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Interview With Louise Yamada: Masters in Business (Audio) · Masters in Business

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  Speaker 1: Brought to you by Bank of America Merrill Lynch, committed
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  Speaker 1: America member f d i C. This is Masters in
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  Speaker 1: Business with Barry Ridholts on Bloomberg Radio this week. On
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  Speaker 1: the podcast, I have an extraordinary technician. Her name is
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  Speaker 1: Luisia Mada, and she has been looking at markets, sectors,
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  Speaker 1: stocks for close to forty years. She spent twenty five
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  Speaker 1: years at City Group, eventually becoming their managing director. UM
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  Speaker 1: worked with many of the legends in finance, including Alan Shawn.
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  Speaker 1: We had a really interesting conversation about how people use
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  Speaker 1: technicals to help their investing and their trading. UM. We
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  Speaker 1: don't really get as many technicians UH in in the
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  Speaker 1: studios as I've liked, as I would have liked. I've
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  Speaker 1: previously spoken to Jeff de Graff, whose name basically is
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  Speaker 1: refers to technicals, as well as Tom Dorsey, Paul Desmond.
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  Speaker 1: Pretty much that's it. For the people who are full
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  Speaker 1: time technicians, I know they're out there. They work at
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  Speaker 1: various funds. Um, there are a number of people I'd
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  Speaker 1: like to get Allen Seawan here, I'd like to get
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  Speaker 1: John Broken here. Their number of people I'd like to
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  Speaker 1: sit down and talk with. If you are a trader,
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  Speaker 1: if you work as a person who is a fundamental
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  Speaker 1: analyst and would like a little more insight as to
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  Speaker 1: why stocks and sectors and markets sometimes do what they do,
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  Speaker 1: then the technical side might provide some insight as to
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  Speaker 1: the timing of of how things happen. Um. That was
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  Speaker 1: part of my conversation with Louise uh. If you are
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  Speaker 1: interested in technicals, if you like anything on the more
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  Speaker 1: wonky side, then this is going to be for you.
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  Speaker 1: With no further ado my conversation with Luisia Mata. We
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  Speaker 1: know each other for a long time. I've been a
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  Speaker 1: fan of your work for a while. But for the
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  Speaker 1: late person, explain what is technical analysis? Well, technical analysis
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  Speaker 1: is really the study of supply and demand in the marketplace,
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  Speaker 1: whether a stock is under accumulation, or whether a stock
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  Speaker 1: is in an uptrend or under distribution or in a downtrend.
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  Speaker 1: So so let's unpack that a little bit under accumulation
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  Speaker 1: generally means big institutions are accumulating shares on an ongoing basis,
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  Speaker 1: Distribution is the opposite, and simplistically on a price basis,
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  Speaker 1: because what we're following is price. We're not following any fundamentals.
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  Speaker 1: You're just following the price. Accumulation simplistically looks like a smile,
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  Speaker 1: and distribution simplistically looks like a frown. In other words,
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  Speaker 1: you've had a stock cell off. It's come down for
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  Speaker 1: a while, it's going sideways, and then all of a
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  Speaker 1: sudden it starts going higher. Um you also reference the
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  Speaker 1: phrase trends. Tell us what a trend is. Once a
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  Speaker 1: stock moves out of an accumulation pattern or a distribution pattern,
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  Speaker 1: it moves into an uptrend from an accumulation pattern, or
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  Speaker 1: into a downtrend from a distribution pattern. And basically a
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  Speaker 1: trend up trend is a higher high followed by a
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  Speaker 1: higher low, higher low following a series of steps higher
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  Speaker 1: than the trend, even the pullback is above previously exactly,
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  Speaker 1: and and a downtrend is and that represents demand. Somebody's
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  Speaker 1: coming in to buy that stock without letting it fall
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  Speaker 1: below the prior low. So it's had a nice move up,
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  Speaker 1: it starts to soften the price comes down and someone says,
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  Speaker 1: I want more of this, that's a good price. They
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  Speaker 1: step in and that creates a floor on the price.
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  Speaker 1: The ceiling is the opposite on the down trends. It
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  Speaker 1: could rally, but only so far be sellers come out exactly.
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  Speaker 1: And is it fair to say what you're describing is
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  Speaker 1: just a battle between buyers and sellers, between supply and demands. Absolutely, so,
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  Speaker 1: how does this differ from fundamentals, Well, fundamentals doesn't follow
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  Speaker 1: the stock price at all, doesn't care about it. Looks
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  Speaker 1: at peas, look at earnings, could look at credit, it
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  Speaker 1: looks at all those uh fundamental things about the company,
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  Speaker 1: the the quality of the company, etcetera. But it's really
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  Speaker 1: interesting is that, if you think about it, the difference, well,
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  Speaker 1: I think we're going to get to that. But the
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  Speaker 1: difference is that, for instance, if you're at a cocktail party,
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  Speaker 1: you can guarantee someone that you're never going to buy
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  Speaker 1: a stock at the low the day it records record earnings,
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  Speaker 1: and you're never going to sell a stock at the
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  Speaker 1: high the day it cuts the dividend, because you have
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  Speaker 1: this discounting mechanism where people smarter than you and I
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  Speaker 1: are taking action on the price of the stock. In
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  Speaker 1: other words, markets are somewhat efficient, and a lot of
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  Speaker 1: the news that eventually comes out is either partially or
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  Speaker 1: fully reflected in the price before the news itself is released.
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  Speaker 1: That makes plenty of sense. So Ralph A. Himpora once
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  Speaker 1: said something very interesting, and I full disclosure I took
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  Speaker 1: the course with Ralph last century is when I did it.
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  Speaker 1: Fundamentals tell you what to buy, Technicals tell you when
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  Speaker 1: to buy. That's right, discuss that. Yeah, I think that
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  Speaker 1: that's particularly valid from the perspective of value investors, because
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  Speaker 1: value investors may go in too early. They may go
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  Speaker 1: in as a stock is still completing its downtrend and
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  Speaker 1: shame stocks get cheaper. Yeah, and then they have to
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  Speaker 1: hold it through this entire you know, finish the decline
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  Speaker 1: and hold it through the entire accumulation pattern. I always
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  Speaker 1: suggest that value investors keep a watch list, and then
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  Speaker 1: when the pattern starts to look like there's an interest
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  Speaker 1: out there for that stock, is the time to start
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  Speaker 1: accumulating it. Well, who is going to be the buyer
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  Speaker 1: at the lows of not the value investors aren't they
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  Speaker 1: helping form that? But not all of them follow technicals.
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  Speaker 1: So some will be early uh and and means that
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  Speaker 1: their capital is being put to work and not seeing
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  Speaker 1: much of a return for a while. You like being
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  Speaker 1: a little later in that smile because you're not tying
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  Speaker 1: up capital while it's going sideways are going down. Why
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  Speaker 1: do these charts actually work? That's a tough question. It
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  Speaker 1: is a tough question. Um, Sometimes they don't and certainly not.
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  Speaker 1: But when technolo analysis is making you money, what's the
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  Speaker 1: narrative rationalization behind white charts actually are effective? Well? I
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  Speaker 1: think because you are watching what other people are doing
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  Speaker 1: with their money, basically, and when they stop buying, you
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  Speaker 1: start to see a frown developed, so to speak. And uh,
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  Speaker 1: and then you see a support broken. I mean, there's
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  Speaker 1: the whole seven questions. Has a has a stock um
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  Speaker 1: had a move of substance that would reverse We're gonna
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  Speaker 1: We're gonna go through all seven questions in a few minutes. Um,
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  Speaker 1: let me ask you one quick question. What do most
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  Speaker 1: people misunderstand about technical analysis? I think, well, first of all,
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  Speaker 1: a lot of people call it voodoo. I mean, it
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  Speaker 1: has such names for their patterns as head and shoulders
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  Speaker 1: and double tops and flags and triangles. And everybody thinks
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  Speaker 1: that that could be just ridiculous, but it should be
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  Speaker 1: considered a tool in the investing process, and it's a
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  Speaker 1: valuable tool. You have the fundamentals and you have the technicals,
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  Speaker 1: and as I said before, you know you the technicals
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  Speaker 1: are going to help you when the fundamentals could be
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  Speaker 1: fabulous and the price starts going down or breaking through support,
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  Speaker 1: and that's a warning that's something to come in the fundamentals.
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  Speaker 1: They're not mutual. They're not mutually. I'm Barry Ridhults. You're
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  Speaker 1: listening to Masters in Business on Bloomberg Radio. My guest
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  Speaker 1: this week is Luisia Mata. She is a technical analyst
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  Speaker 1: and runs the research shop Luisia Matta Technical Analysis. Let's
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  Speaker 1: talk a little bit about the modern era and and
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  Speaker 1: how you. You came to technical analysis sometime last century.
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  Speaker 1: I was working for a gentleman named Guy Ortmann who
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  Speaker 1: had taken the Technical uh Analyst class at the knee
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  Speaker 1: of Alan Shaw, and he urged me to also take
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  Speaker 1: the class, which I took with Ralph A. Kampora. You
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  Speaker 1: you worked with Alan Shaw for Quoite a while. I
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  Speaker 1: definitely did. He was my mentor and um I got
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  Speaker 1: into technical analysis because I was picking stocks and watching
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  Speaker 1: them go up and watching them come back down. And
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  Speaker 1: I finally called a broker and I said, how do
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  Speaker 1: you know when to sell? And what was the broker answer?
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  Speaker 1: And he said he sent me some newsletters on technical analysis.
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  Speaker 1: I think the main one was Grandville at that point.
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  Speaker 1: And uh, so I went to the Finance Institute and
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  Speaker 1: I took the first class with Ralph A. Kampoor and
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  Speaker 1: Alan taught the advanced class in his chart room. And
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  Speaker 1: uh during that period he offered me a job. So
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  Speaker 1: you must have been one of the better students in
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  Speaker 1: the class. Well, let's hope. So the fascinating thing about
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  Speaker 1: that era And I heard this from Guy Ortmann, and
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  Speaker 1: I heard it from Ralph Acampora, and I've heard this
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  Speaker 1: about Alan Shaw, never from his mouth directly. Um, they
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  Speaker 1: used to do these charts day by day, by hand,
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  Speaker 1: by hand. Point and figure charts. Absolutely we had, and
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  Speaker 1: regular charts. Regular supplied them, not just the XS and os,
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  Speaker 1: but the regular charts that we see. Honest people used
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  Speaker 1: to do those also every single day by hand. I've
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  Speaker 1: walked into rooms with people manual charts on the wall. Right,
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  Speaker 1: It's amazing. We had a whole library on a on
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  Speaker 1: a turntable with all the New York Stock Exchange stocks,
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  Speaker 1: which we plotted each one point intra day reversal by hand,
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  Speaker 1: and then that got translated into what people call the
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  Speaker 1: three point. But what people look at as a three
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  Speaker 1: point today is not the classic three point, which is
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  Speaker 1: derived from the one point and gives you a much
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  Speaker 1: broader sense of accumulation and distribution. So let me ask
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  Speaker 1: you um an obvious technology question, how much do we
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  Speaker 1: lose now that we no longer do this, or at
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  Speaker 1: least most of us no longer do this by hand?
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  Speaker 1: Just anyone can punch up a Bloomberg terminal or anything else.
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  Speaker 1: What is lost when when we've given up the manual
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  Speaker 1: drawing of charts and and can simply call one up
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  Speaker 1: anytime we want. What's missing is the degree of a
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  Speaker 1: top or a bottom. Now you can obviously see that
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  Speaker 1: on a chart, can't you don't? Yes, you can, but
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  Speaker 1: you don't necessarily see the same breadth and volume of
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  Speaker 1: that's spread. I guess trying to describe the Yes, when
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  Speaker 1: you're looking at it day by day, you're noticing things
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  Speaker 1: that you don't see if you're just letting the computer
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  Speaker 1: draward for you right in nineteen we saw these tremendous
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  Speaker 1: two year tops, and in the Bristol Myers and all
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  Speaker 1: the drug stocks in in merk we saw it in
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  Speaker 1: the consumer goods Capital Coman, Campbell Soup and Hershey Foods.
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  Speaker 1: I mean, these were tremendous two year tops that led
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  Speaker 1: us to the understanding that something very different was coming about.
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  Speaker 1: A lot of people aren't aware of this, but if
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  Speaker 1: you're looking at individual stocks and individual sectors, the broad
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  Speaker 1: market started rolling over long before technology topped out. Oh definitely,
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  Speaker 1: that was the last one. And I gave up the
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  Speaker 1: ghost long before the drop in the Nasdack, so that
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  Speaker 1: that was an interesting warning sign. So other than just
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  Speaker 1: the technology, what is the difference between the modern era
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  Speaker 1: of technico analysis and what people used to do years ago.
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  Speaker 1: I think that what's happening today is you have more
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  Speaker 1: and more traders, and more and more people are extremely
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  Speaker 1: short term oriented. I mean they're looking at the trees
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  Speaker 1: and not the forest, and I think one of the
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  Speaker 1: important things is to understand where that short term price
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  Speaker 1: action is taking place in the larger trend of this
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  Speaker 1: stock or whatever it is. Your So, so let's talk
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  Speaker 1: about time frames. What what do you look at in
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  Speaker 1: terms of various time frames, and how the length of
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  Speaker 1: the chart, be it minute by minute, daily, weekly, monthly,
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  Speaker 1: affects your interpretation. Well, I like to look at all
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  Speaker 1: of it. The short term is really is really daily noise.
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  Speaker 1: I think. I don't disagree. I find I really don't
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  Speaker 1: want to look at anything less than a weekly chart
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  Speaker 1: because the day to day action is is so random, yes,
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  Speaker 1: and almost almost irrelevant. The weekly is where I start,
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  Speaker 1: and then I also like to see how that week
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  Speaker 1: is progressing within the longer term monthly profile. And also
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  Speaker 1: I watched the mac d's the momentum indicators for this,
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  Speaker 1: So define what mac D is I think of the
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  Speaker 1: average person listening, Well, it's the difference between two moving averages.
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  Speaker 1: Am I going to get into the formula? So you
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  Speaker 1: could take a shorter term moving average in a longer
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  Speaker 1: term moving average. It's it's a really a second derivative
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  Speaker 1: of a smooth line. Is that a fair way to
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  Speaker 1: the short and when one line crosses over under the other,
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  Speaker 1: you get a buy signal or a cell signal. Now,
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  Speaker 1: there's been some controversy in some quarters that have said
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  Speaker 1: the golden cross the death cross. Some of these have
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  Speaker 1: really been abused by amateur takes. I'm glad that you
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  Speaker 1: brought that up, because you're you're absolutely correct, and from
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  Speaker 1: our perspective, we have only considered the very long term
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  Speaker 1: crossings as valid. You're going to get the fifty day
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  Speaker 1: moving average in the two day moving average crossing back
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  Speaker 1: and forth themselves all the time. Even within an uptrend
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  Speaker 1: and a little pull back, the fifty day may pulled
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  Speaker 1: down below the two temporarily, and I think that that
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  Speaker 1: is a it's misleading to the average investor um weekly. Okay,
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  Speaker 1: maybe you look at it, but you have the same
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  Speaker 1: frequency of turnover. It does warn you that some kind
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  Speaker 1: of a correction or consolidation may be coming into play,
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  Speaker 1: but again it can be within the context of an
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  Speaker 1: uptrend or downtrend. I like the monthly and we've done
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  Speaker 1: some back testing historically, and the monthly momentum is has
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  Speaker 1: a very good history of pegging the cell signals at
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  Speaker 1: tops and getting you in a little more safely in
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  Speaker 1: the bottoms. So what to moving average would you use
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  Speaker 1: on a monthly Well, for our we use a ten
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  Speaker 1: months and a twenty month moving average, and when that
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  Speaker 1: cross takes place, that's that's the Golden Cross or the
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  Speaker 1: Death Cross. I'm Barry Ridholts. You're listening to Master's in
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  Speaker 1: Business on Bloomberg Radio. My special guest today is Luisia Mata.
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  Speaker 1: She is the founder of Luisia Mata Technical Research Advisors.
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  Speaker 1: She spent twenty five years at Smith Barney, eventually becoming
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  Speaker 1: managing director of the Technical Research Group, and has been
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  Speaker 1: Institutional Investor ranked for a number of years. Let's talk
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  Speaker 1: a little bit about women on Wall Street and what
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  Speaker 1: it's like. I've sat with people like Liz Anne Saunders
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  Speaker 1: and Michelle Myers Um and they've told the story of
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  Speaker 1: how they've actually seen the industry change over the course
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  Speaker 1: of their career. What what was it like as a
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  Speaker 1: woman doing charts and technical works when when you began, well,
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  Speaker 1: when I began, I was really just interested in learning,
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  Speaker 1: learning technical analysis and working with the group I had.
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  Speaker 1: I have tended to stay out of the political frame,
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  Speaker 1: uh and the administrative frame, to be perfectly honest with you.
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  Speaker 1: So perhaps I'm not as aware of what was going
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  Speaker 1: on in the early years in terms of being a
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  Speaker 1: woman an list on Wall Street, but there were many
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  Speaker 1: women doing technical analysis. Bernadette Murphy certainly was one and
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  Speaker 1: Gail do dex or partial. Yeah, Um and um, it
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  Speaker 1: was probably more. As the twenty five years progressed that
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  Speaker 1: I realized that to a certain extent, it's very rare.
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  Speaker 1: There aren't a lot There weren't a lot of women
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  Speaker 1: more today. But still it's a relative. Numerically, it's it's
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  Speaker 1: not a big percentage of of technicians are women. So
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  Speaker 1: let's talk about how Wall Street has changed over the
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  Speaker 1: past thirty forty five years. You've been a Dennis into
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  Speaker 1: the Street for a while. How has the the job
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  Speaker 1: opportunities and how women are treated on Wall Street changed
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  Speaker 1: over the past few decades. Well, I would say we're
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  Speaker 1: starting to get certainly in technical analysis, we're starting to
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  Speaker 1: get more more women interested. There's a part of the
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  Speaker 1: Market Technicians Association that has a group of women that
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  Speaker 1: is trying to encourage them and act as mentors to
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  Speaker 1: bring them forward. Um. I'm not sure to what degree
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  Speaker 1: it's changed. I think one of the things, Um, it
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  Speaker 1: can slip. Let's say there can be slippage. Because a
• 17:22
  Speaker 1: classmate of mine at Vassa wrote the book called The
• 17:25
  Speaker 1: Good Girl's Revolt, which was the discrimination suit that women
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  Speaker 1: brought against Newsweek in the late sixties early seventies, and
• 17:35
  Speaker 1: when the case subsided, it went back to normal. So
• 17:39
  Speaker 1: as long as there's attention, as long as you can
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  Speaker 1: focus on it and continue to to push the careers
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  Speaker 1: of some of these women, I think that's great. And
• 17:49
  Speaker 1: as soon as the attention fades, history tells us you're
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  Speaker 1: some progress might be allowed. It's gotten into the government
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  Speaker 1: hierarchy now, So I think that the future of women
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  Speaker 1: now is probably more palatable. And I'm even hearing a
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  Speaker 1: possibility that one day we might have a woman president
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  Speaker 1: that that's actually a genuine Post's see how that works out. Yeah, Um,
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  Speaker 1: so you left, you left the street, you left the
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  Speaker 1: business in order to set up your own independent shop.
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  Speaker 1: What was that like? Well, City Group in two thousand
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  Speaker 1: and five disbanded the entire technical research. Yeah, Kitter had
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  Speaker 1: already done it. A lot of the big firms had
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  Speaker 1: done it. You know. We can talk about the potential
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  Speaker 1: as to why they did it, but the point is
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  Speaker 1: they did. So we had a month or two to
• 18:38
  Speaker 1: pack up and get out. We were essentially retired out,
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  Speaker 1: which was fine, um, but the clients, um really rebelled
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  Speaker 1: and yeah, it was quite an upheaval there and complaints,
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  Speaker 1: and one client offered her office as they all said,
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  Speaker 1: you know, we want you to stay, we want you
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  Speaker 1: to come back, and she offered her offices to us,
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  Speaker 1: which we used during the week. And then as we
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  Speaker 1: finally got set up, we had a client who gave
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  Speaker 1: us a couple of subscriptions upfront, which helped us open
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  Speaker 1: our doors. It was it's got to be very gratifying
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  Speaker 1: when people say, we know they closed the department, but
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  Speaker 1: we think your value added right here, let's do this.
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  Speaker 1: It was very gratifying. And the kindness that came through
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  Speaker 1: in a business where you don't often see kindness that
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  Speaker 1: that that's really quite interesting. So that was how long
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  Speaker 1: ago to and we left in February and February March
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  Speaker 1: and we started up in October. That's a pretty quick
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  Speaker 1: turn around. Six months you're up and running. How much
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  Speaker 1: of the thinking behind kitter And City and other groups
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  Speaker 1: closing their technical group is that, hey, everybody has, if
• 19:46
  Speaker 1: not a Bloomberg terminal, they have access to Internet charts.
• 19:50
  Speaker 1: Everybody's a technician these days. Yes, that's probably part of it.
• 19:54
  Speaker 1: I think that because you had the financial crisis, there
• 19:58
  Speaker 1: was the money aspect to it as well. I mean,
• 20:00
  Speaker 1: the technical departments were expensive, perhaps two to maintain. I
• 20:05
  Speaker 1: also think that there was, and this is my theory,
• 20:08
  Speaker 1: that there was a problem from the legal perspective of
• 20:11
  Speaker 1: the fundamental recommendations of stocks that we were putting on
• 20:16
  Speaker 1: seals in two thousand and that was that was problematic.
• 20:21
  Speaker 1: I mean, you think about the poor broker. He gets
• 20:23
  Speaker 1: the fundamental guy telling him to buy in the technical
• 20:25
  Speaker 1: guy telling him to sell. What are you're gonna do?
• 20:27
  Speaker 1: You listen to the technical guy and you wait for
• 20:29
  Speaker 1: the fundamentals to to the fundamentals are still good. You
• 20:32
  Speaker 1: wait for the price. Try to tell you it's a
• 20:35
  Speaker 1: when versus a what question. Yeah, I'm Barry Rihults. You're
• 20:38
  Speaker 1: listening to Masters in Business on Bloomberg Radio. My special
• 20:42
  Speaker 1: guest today is Luisia Matta. She is a technical analyst
• 20:46
  Speaker 1: and runs the research shop Luisia Matta Technical Analysis. Let's
• 20:51
  Speaker 1: let's get into the nitty gritty of technicals a little bit.
• 20:55
  Speaker 1: One of the things I noticed in some of your
• 20:57
  Speaker 1: work is you really like ratio. Tell us a little
• 21:01
  Speaker 1: bit about how you use those. Okay, I'd be happy to.
• 21:05
  Speaker 1: For instance, the dial Gold ratio which goes goes all
• 21:08
  Speaker 1: the way back to the twenties, and the Dow or
• 21:10
  Speaker 1: the stock market and gold tend to move inversely. So
• 21:14
  Speaker 1: you have this incredible chart where the peaks in the
• 21:18
  Speaker 1: Dow into seventies two thousand. You had the reversal from
• 21:27
  Speaker 1: Dow out performance into a gold out performance. So the
• 21:30
  Speaker 1: gold out performed while the Dow was in a bear market. Um.
• 21:34
  Speaker 1: But we use it even more significantly in the sector work.
• 21:39
  Speaker 1: We use the monthly sector work and we follow the
• 21:43
  Speaker 1: price of the sector and the relative strength to the
• 21:46
  Speaker 1: SMP five hundred. You can do it. So when we
• 21:48
  Speaker 1: talk about ratio, let's let's say we'll take the health
• 21:51
  Speaker 1: care sector versus the SMP five. When that line is
• 21:55
  Speaker 1: going up, the health care sector is doing better than
• 21:57
  Speaker 1: the Bruin index. And when that line is going down, right,
• 22:00
  Speaker 1: it's doing worse. And you could look at every sector
• 22:02
  Speaker 1: that way. That's exactly what we do. And the concept
• 22:05
  Speaker 1: is you don't go into the market to underperform. So
• 22:09
  Speaker 1: you want to look for those sectors or those stocks.
• 22:11
  Speaker 1: If you want to put any stock versus the s
• 22:14
  Speaker 1: and P five hundred in the ratio to find the
• 22:16
  Speaker 1: ones that are outperforming. Or on the contrary, those that
• 22:21
  Speaker 1: are on the verge of underperforming. And we do that
• 22:25
  Speaker 1: with positive or negative divergences. And if I could give
• 22:28
  Speaker 1: the example, so we define what a divergence is. Okay,
• 22:31
  Speaker 1: a divergence is if the price moves up to a
• 22:34
  Speaker 1: new high and the relative strength fails to move to
• 22:37
  Speaker 1: a new high, you have an indication that somebody is
• 22:40
  Speaker 1: moving away from this sector and the relative strength is
• 22:43
  Speaker 1: no longer outperforming. And in reverse, you can have a
• 22:48
  Speaker 1: positive divergence in which the relative strength does not confirm
• 22:52
  Speaker 1: the new low in price and actually puts in place
• 22:55
  Speaker 1: a higher low, and that's an indication that perhaps the
• 22:59
  Speaker 1: sector or stock is ready to turn up. So, as
• 23:03
  Speaker 1: an example, in two thousand and seven, we had a
• 23:07
  Speaker 1: tremendous six year negative divergence. Six years. Remember this is
• 23:12
  Speaker 1: the bigger the top, the greater the length of price.
• 23:16
  Speaker 1: Evidence that something is on the verge of reversing is
• 23:21
  Speaker 1: very important. Um, So we had in two thousand and seven,
• 23:25
  Speaker 1: the price of the financial sector made a new high,
• 23:28
  Speaker 1: but the relative strength did not. In two thousand and seven,
• 23:31
  Speaker 1: early the relative strength broke a six year support. In
• 23:34
  Speaker 1: other words, the level that had held before now failed
• 23:37
  Speaker 1: to put in place a higher low and actually broke
• 23:41
  Speaker 1: the prior low, which is a big sign to us
• 23:44
  Speaker 1: that something is about to change. And since it was
• 23:47
  Speaker 1: six years, it's an important thing to watch. And if
• 23:51
  Speaker 1: you had gotten out of the financials in two thousand
• 23:55
  Speaker 1: and seven when we got that signal, you would have
• 23:57
  Speaker 1: preserved about of the de line. And the financials really
• 24:02
  Speaker 1: got whacked in that period. They they fell, yeah, they
• 24:06
  Speaker 1: they In fact, that's a big number. We saw the
• 24:09
  Speaker 1: NASDAC drop almost eight percent. We saw the twenty nine crash.
• 24:15
  Speaker 1: It's amazing how something falls eight percent a broad sector.
• 24:19
  Speaker 1: Not a bad time to think about. And you know,
• 24:20
  Speaker 1: when you think about even it wasn't the crash, the
• 24:23
  Speaker 1: original crash that wiped out the wealth. That was, that's correct.
• 24:27
  Speaker 1: And the crash moved price from three eight one to
• 24:30
  Speaker 1: one eight one. But when you broke down, when you
• 24:34
  Speaker 1: broke down thereafter in in thirty one, um, you went
• 24:38
  Speaker 1: from one and that that was even bigger. That's so
• 24:44
  Speaker 1: so let me let me shift this up a little
• 24:45
  Speaker 1: bit on you. Let's talk about some of these secular
• 24:50
  Speaker 1: moves moves and I used the term secular to mean
• 24:53
  Speaker 1: longer term, longer term not just not cyclical. Cyclical is
• 24:57
  Speaker 1: the short intermediate term moves quarters a couple of years.
• 25:01
  Speaker 1: Secular can be dead in term. If you think as
• 25:03
  Speaker 1: a secular bull market from two to two thousand, it
• 25:07
  Speaker 1: had a lot of cyclical bear market interruptions, but continued
• 25:12
  Speaker 1: on that uptrend. Each bear market interruption amazingly, including seven
• 25:18
  Speaker 1: held at a higher low and eighty seven. People always
• 25:22
  Speaker 1: talk about the three day but really eight percent was
• 25:25
  Speaker 1: at plus move from top to bottom. I'm doing that
• 25:29
  Speaker 1: from memory, but that's bull ballpark. Yeah, it really had
• 25:33
  Speaker 1: a huge run and then just rolled over um and
• 25:38
  Speaker 1: we had a we had a structural breakdown and energy
• 25:41
  Speaker 1: in two thousand and fourteen, in addition to which we
• 25:45
  Speaker 1: had the monthly momentum cell signals. So you get cell
• 25:50
  Speaker 1: signals from different indicators for the same sector or the
• 25:53
  Speaker 1: same industry, you have to start paying attention. So so
• 25:56
  Speaker 1: let's talk a little bit about that. You have a
• 25:59
  Speaker 1: monthly breakdown energy. Anybody who's tanked up their car knows
• 26:03
  Speaker 1: gases really cheap. It's too and change for premium um
• 26:08
  Speaker 1: in New York that's very inexpensive. What does this mean
• 26:11
  Speaker 1: for oil prices and for how long? Well, that's a
• 26:15
  Speaker 1: very good question. I mean, this was a this was
• 26:17
  Speaker 1: a relative strength top that had been in place from
• 26:20
  Speaker 1: two thousand and eight, and the breakdown was in two
• 26:23
  Speaker 1: thousand and fourteen. Now we're starting to see that top
• 26:28
  Speaker 1: right and and breakdown. Um, there's some stabilization coming into
• 26:33
  Speaker 1: energy right now. Whether it can follow through on this
• 26:36
  Speaker 1: year long head and shoulders bottom reverse head and shoulders
• 26:39
  Speaker 1: pattern that we're seeing, um, we'll see. But it looks
• 26:43
  Speaker 1: as though it could continue to lift a little towards sixty.
• 26:47
  Speaker 1: But it's not going to happen overnight. These are times
• 26:50
  Speaker 1: long patterns. Yes. So let's talk a little bit about
• 26:54
  Speaker 1: the current bull market. Um. I've had a number of
• 26:58
  Speaker 1: people tell me, hey, this bull market is really old.
• 27:00
  Speaker 1: Used to go back to oh nine, and here we
• 27:03
  Speaker 1: are it's seven years later. But I always learned that
• 27:07
  Speaker 1: a new secular bull market starts from new highs and
• 27:11
  Speaker 1: the O eight oh nine drop and then the eight
• 27:14
  Speaker 1: O nine reversal, Well, that just gets you back to
• 27:16
  Speaker 1: square one. Are we in a new secular bull market
• 27:20
  Speaker 1: since since the new highs were made? Or is this
• 27:24
  Speaker 1: a seven year old market that both Well, it's a
• 27:27
  Speaker 1: seven year old cyclical market. For sure. UM. We certainly
• 27:32
  Speaker 1: argued that the breakout in was suggesting that we were
• 27:36
  Speaker 1: in a new secular bull market advance and if we
• 27:40
  Speaker 1: at some point get a correction here, it could be
• 27:43
  Speaker 1: one that simply pulls back toward the breakout or doesn't
• 27:46
  Speaker 1: have to pull back that far. UM, I think we're do.
• 27:50
  Speaker 1: I mean, this is the longest advance that we've had
• 27:53
  Speaker 1: in a in a bull market since the nineties. Now,
• 27:56
  Speaker 1: didn't we have a near correction late last year earlier
• 28:00
  Speaker 1: for some of the indicators, for some of the indexes,
• 28:03
  Speaker 1: but not not all of them. Right, So we're speaking
• 28:06
  Speaker 1: with Luis shia Mata of Yamata Technical Research Advisors. UM,
• 28:10
  Speaker 1: let's talk a little bit about technology. How has the
• 28:13
  Speaker 1: advancement of all this computing power played into the world
• 28:17
  Speaker 1: of technical played into it. It's made things happen faster,
• 28:22
  Speaker 1: It's been more frustrating. So are things really happening faster?
• 28:26
  Speaker 1: Is and is technology at fault or I don't know
• 28:29
  Speaker 1: whether you call it a fault. But the degree that
• 28:33
  Speaker 1: the high frequency trading is what of the volume of
• 28:37
  Speaker 1: the volume, that's very different from individual investors, UM having
• 28:41
  Speaker 1: control over what's happening to the price um. Now we've
• 28:45
  Speaker 1: had quantitative trading, we've had people crunching numbers to make
• 28:50
  Speaker 1: buying and selling decisions for a long time. This is
• 28:54
  Speaker 1: this is really very different in a qualitative way, computers
• 28:57
  Speaker 1: making instantaneous buys and cells, and it's not like it
• 29:03
  Speaker 1: was when people were manning the terminals. And so what
• 29:07
  Speaker 1: does that mean in terms of of price signals? How
• 29:11
  Speaker 1: does it change things? I'm not sure we have the
• 29:14
  Speaker 1: answer to that yet. We're certainly monitoring the price changes
• 29:19
  Speaker 1: as we always have as classic technicians, but I will
• 29:22
  Speaker 1: say that we have been seeing more and more false
• 29:25
  Speaker 1: breakouts and false breakdowns. And by that I mean you
• 29:28
  Speaker 1: have a stock in prices going sideways, say between ten
• 29:32
  Speaker 1: and fifteen, ten and fifteen, ten and fifteen, and then
• 29:34
  Speaker 1: it goes to twenty and then it comes right back
• 29:37
  Speaker 1: down into the ten to fifteen range again. So that
• 29:40
  Speaker 1: would have qualified as a false breakout. And sometimes those
• 29:43
  Speaker 1: consolidations can continue and maybe eventually you get a valid breakout,
• 29:48
  Speaker 1: but sometimes we've seen them break to the downside and
• 29:51
  Speaker 1: enter a bear market. And so the h f T
• 29:53
  Speaker 1: guys are are generating, possibly generating a lot of signals.
• 29:58
  Speaker 1: So that's what we're looking at because that's what's different
• 30:01
  Speaker 1: this decade than two decades ago. And that's a possibility.
• 30:05
  Speaker 1: It's it's frustrating to say the least. That's that's fascinating.
• 30:09
  Speaker 1: So let's talk about customers of yours who are on
• 30:12
  Speaker 1: the bye side. Tell us about generally the value that
• 30:16
  Speaker 1: technicians bring to a bye side shop. Well, I think
• 30:20
  Speaker 1: that most people in a bye side shop are looking
• 30:22
  Speaker 1: at fundamentals, so if they don't have an in house
• 30:25
  Speaker 1: technician per se. And I think more and more firms
• 30:28
  Speaker 1: are having individual technicians. We've we've been certainly certifying more
• 30:33
  Speaker 1: and more of them, and the big houses don't necessarily
• 30:36
  Speaker 1: have them. Um, they can use us without having to
• 30:40
  Speaker 1: hire somebody to do specifically technical analysis. We have been
• 30:45
  Speaker 1: speaking to Luisia Mata. She is the manager and owner
• 30:49
  Speaker 1: of Luisia Mata Research Advisors. Be sure and stick around
• 30:53
  Speaker 1: for the podcast extras where we keep the tape rolling
• 30:56
  Speaker 1: and continue chatting about all things technical. Read my daily
• 31:01
  Speaker 1: column on Bloomberg View dot com or follow me on
• 31:04
  Speaker 1: Twitter at Rich Halts. We love your comments, feedbacks and
• 31:09
  Speaker 1: suggestions right to us at m IB podcast at Bloomberg
• 31:15
  Speaker 1: dot net. I'm Barry rit Halts. You've been listening to
• 31:18
  Speaker 1: Masters in Business on Bloomberg Radio, brought to you by
• 31:24
  Speaker 1: Bank of America Merrill Lynch seeing what others have seen,
• 31:28
  Speaker 1: but uncovering what others may not. Global Research that helps
• 31:31
  Speaker 1: you Harness disruption Voted top global research firm five years running,
• 31:36
  Speaker 1: Merrill Lynch, Pierce, Fenner and Smith Incorporated. Welcome to the
• 31:40
  Speaker 1: podcast portion of our conversation. Louise, Thank you so much
• 31:42
  Speaker 1: for doing this. It's been a pleasure. Thanks. So. I
• 31:45
  Speaker 1: know Louise for a long time, and and I kind
• 31:48
  Speaker 1: of consider myself a jack of all trades, master of none,
• 31:52
  Speaker 1: and I have found technicals to be very helpful to
• 31:56
  Speaker 1: my way of looking at the world, looking at the markets,
• 32:00
  Speaker 1: if for no other reason, I want to have a
• 32:02
  Speaker 1: sense of what are the big institutions doing, and you
• 32:05
  Speaker 1: see their footprints in the charts. So let's let's talk
• 32:09
  Speaker 1: a little bit about some of the things we didn't
• 32:11
  Speaker 1: get to before, and then I'll do my favorite UM questions.
• 32:16
  Speaker 1: On the broadcast portion, we were talking about the relationship
• 32:19
  Speaker 1: between different markets, and uh we started talking about gold
• 32:26
  Speaker 1: and and bonds. Tell us about that long term relationship
• 32:31
  Speaker 1: between the two. Here when did gold and interest rates
• 32:36
  Speaker 1: top out? Well, the thing that's really interesting, As I said,
• 32:40
  Speaker 1: interest rates have very long cycles, and um, the ten
• 32:44
  Speaker 1: year um was in a very severe down down trend.
• 32:50
  Speaker 1: Interest rates race, we're going higher exactly, and gold started
• 32:55
  Speaker 1: a new bull market as the end of that interest
• 32:59
  Speaker 1: rate cycle came into being. And once again here we
• 33:04
  Speaker 1: have interest rates top out and around then gold topped
• 33:09
  Speaker 1: out right and uh, and then you saw a long,
• 33:12
  Speaker 1: long down trend. But the gold started to come up
• 33:16
  Speaker 1: in the mid seventies, which is when interest rates, which
• 33:19
  Speaker 1: is when interest rates started going up. So it was
• 33:23
  Speaker 1: the bull market and goals started as you moved into
• 33:26
  Speaker 1: an inflationary environment, makes sense rates are going higher. There inflation,
• 33:30
  Speaker 1: the price of gold is worth more. However, as race
• 33:33
  Speaker 1: were coming way down, gold also started to lift into
• 33:39
  Speaker 1: a bull market. Um, so it was arguing that it
• 33:43
  Speaker 1: was protecting against the deflationary environment. We did have a
• 33:48
  Speaker 1: people forget I'm sorry two thousand and one to the
• 33:52
  Speaker 1: dollar lost its value. Anything priced in in dollars like
• 33:57
  Speaker 1: gold obviously is going to do well. And we had
• 34:00
  Speaker 1: pretty robust inflation in the two thousands up until the crisis.
• 34:04
  Speaker 1: That's a pretty good way to put a cap on inflation.
• 34:07
  Speaker 1: Have the entire financial world collapse. Probably kills It kills
• 34:12
  Speaker 1: the disease and the patient at the same time. So um,
• 34:16
  Speaker 1: let's talk a little bit about what you're doing now.
• 34:18
  Speaker 1: How do you what do you look at on a
• 34:21
  Speaker 1: daily basis? What do you think about each day when
• 34:24
  Speaker 1: you sit down at your desk, Well, I look at
• 34:29
  Speaker 1: I look at all these sectors. Number one, I'll look
• 34:31
  Speaker 1: at them from a relative perspective, from an absolute perspective,
• 34:35
  Speaker 1: from a momentum perspective. I'll look at stocks every week
• 34:38
  Speaker 1: or weekend. I will look maybe through the entire SMP
• 34:43
  Speaker 1: five to just get a gist of what we're seeing
• 34:46
  Speaker 1: in terms of are we seeing more and more tops?
• 34:48
  Speaker 1: Are we seeing company by company, sector by sector? Yeah, exactly.
• 34:53
  Speaker 1: And because you think of the equity market at least
• 34:56
  Speaker 1: Alan Shaw always did as a triangle with the market
• 34:59
  Speaker 1: at the and groups on one side, or sectors and
• 35:03
  Speaker 1: stocks at the other. And he always used to say,
• 35:05
  Speaker 1: if you didn't have any you didn't have enough time
• 35:07
  Speaker 1: to cover all three. The one you could eliminate was
• 35:10
  Speaker 1: the market at the top, because if your sectors were
• 35:12
  Speaker 1: showing strength, you knew which way the market should be
• 35:15
  Speaker 1: going in the same thing for stocks. Makes makes perfect sense. Um.
• 35:19
  Speaker 1: I actually met Alan Shaw at a event was it
• 35:24
  Speaker 1: Bill Deaner was being honored not too long ago? And
• 35:31
  Speaker 1: uh I begged him to come on here. Yeah, yeah, yeah,
• 35:34
  Speaker 1: talked to me later and that was the last I
• 35:37
  Speaker 1: heard him. I have two two guys I've been hunting down.
• 35:42
  Speaker 1: He's one of them, Alan shows one of them, and
• 35:44
  Speaker 1: then Bob Farrell is the other. Oh, and they're both
• 35:47
  Speaker 1: very secretive at this point. They've pretty much well, they've
• 35:51
  Speaker 1: always been well known amongst certain folks on Wall Street,
• 35:56
  Speaker 1: and I don't want to say press shy, but they
• 36:00
  Speaker 1: this isn't necessarily their audience. I always try and convince them,
• 36:03
  Speaker 1: we need you to have this conversation for posterity's sake,
• 36:06
  Speaker 1: because my goal. You asked me how this came about.
• 36:10
  Speaker 1: My goal is to create a library and basically say, okay,
• 36:15
  Speaker 1: here are the five people. Just learn everything these people
• 36:19
  Speaker 1: did and how they became that way. And Alan's a
• 36:21
  Speaker 1: wonderful storyteller. Wonderful storyteller, Alan, please make make an introduction.
• 36:28
  Speaker 1: I will try and email him to get him out
• 36:30
  Speaker 1: of Shelter Island. I'll I will go to Shelter Island.
• 36:33
  Speaker 1: I'm happy to for him, I will, I will take
• 36:36
  Speaker 1: the trip. Aside from the fact that Shelter Island is delightful,
• 36:39
  Speaker 1: happy to stay at the Ram's head in or whatever,
• 36:41
  Speaker 1: but I'm happy to do that. I listen, I went
• 36:44
  Speaker 1: down to Valley Forge to Vanguard. I'll go out to
• 36:48
  Speaker 1: Shelter Island for Yeah, Well that way I'm sure he
• 36:50
  Speaker 1: would do it. Really, I think, so done. Okay, Charlie
• 36:54
  Speaker 1: make a note, will go into Shelter Island. Um. So,
• 36:58
  Speaker 1: So you go through minor digression. So we you go
• 37:01
  Speaker 1: through the sectors, you go through individual stocks. How much
• 37:06
  Speaker 1: do you pay attention to the news? How what are
• 37:09
  Speaker 1: you reading the papers? What do you watch on TV?
• 37:11
  Speaker 1: How important is the background noise to what you do? Well,
• 37:18
  Speaker 1: there was a long pause right there. Yeah, it was
• 37:20
  Speaker 1: a long pause because I tend to read the news
• 37:22
  Speaker 1: late in the day and so's already happen. I read
• 37:25
  Speaker 1: the Times in the Wall Street Journal on the train,
• 37:27
  Speaker 1: not that I'm trading actively began my career, but I've
• 37:32
  Speaker 1: always read it on the train on the way home,
• 37:34
  Speaker 1: on the way home, never on the way into the Yeah,
• 37:36
  Speaker 1: I find that my mornings are too busy doing looking
• 37:39
  Speaker 1: or I don't want to be influenced by stuff I
• 37:41
  Speaker 1: know is old anyway what it affects you. So so
• 37:46
  Speaker 1: that raises a related note. How important is psychology to
• 37:52
  Speaker 1: technico analysis? Well, I think that the psychology is on
• 38:00
  Speaker 1: the part of the investor, and what you're seeing him
• 38:03
  Speaker 1: do is telling you where he stands if he's frightened,
• 38:08
  Speaker 1: and you end up with a black hole. If we
• 38:11
  Speaker 1: call these multi year multi point drops, which we've been
• 38:14
  Speaker 1: seeing with some of the bad earnings again, I remember
• 38:16
  Speaker 1: them in two thousand, like mad um and uh, and
• 38:21
  Speaker 1: the same thing for for the reverse. So so let's
• 38:25
  Speaker 1: talk a little bit about resistance and support. So that
• 38:30
  Speaker 1: was always explained to me in in what I took
• 38:32
  Speaker 1: at psychological terms. So why does support exists? All right?
• 38:38
  Speaker 1: If you have a stock that is trading between ten
• 38:41
  Speaker 1: and fifteen, Basically the implication is that each time the
• 38:46
  Speaker 1: price gets up to fifteen, somebody fundamentally perceives that company
• 38:51
  Speaker 1: to be fully valued and it sells off. And when
• 38:55
  Speaker 1: it gets down to ten again, somebody out there perceives
• 38:59
  Speaker 1: this come company as now at the point of value
• 39:03
  Speaker 1: where they'd like to buy it, and that can continue
• 39:06
  Speaker 1: for an extended period of time now as the price,
• 39:11
  Speaker 1: and if the price moves up through fifteen, basically, it's
• 39:15
  Speaker 1: suggesting that somebody out there perceives something positive about this
• 39:20
  Speaker 1: company and is willing to pay more to own it,
• 39:23
  Speaker 1: and that initiates the uptrend. We call it a breakout,
• 39:27
  Speaker 1: and it initiates the uptrend by the same token. If
• 39:30
  Speaker 1: you've had a trading range of top, top can take
• 39:32
  Speaker 1: on many configurations. It can be a v topic, can
• 39:35
  Speaker 1: be a head and shoulders top, which looks exactly like
• 39:37
  Speaker 1: a head and two shoulders. You can have a double top,
• 39:40
  Speaker 1: or you could have a horizontal top. And if the
• 39:43
  Speaker 1: ten dollar level of our example trading between ten and
• 39:46
  Speaker 1: fifteen is violated, that suggests that somebody out there is
• 39:53
  Speaker 1: willing to accept less to get out, and that's an
• 39:58
  Speaker 1: important psychological message that we're getting in that price. So
• 40:03
  Speaker 1: here's how I recall having this explained to me when
• 40:08
  Speaker 1: I was a young and you have a stock trading
• 40:11
  Speaker 1: in that range. Let's use ten and fifteen, and people
• 40:15
  Speaker 1: who bought a fifteen stock now goes to ten and
• 40:19
  Speaker 1: they say, God, if I can only get back to fifteen,
• 40:23
  Speaker 1: If I can only get to break even, I'll sell.
• 40:26
  Speaker 1: And so when the stock gets up back to fifteen,
• 40:28
  Speaker 1: all those previous buyers are sellers there because they have
• 40:31
  Speaker 1: a memory price, as memory is the expression, and when
• 40:35
  Speaker 1: all those sellers are exhausted with there is nobody left
• 40:38
  Speaker 1: who wants to sell it fifteen. That's how you get
• 40:40
  Speaker 1: the breakout, and that's why there's no overhead resistance. The
• 40:44
  Speaker 1: flip side of that was people who have been buying
• 40:47
  Speaker 1: a ten and being rewarded. Hey, I boughted the tenant
• 40:50
  Speaker 1: went to fourteen, I sold it, it it came back. I
• 40:52
  Speaker 1: bought it it went to and I began on a
• 40:54
  Speaker 1: trading desk. So everything I learned took me a long
• 40:58
  Speaker 1: time to unlearn it. But everything I learned about technicals
• 41:02
  Speaker 1: and trading was in that context. Hey, at ten dollars,
• 41:05
  Speaker 1: I'm rewarded. Therefore, my muscle memory is by the dip,
• 41:09
  Speaker 1: by the dip, by the dip, and therefore, when the
• 41:12
  Speaker 1: stock price comes back to ten, i'm a buyer. And
• 41:15
  Speaker 1: once that's violated, oh this doesn't work anymore, and I'm
• 41:18
  Speaker 1: done now. I don't know if I'm creating a narrative
• 41:21
  Speaker 1: on what you described, or if that's consistent with I
• 41:25
  Speaker 1: think all three are consistent. You've got the fundamentalist who's
• 41:28
  Speaker 1: you know, perceiving that something's changed in the company, either
• 41:32
  Speaker 1: for the better for the breakout or for the worst
• 41:34
  Speaker 1: for the breakdown. And you've got the person who maybe
• 41:37
  Speaker 1: bought it at fifteen it went to ten and panicked
• 41:40
  Speaker 1: and said, oh my gosh, hope it gets back to fifteen.
• 41:42
  Speaker 1: I want to get out. And then you have the
• 41:44
  Speaker 1: professional trader who sees this range developing and says, gee,
• 41:49
  Speaker 1: this is a great way to make money. I'll buy
• 41:51
  Speaker 1: it at ten and shorted at fifteen, and that goes
• 41:54
  Speaker 1: on and until the breakout of the breakdown. One of
• 41:57
  Speaker 1: my all time best trades was a was a loser
• 42:01
  Speaker 1: in Google, and I want to say it was it
• 42:04
  Speaker 1: was range bound between one eight and two hundred, and
• 42:07
  Speaker 1: you boarded one eighty and sold it a two hundred
• 42:09
  Speaker 1: and bought and shortly at two hundred. And this was
• 42:11
  Speaker 1: going on for a while, and I remember being short Google.
• 42:15
  Speaker 1: It broke out over two hundred and I covered it
• 42:17
  Speaker 1: like two oh two or two oh three, and it
• 42:20
  Speaker 1: just never looked back. And I was so pleased with
• 42:23
  Speaker 1: that trade, not only because I was disciplined, but Wow,
• 42:27
  Speaker 1: this really did what it was supposed to do. You know,
• 42:30
  Speaker 1: it broke out of the range. I didn't station I
• 42:32
  Speaker 1: had made it. You know what is two or three percent?
• 42:34
  Speaker 1: Who really cares about that? But I find that the
• 42:38
  Speaker 1: nice thing about charts is it gives you a place
• 42:42
  Speaker 1: to know for sure where you're right or wrong. It
• 42:45
  Speaker 1: it's a error correction mechanism. If you don't like something
• 42:49
  Speaker 1: and it's over a certain price, you're wrong. There's no
• 42:53
  Speaker 1: arguing with the story. There's now no coming up with excuses.
• 42:56
  Speaker 1: The prices the final arborter and I Voe has found
• 43:01
  Speaker 1: not only that, but the risk management side of it
• 43:04
  Speaker 1: really fascinating. And that's the thing. A lot of people
• 43:07
  Speaker 1: hold onto their losers and sell their winners. Classic rookie mistake. Hey,
• 43:12
  Speaker 1: the old One of the things I learned early on
• 43:15
  Speaker 1: that is wrong is, Hey, no one ever went broke
• 43:18
  Speaker 1: taking a profit. Actually, you do go broke taking a profit,
• 43:22
  Speaker 1: especially because you're not having big enough profits, and especially
• 43:26
  Speaker 1: if you refuse to admit error and hold the losers
• 43:29
  Speaker 1: all the way down. It's a it's a classic mistake.
• 43:32
  Speaker 1: So so let's let's jump on some of the questions
• 43:35
  Speaker 1: that we missed UM earlier, and then we'll do our
• 43:38
  Speaker 1: favorite questions. UM. So let's talk a little bit about
• 43:43
  Speaker 1: the markets from a structural perspective. How do you, other
• 43:47
  Speaker 1: than h f T, how do you see the structure
• 43:50
  Speaker 1: of the market having changed. I don't think the structure
• 43:57
  Speaker 1: of the market has changed, So it hasn't, I don't
• 43:59
  Speaker 1: think so. So what is different today except for the
• 44:04
  Speaker 1: high frequency trading that's the big one to get into.
• 44:06
  Speaker 1: The plunge protection team, which maybe we don't want to
• 44:09
  Speaker 1: get into. No. I love talking about that because I
• 44:12
  Speaker 1: think that you know, George Carlin used to tell a
• 44:15
  Speaker 1: joke about Indian fighters, and he would say, and it's
• 44:20
  Speaker 1: George Carlin, not me. It's not that Indians are bad fighters.
• 44:24
  Speaker 1: Just because they started out defending Boston and ended up
• 44:28
  Speaker 1: in San Francisco doesn't mean they're bad. So I always
• 44:30
  Speaker 1: say the same thing about the plunge Protection team. Hey,
• 44:33
  Speaker 1: just because the NASDAC rolled over at five thousand and
• 44:37
  Speaker 1: ended up at doesn't mean the plunge Protection Team doesn't exist.
• 44:40
  Speaker 1: They're just really bad at their jobs. How and here
• 44:45
  Speaker 1: look at oh eight o nine, the market down fifty seven. Wow,
• 44:50
  Speaker 1: imagine how bad it would have been without the plunge
• 44:52
  Speaker 1: Protection team. That's pretty bad. So is there a plunge
• 44:56
  Speaker 1: protection team and what are they doing? Well, it's an
• 45:02
  Speaker 1: official entity. I forget the exact committee to ensure financial stability.
• 45:11
  Speaker 1: That's right, Regan set it up, and I would say
• 45:13
  Speaker 1: that probably they realize that they can't prevent some of
• 45:17
  Speaker 1: those large downs, but they can hold up something that
• 45:22
  Speaker 1: isn't necessarily got an enormous amount of selling pressure. In
• 45:28
  Speaker 1: other words, we have these days that will you know,
• 45:30
  Speaker 1: start down and end up or go down and end up.
• 45:33
  Speaker 1: Maybe they're in there trying to um make everybody feel
• 45:37
  Speaker 1: better than it hasn't gone lower. I have no idea.
• 45:40
  Speaker 1: When they come in, we don't know, but they buy
• 45:42
  Speaker 1: futures I understand. Are wouldn't we see the footprint of
• 45:48
  Speaker 1: what they're doing and wouldn't there be a giant paper trail?
• 45:52
  Speaker 1: One would think, right? I mean, someone does insider trading
• 45:55
  Speaker 1: for eight hundred dollars worth of options and it shows
• 45:58
  Speaker 1: up on an SEC screen. I can't, you know. I
• 46:02
  Speaker 1: am not a I tend to be a skeptical person
• 46:05
  Speaker 1: by nature. And when I hear people saying, well, you know,
• 46:08
  Speaker 1: the FED is propping up, you know the plunge Protection
• 46:11
  Speaker 1: team is propping up the market. How would they keep
• 46:15
  Speaker 1: that quiet? I I I can't imagine that not a
• 46:19
  Speaker 1: single person would leak it. There's just a million examples
• 46:25
  Speaker 1: of things people try and keep quiet and it eventually
• 46:29
  Speaker 1: gets out. I mean, forget it. Today the Russians are
• 46:32
  Speaker 1: hacking everybody in the Chinese are hacking everybody's email. If
• 46:36
  Speaker 1: something like this was out, wouldn't somebody having a vest
• 46:40
  Speaker 1: and interest in if for no other reason fame and
• 46:44
  Speaker 1: fortune um for being the one who proved the plunge
• 46:47
  Speaker 1: Protection team is in there doing what they're doing. So
• 46:51
  Speaker 1: you don't buy that they're a big influence in the markets. Now.
• 46:54
  Speaker 1: I think that they probably have an influence in the market,
• 46:57
  Speaker 1: but I think they're probably selective. Now. In Japan, they
• 47:04
  Speaker 1: there is no secret plunge Protection team. Their central bank
• 47:08
  Speaker 1: is literally in the market buying stocks and they've publicly
• 47:12
  Speaker 1: said we're going to go buy stocks. What does that
• 47:15
  Speaker 1: do to to markets and charts and what keeps the
• 47:19
  Speaker 1: prices up? I mean, the Swiss Bank is doing the
• 47:22
  Speaker 1: same thing. Huge positions in these apple and the Swissies
• 47:27
  Speaker 1: are buying a lot of the government banks are buying
• 47:31
  Speaker 1: stocks US stocks and what does that do for them?
• 47:35
  Speaker 1: What does that do for everybody else? Maybe it gives
• 47:37
  Speaker 1: them a currency hedge. I mean, I mean, I have
• 47:41
  Speaker 1: to ask the question whether inflation as they're not measuring
• 47:47
  Speaker 1: it correctly, that well, we can we can talk about
• 47:51
  Speaker 1: food and everything else. We wrote about this in the nineties,
• 47:53
  Speaker 1: looking for inflation in all the wrong places. But I
• 47:56
  Speaker 1: wouldn't be surprised as long as interest rates stayed load
• 47:59
  Speaker 1: of negative of that. There's an interest in getting everybody
• 48:03
  Speaker 1: into the stock market, and that that's where we'll see
• 48:06
  Speaker 1: the inflationary pressures in asset prices. In asset prices, well,
• 48:11
  Speaker 1: haven't we seen markets up two? It's getting nosebleed territory,
• 48:16
  Speaker 1: isn't isn't that um? And the same with bonds. So
• 48:20
  Speaker 1: my argument about bonds has been there's a shortage of
• 48:23
  Speaker 1: fixed income sovereign quality paper and you have a ton
• 48:28
  Speaker 1: of buyers. That's what's been driving it lower. But is
• 48:32
  Speaker 1: it really a currency hedge for the Swiss to buy?
• 48:36
  Speaker 1: I mean, they must really like the new Apple seven,
• 48:39
  Speaker 1: the iPhone seven. What advantage do they get buying individual
• 48:43
  Speaker 1: stocks or in the seats? You don't you know, I
• 48:46
  Speaker 1: don't have a I don't have an answer for that.
• 48:48
  Speaker 1: I wish I did. So let's talk about inflation. It's
• 48:52
  Speaker 1: been said there's inflation in the things we need and
• 48:56
  Speaker 1: deflation in the things we want, meaning TVs, techno anology, phones.
• 49:00
  Speaker 1: They just keep getting faster, better, cheaper. Food went up
• 49:05
  Speaker 1: appreciably last decade. The qust of housing went up. All right.
• 49:11
  Speaker 1: We wrote about this in the nineties and it was,
• 49:15
  Speaker 1: you know, question of looking for inflation in all the
• 49:18
  Speaker 1: wrong places, and it was not occurring in the capital goods.
• 49:21
  Speaker 1: It's not occurring anymore in the capital goods arena because
• 49:26
  Speaker 1: there's what we defined at the time is old tech
• 49:28
  Speaker 1: and new tech. And the new tech is what you're
• 49:31
  Speaker 1: seeing in all these technologies and the huge breakout in
• 49:34
  Speaker 1: the information technology sector which took place in You've had
• 49:39
  Speaker 1: this huge relative strength and now the prices, you know,
• 49:43
  Speaker 1: close to a new high, this time perhaps with earnings,
• 49:47
  Speaker 1: which is telling very different. Yeah. I think technology is
• 49:50
  Speaker 1: the new industrial complex. No, I completely agree. You reference
• 49:54
  Speaker 1: something off air. I want to talk about that. Microsoft, Right,
• 49:59
  Speaker 1: So Microsoft one of the biggest companies still one of
• 50:02
  Speaker 1: the top ten, what are they three or two these days?
• 50:06
  Speaker 1: It's Apple, Microsoft, x On Mobile and Amazon are pretty
• 50:10
  Speaker 1: consistently in the in the top ranks. Microsoft is one
• 50:15
  Speaker 1: of the few companies today that was also one of
• 50:19
  Speaker 1: the giants in the nineties. Explained that, well, it fits
• 50:25
  Speaker 1: the concept of the bigger that dropped, the longer the
• 50:28
  Speaker 1: need for repair. It had run up enormously, had an
• 50:33
  Speaker 1: enormous drop along with all the other technology stocks. So
• 50:36
  Speaker 1: you had this huge drop from two thousand into two
• 50:38
  Speaker 1: thousand and two. And basically the technology arena went sideways
• 50:43
  Speaker 1: um for ten ten years before it broke out. And
• 50:47
  Speaker 1: so that was enough of an accumulation that you know,
• 50:51
  Speaker 1: steel ball, record and crane, and then then then plumber
• 50:53
  Speaker 1: and the electrician and the and the carpenter came and
• 50:56
  Speaker 1: did their work and the stock was of a to
• 51:00
  Speaker 1: move out again. Now you mentioned didn't tell looks similar.
• 51:03
  Speaker 1: You mentioned of all the big tech companies from the nineties,
• 51:08
  Speaker 1: most of them have not regained their prior glory or
• 51:11
  Speaker 1: anywhere near it. That's true, but they do have incredible bases,
• 51:15
  Speaker 1: and I suspect they're trying. Cisco is another one that
• 51:17
  Speaker 1: you've got this long, long base. Um, they're buying some
• 51:21
  Speaker 1: of the smaller companies, They're buying into new technology perhaps,
• 51:25
  Speaker 1: and UH, I think that you know that it's just beginning.
• 51:29
  Speaker 1: You're not buying an nvidio, So we're early stages of
• 51:32
  Speaker 1: the next bullmarket and technology. Those for those companies, Microsoft, Cisco,
• 51:38
  Speaker 1: and tell who else in that space is uh is
• 51:41
  Speaker 1: building a base that looks like it's getting ready to
• 51:43
  Speaker 1: break out. Those are the three that come to mind,
• 51:46
  Speaker 1: and those were all giant companies. Um, alright, so I
• 51:52
  Speaker 1: I know I only have you for so much time.
• 51:54
  Speaker 1: Let's um. Oh, you asked me a question before, before
• 51:57
  Speaker 1: I get to my favorite questions. You asked me a
• 52:02
  Speaker 1: question on the way in. How did you get into this?
• 52:05
  Speaker 1: How did this come about? Yes, so I've told it
• 52:08
  Speaker 1: on air before. But the short version is I've been
• 52:12
  Speaker 1: a critic of financial media and television and press for
• 52:17
  Speaker 1: a long time, and the criticism has always been, don't
• 52:21
  Speaker 1: tell a person what, don't give them a fish, teach
• 52:24
  Speaker 1: them to fish. When you say by the cell that
• 52:27
  Speaker 1: that recommendation is good for eight seconds and as soon
• 52:30
  Speaker 1: as the next piece of news comes along, it's bad.
• 52:33
  Speaker 1: So I kinda when when Bloomberg said to me, hey,
• 52:38
  Speaker 1: we have these great facilities, what would you like to do.
• 52:41
  Speaker 1: My answer was, I want to sit down with experienced, successful,
• 52:46
  Speaker 1: interesting people and find out how they got that way,
• 52:49
  Speaker 1: and hopefully we all have something to learn from that.
• 52:52
  Speaker 1: And besides, nobody else is doing long form deep dives
• 52:56
  Speaker 1: into what makes someone successful, who were their mentors, what
• 53:01
  Speaker 1: do they read, what do they do, how did they
• 53:03
  Speaker 1: become successful? And to my surprise, Bloomberg said, go ahead,
• 53:08
  Speaker 1: go do that's try not to hurt yourself, kid pretty much.
• 53:11
  Speaker 1: And it was a skunk works project for a long time,
• 53:13
  Speaker 1: nobody was paying attention to it, and when no one
• 53:17
  Speaker 1: was looking at suddenly became the most downloaded Bloomberg podcast
• 53:23
  Speaker 1: I have. It's I say, it's the most fun I
• 53:25
  Speaker 1: have all week. I get to sit down with people
• 53:27
  Speaker 1: like you and ask questions. Um. Last week was Bill McNabb,
• 53:34
  Speaker 1: the week before that was am when damadoran at n
• 53:37
  Speaker 1: y U. You know how often you get to grab
• 53:40
  Speaker 1: these people and say, give me ninety minutes of your time.
• 53:42
  Speaker 1: It's it's the single greatest scam in all of finance.
• 53:45
  Speaker 1: And they're probably please. Well they also they all say, hey,
• 53:49
  Speaker 1: nobody ever asked me these questions. But the fact that
• 53:51
  Speaker 1: somehow I've managed to convince people to do. This is
• 53:56
  Speaker 1: I call it the greatest scam I've did. Damn it
• 54:01
  Speaker 1: all well, because if anybody really knew who I was,
• 54:04
  Speaker 1: they would say, how did this idiot get you? I
• 54:10
  Speaker 1: am but having nothing to do with any of this.
• 54:12
  Speaker 1: This is just fun for me. I genuinely enjoy this
• 54:16
  Speaker 1: and hopefully that that comes across. I'm still hunting my
• 54:20
  Speaker 1: White Wales. So I have Alan Shaw and Bob Farrell
• 54:24
  Speaker 1: and then Ray Dalio and Jim Simons are also on
• 54:27
  Speaker 1: my So. I went undergraduate to Stony Brook from mathematics
• 54:31
  Speaker 1: and freshman year of visit the campus. The chairman of
• 54:35
  Speaker 1: the math department is Jim Simons. So I met him
• 54:38
  Speaker 1: a hundred years ago. And by the way, if you
• 54:40
  Speaker 1: would have met him in you would wouldn't give him
• 54:44
  Speaker 1: forty two cents. He just looked like a you know,
• 54:47
  Speaker 1: a chain smoking, bearded hippie. You would never give him
• 54:50
  Speaker 1: a dime. And Ray Dalio, every time I watch him
• 54:53
  Speaker 1: on the media, all I can think is that is
• 54:56
  Speaker 1: a terrible format for him. Ray please come in. I
• 55:00
  Speaker 1: promise it'll be fantastic. It's huge. I'm you Joe all
• 55:03
  Speaker 1: over the country. He um, he's a really sharp guy.
• 55:08
  Speaker 1: Love his philosophy. I love his philosophy and how he's
• 55:11
  Speaker 1: thought out the importance of transparency and responsibility. Really, it's
• 55:17
  Speaker 1: a it's a hedge fund. Why is this philosophy? How
• 55:20
  Speaker 1: did this develop? Nobody gives him time to extract anyway,
• 55:25
  Speaker 1: I'm digressing. So I've I like the format because I
• 55:31
  Speaker 1: get to ask people like you questions like tell us
• 55:36
  Speaker 1: who your early mentors were, And you mentioned Alan Shaw?
• 55:38
  Speaker 1: I did. He was really probably my only my only
• 55:42
  Speaker 1: mentor because as I said, I stayed I was pretty
• 55:46
  Speaker 1: much of a cocooner. How long did you work with
• 55:48
  Speaker 1: with Shaw for? Oh? Really? So that's really he retired
• 55:53
  Speaker 1: and I took over the department. It was a very
• 55:56
  Speaker 1: smooth transition. That was two and two. Yeah, so he's
• 56:01
  Speaker 1: already he's been retired for fifteen years already. Huh. And
• 56:04
  Speaker 1: you ran the department for five years and then independent exactly,
• 56:08
  Speaker 1: and that's worked out pretty well. Yes, it's fine, Yeah, okay,
• 56:12
  Speaker 1: not you know, it's it's satisfactory. Let's put it that way. So,
• 56:16
  Speaker 1: as you mentioned Shaw as a mentor, what other what
• 56:19
  Speaker 1: other investors influenced your perspective? Investors not so much, Gail
• 56:27
  Speaker 1: do dek was this traders economists that doesn't have to
• 56:30
  Speaker 1: be investors. Um really just m hm alan really yeah
• 56:36
  Speaker 1: and um so let's talk about books. What what are
• 56:39
  Speaker 1: some of your favorite book? I read your book, of course,
• 56:42
  Speaker 1: I don't know about favorite, but I read the Rheinhardt
• 56:44
  Speaker 1: and Rogoff book. This time is Different Years of Financial File.
• 56:50
  Speaker 1: Really a little dry bit of a slog, but filled
• 56:53
  Speaker 1: with fascinating decating Yeah yeah, and fascinating conclusions too. And
• 56:57
  Speaker 1: Bretton Woods I'm getting into. I can never remember everything
• 57:02
  Speaker 1: I've read. I love mysteries. Give us a mystery, by
• 57:05
  Speaker 1: the way, Bill McNab and I walked out on science fiction,
• 57:09
  Speaker 1: So don't feel the obligation to give me any mysteries.
• 57:12
  Speaker 1: Somebody gives me a book, I'll read it ferristeen and
• 57:15
  Speaker 1: I remember, who can any mystery? You like? Mistress? Like
• 57:18
  Speaker 1: myster you try and guess the end. How good are you?
• 57:21
  Speaker 1: My wife is? My wife is always halfway through a
• 57:24
  Speaker 1: book and she's like, yeah, I know who did it.
• 57:25
  Speaker 1: I'm done. It ruins it for her if she if
• 57:28
  Speaker 1: she could see it coming too soon. You gotta you
• 57:30
  Speaker 1: gotta hide that. So give me, give me a mystery
• 57:33
  Speaker 1: or two that you really liked. Well, they are all
• 57:36
  Speaker 1: series that I'm trying to think of the names of
• 57:39
  Speaker 1: the authors, Barry, I can't remember stuff anymore. Okay, let's
• 57:47
  Speaker 1: let's do another one. Um, how about on finance side,
• 57:51
  Speaker 1: any books particular to finance that you like. I have
• 57:55
  Speaker 1: read a lot of them, but okay, email them to
• 58:01
  Speaker 1: me and I'll come up with a list. Um, I
• 58:04
  Speaker 1: know you read McGee and let's talk. Yes, all the
• 58:07
  Speaker 1: all the technical book, right, McGee and Hicky is the standard.
• 58:12
  Speaker 1: What about any of the Well, I think that John
• 58:15
  Speaker 1: Murphy's book on technical and books on technical analysis are
• 58:19
  Speaker 1: very good primmers. What about stuff market magic? What about
• 58:23
  Speaker 1: your market magic? Well, that was something specific to the
• 58:27
  Speaker 1: to the age in the beginning to want to order
• 58:30
  Speaker 1: that on Amazon and I couldn't get it. Oh, you
• 58:32
  Speaker 1: should be able to get it. I haven't made a
• 58:33
  Speaker 1: penny out of it. Last I looked, it was three
• 58:37
  Speaker 1: dollars or something for the paperback. Um, that was really
• 58:42
  Speaker 1: showing how we I developed, you know, the concept that
• 58:47
  Speaker 1: we were in a structural bull market. The second part
• 58:50
  Speaker 1: asking questions is still very applicable. I had a huge
• 58:54
  Speaker 1: thing on water and how water was going to be
• 58:57
  Speaker 1: a commodity of the century. I remember John Manley came
• 59:02
  Speaker 1: in and gave me a bottle of water. He thought
• 59:03
  Speaker 1: it was such a joke. Meanwhile, meanwhile, that's what we're
• 59:08
  Speaker 1: looking at California. People don't realize. You buy a bottle
• 59:12
  Speaker 1: of water in the store, think about it. So one
• 59:15
  Speaker 1: turned on a tap and maybe they reverse us most
• 59:18
  Speaker 1: purified it reverse us mosis that cost more than a
• 59:22
  Speaker 1: gallon of gas, then than equivalent amount of gas. In
• 59:26
  Speaker 1: the mid nineties when I got all the statistics from
• 59:29
  Speaker 1: the United Nations, I mean the Ogalala aquifer that supplies
• 59:33
  Speaker 1: our entire green belt was part of the country. Yeah,
• 59:36
  Speaker 1: it was already you know, half gone, and not even
• 59:41
  Speaker 1: talking about the the water mains from there to here
• 59:44
  Speaker 1: are are falling apart. I mean in Vermont the summer,
• 59:48
  Speaker 1: a lot of people they're wells dried up. I'm sure
• 59:51
  Speaker 1: that's not just in Vermont, but some of the other
• 59:54
  Speaker 1: aspects where looking for inflation and all the techno in
• 59:57
  Speaker 1: all the wrong places. And then I did this whole
• 59:59
  Speaker 1: formula on technology and why the intangibles have increased productivity.
• 1:00:06
  Speaker 1: I don't think they're measuring productivity. Let's talk about that
• 1:00:09
  Speaker 1: because you're you're preaching to the choir here. I think
• 1:00:13
  Speaker 1: you know, I love I love George boxes line. All
• 1:00:17
  Speaker 1: models are wrong, but some are useful. When I look
• 1:00:20
  Speaker 1: at some of the models, and be it employment and
• 1:00:23
  Speaker 1: unemployment or um or productivity, it seems like as technology
• 1:00:30
  Speaker 1: has gotten more and more integrated into society, the models
• 1:00:34
  Speaker 1: are just completely diverging from reality. You can't look at
• 1:00:37
  Speaker 1: the productivity of the old industrial sector or the old
• 1:00:40
  Speaker 1: industrial worker because they're all being replaced by robots. What
• 1:00:43
  Speaker 1: I did was come up with the first law of
• 1:00:47
  Speaker 1: thermodynamics really fits this whole argument. Energy equals heat minus work. Okay,
• 1:00:55
  Speaker 1: energy equals heat minus work. The energy work minus heat
• 1:00:59
  Speaker 1: or heat mind heat minus work. If energy is the
• 1:01:02
  Speaker 1: equivalent to economic productivity, heat would be the intangibles the
• 1:01:07
  Speaker 1: knowledge based technology advantage, okay, and which are not measurable,
• 1:01:12
  Speaker 1: so we call them intangibles. Um, the faster the chip,
• 1:01:15
  Speaker 1: the more heat that kind of thing, and work represents
• 1:01:18
  Speaker 1: the tangibles, okay. So now we have productivity equals intangibles
• 1:01:23
  Speaker 1: minus tangibles. So we know in this new technological era,
• 1:01:28
  Speaker 1: the work or the cost component are the tangibles, and
• 1:01:31
  Speaker 1: that's much smaller because you have less than the industrial
• 1:01:35
  Speaker 1: sector that we've been familiar with, and the technologically efficient
• 1:01:39
  Speaker 1: corporations have fewer employees, they need lower costs, fewer in
• 1:01:43
  Speaker 1: different raw materials, alt of technology. And that was the
• 1:01:47
  Speaker 1: other thing we said. You know, technology is sand, air
• 1:01:50
  Speaker 1: and light. You know there are no old fashioned raw materials.
• 1:01:55
  Speaker 1: The heat component, which I call the antimatter or the intangibles,
• 1:01:59
  Speaker 1: is rising exponentially as a result of technology. So if
• 1:02:03
  Speaker 1: we subtract something getting smaller the tangibles of the work
• 1:02:07
  Speaker 1: from something getting bigger, the intangibles than the total energy
• 1:02:12
  Speaker 1: rises exponentially. In other words, were just completely measuring this.
• 1:02:17
  Speaker 1: We're not accounting for. Look, my office is fourteen people.
• 1:02:21
  Speaker 1: What we do with fourteen people today, years ago, I
• 1:02:25
  Speaker 1: would have needed a hundred people to do it exactly exactly.
• 1:02:28
  Speaker 1: So that's ten years ago was forty. But the one
• 1:02:30
  Speaker 1: thing we have in factored in here is time. So
• 1:02:32
  Speaker 1: we take another formula velocity equals distance divided by time.
• 1:02:37
  Speaker 1: So the productivity that we just solved from the last
• 1:02:40
  Speaker 1: formula becomes the numerator or the distance in our economic equivalent.
• 1:02:45
  Speaker 1: And we know from the first equation that the technology
• 1:02:48
  Speaker 1: benefits of increased productivity significantly, and that technology has splintered
• 1:02:53
  Speaker 1: the time factor, so you have the numerator gets dramatically
• 1:02:58
  Speaker 1: larger from the reason aldo the prior formula, and the
• 1:03:01
  Speaker 1: denominator becomes a fraction of the whole. So you're the
• 1:03:04
  Speaker 1: time element is very small and your productivity is soaring.
• 1:03:08
  Speaker 1: But up it up. Yeah. And there have been numerous
• 1:03:14
  Speaker 1: attempts to rationalize the old way of measuring, and it's
• 1:03:18
  Speaker 1: just totally you know, you look at the total productivity,
• 1:03:22
  Speaker 1: the total output of the country and the number of workers.
• 1:03:29
  Speaker 1: Somehow they're missing the fact that this number of what
• 1:03:35
  Speaker 1: what what are we coming up on an almost seventeen
• 1:03:38
  Speaker 1: trillion dollar economy. Somehow this is not being appropriately. I
• 1:03:45
  Speaker 1: don't know if it's the model, the conception, the execution,
• 1:03:49
  Speaker 1: whatever they're doing. Something is wrong. And the other thing
• 1:03:52
  Speaker 1: is I don't think that we can expect inflation to
• 1:03:55
  Speaker 1: rise in the same way because it's not a demand
• 1:03:58
  Speaker 1: pull for the product. It's this incredible technological efficiency that
• 1:04:04
  Speaker 1: side steps inflationary pressures. At the same time, you have
• 1:04:08
  Speaker 1: global arbitrage between salaries, so that's a natural cap on
• 1:04:13
  Speaker 1: people's salaries rising and inflation used to be something caused
• 1:04:18
  Speaker 1: by rising salaries and too much money chasing too few goods.
• 1:04:21
  Speaker 1: That doesn't exist anymore. You know, you've got you've come
• 1:04:24
  Speaker 1: to the you've come to the mean. I remember when
• 1:04:27
  Speaker 1: they did the Clinton did the Mexican Canadian thank you
• 1:04:33
  Speaker 1: the worst trade deal. So we we did a little
• 1:04:36
  Speaker 1: picture of of a of a seesaw and we said,
• 1:04:40
  Speaker 1: you know, with these trade agreements, we as in the
• 1:04:45
  Speaker 1: United States, were at the high end of the wage
• 1:04:47
  Speaker 1: and price scale. We're the only ones that had anything
• 1:04:49
  Speaker 1: to lose. And so so now we've had this equalization.
• 1:04:54
  Speaker 1: Where where do you go? Now, where do you go
• 1:04:56
  Speaker 1: for them? We have arbitrage the wage differences, right, that's right.
• 1:05:00
  Speaker 1: So maybe Africa, maybe we started. I got I picked
• 1:05:04
  Speaker 1: up something yesterday and it was made in Ethiopia. I'm
• 1:05:08
  Speaker 1: gonna tell you all all those outsourced jobs, they're all
• 1:05:13
  Speaker 1: all those manufacturing, they're all going to come back to
• 1:05:16
  Speaker 1: the United States to save on shipping. I hope so.
• 1:05:18
  Speaker 1: But but it's not going to be people. It's going
• 1:05:21
  Speaker 1: to be where robots nation. You know, the big problem
• 1:05:26
  Speaker 1: China is facing. And I've had this conversation with a
• 1:05:29
  Speaker 1: handful of prior guests. They have a billion something people,
• 1:05:34
  Speaker 1: half of whom are still on the farms, and they're
• 1:05:35
  Speaker 1: trying to move them into the cities. What happens when
• 1:05:38
  Speaker 1: automation replaces these giant fox con and other factories. They're
• 1:05:44
  Speaker 1: looking at a real You think social unrest is potentially
• 1:05:47
  Speaker 1: an issue here, look at the issue that they're going
• 1:05:51
  Speaker 1: to hitch. It's kind of hard to imagine. We have
• 1:05:53
  Speaker 1: a population coming up that's the same size, if not
• 1:05:56
  Speaker 1: larger than the baby boomers are a million, and there
• 1:05:59
  Speaker 1: are no jobs for them. Right The millennials are now
• 1:06:02
  Speaker 1: bigger than the baby boomers, which is which is impressive.
• 1:06:05
  Speaker 1: And now if they could start working and putting some
• 1:06:07
  Speaker 1: money away and you know, then maybe things get back
• 1:06:11
  Speaker 1: to normal. But the problem is the jobs. The interesting
• 1:06:14
  Speaker 1: conversation I had Um I'm drown a blank on his name,
• 1:06:19
  Speaker 1: speaking of no memory, who wrote He's an n y
• 1:06:22
  Speaker 1: U professor who wrote the Sharing Economy. It was on
• 1:06:25
  Speaker 1: he was on our show a few weeks ago. Um
• 1:06:28
  Speaker 1: are Run. I'm trying to remember his last name anyway,
• 1:06:33
  Speaker 1: it rhymes with maroon aroun Um. He had suggested that
• 1:06:39
  Speaker 1: this current generation is increasingly aware of the fact that
• 1:06:44
  Speaker 1: they are solo practitioners. They're free agents. And the gig
• 1:06:49
  Speaker 1: economy is something that everybody is sort of embracing because
• 1:06:55
  Speaker 1: you're only if you're only making X as a job,
• 1:06:58
  Speaker 1: that may not be your long term career goal. Well,
• 1:07:01
  Speaker 1: you could sell stuff on very, you can drive a car,
• 1:07:04
  Speaker 1: you can rent down an extra room, you could sell
• 1:07:06
  Speaker 1: stuff on you. See, there's there's a entire new sharing
• 1:07:12
  Speaker 1: economy that is being used to supplement regular people. There's
• 1:07:17
  Speaker 1: no there's zero security. It's a very different type of job. Um,
• 1:07:23
  Speaker 1: except there's still demand for products and there's still demand
• 1:07:26
  Speaker 1: for services, and as long as that demand continues, an
• 1:07:31
  Speaker 1: economy is going to exist. It's just different than the
• 1:07:34
  Speaker 1: one you and I are used to. And that transition
• 1:07:37
  Speaker 1: always looks scary. Go back a hundred years, half the
• 1:07:40
  Speaker 1: country worked on a farm. Now it's what that transition
• 1:07:45
  Speaker 1: was also very very scary. Uh, It's easy to get
• 1:07:50
  Speaker 1: into a really pessimistic circle of it's all going to
• 1:07:53
  Speaker 1: be robots, it'll it'll look like Wally and nobody, it
• 1:07:57
  Speaker 1: will have jobs. Um, I'm hoping that that's not the
• 1:08:01
  Speaker 1: final outcome. But but I digress. So so let's jump
• 1:08:05
  Speaker 1: back to some of our UM other questions you had
• 1:08:09
  Speaker 1: mentioned h F t S as a structural change. What
• 1:08:12
  Speaker 1: other shifts do you see coming along? Let let me
• 1:08:18
  Speaker 1: ask you the question that's in my mind these days,
• 1:08:22
  Speaker 1: the move from active trading to passive, the rise of ETFs.
• 1:08:26
  Speaker 1: What has that done to the way people invest and trade.
• 1:08:31
  Speaker 1: I've been trying to figure that out because if you
• 1:08:33
  Speaker 1: have a basket of stocks and in E t F
• 1:08:36
  Speaker 1: you are essentially preventing the individual movement of each of
• 1:08:41
  Speaker 1: those component members. And to what effect that's going to
• 1:08:46
  Speaker 1: have on the overall market is very hard to tell.
• 1:08:49
  Speaker 1: I was speaking with a portfolio manager friend of mine.
• 1:08:52
  Speaker 1: We were together at Smith Barney way back, and she said,
• 1:08:55
  Speaker 1: what they're doing is looking for companies that are not
• 1:09:00
  Speaker 1: in any of the e t f s because they're
• 1:09:03
  Speaker 1: very interesting. So you're screening out you're screening out the
• 1:09:06
  Speaker 1: big ETFs. Anyway. Yeah, Yeah, that was a very interesting
• 1:09:11
  Speaker 1: point because I'm not sure that I can give you
• 1:09:15
  Speaker 1: a reason why the e t f s might have
• 1:09:18
  Speaker 1: a very different effect on the market. The Vanguard CEO
• 1:09:22
  Speaker 1: told me that when you look at UM, when you
• 1:09:28
  Speaker 1: look at e t f s, they're about fifteen percent indexes.
• 1:09:32
  Speaker 1: Passive indexes are are something like fifteen of the i'm sorry,
• 1:09:42
  Speaker 1: of the U S market of the global market as
• 1:09:45
  Speaker 1: purchased by institutions, and five percent of the investible assets.
• 1:09:50
  Speaker 1: It's smaller then then people realize. But in terms of
• 1:09:55
  Speaker 1: how money is flowing in the direction, it's going. Clearly
• 1:09:59
  Speaker 1: it's moving in the direction and has been for years.
• 1:10:01
  Speaker 1: We've had huge outflows from the mutual funds, but right
• 1:10:05
  Speaker 1: now they're starting to see that much money going into
• 1:10:10
  Speaker 1: e t F. So it's moving out of the funds
• 1:10:11
  Speaker 1: and moving into the e t F, which is really interesting.
• 1:10:14
  Speaker 1: That's just begun to start to equate. First it was,
• 1:10:18
  Speaker 1: you know, pulling out completely um I. You have to
• 1:10:22
  Speaker 1: wonder whether it provides a cushion under the market. It's certainly.
• 1:10:27
  Speaker 1: My colleague Josh Brown calls that the relentless bid. It's
• 1:10:30
  Speaker 1: that there is always a buyer in in the UM,
• 1:10:34
  Speaker 1: in the asset allocators in the passive vanguard. Again Bill
• 1:10:38
  Speaker 1: McNabb said, it's not passive versus active. Where the changes.
• 1:10:44
  Speaker 1: It's high cost to low cost, and you look at
• 1:10:48
  Speaker 1: you want to on the sp you buy it on
• 1:10:51
  Speaker 1: the Admiral Funds at at Vanguard it's six basis points.
• 1:10:55
  Speaker 1: It's practically free. When you look at a lot of
• 1:11:00
  Speaker 1: active mutual funds are one one and half two percent
• 1:11:04
  Speaker 1: um that that is a huge drag on performance. And
• 1:11:11
  Speaker 1: people have figured out, hey, I'm not a great stock
• 1:11:13
  Speaker 1: pick or a market timer. I might as well be
• 1:11:16
  Speaker 1: passive and save on the cost. And that realization and
• 1:11:20
  Speaker 1: it took the dot com crash, the housing crash, and
• 1:11:22
  Speaker 1: then oh eight oh nine to sort of force a
• 1:11:24
  Speaker 1: lot of people into throwing their hands up in the
• 1:11:27
  Speaker 1: air and saying, all right, I'll just do this. We'll
• 1:11:30
  Speaker 1: see if it lasts. I assume this is a secular
• 1:11:33
  Speaker 1: change that has a way to run. But what what
• 1:11:36
  Speaker 1: do I know? You're probably right? No, you're probably right.
• 1:11:39
  Speaker 1: So so let's talk about you a little bit. Um.
• 1:11:43
  Speaker 1: What do you do to relax outside of the office
• 1:11:47
  Speaker 1: other than read mysteries? Yeah? I well, now that I'm
• 1:11:51
  Speaker 1: semi retired, I have more time. It's not seven week,
• 1:11:56
  Speaker 1: so I do. I go to the museums, I go
• 1:11:57
  Speaker 1: to the theater, I go to a movie. I dance,
• 1:12:00
  Speaker 1: so I take dance lessons and there are several dance
• 1:12:03
  Speaker 1: groups that I participate. Help you stay physically fit, physically
• 1:12:06
  Speaker 1: fit lots of exercise that has to be good mentally
• 1:12:09
  Speaker 1: sort of exercise. Wow, that's pretty interesting. Um, So our
• 1:12:14
  Speaker 1: last two questions my favorite questions. If a millennial or
• 1:12:19
  Speaker 1: a recent college grad came to you and said, I'm
• 1:12:22
  Speaker 1: thinking of going into technicals as a career, what sort
• 1:12:25
  Speaker 1: of advice would you give them. Well, it's a great
• 1:12:30
  Speaker 1: talent to have if you have any any If I
• 1:12:35
  Speaker 1: don't know, you'd have to find a place for yourself,
• 1:12:37
  Speaker 1: which would mean working with the money manager, I would think.
• 1:12:41
  Speaker 1: Um Otherwise, I would say, if you had any interest
• 1:12:44
  Speaker 1: in doing fundamental work, learn the technicals and take it
• 1:12:48
  Speaker 1: with you to any part of the financial world that
• 1:12:50
  Speaker 1: you go. That's a fair answer. And and my last question,
• 1:12:55
  Speaker 1: you said, you've been doing this for forty plus years.
• 1:12:58
  Speaker 1: What is it that you know a about investing and
• 1:13:01
  Speaker 1: technicals today that you wish you knew ten years, forty
• 1:13:06
  Speaker 1: years ago, whatever years ago? There years ago? Um, well,
• 1:13:09
  Speaker 1: I didn't have any money thirty years ago. I just
• 1:13:12
  Speaker 1: wasn't doing much and you couldn't trade when you were
• 1:13:14
  Speaker 1: in research, so I never learned how to trade. Basically,
• 1:13:18
  Speaker 1: I didn't do much of anything. But I think the
• 1:13:22
  Speaker 1: what I would want to learn from the years that
• 1:13:26
  Speaker 1: I've been in the market is to hold on to
• 1:13:28
  Speaker 1: the major trend. My son always says to me, Mom,
• 1:13:31
  Speaker 1: why don't you follow your own advice? And and so
• 1:13:35
  Speaker 1: you were selling you winners too soon? And I know
• 1:13:39
  Speaker 1: you weren't holding onto your losers, but you were selling
• 1:13:42
  Speaker 1: too soon. That's UH. I had Netflix for two points
• 1:13:46
  Speaker 1: and that was that. How has it done since? Huge? Huge? Winter? Huge?
• 1:13:51
  Speaker 1: Missed it? Follow your own advice? We have been speaking
• 1:13:55
  Speaker 1: to Luisia Mata. She is the UH manager and owner
• 1:14:00
  Speaker 1: of Luisia Matta Research Advisors. If you enjoy this conversation,
• 1:14:04
  Speaker 1: be sure and look up an inch or down an
• 1:14:06
  Speaker 1: inch and you'll see on iTunes and you could see
• 1:14:10
  Speaker 1: nearly all of the other hundred and somewhat previous conversations
• 1:14:17
  Speaker 1: we have had. I would be remiss if I did
• 1:14:20
  Speaker 1: not thank Taylor Riggs are Booker and Michael bat Nick,
• 1:14:23
  Speaker 1: our head of research, for helping us put this conversation together.
• 1:14:28
  Speaker 1: Be sure and send us your comments, suggestions and ideas
• 1:14:33
  Speaker 1: at our email address that is m IB podcast at
• 1:14:39
  Speaker 1: Bloomberg dot net. I'm Barry Ridhults. You've been listening to
• 1:14:43
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