people don’t know.
Having the time to do them, (being that I work early in the morning until late at night giving the world is in different time zones), it’s not so simple. I exercise a lot. I tried out with a pro baseball team, I mentioned, and play semi-pro basketball in Spain in ’76, before they knew how to play.
This I’ll tell you. 1976 in Spain they played soccer, they didn’t play basketball. So if you threw a ball and they dropped it, they kicked it back at you. They didn’t know how to play basketball. So I was not such a great player here, but over there I was really good. That was a great arbitrage. But I think it’s very important to work out. I’m writing music a lot. I think that’s really important because people can get so caught up with stuff. I think tuning out a lot. That’s part of the reason I hike a lot, and I try and think because thinking is a lost art.
Part of what Charles has done, I think, has brought to the world a different way of seeing motion in things besides markets, and it requires thought. He tried to get the Dutch government not to sell gold at like $500; they didn’t listen. Governments don’t listen. They don’t think. With pensions and stuff. So I guess your question is what are the fun facts? I don’t know; I’m not so funny but we try and do a lot of thinking, and we’re so busy. Look today the market’s closed. It’s the only time I can talk to you. We’re crazy busy because we’ve got clients in so many countries, and they want to see what we say and we work. I’m a fan. I grew up I was a bellhop. I was a waiter. I believe in hard work, and that’s the one thing to teach the kids nowadays, it’s very hard to teach them how to work because they’re so distracted with these devices.
Niels: That’s very true. As we’re coming to an end, what I try to do in the podcast is just to add value to the discussion. I want to make sure that I’ve also asked the right questions to you. So is there anything in our conversation today that you feel that I’ve missed, that I should have brought up? I just want to make sure that I’ve done justice to you and Charles and the work that you do.
Well, we’ve spent two hours. It seems like a lot less; I have to… Einstein, they asked him once, tell us about relativity. He said that if a man sits on a radiator for a minute it feels like an hour. If a man sits with a woman for an hour who he enjoys, it feels like a minute. That’s the theory of relativity.
OK so I’ve enjoyed this immensely, and we’ve known each other for years already, I think you covered everything. I think the best thing is for people to write in and just watch the stuff and just chat with me. Tell me their story and see if we can help. It’s not for everybody. That I think would be the best thing, and I’d be happy to share the research so they could look at it. We send this out three times a week, Monday, Wednesday, and Friday, as I mentioned stocks, bonds, commodities, currencies and Sunday charts and the stuff you see in the media, these five minute interviews, these ten minute interviews, I would discount them because that’s not our business, just to say this is going to happen in three years or four years.
You’re looking and you think it might, but as things get closer you could change your mind. This is a shorter term business. We have a lot of people doing short term trading, medium term trading. We do a lot of custom work, a lot. We cover what we cover however we have a lot of people that say could you look at this, could you look at that. I have this stock for five years. We actually do a lot of hedge fund work. They don’t tell us what they’re doing. Family offices are a different animal, because like I say, all their money is out with managers, or none, or everything in-between. We consult to them to give the view of how to approach the managers they deal with. So we’re busy.
I enjoy what I do. It has been 15 years already and, like I said, the painting of each category, either up or down that’s our job to let them know where it’s going so it’s a bit of major responsibility we feel. There’s a lot of money listening to us. There're some multibillion-dollar pools that think about what we say so we just don’t treat this nonchalantly.
Niels: No, no, absolutely, so as we are closing our conversation today I wanted to bring back what I mentioned earlier that you very kindly to our listeners have offered a free trial to everyone who’s listening to this. I’m going to now tell you exactly what to do in order to get there.
First you need to go to the CharlesNenner.com website, and there is going to be links on the show notes page on my site to get there. In the corner, you will see a button called FREE TRIAL. Once you click on that there’s going to be a form opening up, and here’s the important bit.
It’s very important that you put in where it says where did you hear about us? You put in either Top Trader or you can put in TTU for Top Trader Unplugged. Do that and then David will respond and you will be on a free trial for a few weeks and that gives you probably the best chance of finding out if this is for you. Of course on the CharlesNenner.com website is where you can learn other things about the work that Charles and David are doing.
So thank you for this fun, insightful conversation. I really appreciate the transparency and the willingness to share your experience and the cycle analysis and having this sort of sneak peek into what’s behind I think has been really interesting and I hope the listeners appreciate that as well.
I hope we can connect at a later date and see how things are shaping up. We can surely do a shorter version, maybe focusing on more of what’s going on now that we’ve covered a lot of the background today, so I hope to be able to do that later at some stage.
So thanks so much David, it’s been fun and I wish you and Charles and your team all the best.
David: Niels, I know it’s very hot in Switzerland. I look forward… let’s do it while we’re skiing in Switzerland, OK? The cold you guys can deal with a lot better than heat.
Niels: I’m up for that, that’s for sure.
David: I remember once I hiked down the Eiger Mountain, I took the train up, and I hiked down. I think for two weeks my legs hurt. So I look forward to going back to Switzerland.
Niels: Sure sounds good. David take care, enjoy the rest of this prolonged weekend for you guys in the US and I look forward to catching up at a later stage.
David: Likewise, bye, bye.
Ending: Thanks for listening to Top Traders Unplugged. If you feel you learned something of value from today's episode, the best way to stay updated is to go on over to iTunes and subscribe to the show so that you'll be sure to get all the new episodes as they're released. We have some amazing guests lined up for you, and to ensure our show continues to grow, please leave us an honest rating and review on iTunes. It only takes a minute, and it's the best way to show us you love the podcast. We'll see you next time on Top Traders Unplugged.
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Date posted: 15 Jul 2015no comments