Victor, thanks.
It's great to sit down.
Two people that are Dallas-based.
Maybe I'll even start just by saying that there are a lot of people that have been on
Real Vision lately that are talking purely about the markets and kind of a broad sense,
bull market, bear market, credit bubble, not credit bubble, whereas maybe you have some
kind of more nuanced views.
But if we take a step back, maybe somebody watching the interview would say that we could
possibly be from different investing generations.
But I think from what I know about you, we might look at markets the same way.
So here maybe 10 years or so into a monetary experiment, just generally, what do you think
about markets now and where we are maybe in the market cycle, the economic cycle, et cetera?
OK, well these two integrated parts to everything you do in Wall Street, and that's the fundamental
and the technical, simple.
There's also the psychological and the emotional side of it, but--
Sentiment.
--just for the point of your question, we're in a bear market.
It's 100%.
Now why do I say that?
Perhaps a background to people listening would be important, because it's a very solid statement,
so I want to give you the background.
Now I started on Wall Street in '66, and I started trading in '68.
Now I've probably read 3 plus 1,000 books.
One of the books was a book by a fellow named William Gordon, who is the CEO of Indicated
Digest.
Now that's before your time.
They were a major force in the technical end of the business in the '60s.
And they took the 10 major indicators at the time-- now they had odd lot theory, things
that nobody even knows what that means.
And they traced that back to 1900, 10 different indicators, and then many permutations of
those indicators.
So the one that came in first was the simplicity of using a 200-day moving average, trading
days, and when the price-- whether you use S&P, the Dow was popular at the time-- closes
below that, and the moving average is sloping downwards, it's night and day if it's sloping
upwards, think down.
Sloping down, which you sell, and then you would buy in the reverse.
That concept, from 1900 to 1966-- book came out in '68-- yielded 18 and 1/2 percent compounded.
I took it forward.
We have a trading staff research firm, and we have three PhD math professors, et cetera.
And we ran it forward, and they were similar.
Now the second best technical indicator was Dow theory.
Came in at 18%.
Again, similar results.
Compounded at 18%.
Now the one thing that I did that Bill Gordon didn't do, was that using real money as such,
when you sold, you put the money in 1-year bills.
He didn't add that dimension, so mine, perhaps, was a little less than the 18 and 1/2%, because
I added to it by getting yield when I was in cash.
So now these two indicators gave bear market signals, one in October, the 200-day moving
average was the first, and then later in early December, Dow theory confirm.
So you're in a bear market, and as far as I'm concerned, unless something changes--
now nothing is infallible-- but I lean very heavily that these are accurate.
The other part would be the fundamentals.
Now, you heard the expression that the market is predicted 14 out of the last 10 recessions,
and a lot of people use that.
Well, that's a very naive statement by anybody who uses that particular phrase.
Why, is because the market doesn't only predict recessions.
It predicts things that can occur that would make the market go down, like war.
It predicts war.
It predicts political change.
For example, in '62-- and I was a young lad, I was a teenager then, but I was following
the markets-- and JFK, who a very well-respected President at the time, he attacked the steel
companies for raising prices, no different than Trump today on many different aspects.
He attacked them.
Well in those days, it was looked at as socialism, and socialism then was not accepted as even
a consideration, because we were fighting with the Soviet Union, Cold War so to speak.
So the market dropped 26% in less than three months, but no recession followed.
The reason was that JFK realized he blundered, and he backed off.
He dropped it.
So he didn't attack the steel companies anymore for raising prices, and the markets reversed.
So like I say, there are many instances of that over the years.
It doesn't mean the market's wrong.
It means the market predicts many things.
Now, when you have the Fed raising rates, as Jerome Powell did in September, and recently
on December 19, that is a fundamental event.
Everybody knows, that's why everybody follows the Fed, that if they're raising rates, markets
don't like this, and you're taking away the punchbowl, was the old expression.
And basically, you go into recession every time the Fed does this.
Now let me just preface that I think Powell, and the other nine members who voted to raise
rates the extra quarter, even though it was very well-discounted, was a major error.
This is going to go down in history as one of the worst errors the Fed has ever made,
including the 2932 debacle.
So I look at that as long as they keep on track-- now they're already talking down the
other cuts, Kaplan from Dallas is already saying, well, maybe we should wait till after
the second quarter and I mean, they're already backing off-- but if you change the fundamentals,
you change the outcomes.
So if they back off from right now selling QT, and the rise-- the two more increases
in interest rates-- you have to consider that.
And that may change the trends of the markets because the fundamentals are changing.
But the key is that right now, it's going to be very hard to do that.
And the reason is, the world is heading into recession.
Europe, Japan, China, the virtual world.
We were the strongest economy in the world, and now, this psychological switch like turning
off a light changed everything.
So we are weakening.
The data, if you looked at the Richmond Fed and you looked at the Dallas Fed results,
the economy's already weakening.
So this was because of, in my opinion, ego and perhaps even some politics.
Jerome Powell was adamant about what he did.
And there were many other people besides, obviously, Trump, that didn't want him to
do that, that was the wrong move.
So we're in a bear market.
Bear markets, by the way, you go back to 1899, the market, once it proclaims a bear market,
six months is the average, you're in a recession.
So what the markets are saying now, all things being equal, in July you're going to be in
a recession in the United States.