WHO is the Fed Bailing Out? November 2019 Repo Market Update

Hey everybody. Jeff
Nabers here. Welcome back. We’re talking about the
fed repo bailouts. Why? Because they’re still going on and October
the news was the fed bailouts and the repo markets will continue until at
least November 4th it’s November 12th and I’m recording this and they’re
still doing them coming up. We have a serious problem. If you didn’t open your windows and
look out in the real world on paper, we’re in an economic depression, but because of all of this
financial engineering, we’re sitting here looking at a
scoreboard and add the control of that scoreboard is the federal reserve and
they’re manipulating the scores through interest rates to juice the stock
market up and to juice other measures of financial strength up when behind
the scenes there’s a lot of financial weakness. What the repo market bail outs represent
is that after a long string of the VAD winning battle after battle
in manipulating interest
rates to keep the economy propped up, we may be reaching
a point where they lose the war, so why are they doing the bailouts?
That was the topic of our last video. In this video we’re going to talk
about who is getting the bailout money. Comments were recently made by our fed
overlord Jerome. Okay, can’t say that. Okay. Let’s look at some recent comments
made by fed chairman Jerome Powell, where he spoke about banks
not as borrowers in the
repo market but as refusing to lend. So let’s just take this at face value
and not assume that it’s misdirection. This brings us to the question, who’s
borrowing the money in the repo markets? If it’s not, the banks found an interesting article
from wall street.com link in the description below. In this article it
brings an example of AGNC investment Corp, which is not a bank. It’s actually
a real estate investment trust. So here’s what AGNC has essentially done. They have raised equity
money from investors in the
amount of about $10 billion, but have been borrowed about
$100 billion from largely, you guessed it, the repo markets. So they’re borrowing from the repo markets
that under 3% interest and investing in mortgage back securities
at a higher level of interest. This is what’s known as a free money game. Borrow at one interest rate, invest at a higher interest rate and
the spread or the difference is your profit. So far so good,
right? What’s the problem? The problem lies in the
difference in timeframes. The investments they’re making
are longterm and they’re
making those investments with money that they borrowed short term. The majority of the money they have
borrowed is coming from the repo market, some of which is due back the next day, some of which is due back 14 days later, which forces them to have to roll
over the debt or renew the debt. So they’re constantly
reborrowing from the repo market. And this means that for their
scheme to continue to work, the repo market needs to continue to
offer cheap money at interest rates lower than what the market wants. Their is a bet that the federal reserve
will continue to successfully keep interest rates lower than what
a free market would provide, which becomes a bit troubling. When we saw the interest rates
spike to over 10% in September. Now it’d be clear, I’m not saying that specifically AGNC
needed a bail out or that AGNC is problematic or the
agency did get a bailout. What I am saying is that there are many
companies like AGNC who game the system and borrow cheap money and invest for
a higher interest rate and make that spread. They’re playing
that free money game, but it only works when the
interest rates stay low. So in a way we are nearing or at some
sort of major economic crossroads or tipping point. Interest rates serve
an important function in economies. Interest rates are between
borrowers and lenders, but over recent years the fed has stepped
in as an unrelated third party and push interest rates lower than
borrowers and lenders would agree to independently. As this has continued to occur, the structure of our financial system
has more and more begun to resemble that of the Soviet union and its central
planning and less and less resembling the United States financial system that led
to all the growth and prosperity of the 18 hundreds and 19
hundreds. So let’s recap. The repo markets to some extent are being
used as a source of artificially cheap capital to just make
free money out there, uh, with financial engineering in a way that’s
completely disconnected from the real economy as covered in previous
videos. In the real economy, real unemployment is extremely high. Consumer debt levels are higher
than they were in 2008 government. That levels are higher than everybody
thinks they are and higher than they were in 2008 and almost all
measures of the real economy. We have a serious problem on paper. If you didn’t open your windows and
look out in the real world on paper, we’re in an economic depression, but because of all of this
financial engineering, we’re sitting here looking at a
scoreboard and add the control of that scoreboard is the federal reserve and
they’re manipulating the scores through interest rates to juice the stock
market up and to juice other measures of financial strength up when behind
the scenes there’s a lot of financial weakness. What the repo market bailouts represent
is that after a long string of the fed winning battle after battle
in manipulating interest
rates to keep the economy propped up, we may be reaching a point where they
lose the war and when interest rates go higher, all of the funds and institutions and
banks and investors and various economic players who have been using strategies
that depend on cheap money will have some serious problems. Now, the fact that the bailouts are continuing
to happen in the repo market could mean that they’re working. It could also mean that they’re not
working and if they’re not working, we may see them switch from bail
outs to bail ins as a strategy. It’s an emergency measure that may
become necessary in the eyes of Congress. If these cracks in our
system continue to spread. I’ve been promising you a video
on bail ins and it is coming next, so make sure that you are subscribed.
If you’re not already subscribed, if you like staying plugged
in to financial news, that empowers you to take control of
your finances and bail out yourself. Then made sure that you click the
like button and a comment below. Let me know what you thought of
the video. That’s it for this one. I’ll see in the next one where we
talked about bail ENS. As always, check the links in the
description for further resources. Thanks for watching and I’ll
see you in the next video. [inaudible].

How I Started Investing In The Stock Market

I remember when I first got into the world
of the stock market, I started with penny stocks, stocks that usually cost a few dollars. I was so excited that I would read about every
company, analyze its financial statements, look at the recent news and try to pick the
right company to invest so that the stock price rises and I would sell it to make a
profit. I was inspired by the likes of Warren Buffett. I mean this guy became one of the richest
people in the world By picking the right stocks and I thought I should give it a shot. I didn’t bet all my money because I was
inexperienced and I wasn’t ready to lose the money that I hardly worked to earn. Nevertheless, I kept going, but
After a few weeks of actively watching the stock market. I hated it. because it takes days if not weeks just to
find the right company and even then you might pick the wrong one. You cant invest in every company unless your
father will give you a small loan of a million dollar and you won’t bother losing it. Every company is trying its best to look like
its doing great so that you invest in them but they might be bleeding cash on the other
side that you might not realize. when the stock price goes down right in front
of your eyes after you purchased it, you get emotional, it’s not easy to look at the chart
and enjoy losing money. You might not be able to control your emotions
and would sell it at a loss. But that’s the nature of the stock market. If you are an entrepreneur or you have a day
job. You simply won’t have the time and energy
to actively invest in the stock market, you don’t want to simply throw your money without
being confident that you will make more money at the end of the day or at least won’t
lose what you have invested. So, I was about to leave this mysterious world
of the stock market but luckily I came across index funds. An index fund is the best option for most
people. Its passive income where you do not have to
do anything but enjoy watching how your money grows. When you invest in a single company, the risk
is too high because if this company goes down, you lose all of your money, but what happens
if you invest in 100 companies, for example, chances that they all will go down are low. In fact one of them will go down, few others
will definitely go up. ANd that’s what index funds are for, they
invest in every company in the market. when you invest in an index fund, let’s say
in S&P500, you are investing in the top 500 publicly traded companies in the US. It’s like buying a share of the American economy. No matter how many companies will go down,
most of them, in general, are going to grow. Unless the entire economy crashes as it happened
in 2008. And the great part about it is that there
are index funds in every market. But I prefer to stick to SP500. I have more faith in the American economy
than any other. Now the main question is, how profitable are
index funds. In 2017, S&P500’s return was 19.7% which
is incredible but a year after that, it was negative 6.2%, you would be better off if
you haven’t invested that year. However, if you look at the bigger picture,
over a long period of time, the trend is upward. Over the past 90 years, the average return
was almost 10 percent (9.8). If you take into the account inflation, that
would be 7 to 8 percent. Still not bad! if you would have invested 10K dollars in
SP500 in 1942, it would worth today over 51 million dollars. I am not sure why I am telling you this because
You probably weren’t even born at that but that’s a fun fact to know. I will leave a link in the description to
a calculator that would tell you how much you will make if you invest a thousand bucks
every month for over 20 years for example. Before you start investing, I would highly
suggest you to learn the basics of the stock market. Even if you are investing in an index fund,
You should at least have an idea of how the market works. You can go ahead and read books or articles
on this matter or you can save your time and watch this short animated course by business
casual on Skillshare. I have watched this course and its one of
the best courses on skillshare about the stock market. and the best part about it is that
the first 200 of you who will use the link in the description will get the course for
free and 2-month skillshare premium subscription. Hope this video was helpful, thanks guys for
watching and I will see you in the next one.

4. How To Identify Stock Market Direction (Trends) Part 1

Hi I’m Prateek Singh from MarketScientist
TV and welcome to another episode
Today we are going to learn about market direction, now it’s very interesting because everyone
keeps coming with this question “will the markets rise?” or “will the markets fall?”
well, using just a few technical tools and I’m not talking about indicators, just pure
price action we can actually determine market direction, now market direction is actually
referred to in the technical world as “trends” So a stock moving upwards, is in an uptrend
And a stock moving downwards is in a downtrend sometimes stocks reach in a no trade zone
or a sideways and this happens because as soon as markets go up it forces a situation
of supply and when markets fall down it forces a situation of demand coming in.
This was seen in the earlier half of December 2012 on the nifty hourly charts.
Lets move on, when we use concepts of supply and demand over long periods of time you must
realise that psychology exists on all timeframes, Except of course in tick-charts; wherever
you have good volume, markets will always behave in the same way if your concept is
technically sound. So let’s see how you can become your own amateur
financial analyst, determining whether your stock that you are stuck in or making a profit,
might continue to move up or might continue to move down.
Si the first thing we are going to learn is about a rally and a decline
A rally and decline are seen on a per bar basis, meaning we look at one bar and then
the next. Simply put a rally is an upmove
A Decline is simply a down move They together form something more important,
which we will discuss later lets look at a rally first,
So this is one bar this isn’t enough information, the next bar breaks the previous bars high
and this continues to happen Now you will notice that every bar is breaking
the previous bars high and its also having a higher low.
This means the market is in rally mode. Also remember in a real market situation this
may not happen consecutively but a general move up is still considered a rally.
A decline is just the opposite, and I’m sure intuitively u have understood what I’m about
to draw here. So the market falling down each consecutive bar breaking the previous bars
low and making a lower low every bar So that’s very simple, here is another rally,
which makes a new high and here is another decline. so now that we have that, you can see that
we have formed a wave structure, markets will always move in waves, markets will never plunge
down or move up unless it’s an erratic day or days. Over general long periods of time,
markets will always move in waves and this is very healthy.
So now that we have understood a rally and decline let’s move on to swing highs and a
swing low. Simply put the meeting point of a rally an
upmove and the immediate decline; this tent, mountain or this peak is called a swing high.
the opposite of this is a swing low, meaning the meeting point of a decline and the immediate
rally is a swing low. Now trends are made up of swing highs and
lows, people call these by different names but all technicals follow this because a swing
high is a naturally place of resistance, it basically means that the markets rallied hit
a supply point, either buying diminished of too much selling happened and we fell, now
the longer time frame between a swing high is untouched the more important it becomes.
At MarketScientist we follow trend following methods/systems, so awhat we discuss in this
video and the next is extremely important, if you don’t understand please rewind or you
can ask questions by emailing us or writing it in the comments below.
Here is a real example of a chart, this chart belongs to nifty and it is basically in downtrend,
but what we have to look now is the swing highs and swing lows.
I want you to take am moment and try to find the latest swing highs u can see here
I’m helping you a bit and marking all of the swing highs on this chart. I’ve marked them
with green circles. Next step is to indentify swing lows, now
before we proceed I want you to pause and take your time and look at the swing highs
and know that you have understood this. We are basically looking for peaks (swing highs)
and crests (swing lows). I’m marking the first the swing lows for you
and I want you to mark the resting your head or write it down somewhere. Pause this video
and find out all the swing lows, we will meet in the next video with the answers…. I’ll
be waiting for you then.

2019 Stock Market Outlook: Stocks to Watch, Trends, & Upcoming IPOs

Chris Hill: It’s the Motley Fool Money radio
show! I’m Chris Hill. Joining me in studio this week, senior analysts Matt Argersinger
and Aaron Bush. Happy new year, gentlemen! It’s our 2019 preview. We’ve got stocks to
watch, stocks to avoid, CEOs on the hot seat, and more. And, of course,
a few reckless predictions, as always. Before we get to the 2019 preview,
though, I think we have to talk about Apple. Shares of Apple falling 10% on Thursday after CEO
Tim Cook warned investors first quarter revenue was going to be about $5-$8 billion lower
than previously expected. Several reasons for that, Matty. The trade war in China, the economic
slowdown in China, the battery replacement program that they had last fall. This was
still pretty shocking development. Matt Argersinger: Lots of moving parts,
but you’re right. This was pretty bad. If you look back to their guidance in early November,
looking for between $89-$93 billion in revenue. To come in, then, at $84 billion, $5 billion
below the low end of your guided range, that’s a problem. CEO Tim Cook said that really 100%
of the miss was due to China and a contraction in the smartphone market there.
That’s a good excuse. It’s probably the right excuse. Investors have been questioning whether or not the
iPhone, especially the latest versions of the iPhones with the high price tags, could really penetrate
the highly competitive smartphone market in China. I think we’re starting to see the fact
that no, that’s not really the case. Aaron Bush: I don’t think it’s that surprising,
actually, that Apple has China issues. I was just thinking back, four years ago, when Matt
and I were talking about China in the context of our Supernova portfolio, talking about
opportunities and concerns, China was a big thing we were talking about. At the time,
we realized that China is a big opportunity simply because how many people are in that
country, but we didn’t necessarily expect it to play out the same way as it did in the
U.S. Since then, the stock is about roughly flat with the market, which is interesting. 
I think we started to see the cracks in the foundation about two years ago. About that
time is when I started studying Tencent, which owns WeChat. It made me realize that iOS is
far less important in China because WeChat is an in-app operating system that people
do everything in. So, the same type of competitive advantage that Apple would have in the U.S.
with iMessage, Notes, various services, that doesn’t exist in China. It showed in the data.
At the time, the retention rate, people who would have an iPhone that would buy another
iPhone, outside of China it was over 80%. In China, it was 50%,
which is essentially a coin flip. I think now, because of the economic turbulence
that’s starting to happen, trade wars, slowdown, we’re starting to see that play out at an
accelerated rate. People who would be the Apple buyers either already own them or did
own them. Upgrade cycles are longer, and retention is still sub-optimal. Apple just has mediocre
market share, and I think that’s not necessarily going to change.
Argersinger: I agree. As long as the iPhone is such a large part of Apple’s core business,
they can talk about Services all they want, but this is still a product that’s about 70%
of revenue and the majority of operating profits. Now, I will say this, because we’re positive
people here at The Fool. Coming into this report, Apple was already down about 40% from
its high. Granted, it had a horrible day this week that took it down even further. But even
at the reduced earnings estimates now, you’re looking at a stock that’s only trading about
11X-12X earnings. Certainly below the average market multiple. Now, if earnings come down
further, the stock could certainly follow suit. But it’s hard not to call
it cheap right now. Hill: That’s the thing. Tim Cook talked
about how he hadn’t seen the December numbers, therefore there’s no way he’s seen the
January numbers, because they’re not in yet. Their first quarter report comes out in early February.
If you’re looking at this stock, and you’re thinking, “Boy, it looks cheap,” do you buy here?
Or you want to see what the actual numbers are before you put down a little
money to buy some stock? Bush: Oh, I don’t know. It sounds like another
coin flip to me. We don’t really know. I do think that the valuation is somewhat compelling.
You’re betting that iPhone sales stabilize, and you’re betting that the Services segment
can become much more than 15% of revenue, which it is now. I think that most people
think that is the case. Or, at least around here, that’s the bullish stance. Personally,
I have some more questions. When you have a monopoly taking 30% of
every single transaction that goes on your ecosystem, regulatory issues will one day be a concern. The same
thing that we’ve seen with Alphabet, the same thing we see with Facebook. One day,
those same headlines are going to be going on with Apple, too. And then the Services narrative
will slowly not seem so amazing anymore. Hill: Alright, let’s get to our 2019 preview.
Aaron, I’m going to start with you. What is one industry you’re
going to be watching this year? Bush: I’m really interested to be watching
the ride sharing industry. With Uber and Lyft, and maybe even DiDi, which is in China,
IPO-ing in 2019, it’s really exciting that public market investors will finally have access
to this new, massive, quickly growing industry. I’m excited to see what the numbers
look like. They probably won’t be great from a profitability perspective. But thinking about
transportation as a service, and what that means beyond just ride sharing, what it means
for logistics with food, and are they going to buy more bike and scooter companies?
That type of thing. I’m really interested to hear more about that longer-term game plan.
We’ll learn a lot about that in 2019. Hill: Matty, what about you?
Argersinger: It’s always interesting, but I think especially so this year,
I’m going to be watching the social network, social media space. We’re already seeing for the
first time ever a real, legitimate slowdown in user growth and usage rates,
especially if you look at the core Facebook platform. My questions are, how does Facebook,
how does Twitter, how do these companies solve for all the privacy risks that people seem to
be somehow aware of these days that they weren’t aware of years before? How do they prevent
all the vile and deceptive behavior without damaging free speech and freedom of expression
on the platforms? These are big challenges. Throwing money and bodies as we’ve seen
Facebook do, I’m not sure that’s going to solve it. It’s going to take a lot of innovation.
I don’t doubt Facebook and Twitter can do it, but I think there’s a real chance we actually
see a tipping point in 2019 where the powerful network effect that has sucked in so many
users over the years to these platforms starts to weaken, and we start to see meaningful
declines in time spent on the platforms. I think it’ll cause a reset of the businesses.
Hill: In terms of trends, Aaron, what’s got you excited in 2019?
Bush: Augmented reality. I think it’s been a long time since we’ve had a big new
consumer-facing technology to invest in. I have a hunch that AR, and probably VR associated with it,
is going to be one of the next big waves, even though some of the hype around it seems to
have fizzled out. I might be off by one year, but 2019 could be the year in which good AR
products are revealed by at least one major tech company, probably Apple. For Apple,
it makes sense. They’ve been acquiring companies with AR tech since 2013. They released their
AR kit, their developer toolkit in late 2017. They have all the pieces in place, controlling
the hardware and the software, plus the developer community to make it happen. They probably
recognize that winning over the AR market might be as big of a deal one
day as winning the smartphone wars was. I’m a bit iffy on timing, but I’m really
excited to see the pieces start to come together. You never know, Apple might have a big AR
glasses or something announcement and late 2019. Argersinger: So, you’re saying Apple has a chance?
Bush: I’m saying that they need to do this. Technology is going to shift past smartphones.
Services won’t be enough. Fingers crossed. Hill: The cash that Apple has on the balance sheet,
that probably also helps them sleep at night. Argersinger: It helps a little bit.
Hill: In terms of trends, Matty, what about you? Argersinger: Big trend this year, the past
year already but even bigger now this year, sports betting taking off. I’ve been known
to place a bet or two in my time. I think there are broader implications for the economy.
The world is far more efficient, far more innovative when it becomes gamified. A competitive
marketplace of ideas and dollars that are wagered, inefficiencies tend to get streamlined out. It’s interesting. If you go back to this fall,
you could place real money on which party was going to lead the House of Representatives
after the November election. You could have placed money on where Amazon was going to
open its second headquarters. We talked about that on the show. Imagine betting on things
like what the weather is going to be like tomorrow, who’s going to succeed Warren Buffett
as CEO of Berkshire Hathaway, what’s the over and under on the minutes it’s going to take
for Domino’s to deliver my pizza. These might seem like silly things to bet on,
but when you’re wagering real dollars at scale, it tends to be incredibly informative to the
marketplace. It makes the economy more efficient. I’m excited about all the innovations that
I think are going to come out of sports betting, especially when it becomes
so much more of a mobile application. Hill: One of the ripple effects that we saw
in 2018 in terms of sports betting and the legalization played out in media. In the subsequent
months, pretty much every major network, both on the regional level and on the national
level, started to roll out programming aimed specifically at betting.
Argersinger: Absolutely. You see it all the time now. Hill: Aaron Bush, what is a stock — or an industry; you can go broad if you want —
in terms of upside for investors? Let’s face it, it’s been a volatile couple of months
here. We’re looking for some upside. What do you have?
Bush: I’m going to go big and then narrow down. Software-as-a-service. The past two years have
been huge for emerging software companies. But I do think this is an instance
in which winners will keep on winning, and a lot of these stocks have
been beaten down in the recent turmoil, too. Unlike the consumer-facing innovation, which is occurring mainly in startups
and the massive tech companies, there are tons of great options to invest in small
and mid-cap software companies with lots of room to multiply. Some of these will turn into
the next Oracle or Salesforce. A basket of three stocks that I have super high conviction
in that I think will do well in 2019, definitely beyond: Twilio, which is a leading communications
platform; Alteryx, which is a leading data blending and analytics platform; and MongoDB,
which is a next-gen database services company. All of these companies are growing super-fast, are
dominant in what they do, have very little competition. At scale, they’re going to be
producing ridiculous amounts of cash flow. I’m super excited to see what these companies do,
even though they’ve already been hyped in the past years.
Hill: Also, a fun basket of names. It’s fun to say Twilio. What about you, Matt?
Argersinger: I’m going to jump way out and talk about an entire sector. Real estate
has really underperformed recently thanks to, as you’d expect, higher interest rates.
Homebuilders especially have been really hit hard. But the sector itself is what you want
to have some exposure to over the next few years. Despite what the conventional thinking
might be, real estate actually does quite well in periods of higher interest rates,
higher inflation. One safe, cheap way to play it is to buy the Vanguard Real Estate ETF,
ticker VNQ. It pays a nice 4% dividend yield, gives you a broad exposure to a bunch of publicly
traded real estate companies and REITs. I think it has a real chance of
outperforming the S&P over the next few years. Hill: On the other side of the spectrum,
it can be a stock to avoid, or maybe just one to have on a really short leash. In terms
of that category, Aaron, where are you? Bush: I think the marijuana industry is
super interesting, but it was so hyped in 2018, I think 2019 is going to bring disaster to
investors investing for the most part in that industry, but especially in the companies
that were the most hyped, like Canopy Growth, Tilray, Aurora Cannabis. If you’re investing
in those, watch out, 2019 is almost definitely going to be a rough year.
Argersinger: It was funny, Aaron and I talked back in the fall. We both said, watch out.
As soon as cannabis gets legalized in Canada, which was mid-October, you could almost draw
a straight line from that point on. That was the peak of a lot of these stocks.
They’re down huge since then, even more so than the market we’ve seen. It’s funny, it was one
of the easiest calls I think you could have made. And it still has more to go.
Hill: It was interesting in part because it wasn’t just individual investors who were
excited about this. We saw major companies, consumer brands that everybody knows,
investing hundreds of millions, and in some cases billions of dollars.
Argersinger: Coke, Philip Morris. Amazing. Hill: What do you have on a short leash?
Argersinger: You can probably guess. I’m going to say Facebook needs to be kept on
a short leash, if not avoided altogether. All the problems I mentioned regarding the social
networking space… the stock price looks cheap. You can call it that. If you assume
that they’re going to continue to grow their advertising revenue at a similar pace,
or even slightly slower pace, yes, the stock looks very, very compelling. I just think
there’s going to be a big reset in expectations across the space. I have big questions about
whether Facebook can effectively monetize Instagram and WhatsApp without damaging
user experience. And I’m not even getting into the leadership questions you have to have right now
around Mark Zuckerberg and Sheryl Sandberg. I just think you can do better elsewhere.
Don’t try to catch Facebook, even though it’s a snazzy name with now a cheap valuation.
Hill: This happens at this time every year: investors and particularly the business media
start to look ahead in terms of private companies going public. Despite the volatility that
we’ve seen recently, you’ve got executives on Wall Street saying, “Actually, that might
accelerate plans for private companies to go public.” In 2019, some of the best-known
names, Aaron — Uber, Slack, Airbnb, Lyft. Is there one that you’re either really hoping
goes public, or you’re just eager to get your hands on the S-1 filing?
Bush: I hope Stripe goes public sooner or later. It might not IPO this year.
They’re a payment platform that makes it super easy for companies to sell things online.
Their developer tools are known to be excellent. They continue to roll out new solutions.
The founder and CEO, Patrick Collison, seems to be a super thoughtful. It wouldn’t surprise
me if one day, because this market is so big, buying things online, that Stripe becomes
a larger payments company than PayPal. I think that’s super fascinating. Right now,
they have a market cap of about $20 billion, so I would love for them to go public sooner
than later, [laughs] before they start hitting the upper tens of billions in their valuation. 
Hill: Do you think they’re at the point now where they’re way past the acquisition standpoint?
Bush: It would be a big acquisition. I doubt it would happen, at least from another
payments company. I bet they’ll go solo public. Hill: Matty, what are you eager
to get your hands on? Argersinger: You mentioned it, Airbnb.
My wife and I have actually been Airbnb hosts for over a decade now. What you have is essentially the
world’s largest, most expansive hotel company that really doesn’t own any of its rooms.
It’s fascinating to me. It has somewhere on the order of five million listings,
150 million users in close to 200 countries. It has a profound network effect, maybe
actually the strongest in the world. I think we’re going to realize that. I don’t know what the
market cap is going to be when it becomes public, but just in terms of room count and
customer count, it’s bigger than all the major publicly traded hotel companies combined.
Hill: OK, I really wasn’t expecting that at the end. I’m assuming the answer is yes. Do you
have a good rating? What kind of rating do you have. Argersinger: We have
almost a five-star rating across our listings.
Hill: Nice! I’m not surprised, but I’m very pleased for you. Alright, we’ve got just
a couple of minutes left before we wrap up. We do this every year, reckless predictions.
Make them reckless. They don’t have to be about business, although they can be about
business. You can go off the board to sports, pop culture, whatever.
Aaron, what do you have? Bush: Even though the Chinese trade wars and economic
slowdowns will continue to generate headlines, I predict that in 2019, we’ll see the
largest technology acquisition in which a Chinese company buys a U.S. company.
I don’t know if that’s Tencent buying one of the big three video game companies, maybe Alibaba
acquires eBay as a way to get into U.S. e-commerce. Maybe DiDi, which is larger than Uber at their
last valuation, acquires Lyft as a way to get to the U.S. markets and get a partnership with
Waymo. I don’t know. There are interesting possibilities. Hill: That would be fascinating! Matty, what about you?
Argersinger: I think Warren Buffett’s going to buy an airline.
Hill: [laughs] Really? Argersinger: Berkshire Hathaway already
owns major stakes in all the major U.S. airlines. The industry has changed. Consolidation has
made this much more a value creator than a value destroyer. You have a strong airline
like Delta that’s actually been assigned an investment grade credit rating. It’s buying
back shares and paying a dividend, and the valuation is very cheap. This is a different
industry now. Much like how Buffett viewed the railroads 10 or 15 years ago, I think
he views the same with airlines today. Hill: That would be maybe the greatest example
of someone taking emotion out of investing, when you think back on how much Buffett used
to openly hate the airlines as an industry. Argersinger: Oh, absolutely!
Hill: Alright, Matt Argersinger, Aaron Bush, guys, thanks for being here! Happy New Year!
Coming up: our 2019 preview rolls on with Ron Gross and Jason Moser.
Thanks for being here, gents! Ron Gross: How are you doing, Chris?
Hill: I’m doing well! The 2019 preview rolls on. Real quick, though. We talked about Apple
at the top of the show. Jason, any thoughts in terms of one of the largest companies
in America and where it is right now? Jason Moser: As Aaron was saying, I’m really
surprised that people are surprised by this. It’s not something that I’m all that taken
back by. In November, we were talking about Apple’s chip suppliers ratcheting back
their guidance, which was more or less implying that there may be some weakness in iPhone
performance like we’re seeing. Granted, they seem to be holding China accountable for
most of this. But it all makes total sense. As iPhones get better, they last longer,
you don’t have to upgrade as much. They can only raise prices so far until consumers become
a little bit more sensitive. Everybody wants to just get on Apple’s case here and predict
that this may be the beginning of the end. But let’s be clear, it’s still Apple.
They’re still selling millions upon millions of devices. They lost control of the conversation a little
bit because they’re not going to be announcing those unit sales anymore. But there are a
number of different ways they can win. It’s not going to be just Services. Services will
have to be part of it. But when you look at Services, other devices, the portfolio of
wearables, you can’t discount the potential big acquisition at some point or another,
either, with that balance sheet. iT’s all like just take a step back here…
Gross: I’m all for the take-a-step-back approach. I think that makes good sense.
I’m going to be really curious to see if Warren Buffett and Berkshire Hathaway are buying
stock during this period of weakness. I would be one of those analysts that would recommend
that investors take a position at these levels. 11X-12X forward earnings, there’s not a lot
of growth built into the stock at this price, and they’ve got a lot of ways they can win.
Moser: And let’s remember, too, we have a whole generation of smartphone users that
haven’t bought smartphones yet. There are going to be plenty of opportunities to get
new smartphones in new consumers’ hands, and there’s a brand loyalty
there that’s quite impressive. Hill: Ron, let’s get to the preview.
When you think about 2019, what’s your biggest question as an investor?
Gross: My biggest question is, will value investing rise from the dead? As most of us
are aware, growth has nicely outperformed value over the last, let’s call it a decade.
Not just a few months here and there, but quite a few years. FAANG stocks are perhaps
the most obvious examples of growth stocks that have led the way. Obviously, we’ve had
an extended bull market. That tends to favor growth stocks. So, my big question is,
do we see a resurgence of interest in stocks that are considered value? Growth often does
underperform in bear markets. If, perhaps, we are entering a bear market, are we going
to see a sustained bear market, then one would expect value to come back into vogue.
But, you know what? We haven’t seen it anytime in recent past.
Hill: What about you, Jason? Moser: We’ve talked a lot about Disney and
their move to over-the-top distribution. They own part of Hulu, which I think they’ve done
a good job building out, especially with that live Hulu offering. ESPN+ seems like it’s
gaining some traction. And now, Disney+ is going to be their service that launches sometime
in 2019. We talked before on the shows, they really need to make sure they execute there.
I do think that’s a compelling product. It’s going to take a lot of content away from other
streaming partners, namely Netflix. I find it interesting to see that the shows on Netflix
that garner the most views as a percentage are all shows that are not Netflix shows.
I think that’s telling. Netflix is still having to put up a lot of money to get content that
people want to see, and Netflix is not the one producing that content. They still, have
a little ways to go in succeeding on that original content front to justify all of that
money that they’re spending. I think that Disney+ is going to re-emphasize the
competitive advantage that they have there in that intellectual property. I’m excited to see how that product
arrives. I’m certain that we will at least be testing it in our house, if not becoming
full-fledged subscribers, unless they really drop the ball.
Hill: Wasn’t there a minor freak-out in the Netflix universe when they said they weren’t
going to renew the show Friends? Moser: Yeah.
Gross: In my household, for sure. Moser: That is something that they need to
pay attention to. As a percentage of views, Friends is No. 2 on the list just behind
The Office. When you look at that list of the shows that are garnering the most views
on Netflix, it takes you back, not a lot of their original content is on that list. It just
tells you they still have a little ways to go. Hill: What’s a trend you’re excited about this year, Ron?
Gross: It piggybacks off of what Jason was just discussing. 5G technology, fifth generation
wireless cellular technology, is coming, and it’s coming pretty quickly. It’s going to
be pretty exciting. It’s going to make devices more capable of accessing the internet,
it’s going to deliver much faster speed than 4G, some say 20X-100X faster than 4G.
Lots of companies are going to benefit here. The most common names would be AT&T, Verizon,
T-Mobile. But I think Nokia, even Apple will benefit as people upgrade to 5G-enabled phones.
It’s going to be a really exciting trend to watch from an investment perspective, but also from
a consumer perspective, because I think we’ll all benefit. Moser: I’m glad you mentioned Apple there. That’s another point with 5G. I think they’re
going to be a little bit behind others in getting their devices up to speed. But once
that does happen, that’s going to be another catalyst there in the upgrading.
For me, I’m excited about podcasts and where podcasts are heading.
Gross: Shameless plug! Moser: I’m not going to just pat ourselves
on the back here too much, but it’s worth noting that you and Mac and our partners here,
you had the senses to make some early bets in this market back in 2010 and 2011.
And lo and behold, now, in 2019, we’ve got a full-fledged family of podcasts. They’re doing
very well. We’ve seen Sirius XM acquire Pandora, noting in their call that, to their dismay,
they passed on podcasts for a while. They admitted that mistake, and they’re going to
start putting some resources into podcasts and building out that environment.
I think we’re in a day and age now where Netflix really changed the game for content for people
being able to watch what they want, when they want, and where they want. Now, we’re seeing
the same thing play out on the audio side. We’re able to give people what they want,
where they want it, when they want it. It’s nice to be a part of it.
Hill: Let’s talk stocks. Ron, whether it’s an industry or a specific stock,
what do you think is poised for upside this year? Gross: An industry I’m looking at,
it’s a sector/ industry. I’m not ready to call the big r-word yet, recession.
I’m not freaking people out yet. Hill: You are a little bit, by saying that.
Gross: I think it’s important to have some allocation to some defensive stocks in the
environment that we may be approaching. So, when I think of companies in those sectors,
I would say some utilities might be a good bet right here. Some of the discounters,
in fact, discount retailers. Costco, Dollar Tree, Walmart would be some nice stocks, defensive
stocks to have as we enter an economy that might not be as robust as it has been.
Hill: What about you, Jason? Moser: I don’t want to time when a recession
might hit, because really, that’s bad for everybody, but I do think we are entering
a period where banks are going to have some opportunities to boost their earnings a little
bit as interest rates continue to nudge upward. In particular, I’m looking more at small banks,
and one we’ve talked about before, Ameris Bancorp. This stock has a tremendous
risk-reward scenario playing out here. The stock is now trading around 15X earnings.
They recently announced this merger with Fidelity Bank in Georgia. It’s about a $750 million deal.
Given that Ameris is about a $1.5 billion company, you can see, it means a lot.
The market rightly sold the stock off. There’s some skepticism there. That’s rolling in a
big acquisition. But they’re two very similar cultures. It gives Ameris tremendous exposure
to the valuable Atlanta market. It’s also going to help grow that asset and
deposit base, particularly in a period where a lot of these banks are competing for getting those
deposit bases. So, to me, this could play out like the McCormick thing. Remember when
McCormick acquired RB Foods? The market thought, “Whoa, this is a big one to digest here,”
and they held off for a couple of quarters to see how things worked out. Lo and behold,
it worked out pretty well. The stock recovered nicely. I think we could be looking at the
same thing here with Ameris if they execute this acquisition well.
Hill: Ron, if defensive stocks have you interested, what’s at the other end of the spectrum?
What are you avoiding this year? Gross: Specifically, I have one stock
in mind. I come back to it often. It’s Fitbit. I’ve really never been excited and probably
will never be excited about this one. They entered the smartwatch market in 2018.
I give it to them, they’ve done pretty well. But this is a formidably competitive market,
with the likes of Apple, for one, right there behind them. You even have some Chinese upstarts
that could be a problem, as well. I don’t see Fitbit being the company that is constantly
able to innovate, either take market share or defend market share.
I’d be really careful about this one. Hill: What about you, Jason?
Moser: Zillow. I’ve changed my tone on this company over the past year. I used to be excited
about the potential there. I feel like they’ve failed to convince me of the sustainability here.
They’re yet to become meaningfully profitable at all. Now, in this most recent quarter,
they put in their shareholder letter that Zillow Group has entered a period of
transformational innovation. To me, that’s code for, “We’re not going to be profitable any time soon.”
For a company like this, a company that’s been around for a while in such a big market
opportunity as our housing market, they should not be entering this period. They should be
coming out of this period. I think that’s what they were trying to do over these past
few years. This instant offers business, it’s not up their alley. Buying homes and renovating
them and selling them, it’s not scalable. There are a lot of people out there doing it.
I don’t know that they have any real advantage there. Good will now represents essentially
half of the total assets on the balance sheet. It’s not a bad company. I’m just disappointed
in the way they’ve executed. They still have a ways to go before they
get to meaningful profitability. Hill: One of the things that ties these two
businesses together, Fitbit and Zillow, is the word “optionality” has been used in connection
to both of these businesses. They were seen as, “They have options, in terms of where
they can go.” Optionality is something we like to see as investors, but Ron, it almost
seems like optionality works better if you’ve got one dependable cash cow in your portfolio.
Gross: You nailed it. Optionality is great for additional upside. Maybe you can’t even
see the different options that a company might have three to five years down the road.
But if they don’t have that profitable cash flow producing segment of the company, then you’re
relying on all of the value of that company being in the optionality category,
and that’s just too much risk for me. Hill: Guys, 2019 has just begun,
but The Motley Fool is already looking for summer interns in investing, editorial, software development,
and much more. Come, spend the summer! Gross: Join us!
Hill: Join us here at Fool global headquarters this summer. Go to careers.fool.com for all
the information and to apply to be a summer intern here. That’s careers.fool.com.
Happens every year, Jason. There are a few CEOs who are on the hot seat. We’re long-term
investors, but let’s face it: over the long-term, if you’re not delivering, that means in the
short-term, you’re on the hot seat. What do you have? Moser: In 2018, I certainly had Kevin Plank of Under Armour on the hot seat.
He’s not off yet. I’m calling him out again. While we are seeing signs that he is embracing relying
more on his team, particularly the CFO and COO of the company, Frisk and Bergman,
when you look at the expectations we’ve had for this business over the course of the last
several years, as it’s been a recommendation in a number of our services, this has been a phenomenal
disappointment. The real disappointing part there is, they were essentially self-inflicted.
They just made some dumb investments for the sake of growing as opposed to making good
strategic decisions and letting the growth come from making good decisions.
I think he’s on the right track. We need to make sure that team stays intact here.
If we see that CFO or COO leave, we have a really big problem. But at this point, with the market
seeming like it wants to recover, if we don’t have a recession, this is a company that should
be performing a lot better than it is today. Hill: What about you, Ron?
Gross: I think Wells Fargo’s CEO, Timothy Sloan, probably should go. He was probably
the wrong choice from the get go, as he’s been at the company during all of the controversies.
Having taken over the CEO role in 2016, he’s really not done anything to turn the tide.
From an operations perspective, the company’s not really doing very well. From a controversy
perspective, as well, things don’t seem to be getting better. I think it’s time for some
outside blood to come in and right the ship. Hill: I think back to last year’s show.
I mentioned that John Flannery, who was CEO of General Electric at the time, I mentioned
that he was certainly a CEO to watch because I thought he was laying all his cards on
the table. I thought, “Boy, this is going to be a really interesting company to watch.”
In hindsight, I probably should have said he was on the hot seat. I didn’t think he was
on the hot seat! Then he didn’t make it to the end of the year.
Gross: That’s how it goes! Hill: As I talked about with Matt Argersinger
and Aaron Bush, it’s interesting to see not only the companies being named in the private
market as potential IPOs this year, but the possibility that the recent volatility we’ve
seen might accelerate those IPOs in the first six months of 2019. Whether it’s the S-1 that
you’re eager to look at, or a company where you just think, “I want this thing to go public
now so I can get a few shares,” what’s on your radar, Jason?
Moser: One that probably a lot of people are thinking won’t end up by IPO-ing. I hope
it does. SpaceX, Elon Musk’s rocket company. They’re set to raise $500 million at a
$30.5 billion valuation shortly. To me, space is one of these markets, one of these trends
that’s going to open up a lot of fascinating investment opportunities over the course of
the next decade and beyond. I think SpaceX is going to be a part of that.
One thing that SpaceX is doing today is this project called Starlink. Essentially,
the idea is looking to build out a constellation of satellites all over the globe in low orbit
that will basically be able to beam high speed internet connection to every corner of
the globe. It seems like he’s getting buy-in from all the regulators. We’ve seen what he’s been
able to do here in the rocket launches that have taken place thus far.
I think this is a fascinating company. It’s going to offer a lot of opportunities.
If we do get a chance to see it go public, I more than likely would want to own a few shares
just to be a part of it. But, I’d really want to read that S-1. Hill: Do you think Tesla shareholders are eager for the prospect of Elon Musk at the
helm of yet another public company? Moser: Maybe we save
that for another show. [laughs] Hill: Ron, what about you?
Gross: A favorite company in my household is fast casual Mediterranean restaurant Cava.
They recently acquired publicly traded Zoës Kitchen. I’ll give them a little time to digest
that acquisition, decide what they want to do with all the Zoës locations. But then,
let’s take the whole darn thing public. Some great capital that they can use for growth
to take the world by storm and expand the concept. Hill: Have they given any more color on what they plan to do with those locations? I remember,
we talked about that acquisition on this show. The only thing that surprised me was the fact
that they seem like, “No, we’re not necessarily going to turn these all into Cavas.”
I think our general reaction was, why not? Gross: I’ve seen more along the lines of
making some menu changes, changes to the way the kitchen operates to be more efficient
and have offerings that are more appealing to the consumer.
Hill: Alright, just a couple of minutes left. Reckless predictions for 2019.
What do you have, Jason? Moser: I was thinking about going with the
Red Sox repeating as World Series champions. Then I thought about it, that’s not that
far-fetched, really. I’m calling it, they’re going to repeat. That’s not my reckless prediction. 
I’ll go with a more business-related story here. I was talking earlier about the potential
acquisitions that Apple could be looking at here. What would stop them from wanting to
acquire Square. You want to look at expanding your business and becoming a little bit more
of an integral part of the commerce scene here, not only domestically, but globally.
I think Square and Apple have a lot in common. They’re both in the business of developing
sleek hardware that people like to use, generating some pretty strong brand loyalty there.
Then, we know, of course, the payments space is one that’s growing very quickly.
I’m not saying it’ll happen, but it’s certainly an acquisition that Apple would
be capable of executing. Maybe it will happen. Hill: Ron?
Gross: I went a little off the rails here. There’s going to be more definitive signs
of previous life discovered on Mars in 2019. That’s going to build off of the work done
by the Mars Curiosity Rover that, earlier in 2018, found some organic molecules.
We’ll figure out where those actually came from and build on that. There aren’t going to be
any signs of actual Martians running around Hill: Or will there?
Gross: — but I think we’re going to see signs of some previous life. Moser: Alright, reckless prediction No. 2:
Ron Gross and Jason Moser will be heading up the new Motley Fool Space Investing
service to launch either late 2019 or 2020. Gross: [laughs] Sell that short.
Hill: I’m just going to say that regardless of where free agent Bryce Harper ends up,
the Washington Nationals are going to the World Series. Moser: Wow! That is reckless! Gross: I’ll take that bet.
Hill: Ron Gross, Jason Moser, guys, thanks for being here! That’s going to do it for
this week’s edition of Motley Fool Money. Our engineer is Dan Boyd. Producer Mac Greer
on a well-deserved vacation this week. I’m Chris Hill. Thanks for listening!
We’ll see you next week!

FOREX vs STOCK Market! Which one is BETTER and WHY?!

Are you better off trading the stock
market or the forex market? Now, I know this is quite a generic question but it
is the one that I come across time and time again. So, today, I want to look at
this in some more detail so you can get an idea of what the advantages and
disadvantages are of both. Then you can make a decision which way you want to go. Here we are, back in sunny England for
those of you that have been wondering where I’ve been for last week. Just say,
I’ve been off the airwaves. I’ve actually been on my annual vacation to the
Philippine Islands flying around and exploring though I’ve factored 7,200
islands that make up the Philippine Islands and I was able to explore just
four of them. So here’s to next year, see if we can take in a few more. Before I
continue on this very important topic of what’s the preferred route to trade,
either Forex or the stock market, I want to remind you to subscribe to my channel
if you haven’t already done so. Now, over the last couple years I put together a
whole bunch of educational videos. All free, once you subscribe to the channel
that will be there at your fingertips to explore in your own time. Also, don’t
forget to hit the notification icon. That way, you’re going to be notified the moment a
new video has been released. Okay, let’s get straight into it. So what is the best
to trade? Well, let me say, I think this really does come down to your personal
objective, ss much as anything. Right, so, what is the best approach? Well, generally
speaking and I mean this in really general terms, stock market investing is
for the longer term. So, for example if you have a longer term
objective say a 5 to 10 year plan, you might want to look to fund a pension or
indeed, pay for school fees. That generally speaking, trading the stocks
will be the preferred approach. If you can find some stocks with some decent
balance sheets and decent price earnings ratios, and a decent outlook with a good
customer base and a sound business model, then that again could be their preferred
approach. Think about it for a moment. Most pension funds that make up the
pension industry are made up of stocks and bonds, a combination of the two. Very
rarely, do you see a pension fund made up of foreign exchange exposure,
and it is there to hedge, of course. So stocks are generally, used for more
longer-term investment. If on the other hand, your objective is a shorter term,
perhaps you’re looking to supplement your income; possibly giving up your day
job altogether and become a full-time trader, then in that case maybe Forex
might be the preferred approach. And that is for a number of reasons. First of all,
I will say this, if you’re trading the stock market, there are literally,
thousands and thousands of different stocks available to trade globally, of
course. If you look at the S&P, for example, that’s made up of 500 US top
stocks. The Russell index made up of 3,000 stocks, and of course that’s just
in the United States alone. The same in the UK and around Europe. The stock
market is made up of multiple, multiple stocks getting, a grasp, a handle on any
one individual stock could be quite difficult. You’ve got to do a lot of
research; however, if you’re inclined to be able to do this research, if you’ve
got the know-how, and you’ve got the experience that you can analyze company
data, you can analyze balance sheets, then of course, stocks can be very very profitable. But there’s a whole bunch of stocks out there, that you need to do this work
on, and this analysis on. If on the other hand, you look at the forex market. Now
the forex market it’s generally made up of say 10 different currency pairs so
you can actually spend a lot less time analyzing an individual currency pair
than the vast array of stocks available out there. But again, it does depend on
personal objective, and of course the amount of time that you can allocate to
this. Also, if you are inclined to be a fundamental trader, a fundamental trader
basically looks at the reasons why a stock or indeed a currency pair will
move if you are fundamental trader that of course trading stocks may be
preferred way to go because the fundamentals are a lot easier to
potentially understand then possibly the forex market. Certainly, if you understand
how to read a company balance sheet and so forth. If on the other hand you want
to be a technical trader, then I would suggest that the forex market might be
easier. The forex market is huge. It has a massive participation of about five
trillion dollars a day, made up of retail and of course, institutional players. Now, the other thing that you need to consider is the
ease of access. It’s far easier when starting off to access the forex market
than it is the stock market. And often people that are coming in to trading for
the first time, only have a limited or only want to risk a limited amount of
money when getting going- to see if trading is for them or not.
Now, when you start trading the forex market, you can start with just a few
hundred dollars but difficult to do that in the stock market. Many brokers won’t
allow you even to open an account to trade stocks unless you have a few
thousand dollars to get going. Significantly higher than opening up a
Forex account. Now, the other thing that you have to consider is leverage. If
you’re starting off with just a thousand dollars, then of course the forex market
offers leverage. Sometimes, insane amounts of leverage! Now, I don’t encourage anyone
to trade with insane amounts of leverage. In the old days, they used to be able to
offer 200, 500 to one. I think that’s absolutely ludicrous. Well,
the video talks about this. You should be trading leverage of really nothing more
than really 20 to 1 . The recent ESMA regulations in Europe in fact, pull down
the leverage, that’s permitted. But when you trade in the forex market you have
access to huge leverage, so you can start off with just a thousand dollars. If you
were trading trading 20:1 leverage, you’re basically exposing yourself to
twenty thousand dollars in the market. That’s not as as easy to do when you’re
trading the stock market. So, you need a higher amount of money to start with
when you’re trading the stocks and certainly if you’re learning then you
may not want to risk a higher amount when getting going to site; to deciding
whether or not trading is for you or not. So leverage is available in the forex
market. Much more so than in the stock market and certainly you can start
experimenting with small amounts of money, to see if you are indeed, have what
it takes to be a trader. The cost of trading, generally speaking, is cheaper
in the forex market. Might just pay a commission, small commission, and indeed,
the spread . In some cases you won’t pay any commission at all,. You’ll just pay the
spread and it stocks, it’s almost certain you’re gonna spend money on the spread
as well as a decent sized commission. Certainly more than the forex market in
most cases. And if you’re starting off in trading, You know. You’re deciding if this
is gonna be right for you, you’re finding your feet. The last thing you want to be
doing is competing against the broker with the fees and the spreads and the
commissions, as well. Now, the forex market is open 24 hours a
day. So no matter what timezone you’re in, there’s always going to be a market open.
Of course, not on weekends. Now, certain times of the day will be more liquid, of
course, but of course, you can trade different currencies in different time
zones to fit in with where the liquidity is. You also fit in to your lifestyle if
you’ve got a day job whatever you may be a shift worker or maybe only have a few
hours a day in the evening now if you’re trading the stocks for example stock
markets are generally open from 8 to 4 on to the stock markets closed you can’t
trade so if you want to trade the US stock market generally speaking you’ve
got to be there when the US stock market is open specific times now the next
thing you need to consider is the liquidity now the major Forex pairs
generally have super large liquidity certainly the Euro against the US dollar
which is the most actively traded currency pair out there this means that
you can always get out of a position whether it’s for a profit or a loss
without too much slippage which is basically the difference in the price
that you see on the screen to the price that you get fill that now sometimes in
the stocks certainly in the lower cap stocks this know that this liquidity is
not always there which means the slippage could be higher sometimes
you’re in a position you want to get out and you can’t get out because of the
quiddity has dried up so what you see on the screen isn’t necessarily what you
get but on smaller accounts this liquidity can really affect you you last
thing you want to be doing is losing money on the slippage now of course the
higher cap stocks they have normally higher liquidity but the higher cap
stocks generally means that the price of the stock is going to be higher the
price of stock is higher chances are when you’re starting off in trading a
smaller account you’re not going to be able to get much exposure because of the
price of the stock is higher so the quiddity is a main factor
super high liquidity in the forex market sometimes not as high liquidity in the
stock market if there is high liquidity generally the cost of the stock is
higher meaning your exposure to that stock is going to be limited now if you
are inclined to be technical trader now technical trader
looks at previous price action and looks for patterns to repeat themselves they
look at charts to see what prices being in the past to see where prices may go
in the future now in my opinion and this really is just my opinion that the
technical traders are more angled to the forex market than they are the stock
market why because the forex market is the largest market on the planet
actually equates to 5 trillion dollars a day so the key levels of support and
resistance I think are more respected in the forex market because there’s many
many more players than there are in the stock market which has made me generally
driven by fundamentals more so than the technicals as I said this really is a
personal choice based on objectives and based on your character are you more
likely to be a fundamental trader where you’re looking to analyze company
balance sheets and looking for price earnings ratios and looking at markets
in general or are you more likely to be a technical trader in which case I think
that the forex market might be a preferred way to go certainly if you’re
starting off the ease of access the liquidity sways the Fox market all day
long for me for those that don’t know me I started my trading career over 30
years ago in the city of London standing there in the trading pits look
at that guy there with all that hair isn’t that amazing for me the migration
from the pits to the screens was quite easy because of the fights market I
didn’t have all the knowledge about company balance sheets and didn’t have
that experience for me I purely looked at price for me trading the forex market
is much more akin to trading that I grew up with in the trading pits that’s why
I’ve chosen the forex market that’s why it gives me the best opportunity because
it’s something that I’ve grown up with whatever choice you decide I hope you
are successful as always if you liked my video give me a thumbs up if you didn’t
give me a thumbs down don’t forget to leave a comment and as I said at the
beginning make sure you subscribe to the channel so you can access all my
previous videos don’t forget to hit that notification icon see you notified the
moment my next video is released till next video happy trading and good luck

Commodity Markets: Cash Markets and Forward Contracting | Market to Market Classroom

Farming is full of risk. In any given year,
growers face numerous weather perils ranging from droughts and floods to hail storms, wind
storms, tornadoes and the occasional hurricane. Even when producers escape those extremes,
growing conditions must be favorable at critical periods in the growing cycle, like planting,
germination, pollination and so on. And even after the crops are grown and harvested
producers still encounter risk. But the greatest risk of all may not be associated with producing
commodities, but in marketing or selling them. Two methods that are commonly used to sell
commodities are cash marketing and forward contracting. They look like this. Farmer Smith
has always marketed his crop according to his father’s old adage, don’t sell something
you don’t own. So he has built plenty of storage bins to hold all that he produces each year.
And he usually sells his grain several months after harvest on price rallies. Smith’s practice
of storing his entire crop assures he won’t be forced to take the harvest price, which
typically is among the lowest of the year. He can store the crop until the price reaches
the point where he wants to sell it for cash, usually at a local elevator. By storing his
grain he hopes for a favorable price sometime in the future. He has not entered into any
kind of contract to deliver the grain at a certain time or at a certain price and his
primary risk is that prices could move lower while he is holding his grain.
Farmer Jones also stores most of his crops on the farm. But for some of his crops he
establishes what is known as a forward contract with his local elevator. A forward contract
is an agreement to deliver a certain amount of a certain commodity at a certain time in
the future. Because no one really knows whether prices will go up or down, a forward contract
locks in a price that is higher than the current cash price. Jones’ strategy of forward contracting
with his local elevator guarantees him a known price for some of his crop. But the agreement
restricts his flexibility to change his mind and sell directly into the cash market. His
primary risk is if prices are higher at the delivery date. He is still obligated to deliver
the contracted grain at the lower price he agreed to earlier.

U.S. China Trade War Explained: How Tariffs Work & Impact the Economy

Investors have no doubt heard about the trade
tensions between the U.S. and China. Both countries are locked in a power struggle as
they impose new tariffs on goods imported into their countries. But determining exactly
what a trade war between the U.S. and China means for the stock market or either country’s
economy, is difficult to predict. To understand its significance, it’s worth taking a closer
look at what the U.S. and China are fighting about and whether or not it should change
your current investing strategy. So, why are the U.S. and China imposing new
tariffs on each other? Back in 2017, the U.S. began looking at China’s trade policies
and decided that the deficit between the amount of goods coming into the U.S. from China compared
to the amount being exported to China was too great. The U.S. government then imposed
billions of dollars in tariffs on some Chinese goods coming into the U.S. In return, China
issued its own round of tariffs on some U.S. imports. The two countries have held talks
trying to resolve trade tensions, but they haven’t resolved it in
any long-term trade solutions. So, why exactly does this trade war matter
to investors? When new tariffs are applied to products, it’s not the countries that actually
pay for them. The companies that sell the products pay the additional costs upfront,
and then they usually pass the expense onto their customers. For example, prices on some
electronics that are manufactured in China and then exported to the U.S. could rise as
a result of the tariffs, which could cause certain device prices to rise. If that happens,
sales from the U.S. tech companies could fall. Not only that, but the higher cost of devices
would likely cause Americans to curb their spending. Rising tariffs on U.S. goods being
exported to China means that companies in that country could increase their prices as
well, and Chinese consumers could suffer in the same way that U.S. consumers are.
China and the U.S. have two of the biggest economies in the world, and the International
Monetary Fund has warned that an all-out trade war between them could hurt the global economy.
Because of this, trade war tensions between the U.S. and China have caused
some volatility in the stock market. But that doesn’t mean that investors should
panic and sell their stocks. The trade negotiations aren’t finished yet, which means that selling
stocks before any trade deals are made is just selling based on fear. Keep in mind that
over the long term, the stock market has produced some strong returns, even in the face of wars,
depressions, recessions, and other negative events. In fact, the current trade war is actually
creating some new investing opportunities. As investors flee the market, it’s pushing
some share prices down and allowing savvy investors to snatch up
companies at bargain prices. There’s still a lot of uncertainty about what
will happen with the U.S. and China trade negotiations, but the one thing that investors
should remember is that for the most part, it’s best to stay the course with their investments
and be on the lookout for bargains. Thanks for watching this video. Don’t forget
to like it and leave a comment below, and click the subscribe button to get more
videos like this from The Motley Fool.

Stock Market Crash In 2018? | History of Stock Market Crashes

Well the stock market’s taken a bit of a turn
for the worse this past week, isn’t it? Hey everyone, Daniel here and welcome to Next
Level Life a channel where you can learn about Investing, debt, retirement, and many other
general financial education videos because the school’s aren’t going to do it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
freedom be sure to hit that subscribe button and the bell next to my name to be notified
every time I upload a video. Well I didn’t initially plan to do this video
this week but seeing as the market kind of took a bit of a tumble at the end of the week
losing about 5% of its value according to the S&P 500 in the last couple of days I figured
it’s probably a good time to upload this video. So it is March 25th, 2018 as I’m recording
the audio for this video and from March 21st to March 23rd the market dropped from about
$2,720 down to about $2,590 a loss of about 5% in the span of two days. And with things like possible trade wars being
all over the news lately one has to wonder if the market is about to collapse? Well as I’ve mentioned many, many, many
times on this channel and as I will mention many more times as we go along I have no idea
what the market’s going to do next. Nobody truly does. But if the market does crash I thought it’d
be a good idea to look now, before it happens, and see during a market crash how much of
a difference can you make in your net worth by continuing to invest? So in this video, I’m going to give you a
bit of a crash course in the stock market… Crashes and go through the most notable Market
crashes since the 1950s using data from the S&P 500 as a barometer and talk about how
much the market dropped and how long it took the market to recover. Then at the end of the video I’m going to
compare and contrast the differences in net worths of someone who pulled out of the market
during large crashes, someone who decided to stop investing during crashes but did not
sell their Investments that they already had, someone who continued to invest like normal
during large crashes, and finally someone who starts to invest even more when the market
is going down. Let’s get started. Alright one last thing I want to mention before
I actually get into the crashes themselves is that I understand that crashes can be very
bad in more ways than just seeing your investment values going down. The unfortunate fact is that a lot of people
lose their jobs when the market crashes, so all of the stuff that I go through in this
video today is only going to be valid if you can keep an income coming into the household
during the crash. So first I’ll start with the smaller crashes
which in my opinion should probably really be called Corrections. In December of 1952, the S&P 500 peaked at
$26.57 over the next several months it dropped to a low of $23.32 in August of 1953. That was a drop of a little over 12%. A few months later it would recover and break
its original peak of $26.57 closing at $26.94 in March of 1954. Meaning that it took 1 year and 3 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In July of 1956, the S&P 500 peaked at $49.39
over the next several months it dropped to a low of $39.99 in December of 1957. That was a drop of 19%. A few months later it would recover and break
its original peak of $49.39 closing at $50.06 in September of 1958. Meaning that it took 2 years and 2 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In July of 1959, the S&P 500 peaked at $60.51
over the next several months it dropped to a low of $53.39 in October of 1960. That was a drop of a little under 12%. A few months later it would recover and break
its original peak of $60.51 closing at $61.78 in January of 1961. Meaning that it took 1 year and 6 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In December of 1961, the S&P 500 peaked at
$71.55 over the next several months it dropped to a low of $54.75 in June of 1962. That was a drop of a little over 23%. A few months later it would recover and break
its original peak of $71.55 closing at $72.50 in August of 1963. Meaning that it took 1 year and 8 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In January of 1966, the S&P 500 peaked at
$92.88 over the next several months it dropped to a low of $76.56 in September of 1966. That was a drop of a little over 17%. A few months later it would recover and break
its original peak of $92.88 closing at $94.01 in April of 1967. Meaning that it took 1 year and 3 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In November of 1968, the S&P 500 peaked at
$108.37 over the next several months it dropped to a low of $72.72 in June of 1970. That was a drop of a little under 33%. A few months later it would recover and break
its original peak of $108.37 closing at $109.53 in May of 1972. Meaning that it took 3 years and 6 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In December of 1972, the S&P 500 peaked at
$118.05 over the next several months it dropped to a low of $63.54 in September of 1974. That was a drop of a little over 46%. A few months later it would recover and break
its original peak of $118.05 closing at $121.67 in July 1980. Meaning that it took 7 years and 7 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In March of 1981, the S&P 500 peaked at $136.00
over the next several months it dropped to a low of $107.09 in July of 1982. That was a drop of a little over 21%. A few months later it would recover and break
its original peak of $136.00 closing at $138.53 in November of 1982. Meaning that it took 1 year and 8 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In August of 1987, the S&P 500 peaked at $329.80
over the next several months it dropped to a low of $230.30 in November of 1987. That was a drop of a little over 30%. A few months later it would recover and break
its original peak of $329.80 closing at $346.08 in July of 1989. Meaning that it took 1 year and 11 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In May of 1990, the S&P 500 peaked at $361.23
over the next several months it dropped to a low of $304.00 in October of 1990. That was a drop of a little under 16%. A few months later it would recover and break
its original peak of $361.23 closing at $367.07 in February of 1991. Meaning that it took 8 months for the market
to go from the First peak all the way to the point where the market fully recovered and
set a new high. In August of 2000, the S&P 500 peaked at $1517.68
over the next several months it dropped to a low of $815.28 in September of 2002. That was a drop of a little over 46%. A few months later it would recover and break
its original peak of $1517.68 closing at $1526.75 in September of 2007. Meaning that it took 7 years and 1 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In October of 2007, the S&P 500 peaked at
$1549.38 over the next several months it dropped to a low of $735.09 in February of 2009. That was a drop of a little over 52%. A few months later it would recover and break
its original peak of $1549.38 closing at $1569.19 in March of 2013. Meaning that it took 5 years and 5 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In May of 2015, the S&P 500 peaked at $2107.39
over the next several months it dropped to a low of $1920.03 in September of 2015. That was a drop of a little under 9%. A few months later it would recover and break
its original peak of $2107.39 closing at $2173.60 in July of 2016. Meaning that it took 1 year and 2 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. All right with that out of the way let’s get
to the comparison. Now obviously most people aren’t going to
work for 70 years, the human body just could not sustain it, so I won’t be using the data
from 1950 to today instead I’m going to be using the data from January of 1978 to the
end of December 2017 so that 40 year period. In all four cases, I’m going to assume that
each person invests $100 a month. Let’s see how their net worths change depending
on how they handle Market crashes. I’ll start with Joe. Joe is a little bit more nervous during Market
crashes and tends to panic a little bit more than he would like to admit and as a result,
he sells his Investments when the market is bottoming out. Now is that a little bit unrealistic that
he would sell off his investments at the low point of the market every time? Yeah, I admit it is a little bit unrealistic,
but this is just for an example to illustrate the differences in your net worth depending
on how you handle Market crashes. So Joe starts off in 1978 confidently investing
$100 a month. The market starts to go down in March of 1981
but he continues investing, figuring that it will come back eventually. However, eventually, it gets to be so bad
that he can’t take it anymore. He loses his faith in the market in July of
1982 and completely sells his way out of the market. He regains his confidence in the market in
November of 1982 when the market sets a new high and that’s when he buys back in. Now, remember between March of 1981 and July
of 1982 the market dropped about 21%. By the time that it hit its low point Joe’s
net worth was $5,250 so that’s what he got when he sold his stock and that’s also, for
the sake of convenience, what he puts in, in November of 1982. This pattern continues with Joe continuing
to invest as the market begins to go down but then panicking when it hits its low, selling
off his investments before getting back in after the market hits its new high. At which point he reinvests everything that
he made from selling his stocks when the market was low. This means that over the course of 40 years
he put over $178,000 into the market. Now that number does include the amount they
put in after selling his stocks so it is a little bit misleading. If we were to just look at the amount of money
he put in with his hundred dollars a month investments it would come out to be $32,700
over the course of 40 years. His total net worth at the end of 40 years
is $46,014.16. Now let’s take a look at Betty. Betty is a little bit more confident in the
market than Joe but not quite enough to continue investing as it’s going down. However, unlike Joe, she does not sell out
of the market at any point. She will invest $100 a month just like Joe
until the market starts dropping. Once it starts dropping she will stay invested
but won’t continue to put more money into the market and similar to Joe she will begin
investing again once the market sets a new high. Over the same 40-year period as Joe, she will
invest $26,800 of her own money into the market and wind up with a net worth of $258,449.67. That is over five times as much as what Joe
ended up with! So clearly at least over the last 40 years,
it is much much better to stay invested in the market even if you don’t continue contributing
during Market downturns than it is to sell off when the market is dropping. And I’m sure that we all already knew that
but it is nice to have numbers put to it. Next, let’s take a look at Charlie. Charlie is fairly confident in the Market’s
long-term potential and he continues to invest $100 a month every month
no matter what the market is doing. This means that over the course of 40 years
he will have put $48,000 of his own money into the market. And since he never stopped investing or sold
his stocks he would have a network after 40 years of $370,424.37. That is over $110,000 more than Betty despite
the fact that he only put in about $21,000 more of his own money over the same period
of time. Lastly, let’s look at Jane. Jane has an unwavering faith in the stock
market’s long-term potential and not only does she keep investing at least $100 a month
no matter what the market is doing but when the market starts dropping she doubles down
and invests an extra $50 a month during the drop and continues to invest that extra $50
a month all the way until the market hits a new high. At that point, she goes back to investing
just her regular $100 a month. In doing this Jane will end up with a net
worth of $426,411.71. That is an extra $56,000 more than Charlie,
it’s nearly $170,000 more than Betty and it is almost 10 times the amount that Joe ended
up with over the same period of time. Now Jane did invest the most out of any of
the four, putting $58,600 of her own money into the market over the course of 40 years,
but with that extra $10,600 that she invested in comparison to Charlie she ended up with
an extra $56,000 in her net worth. Meaning that those extra $10,600 earned her
roughly $5.28 per $1 invested. In
case you are curious, I get that number by taking Jane’s net worth – Charlie’s net
worth divided by the difference between Jane’s $58,600 of Investments minus Charlie’s $48,000
of Investments. The ratio is about the same when you compare
Jane’s Investments to Betty’s Investments and running the same calculation Jane earns
about $14.69 per extra $1 invested when compared to Joe. So you can see how big of a difference changing
the way you look at stock market crashes and corrections can make in your net worth over
time. It can be a huge difference. However, as I said earlier in the video crashes
and market corrections are an opportunity as long as you can keep income coming into
the house. However, I do want to say that just because
you can noticeably increase your net worth by shoveling as much money as you can into
the market when it’s going down that doesn’t always mean that you should. For example, if you’re up to your eyeballs
in debt you may want to consider putting the money, especially during a market crash, towards
paying off your debt and lowering your month-to-month living expenses. Because who knows you may end up having to
look for a new job at some point during the crash. Even if you’re doing really good work at your
company, sometimes they have to downsize as the market Falls, so you may be laid off at
least temporarily and that should always be taken into consideration. As always consult with a financial professional
when making these decisions. But that’ll do it for me today once again
if you enjoyed this video be sure to subscribe and hit that Bell next to my name so that
you’ll be notified of all my future uploads. I generally upload every single Friday, and
if you have a friend that would be interested in this kind of content be sure to share it
with them and let’s really get this information out there and start our own Financial revolution.

🔴 How to Time the Market (w/ Milton Berg)

MILTON BERG: On a daily
basis and a weekly basis, the movements of the
market are random. However, there are particular
times when the market movement is very far from random. When the market
generates data that tells you the market’s close
to a top or has topped, or the market is close to
a bottom and has bottomed. In their mind, this is a cuckoo. This is nuts. This is impossible. We were taught
this can’t be done. So you need to
have a discipline, you need to have a view, and
you need to rely on your data. If you don’t rely on your
data, you’re just lost. GRANT WILLIAMS: I’m
about to sit down for a conversation with a man
who is a very quiet Wall Street legend. He’s worked for some of
the titans of the industry. He’s worked for
Michael Steinhardt. He’s worked with
Stan Druckenmiller, with George Soros. And the work he does is
absolutely fascinating. This is going to captivate
and entertain a lot of people. There’s going to be some
questions afterwards. So join me now. We’re going to sit down
and talk with Milton Berg. Well, Milton, welcome. Thank you so much
for doing this. I have been looking forward to
it for a very, very long time. MILTON BERG: Well,
thanks for inviting me. And I’m going to learn
more about Real Vision. I skimmed some of the
videos this morning, and I feel bad I
wasn’t on earlier. GRANT WILLIAMS: Well, I’m glad
you finally got this to happen. So just before we
get into what you do, which is so
fascinating, I just want to give people a quick
sense of your background. Because you’ve been in the
markets a long, long time. So if you can just give
us a quick potted history, that’d be fantastic. MILTON BERG: OK. Well, my background
was never in finance. I got degrees in Talmudic
law in the 1970s. But I didn’t feel I’d
make a living out of that, make a profession out of it. So I started studying
markets on my own. I was exposed to
markets as a child. My uncles used to trade in the
’60s and somewhat in the ’70s. And then I decided
to study the markets. I received a CFA, one of the
earliest ones, number 6881. Now there are hundreds
and hundreds of thousands, so one of the earliest CFAs. So I studied pure Graham and
Dodd fundamental analysis. I thought that’s
what you have to know to do well in the business. I studied accounting and
financial statement analysis, and Graham and Dodd. But as soon as I got my first
job, I realized two things. First I realized that
I’m competing with all these other fundamentalists. I have no edge. There are thousands of analysts
who follow Graham and Dodd. So that’s one thing I realized. Secondly I realized that, on
average, the typical analyst just has average performance. And a lot of the
analysis doesn’t really contribute to their earning
money in the market. So I was exposed
initially to Ned Davis. Was then working at JC Bradford,
so first technical analyst I was actually exposed to. And I was fascinated
because I saw there was more to the market
than what I perceived Graham and Dodd was teaching me. And from then on,
what I did was really is I spent more than 30
years analyzing markets, until I learned to focus on
market tops and market bottoms. So my background was I
started at Talmudic law. I started as an analyst
for low grade credits for a mutual fund organization. Then I started managing
money for a mutual funds organization. I worked at Oppenheimer
Money Management, managing three mutual
funds in the 1980s. Actually in ’87, I managed the
three top funds in the country. At that time already, I
already had the discipline of trying to call
tops and bottoms. We got to 80% cash before
the crash in October, raised the cash in September. Then I worked as a
partner at Steinhardt. I took off for a few years,
moved to Israel with my family. I then went to work for
George Soros with Stanley Druckenmiller. I worked with Stanley at
Duquesne, always did research. In the last six years, I’ve
been doing the same research I’ve done all the
years for other firms, doing it for myself and
marketing new research, selling the research to clients. So currently, my clients
really are the titans of the hedge fund industry. The type of work I
do is very atypical. People look at it, and
they don’t understand it. They don’t
necessarily accept it. But the clients
who’ve been– people dealing with it for
years understand that it’s much value added. GRANT WILLIAMS: Well,
let’s get into that because it is different. It is something that people
won’t be familiar with. So just talk about how
you built this framework and how you began
to kind of assemble the pieces of the jigsaw. MILTON BERG: OK. Well, one thing I realized
in studying Graham and Dodd– Benjamin Graham was actually
a technical analyst. GRANT WILLIAMS: Right. See, already people
are going to be going– MILTON BERG: Well,
people who know Graham know the end of his– yeah, he
said we give up all research. And the rest can
look at the numbers. People who know Graham and
Warren Buffett will tell you, in the last five years of
Benjamin Graham’s career, he would no longer do rigorous
analysis of balance sheets. He’d just look at numbers, P/E
ratios, price to book value, what the price of
the stock is relative to its last
five-year high, which is really technical analysis. Later in life, everyone
knows he became a technician. But prior to that, even reading
Graham and Dodd’s security works from the
1920s and the 1960s, he suggests that
the only reason he needs a value analyst
is, of course, experience shows him that it works. He actually spoke in Congress. He was testifying in
Congress in the 1960s with a question of
market manipulation. They asked him, why is it a
stock that’s trading for $20, and you believe it’s
worth $60, why doesn’t it ever trade at $60? Why does it remain
at $20 forever? In other words, the question
is, if the stock could be trading– be
undervalued today, why can’t it be
undervalued forever? Why? Why must the stock ever
reach intrinsic value? And then really, Benjamin
Graham’s whole theory was the theory of
intrinsic value. He said, I have no
answer to this question. It’s a mystery. All I know from
experience is that if you buy a cheap stock, eventually
it will trade at fair value. That’s his answer. It’s a mystery. Once we’re dealing
in mysteries, I figure there must be many more
mysteries strictly valued. So there are far many things we
look at that create the market movements other than the value. And I think intrinsic value
is just a technical indicator. In Graham’s thought,
the more a stock is trading below its intrinsic
value, the more likely it is you’ll make money because
it’s going to trade back towards its intrinsic value. But there’s no inherent
reason for a stock to trade at intrinsic value. Because of course, it’s
a very valid question. If a stock could be
overvalued today, why can’t it be
overvalued forever? If a stock can be
undervalued today, why can’t it be
undervalued forever? GRANT WILLIAMS:
Yes, exactly right. So taking that into
account, how do you then start to build
your own framework using that and applying
it to tops and bottoms? MILTON BERG: So what
I try to do is say, is the market actually
a random movement, which we were taught in the schools? Actually, the CFA program
goes with random movements, modern portfolio theory. Or is a market not
necessarily random? Is there some edge you can have? Of course, Benjamin
Graham did not believe the market’s
random because there wouldn’t be an undervalued stock
if the market would be random. It would be efficient. Everything would be
traded at intrinsic value. But the reality is I found that
the market generally is random. On a day-to-day basis, you
have the talking heads on TV and you have the analysts giving
research reports every day, trying to analyze the
reason for today’s move, the reasons for tomorrow’s
move, maybe the reason for the next week’s
move, most likely explaining the reason
for last week’s moves. But I found that on a daily
basis, on a weekly basis, movements of the
market are random. However, there are particular
times when the market movement is very far from random. When the market
generates data that tells you the market’s close
to a top or has topped, or the market is close to
a bottom and has a bottom. So what we call that is
turning point analysis. Turning points at
turning points, the data generated by the
market is no longer random. In fact, if you take a bell
curve, for example, and it lets you track something
simple as five-day volume. You look at the average five-day
volume, ascent of the curve. You look at the extremes. You’ll find that the
extremes of five-day volume are associated with
turning points. Now intuitively, it
makes a lot of sense because you know
at a market low, everyone’s selling their stocks. It’s at high volume. But people haven’t looked at
that as a technical indicator. We say, we’re not
going to be one of those who panic and
create the five-day volume. We’re going to wait for
five-day volume, greatest in one year, greatest in two
years, greatest in six months. We track these kinds of things. And that tells you that an
impending turn in the market we see. That’s just one indicator, an
increase in five-day volume as an example. GRANT WILLIAMS: So let’s
just jump back in time to ’87 because that
was a call you famously got right to the day. It’s extraordinary, reading the
story of your work around ’87. So take us back there and talk
about in the days leading up to that. And perhaps the month before
September, what did you see, and how did you go about
making use of that? MILTON BERG: Well, we saw a
spike in volume on August 11 of 1987, a big spike
in the five-day volume that we look at. The market actually peaked
a couple of weeks later, less than 2% above that level. So that was the first
indication that something was going to change. And the logic of it is
that if people are– why would the volume increase
after the market’s up 30% of the previous 12 months? Why all of a sudden
are people jumping in and volume increasing? There’s got to be
a reason for it. And the reason is
because people are now comfortable about the market,
and they’re speculating. If the market went up 30%
for the last 12 months, let it go up 30% for
the next 12 months. So the volume is not
just an indicator which is suggesting
a turn of the market. It’s telling you something. It’s telling you that something
in the nation’s market has changed. There are more
speculative dollars coming into this market. That took place on
August 11, 1987. I wrote many reports saying
the top is not yet in. September 4, ’87, the Fed
raised rates for the first time, and that was all
that was lacking from indicators that I look at. Again, to my opinion, raising
rates is a technical indicator. They raised rates
one-quarter of a point, and that caused the crash. So it’s not as if
that one-quarter point had a fundamental
effect on the economy. A present corporation
borrowing money. It had no effect at all
on the economy at all. It had some effect
possibly on psychology. Wherever it was, that combined
with other things we saw in ’87 suggested that the market
was very vulnerable. Of course, valuations were
the highest in history. Paul Montgomery, who
did a lot of work on bond yield,
stock yield ratios, found that the ratio of stock
dividend yields to bond yields were also the
highest in history. So it wasn’t strictly
the price of stocks were the highest in history,
but actually the ratio, the preference for stock
yields over bond yields was the highest in history. GRANT WILLIAMS: When
you think about ’87, we had a very different
market back then. We had a very different
set of inputs. And one big part of
the Federal Reserve had a much lesser
impact on markets. When you look at these technical
indicators that go back so far, how do you adjust for today
and the oversized impact of the Federal Reserve? MILTON BERG: I’m laughing
when you say so far. We have indicators
going back to the 1900s. I’ve tracked 30,000
indicators on a daily basis. So ’87 is modern history,
as far as I’m concerned. GRANT WILLIAMS: Yeah. No, absolutely. MILTON BERG: But yes,
the story is this. And this is also
Benjamin Graham. Benjamin Graham has been
misquoted, very much misquoted. They say that Benjamin Graham
says that on the short term, the stock market is
a voting machine. But in the long term, the stock
market is a weighing machine. Benjamin Graham never said that. And it’s very
illogical to say that. Let me give you an example. At the 2000 top, there are
many, many long term companies not involved in
the internet that were very, very undervalued. Now, if stocks are fairly
valued over the long term because the market’s
a weighing machine, why would a stock ever be
undervalued if a stock has a 30-year history of earnings? It’s long term. If, in the long term, markets
are a weighing machine, let General Motors
always be weighed, let General Electric
always be weighed. It doesn’t work that way. Benjamin actually said
that the market is not a weighing machine. It is strictly a voting machine. Because he says–
and it’s in the book, Graham and Dodd analysis. He says because although
possibly fundamental factors affect stock prices, and
possibly monetary factors affect stock prices, and
probably psychological factors affect stock prices,
the reality was, in order for the
stock price to change, you need a buyer and a seller. So no matter what
you’re going to say about fundamental
analysis, the actuality is that the given change
of a price of a stock is based on voting, based
on a buyer willing to buy at a certain price, and
a seller willing to sell at a certain price. So this is very important. Once you realize that the
stock market is a voting machine rather than
a selling machine, you also realize that
most turns in the market– nearly I’d say all
turns on the market– are sentiment based and
psychologically based, rather than fundamentally based. If the Federal Reserve
makes an announcement– we’re going to raise rates
by 400 basis points– and the market’s definitely
going to collapse if they ever raise rates — basis points. It’s not because of any effect
fundamentally on the economy at all at that time. Because it takes time. If they say they’re going to
raise rates in six months, the market will collapse today. There was no fundamental
change in any company at all. It’s just that
psychologically, people understood that in the
future, it’d be very poor, and it’ll sell now. It’s a vote. And someone might
argue, oh, there had been so much inflation
when Volcker raised rates. In fact, the markets went up. And he made rates far more
than 400 basis points. But he didn’t do it overnight. But the reality was his raising
rates cut inflation, gave greater value to stocks,
and psychologically, the vote was going to
do better in the future. We’re going to buy the stock. GRANT WILLIAMS: But
it is very difficult to quantify human behavior. I mean, markets are essentially
the collective representation of human psychology. That’s it. There’s nothing more than
that, really, to your point. MILTON BERG: Exactly. GRANT WILLIAMS: So how
do you go about building some kind of framework that
captures the uncatchable? MILTON BERG: Yes. Well, let’s look at
the bottom in December. If you don’t mind, I’m going
to look at some of my notes if I have it available. Let’s look at the bottom
in December of this year. Federal has just raised rates. It speeded down 20%. Russell is down 27% in just
a matter of less than three months, I believe. The peak in the
DOW was in October. The bottom was December. The Russell peaked in August. The market’s down nearly 30%. Now, we called the
bottom to the day. We were 100% short
on December 24. By the end of the day,
the market was up 4%. We were up 3/4 of 1%. We covered a short and
went long on that day. Why? What is it? You’re asking a
very valid question. It is difficult
for a psychiatrist to evaluate pyschology. How could a market analyst
evaluate psychology? So just the example
I gave earlier when you see a big increase
in five-day volume, it’s just a number increase
in five-day volume. But it’s telling you
something psychologically. People who were unwilling
to sell a week ago are willing to sell today. Or in order to induce
the buyers to come in, price had to come down to
compensate for the fact that people weren’t
willing to buy. So let’s look at December. From December 19 till December
24, the day of the low, we saw a five-day volume
surge, highest five-day volume in two years. We saw what we call a
10-day reverse thrust, which is the opposite of an
advanced decline line surge. The number of stocks
down relative to stocks up was also at a great extreme. And that’s just a number. It’s a data point. But why would all
of a sudden people be willing to sell so,
so many stocks to cause a 10-day advanced decline line? Although we look at it
as data, we look at it– it’s actually psychology. It’s actually measured. It’s capitulation. We saw the number of
new highs and new lows. On both a one-year
basis, two-year basis, and three-year basis,
we’re also at extremes. We looked at the five-day
rate of change of the S&P 500, and so on and so forth. And these are the
kinds of things that you look at at the bottom. So to us, it’s just data. We calculated the
30,000 indicators. But it’s my view– and I got
this from Paul Montgomery– that all market turns
are sentiment-based. There’s no such thing
as a market turn that’s fundamentally based. It’s all sentiment-based. GRANT WILLIAMS: It is
interesting because what we seem to have
had in recent years are very sharp bottoms
and very sharp tops. We don’t seem to have these
rounding top and rounding bottom patterns that you’ve
had throughout history. Is that something that we need
to be prepared to continue, or do you think we will
see like a rounding top? MILTON BERG: OK. Bottoms and stocks are
always V bottoms, always. Tops and commodities are
always V tops, always. My question is, why? Why do stock bottoms
generally V and stock– It’s also psychology. In the stock market, fear is a
far greater emotion than greed, far greater emotion. When people are fearful,
all of a sudden, they look at their 401(k)s, they
look at their broker statement, they look at the fact that they
have these loans to pay off. Where is the cash
going to come from? So they panic at the lows. In commodities, which trade
at the commodities market, it’s really a zero-sum game. For every long, there’s a short. So the exposure
to the short side is far more dangerous than
exposure to the long side. If you’re long a market,
you could lose your capital. If you’re short
a market, there’s multiples of the market. Since commodities
are a zero-sum game– the futures market, which is for
every long, there’s a short– the panic takes place when
the market is rallying. Because every long
had to have a short. So that also proves
that it’s psychology that turns the markets. In commodities, the psychology
takes place at the top. The great dramatic
shift in psychology takes place at the
top, where everyone’s fearful of losing money,
covering the shorts. And then ultimately,
the market turns down. In the stock market, it’s
the other way around. Now I don’t necessarily agree
that the nature of markets has changed. I still see generally
in the stock market on its immediate term basis,
long term basis, and short term basis, I still see V bottoms. But the one change is
you’re seeing tests. For example, the low in 2000– you got a first low
in July of 2002– the market gained more than 20%. It made a new low
in October of 2002. It gained 24%. It made a slightly higher
low in March of 2003. Each of those bottoms
were V bottoms. But there was a series
of three V bottoms. So you take a broader picture. You’ll say, hey, it
was a rounding bottom. I don’t look at it
that way because we don’t take a broader picture. In my opinion, if you
traded the market right, you got long in July 2002. You get out in August, made 20%. You get short. You have long in October 2002. You made another
20%, sold up 24%. You went short. So I look at it as
three separate markets, each one showing a V bottom. But the typical analyst,
they will say, wow. If you bought in
July 2002, and you held through the
rounding bottom, you did very, very well. You did very well, but basically
did what the market did. You did what the S&P did. You’re lucky to have gotten
long if you were short. And you basically did
what the market did. But if you recognize that every
turning point in the market has indicated, suggested
that turning point, you will have attempted
to do far better than the whole of the market. Now that we brought
this up, let me just take it one step further. And this is really where
people doubt what we do, and people don’t understand
what we do and what we do it. If you invested $1 in the
Dow Jones Industrial Average in 1900, January 1,
1900, and you held– not looking at
dividends, just held. Your $1 would have grown. You can guess if you like. GRANT WILLIAMS: Not– well– MILTON BERG: OK. GRANT WILLIAMS: I thought
you’ll take a spin at that one. MILTON BERG: Well, it
grew to $658, which is an amazing, amazing return. 658 times your money. GRANT WILLIAMS: That’s to today? MILTON BERG: That’s to today. This is actually til June
30, but close enough, right? $658, which is these long
term investors, like the Nobel Foundation, who’s been
around for over 100 years, they could say, well, let
me take a long term view in stocks. $1 to $658 over a century,
or a little over a century, that’s amazing. I’ll be able to give all
my Nobel Peace Prizes out, whether deserve it or not. However, let’s say somebody
only traded 73 times over that 120-year
period, 73 times. But he happened to buy stocks
at the exact day of the bottom, and he happened to short stocks
at the exact day of the top. Now I’m not going
to ask you to guess. That dollar would not
be worth $600, or $800, or thousands of dollars. It’d be worth $392 trillion. It’s funny. That’s a 30.19%
return over 119 years. Now I’m not arguing
that anyone can do that. But I’m arguing
since you can see how compounding market, bull
market and bear markets, makes you so much money,
why not attempt to do it? GRANT WILLIAMS:
Sure, absolutely. MILTON BERG: Why not
attempt to do it? And like everything
else in this world, there are many people
who may attempt to do it, and maybe it’ll be one, or two,
or a dozen successful people successful at it. But people really
don’t attempt to do it. I don’t anyone who has a
hedge fund whose goal is to be 100% long
during bull markets and 100% short
during bear markets. They don’t do it. The clients wouldn’t
think it’s going to work. GRANT WILLIAMS: Well
then, I think that’s it. It’s the client side. MILTON BERG: Well, it’s
actually the consulting side. It’s the psychology side. It’s the business school side. I just met, about two months
ago, believe it or not, with a– I’m not going to mention names,
but a managing director of one of the largest money management
companies in the world. They’re looking to
start hedge funds that can have high capacity,
high capacity meaning at least a billion dollars. Now of course, if you’re
going to trade long the S&P and short the
S&P, that’s easily you have a high capacity. I imagine it’s 10 to
20 billion capacity. And I met with
this fellow, and I said I have a strategy for you. I have a strategy for you,
and this is the strategy. We will attempt to go long
at the top of bull markets, attempt to go short at
the top of bull markets, attempt to go long at the
bottom of bull markets. I said we’re not going to
catch every top or bottom. And actually, we’re not even
going to look at bull markets. We’re going to
look for 15% moves. We don’t need it
at every 30% move. So I said, if you count
every 15% move since 1900, you’d have $6 quintillion,
which is 18 zeros after the 6. GRANT WILLIAMS: Nice. MILTON BERG: But the
point being we’re not going to have that return. But we think we’ll have returns
far greater than the market. Optimistically, it’s a
simple transparent program. But in order for you
to do the program, you have to have an edge. Your edge has to be, be able
to call tops and bottoms. We spent years and years
analyzing tops and bottoms and trying to call edges. So this is what we do. This is what we offer
to our clients– the ability to recognize
tops, recognize bottoms, and understand that the
movement in between is random. So while people are watching
television each day, should I buy stock? Should I lose? They read all the
balance reports. The reality is, if
you caught the bottom, you can usually sit tight
for quite a number of months before worrying about a top. And if you caught the
top, you could usually sit quite a number of months
until you worry about a bottom. Now I was talking about
the cycle you called, the one you saw in December. We have 27 bicycles beginning
on January 4, 27 distinct bicycles, all based
on the fact that we’ve modeled every bottom
since 1900, and we’ve modeled every top since 1900. We modeled not only the 38
major bull and bear markets, we’ve matched at every
move of 7% or greater. So we’ve modeled every
move of 7% or greater. And I have to admit that we
can’t catch every 7% move. We can’t even catch
every 15% move. But if you only catch
every other bear market, you’ll still way, way, way, way
outperform the typical hedge fund and the typical investor. So let’s look at what
happened this year and how we implement our work. January 4, just a
number of trading days. I think it’s not even 10
trading days off a low. It was seven because it has
Christmas and New Year’s. January 4 was seven
trading days off the low. The S&P 500 was
up 3% on the day. And this took place
seven days off a low. Now the background is when
we’re tracking tops and bottoms, it’s very simple. How do we do it? If the market makes a
bottom, we count one day off the bottom, no new low. Two days off the
bottom, no new low. Three days off the
bottom, we have– we publish a report
called “Boundaries of Technical Analysis” in the
Market Technicians Journal. You see a low, and
you count the data as to what takes place during
the first four to seven days after a low, which
is generally the key. So we looked at the low. On the day of the low,
you saw an extreme of net new highs over total
issues was less than 18. It was minus 18.20%. That’s a cutoff. That’s an extreme. Seven days later, the S&P was up
more than 1% on higher volume. And we look at every
time in history, you saw this type of
a low, always so low, and the seventh
day after the low, the S&P was up just 1%
greater in higher volume. That only took
place twice before. But the median gain 12
months later was 35.24%. Now people ask, it only
happened twice before. But that’s exactly the point. We’re trying to
find aberrations. We have to try to find evidence
that this time is different. If it happened
1,000 times before, then you’re just
a random analyst. If it happened twice before,
and each of those times, the market rallied
significantly, this is something significant. Just the opposite of what
people think intuitively. People want thousands
of examples. Well, in 1,000 examples,
you get randomness. If you want to get just a few
examples of extremes– and this is very simple. Over a low base the
number of highs and lows, and at day seven, up 1% or
greater on higher volume. Beautiful, simple. And we are ready
long on January 4. That was the first bicycle. They say we had 20
something bicycles. Another example,
January 8, very simple. This is not my own bicycle. I learned this signal from Ned
Davis Research and Ned Davis. I think — may have also
contributed to this signal. There are many
indices you can use. We use the New York
Stock Exchange 10 day advance-decline. It was greater than 1.921. Very simple indicator. I think actually the chart is– it goes back to the 1969 thing. He also uses this indicator. You look at the 10 days
advance over decline. If it’s greater than
1.921, you buy the market. Now historically, the median
gain within the next 12 months is 22.01%. We’ve gained 15.60%
through yesterday’s close. So the point being is,
this is very simple, but it’s not a random event. You don’t see the 10-day
advance-decline line at 1.921 on a random basis. In fact, you generally see
it within 10 days or 15 days off a major low. In this case, it came actually
nine days after the low. We’re counting 10 days
advance-decline line, including a negative day,
which was 10 days ago. And you’re still at a 1.921. So what do we do? We don’t just say,
well, it looks to us that there is a high probability
the market’s going to go up. No. We tell our client, if you’re
not long yet, get long. But what if it doesn’t
work this time? What if doesn’t work this time? You’ll get out. Of course, historically, we
have a list of the drawdowns. And generally, the
drawdown’s less than 3%. So if you’re going to
market climb 3%, get out. Lose 3%. But take the risk. Follow the data. Follow the indicator,
and get it to the market. GRANT WILLIAMS:
But this is trust. I mean, this comes down to
trusting the data, right? Because if you can get people to
trust it and get them to trust it for a long enough
period of time, they’ll see that
over time, it works. MILTON BERG: This
is getting people to trust that markets are
not random at turning points and that it’s possible
to time the market. That it’s possible to get in
close to a bull market low and to get out close
to a bear market high. People do not believe
it’s possible. They just don’t. I mean, I see it all the time. They don’t think it’s possible. I’m saying it to you,
and you are smiling. Hey, this sounds crazy. GRANT WILLIAMS: No,
it’s fascinating to me. MILTON BERG: When
I speak to someone who’s never seen this before,
in their mind, this is cuckoo. This is nuts. This is impossible. We were taught
this can’t be done. GRANT WILLIAMS: Well,
that’s exactly it. We’re taught it can’t be
done, so people don’t try it. That’s exactly right. MILTON BERG: We’re taught
that it can’t be done. That’s exactly why
we don’t try for it. Last January 8, [INAUDIBLE]
not all 27 indicators. I’ll go through some of them. But yeah, on January 9,
the next day, at the low, the five-day volume was
the greatest in two years. But we cut it off at 60 months. At the low, which was
probably 12 days before, you had a high five-day volume. And on this day, the
10-day advancing volume over the declining volume
is greater than 70%. This is our own indicator. Rather than losing advancing
issues over declining issues, advancing volume
over declining volume is greater than 70%, just
those two indicators. This took place six times prior. The median gain over the
next 12 months is 23.40%. And the worst drawdown
was only 5.6%. So again, you guys
won’t trust it. And the second worst
draw down was 2.7%. What person ignores the 5.6? I’ll get out if
it declines 2.6%. GRANT WILLIAMS: 2.7, sure. MILTON BERG: It declined
minus 0.09% the next day. That was it. The market continued higher. It’s up 15.13% since then. I can go through many
of these indicators. The point I want to
make is that although we try to pinpoint the low, we
also feel that close to the low, the information
is not yet random. Once you get two or three
months out of the low, generally information
is randomly worse. Although we did get a
new buy signal yesterday. Although, we’re short–
which is kind of funny. But we got a buy signal. The buy signal that
we got yesterday is based on five week
advance decline line. Now, five week is a
very blunt instrument. You’re looking at
five weeks of data. So it has very huge draw
downs of as much as 11%. Although, in each time
we saw this indicator, the market was up significantly
over the next 12 months. But it’s not indicated where
I tell a client buy, buy, buy, based on this. I say the client should
have bought in January. He’d be holding and
sitting pretty right now. GRANT WILLIAMS: So
how do you do that? Because you have
so many indicators, how do you prioritize them? How many do you need to kick in? Because I’m sure you have
conflicting signals happening all time, how do you
see through the fog? I mean, this may be the secret. MILTON BERG: You’re
asking the best question. There are no
conflicting signals. Generally, there are
no conflicting signals. GRANT WILLIAMS: Interesting. MILTON BERG: Because what we do
is we count days of a bottom. If you’re counting days of
a bottom, by definition, you’re not going to
get a top indicator. GRANT WILLIAMS: You’re
over-selling it the same day, sure. MILTON BERG: We’re
all looking for– we modeled the hundreds
of bottoms since 1900. We’re counting 1 day, 2 days, 3
days, 10 days, 12 days, 15 days off a low. You’re not going to get a sell
signal if you’re counting data from low– if you’re going to
get a buy signal. Same thing with the top. The top is a little bit broader,
as you mentioned earlier. But also, say the market
is up 5%, 6%, 8%, 10%. If such and such has
taken place at this level, I don’t want to say there
are no conflicting signals, but conflicting signals
are very, very rare. Now, how do we combine it? Well, we spent 30 years
creating these models. We have a huge
computer database, and our computers
combine the models. We combine it based on rarities. So any given day, if there
are six rare indicators, the computer combines
it and see in the past whether these six rarities
made any change in the market. So it’s really nice. It’s somewhat computerized. Of course, I have
to pull the trigger. It’s not a systematic
type of trade. But it’s serious work. First, I have to believe
that it’s doable. Now, why do I
believe it’s doable? Almost everything I’ve done
I’ve learned from people. First of all, I
mentioned Ned Davis. My first exposure to
technical analysis. There’s a great
market technician named G. Stanley Bursch. He was around for
maybe 40 years. And he taught me that
the key to a market is what took place at the bottom
and what took place at the top. Unlike everybody else who’s
trying to find information on a daily basis. That’s what I learned from him. But I also learned,
again, any technician who was successful in calling
some tops and some bottoms, taught me that it’s possible. And Marty Zweig was a fellow
I tracked over the years. And of course my favorite
technical analysis of all time– who’s
no longer with us and was a good friend of
mine– was Paul Montgomery. And Paul Montgomery– a
little bit about his history. He was a major researcher. He’s the one who developed
the hemline analysis, if you remember that one
back in the 60s and 70s. And he used to use
newspaper headline cover– magazine cover– Time
Magazine, and that was all Paul Montgomery. But what he discovered– and I’ll tell you how he
discovered it in a moment– is what’s called
cycle turning points. That sounds very strange. We’re talking about data. What’s a cycle turning point? What is it? Well, he had many of those. And I’d say he sort of
mentored me in how to use them, and I sort of developed
it a little bit further. But once you’ve established
that all market turning points are psychologically based rather
than fundamentally based– or sentiment based rather
than fundamentally based. In other words, it’s not the
rational part of your brain that’s getting you to
sell it to the lows. It’s not the rational
part of your brain that’s getting you to buy the
high tech stocks in the year 2000 paying 160,000
times earnings that we may well never have. It’s not the rational
part of your brain, it’s the emotional
part of your brain. Now, Paul was a
manic depressive, which is very, very
helpful in analyzing markets cause the markets
can be also manic depressive. And he found out that
when he gets depressed, at the same time,
markets are bottoming. And when he gets exuberant,
it’s the same time that markets are topping. So he realizes there’s something
affecting him and affecting the markets at the same time. GRANT WILLIAMS:
Yeah, it makes sense. I mean, it really
does make sense. MILTON BERG: In
other words, what’s affecting him is
affecting the markets. So I’m going to give
you one of his cycles. This is our favorite
cycle, and that is called the eclipse cycle. Now, I don’t know if you
know much about eclipses, and I don’t try to study too
much about the solar system or about eclipses. But you know that the
electromagnetic and gravitational
forces on the world are far greater
during eclipses than– for example, the
earthquakes in California we just had took place
on the July 2nd eclipse. Because when there’s
an eclipse, you have the sun and the moon
in the same direction, pulling at the tides,
pulling at the Earth. And that causes a
physical change. But eclipses also cause
an emotional change. It causes a shift in
people’s psychology, in people’s sentiment. So we monitor eclipses and
the full moon and the new moon adjacent to the eclipses. So every eclipse gives
an eclipse cycle, two cycles before and
two seconds afterwards. Because the eclipses,
the sun and the moon, affects psychology. Now, this sounds– what’s
this guy talking about? Well, let’s look at what
happened the last year. The Russell 2000, in 2018,
peaked on a cycle date. The S&P 500, on
September 21st, peaked on a W Gibb cycle day, which
is not quite an eclipse cycle date. December 24 was one
of our cycle dates based on the adjacency
to an eclipse. July 2nd, which so far is the
latest high in the market– when bonds peak now– which
I think is a major peak– is on an eclipse date. Bitcoin is having
major, major cycle– and I’ll show you
the charts later on. Bitcoin had major cycle
turns on these cycle dates. Why is it the more a commodity–
the more a capital market is affected by psychology,
the more it’s likely to cycle? So gold is always a prime
cycle because there’s no intrinsic value to gold. But most of the gold mined–
unlike any other commodity in the world, nearly
all gold that’s ever been mined in the history
of the world is above ground. GRANT WILLIAMS:
Still here, yeah. MILTON BERG: It’s still there. GRANT WILLIAMS: Yeah. MILTON BERG: So it’s
very hard to say there are fundamental factors
affecting the price of gold. It can’t be mining. People will say it’s
Federal Reserve, that’s not really true. Gold is strictly a
psychological commodity. So gold has traded
very well in the cycle. I’ll show you the
charts later on. GRANT WILLIAMS: This
is fascinating to me because a friend of
mine, Mark Yusko, gave a presentation
back in May that I saw. And he was trying– they
were trying to kick him off the stage, and
he was rattling through the rest of the
stuff he had to talk about. And he very quickly threw
in a study of full moons and new moons and
the returns that you would’ve made if you’d have
invested around that basis. And when he brought it up
the room, kind of, snickered. MILTON BERG: Yeah. GRANT WILLIAMS: Which I
find fascinating because we know that the moon
has an effect on us. We know that. We know it– MILTON BERG: There’s a caveat. This is very important. And I’ll tell you
why they snickered. They’re right in snickering. Because if you’d
stop me right here, you’d have to snicker as well. The moons themselves do not
affect markets at all times. Every eclipse doesn’t
affect markets at all times. It’s only when there’s a
combination of factors. People are already
over-exuberant about a market or very depressed
about a market. That is when the moon
affects the turn. GRANT WILLIAMS: It’s
that last– yeah, yeah. MILTON BERG: You need a
combination of factors. So we never ever trade a cycle
based on the moon itself. So, for example, with bonds
making multi-year highs on July 2nd, with people shifting
money out of equity funds and into bond funds,
all these separate– That told us that it’s
possible that July 2nd would be a top for the bond market. We ran 75% short the
long bond on July 2nd. And our stop is, if it
ever gets above that level it’s topped out. Now, we’re making money. So the snickering is because
there’s a moon every month, but markets don’t
turn every month. So how can you argue that
the moon’s turn markets? But if you understand that
the way the moon works is it shifts the sentiment
from depressive to manic, or from
manic to depressive, you wait for signs of the mania. For example, a five day volume. December 24th was a cycle,
and it turned the market, but associated with that was
the highest intraday put call ratio in history. GRANT WILLIAMS: Right. MILTON BERG: So the
moon affected me, but I already was
affected by the market. So that’s very important
to keep in mind. I’m not a lunar guy. I’m a data guy, but I
accept that the moon– I accept the things I’ve
learned from my mentors– that the moon does
affect markets, if you know how to analyze it. GRANT WILLIAMS: So why
do you think it is? Because you said
to me that people don’t understand what you
do and a lot of people struggle to believe it. And you have these
perception problems. What is it about us– bringing
it back to psychology. Why do we find it so
difficult to accept stuff like this that’s very
heavily backed by the data– that just to some people
seems a bit quirky? Why do we as humans
struggle to accept it? MILTON BERG: Well, firstly
we’re taught that we live in a very rational world. GRANT WILLIAMS: Right. MILTON BERG: We’re taught that
the Federal Reserve lowers rates, markets go up. In fact, it was once
a technical indicator. Federal Reserve lowers
rates twice, three times, the market’s rally. Because that was
the case until 2000. Then, in 2000, you
have a bear market, Federal Reserve lowers
rates all the way down. 2007, 2008 bear market–
the Federal Reserve lowered rates before
the market peaked. They lowered rates in
September while the market peaked in October. But people want
it to be rational. People are much more comfortable
living in a rational world. And I’ll tell you
something else I’ve discovered about this business. I’m not going to
mention any names. But some of the greatest,
greatest money managers have some mental quirks. They’re either on the
autistic spectrum– and there’s a reason for that. Because when you’re on
the autistic spectrum, you don’t follow
conventional wisdom. You’re able to see things
a little bit differently. So the people who snicker, or
the people can’t accept it, are very rational people. They can’t get
their mind to focus on something other than
something they’ve been taught. But people who have some
personality quirks– you know, many of
the great money managers are known to have– GRANT WILLIAMS: Absolutely. Yeah, absolutely. MILTON BERG: Part of that
disability gives them the ability to look
at things a little bit differently and do things
a little bit differently. GRANT WILLIAMS: Fascinating. But some of the guys you work
for, some of the big name hedge fund managers
you work for, are very famous for talking
about ignoring tops and bottoms and sitting in the
belly of the trend. And, you know, if I missed
the first 10% and the last 10% I’m OK with that. MILTON BERG: Yeah. GRANT WILLIAMS: When
you look at that, how does your work jive
with that sentiment of trying to capture the trend
as opposed to the turning points. MILTON BERG: OK, I’m not sure
which of these money managers you’re talking about. I will tell you– I don’t like to
mention names, but I’ll tell you George Soros is an
excellent breakout trader. He buys breakouts and
he shorts breakdowns. But he’s very disciplined. GRANT WILLIAMS: Yeah. MILTON BERG: He’s
very disciplined. So he could write many, many
books about fundamental factors in markets. But you watch him
on a trading desk, and you’ll see that is buying
is not based on the fundamentals alone but based on
fundamentals combined with action of the commodity
or stock or currency you’re looking at. I would say buying a
breakout, the reality is you’re not
getting the bottom. You’re not getting the low. Let’s say you have gold
that bottomed at 1,000 and it churned and it’s
breaking out at 1,300, you’re buying the breakout. You can argue you’re taking
the belly of the move. GRANT WILLIAMS: Sure, sure. MILTON BERG: But the
reality is, what’s making that trade– what’s
giving you the confidence to make that trade is that
pinpoint breakout– that move from $1,301.00 to $1,302.00. GRANT WILLIAMS: Right. MILTON BERG: So we’re trying
to do it at the exact turns. These people are
doing it at breakouts. But they’re still following the
same platform of discipline. GRANT WILLIAMS:
Confirmation, yeah, yeah. MILTON BERG: No one is out there
saying, the market’s up 15%, we’re in the belly of
the move, let’s buy. None of the successful
managers are doing that. These are the losers
that are doing that. These are the people
who are giving me the data that suggests
the market’s at the top. Those are the ones
that are doing it. But I’ve worked with some of the
greatest investors and traders on Wall Street, and
they all have an edge. And they’re all
non-conventional. And there are some people who
are so-called trend followers. But even trend following
has a discipline. It’s not just markets There is
a discipline to trend following. So you need to
have a discipline, and you need to have a view. And you need to
rely on your data. If you don’t rely on your
data you’re just lost. GRANT WILLIAMS: So when you
look across the landscape now do you see anything that’s
got your radar twitching? Do you see any imminent tops
or bottoms in any asset classes that have you– MILTON BERG: I’m glad you
phrased the question the way you phrased the question. Because I never see
an imminent top, I never see an imminent bottom. I only see probabilities. I never see a top or a bottom. When you make one mistake,
you miss the bottom– I was 175% short
into December 24th. I missed that one
bottom and I decided I have no evidence of a low. I’m 174% along with
the S&P up 22%. That’s crazy. So I look at probabilities. I went long and I
say, based on history there’s a strong probability
that the low is in. But since I look
at probabilities rather than assuming that
the market has turned, it gives me the
flexibility to get out. Because if I get
out, I know it’s a 99% probability that there’s
a 1% chance I was wrong. So the way you phrased
the question was what am I looking for at this point. That’s the question. Well, this is how I look
at the current market. We had a major, major low
based on the data in December– major low, really major. I say the highest intraday– GRANT WILLIAMS: Yeah,
people forget how– MILTON BERG: It was the
highest intraday put-call– GRANT WILLIAMS:
–intense it was. MILTON BERG: –ratio
in history, the number of lows relative to highs. He had a record, on a five day
basis, of net downside volume to upside volume. We had many, many, many extremes
which told you most likely we’re headed for a new bull– I called it a new bull market
rather than a bear market rally. However– and I have 27
buy signals since then, which suggests on a median
basis the market should reach– I have the number right
here, if you don’t mind– $3,276.43. On a mean basis, $3,320.65. Based on the mean of
those 27 indicators, looking at the history. However, there are
things bothering me. The one that’s bothering me is
that the market is acting as if it’s in a bear market rally. Now, what does that mean? S&P is at a new high. NASDAQ is at a new high. The Russell peaked in 2018. The New York Stock
Exchange Index peaked in January of 2018. Worldwide markets, believe
it or not, most of them peaked in 2000 or 2007, with
adjustments for the US dollar. But even on a short term basis,
with the S&P at new highs and the NASDAQ at
new highs, there are too many lagging indicators. That’s not a reason
for me to go short. GRANT WILLIAMS: No. MILTON BERG: But there are
other factors involved. I know that there’s a time
bomb that grows every day. I don’t know if time bomb
is the right word to use. But there’s something going
on underlying our economy– as a fundamental basis– that’s going to cause– ultimately cause
a major collapse. And that is the
debt outstanding. If you look at all
government debt– state, city, local. It’s about 176% of the GDP. If you look at an
off-balance sheet, pensions and loan guarantees– we’re approaching 350% of GDP. Now, that can’t continue. Another thing I bear in mind,
which is very important, is that this great bull market
we had beginning in 1982 until today, great
bull market took place in conjunction with a
great bull market in bonds. 10-year treasury yields
are down from 15.75% to– the low in the cycle
was less than 2%. GRANT WILLIAMS: Yeah. MILTON BERG: This has
goosed markets worldwide. On top of that, you have
the quantitative easing and all this other stuff. So we had a great bull
market that began in 1982, and in a sense may
have occurred only because of monetary easing–
maybe only occurred because of interest rates coming down. Maybe the only reason companies
were able to grow to the extent that they had was because
rates were coming down. They were able to
borrow free money. They certainly did. So I’m afraid that one day
that’s going to backfire. We’re going to get
a turn of the cycle. Now, this is fundamental
talk, but my data– so I say, any time I
see evidence of a top, I’m going to assume that this
is it, until I’m proven wrong. So we just went from– on the year, we
have two portfolios. One is up about 26%. One is up 28%. And we were long most of the
year– couple of short trades which failed. We got out quickly. We went short on July 2nd. We went short the S&P.
We went short the NASDAQ. Why? A, it’s a major
Montgomery cycle date. B, we have a list of
more than 100 indicators that we match to
previous market peaks. And of all these
hundred only two are inconsistent with
levels seen at market peaks. P/E ratios, invest
intelligent sentiment, the number of new highs,
the number of new lows– I may have the– I don’t have my list on
me right at this moment. But the reality is, everything
is consistent except for one thing. Except bonds, 30 year bonds
are at a six month basis and on a 12 month basis of doing
far better than they’ve ever done at a final market peak. So what I say to myself,
that’s only one indicator, it’s the bond. Secondly, hey, maybe this time
since the whole bull market may have been
generated by the fact that bonds are doing so well– maybe the hook at the
final peak in this market will be the bonds
are still doing well. And bonds are making the top
coincident with the market top. So bonds have done very
well the last 6 to 12 months into July 2nd. We went short the bond
market for that reason because the cycle may suggest
a turn in the bond market. Sentiment is totally,
totally suggesting that the bond market’s
going to turn. Because worldwide,
everyone’s by US bonds. It’s the only place
to get yield, only place to make real money. Now, this thing
about stocks as well. So we shorted bonds,
we shorted stocks, and for all I know this is it. However, I have 20 something
indicators telling me it’s going higher. GRANT WILLIAMS: Right. MILTON BERG: So
I short July 2nd, we have a stop slightly
above the highs of July 2nd. If we’re stopped out, we
go back long stocks again. I’ll retain my bond short
because bonds have far more than cycle work involved. Bonds really, really are
giving off signals of a top. But again, if I’m wrong
I’ll get out quickly. Very important is flexibility. You must remain flexible. You must know that everything
works on probability. There’s no such thing
as 100% being correct. So stocks and bonds
are risky markets. Stocks are very risky markets. You recognize you’re
taking risk and you recognize that you will
not always be right. You also recognize that you
have to know when you’re wrong. And we have– since we’re
pinpointing turning points, it’s so much easier
to have a stop. Someone who buys because,
oh, the economy looks great, I’m gonna buy stocks– how
does he know when to get out? GRANT WILLIAMS: Yeah. MILTON BERG: Times
are gonna look great by the time
the market peaks too. But if you say I’m
buying because we believe that July 2nd was a top, or
I’m buying because I believe December 24th was a low– if it makes a low below
December 24th you’re out. GRANT WILLIAMS: You’re out. Yeah, sure. MILTON BERG: If it makes a
high above July 2nd I’m out. So that’s one of the
benefits of our discipline. GRANT WILLIAMS: So
let me ask you– because this fascinates me. This idea of emotion
and sentiment, it’s ultimately confidence. You know, greed and fear are
the extremes of confidence essentially. What do you think is more
important, confidence in economy, confidence
in the markets, or– to me, what’s become
perhaps the most important is confidence in
the Federal Reserve and confidence in what the
central banks are doing having this under control. How do you measure that
and how do you adapt to it? MILTON BERG: I agree
it’s confidence, but you always have to
remember there’s one more step. There’s confidence and action. GRANT WILLIAMS: Right. MILTON BERG: Many
people may be confident that the economy is
going to do well. But that’s not going
to allow them to buy a speculative stock on margin. See, people are either confident
or they’re not confident. It’s when the confidence
translates into actions that a top is imminent
or a bottom is imminent. If people are so confident that
the market is going much lower, they sell all their stocks and
then that turn is imminent. So confidence is one thing. We don’t measure confidence. We don’t measure
sentiment per se. We measure how sentiment
reflects in the actions. And wait until you
see the actions in the data of the market. So now you’re asking the
question, the Federal Reserve, is it the economy
or is it the market? The reality is, to
me it doesn’t matter. I don’t care if people
are going crazy buying stocks because the
Federal Reserve is easing. I don’t care if people are
going crazy selling stocks because the economy is tanking. Remember that at the
low, Warren Buffett said that the
economy’s off a cliff, his companies are
all off a cliff. That was in February of
2009, a month before the low. I don’t care if
people are selling because the economy is poor. I don’t care why they’re
buying or selling. I want it to show up in my data. So if I see investors
intelligence, for example, now in the danger
zone of 57% bulls– which historically
is a danger zone– that’s not enough of a
reason for me to sell stocks. GRANT WILLIAMS: OK. MILTON BERG: But if that’s going
to be reflected in five day volume, as an example–
this is one easy example. So that’s going to reflect in
a put-call ratio with high call buying. If that’s going to be reflected
in high volume and stocks moving to the upside– which is a narrow leadership– that will possibly give
me a high probability to trade to go short. It’s very important
to know that what economists mock about
the stock market is one of the greatest things
about trading the market. One of the things they say
is, well, the stock market has cooled 18 of the
last 5 recessions. That’s true because the
stock market is not perfect. But we’re not
trading recessions, we’re trading the stock market. So if I could trade 15 of those
18 tops without a recession I’m happy. So what the
economists are saying makes no sense to stock traders. They’ don’t realize they’re
speaking to investors. They’re not speaking
to economists. Economists want to
predict the economy. They care that the stock market
predicted only five recessions. But to someone who is
trading, all I care is if the market’s
going to be up or down. That’s number one. But secondly, when I
see that things aren’t– I want to know the things
that aren’t perfect. I don’t want to ever get
caught in to the idea that I could be perfect or
that markets are perfect. That’s when you’re
going to make a mistake. So I like the fact that
even though the economy is a very good indicator
for the stock– even though the stock market’s
a very great indicator for the economy, I’m glad
to know that’s not perfect. That shouldn’t be perfect. If anything should
be perfect, it should be the stock market
correlation with the economy. And that’s not. So it’s always important
to keep in mind, in this business
nothing is perfect. It’s all probability. We’re not perfect. I’ve been in the business
for quite a number of years and I realized– you know,
my background wasn’t finance. So I wasn’t taught by professors
or by the academics how markets are supposed to work. So I had to learn
that on my own. And fortunately I think I did a
fairly good job for my clients. And I hope to
continue doing that. GRANT WILLIAMS: Milton,
that’s the perfect place to wrap it up. We’ve talked longer
than we said we were. And I can sit here
all day because I find this stuff fascinating. But again, thank you so
much for agreeing to do this and coming to spend
the time with me. MILTON BERG: I
really enjoyed it. GRANT WILLIAMS: I’ve enjoyed
every second, thank you. MILTON BERG: I
really enjoyed it. Thank you so much. GRANT WILLIAMS: Well, I promised
you a fascinating conversation. Milton is, as I said, a very
quiet Wall Street legend. He’s a fascinating guy. And the work he does
is truly extraordinary. And it splits opinion. A lot of people say this
is all bunkum and hooey. And a lot of people
are fascinated by the work Milton does. But one thing’s for certain,
there’s a rigor to it and a discipline to it. And his performance
speaks volumes. So I hope you enjoyed that
conversation as much as I did. And I hope I can tempt
Milton to come back again. It’s taken me a long time
to get him to sit down with me for the first time. Hopefully, the gap between
this and the next time won’t be so long. – Did you know that
some of our shows, including the one
that you just watched, are available on
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Can You Beat the Market?

♪ [music] ♪ [Tyler] On average, even professional money managers
don’t beat the market. Why not? It’s not because
money managers aren’t smart. I know people in this sector,
and they’re very smart. Rather, it’s a reflection
of the power of market prices to quickly reflect
available information. This leads us
to Investment Rule #2: “It’s hard to beat the market.” First, let’s consider
some possible investment advice. You’ve probably heard that the American population
is getting older — and that’s true. The number of people
aged 86 and over, for instance, is projected to increase
dramatically over the next several decades. To profit from this coming aging
you might think, well, you should invest now in products that the elderly
will want or need, such as nursing homes,
pharmaceutical firms, and companies
that make reading glasses. That’s good advice, right?
Well, no, not actually. What I just said was
useless investment advice. Why? It’s useless because the aging
of the U.S. population isn’t a secret:
it’s public information. And so the value
of that information is already incorporated
in stock prices. Suppose, for example, that
you took this investment advice and went out
and bought some shares in a firm that manages
nursing homes. For every buyer, there’s a seller. Why is the seller
of those shares selling? Doesn’t the seller know that the American population
is aging? Of course that’s known! And so the price already reflects
this public information about the aging. So don’t expect
to make extra profits based on public information. In other words, if your theory of why a trade is going
to be really profitable is that the person on the other
side of the trade is dumb. Well, that’s usually a bad theory.
Maybe you’re the dumb one. This idea is the foundation
of what is called the Efficient Markets Hypothesis. The prices of assets,
such as stocks and bonds, reflect all
publicly available information. And that means, if you’re investing
based on that information, you won’t be able to systematically
out-perform the market over time. Think about it this way: on average, buyers have
just as much information as sellers, and vice versa. So that means a stock
is just as likely to over-perform the market
as it is to under-perform. That’s why Burton Malkiel
called his book, A Random Walk Down Wall Street. In fact, the mathematical models
used by economists to understand the motion
of stocks and stock returns are the same models
developed by Einstein to explain Brownian motion: the jittery random movement
of small dust particles as they’re bumped into
and buffeted about by atoms and molecules. Stock returns are hard to forecast because old information is already
incorporated in stock prices, and new information is
by definition unexpected, or random. What if you’ve got a hot stock tip? Can you then beat the market? It’s still highly doubtful. New information comes
to be reflected very quickly in prices. Here’s an example: At 11:39 Eastern Standard Time on January 28th, 1986, the space shuttle Challenger
exploded in a great tragedy, killing everyone on board. Eight minutes later, that news
hit the Dow Jones wire service. Things were slower back then
before instant messaging. The stock prices
of all the major contractors who had helped
to build the shuttle, such as Morton Thiokol,
Lockheed, Martin Marietta, and Rockwell International,
all fell immediately. Now here’s what’s
really interesting. Six months after the disaster, a commission was set up
to investigate the cause, which turned out to be
the failed O-rings made by Morton Thiokol. Now let’s return
to the day of the crash. On that day,
Lockheed, Martin Marietta, and Rockwell International
all fell by 2-3%, but the stock of Morton Thiokol
fell by over 11%. The market had correctly
figured out that Morton Thiokol was the most likely
cause of the disaster, and within hours
that information was reflected in market prices, even though a formal investigation
had not yet begun. In essence, the people
with the best knowledge about the likely causes
of the crash could either trade themselves, or tell other people how to trade. And so some investors
started selling, and the price of the Morton Thiokol
shares started falling, and that new and lower price
was reflecting the new and lower value
for the company. Now that was back in 1985. Nowadays, new information
starts to change markets, not in hours or minutes,
but in seconds or milliseconds — literally faster
than the blink of an eye. Okay, now one important point
before we conclude. Stock prices aren’t
pure random walks, but rather random walks
with a positive upward drift. It’s how well you do relative
to the average market return, which is hard to predict. On average, investors can expect
to make money over time, and in this sense, some broader
general predictability is present. Okay, so Investment Rule #2 says you shouldn’t expect
to beat the market. So how should you invest? That’s the issue we take up next. [Narrator] Check out
our practice questions to test your money skills. Next up, Alex reveals
how an old saying leads us to Investment Rule #3. ♪ [music] ♪