The Turning Point Master 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 is close to a top or has topped, or the market is close to the bottom and has a bottom. In their mind, this cuckoo, this is nuts, this is impossible, we were taught this can't be done. So you need to have 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. 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 has 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've been looking forward to it for a very, very long time. 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 very well-known earlier. Well, I'm glad we 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 time. So if you can just give us a quick potted history, that will be fantastic. Okay. 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 or 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 '70s, and then I started to study the market. I received the CFA, one of the earliest ones, number 6881, now there are in hundreds and hundreds of thousands. So one of the earliest CFAs. So I studied pure Graham and Dodd Fundamental Analysis, I felt that's what you have to know to do well in the business. I studied accounting and finished a statement analysis, in 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 says average performance and a lot of the analysis doesn't really contribute to the earning money in the market. So I was exposed initially to Ned Davis, who was then working at J.C. Bradford, he was the first technical analyst that I was actually exposed to. I was fascinated because I saw there's more to the market than what I perceived Graham and Dodd was teaching me. From then on, what I did 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 mutual fund organization, then I started managing money for mutual fund organization. I worked at Oppenheimer Money Management, I was managing three mutual funds in the 1980s. Actually, in '87, I managed the three top funds in the country. At that time, I already had the discipline of trying to call tops and bottoms. We got to 80 percent cash before the crash in October, we got raised cash in September. Then I worked as a partner with Steinhardt, I took off for a few years, I moved to Israel with my family. I then went to work for George Soros, who still with Druckenmiller. I worked with Stanley at Duquesne, we always did research. Over the last six years, I've been doing the same research in all the years for other firms, doing it for myself and marketing the research, selling the research to clients. So currently my clients, really are the titans of hedge fund industry. The type of work I do is very atypical, people look at it, they don't understand it, they don't necessarily accept it, but the clients who have been people dealing with it for years understand that it's much value-added. 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 assemble the pieces of the jigsaw. Okay. Well, one thing I realized in studying Graham and Dodd, Benjamin Graham was, was that Graham was actually a technical analyst. You see already people are going to be people, what? People know Graham, at the end of his year, he said, "We give up all research and we're just going to 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 just look at numbers," PE ratios, price-to-book value, what the price of the stock is relatively to it's last five-year high, which was really technical analysis. I bet yourself, 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 1960s, he suggests that the only reason he is a value analyst is because experience shows him that it works. Yeah. 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 isn't it ever traded at $60? Why does it remain at $20 forever?" In other words, the question is if the stock you'd be trading be undervalued today, why can't it be undervalued forever? Sure. Why must this like ever reach intrinsic value? Really, the Benjamin Graham's whole theory was the theory of intrinsic value. He said. "I have no answer to this question, it's a mystery." What I know from experiences, that if you buy a cheap stock, eventually it will trade at a fair value. That's his answer, it's a mystery. Once we're dealing in mysteries, I figured there must be many more mystery than strictly value. So there are far many thing we look at that create market movements other than value, and I think intrinsic values is the technical indicator. In Graham's thought, the more stock is trading, it blows intrinsic value, the more likely is you'll make money because it's going to trade back towards intrinsic value. But there's no inherent reason for a stock to at trade intrinsic value. Of course, the question, a very valid question, if a stock can be overvalued today, why can't it be overvalued forever? Yeah. If stock can be undervalued today, why can't it be undervalued forever? 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? So what I try to do is say is a 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 the market not necessarily random? Is there some edge you can have? Of course, Benjamin Graham did not believe the markets are random because there wouldn't be an undervalued stock if the market will be random, it would be efficient, everything will already be traded in intrinsic value. But the reality is I found that the market generally is random. On the 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 reasons for the next week's move or most likely, explaining the reason for last week's move. 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 and the market generates data that tells if you the market is close to a top or has topped, or the market is close to a bottom and has bottomed. So what we call that is a turning point analysis. At turning points, the data generated by the market is no longer random, in fact if you take a bell curve, for example, and let's track something as simple as five-day volume. You look at the average five-day volume at the center of the curve, if 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 now we're at a market low, everyone is selling their stock because of 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 things. That tells you that the impending turn in the market, we see that's just one indicating an increase in five-day volume as an example. So let's just jump back in time to '87 because that was a call, you famously got right to the day. It was extraordinary, the story of your work around '87. So take us back there and talk about in the days leading up to there, and perhaps the month before September, what did you see and how did you go about making use of that? Well, we saw a spike in volume on August 11th of 1987, biggest spike in the five-day volume that we look at. The market actually peaked a couple of weeks later, less than two percent above that level, that was the first indication that something is going to change and the logic of it is, why would the volume increase in the market of 30 percent of the previous 12 months? Why all of a sudden, people jumping in and volume increasing? There has to be a reason for it, and the reason is because people are now comfortable about the market and they're speculating, market went up 30 percent for the last 12 months, let it go up 38 percent for the next 12 months. So volume is not just an indicator which is suggesting a turn in the market, it's telling you something. It's telling you that something in the nature of this market has changed, a more speculative dollar has come into this market. Technically, it was on August 11th, 1987, I wrote many reports saying the top is not yet in. On September 4th, '87, the Fed raised rates for the first time and that was always lacking from indicators that I look at again. To my opinion, raising rates is a technical indicator, the raising rate of one-quarter of a point, and that caused the crash. So it's not as if that one-quarter of a point had a fundamental effect on the economy, a present corporation and borrowed money, had no effect at all on the economy at all, it had some effect possibly on psychology, whatever it was, that combined with other things we saw in '87 suggests that the market was very vulnerable Of course, valuation was the highest in history. Yeah. 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, was also highest in history. So it wasn't strictly the price of stocks were the highest in history, but actually the preference for stock yields over bond yields, was highest in history. When you think about '87, we had a very different market back then. We had a very different set of inputs and one big plan the Federal Reserve had a much lesser impact on markets. When you look at these 10 clinic, I just go back so far. How do you adjust for today, and the over-sized impact of the Fed Reserve? Well, you say so far, we have indicated going back to 1900. Sure. We track 30,000 indicators on a daily basis. So '87 is modern history. Yeah. Absolutely. But yes. The story is this, and this is also Benjamin Graham. Benjamin Graham has been misquoted, very much misquoted. They said that Benjamin once said 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, the many many long-term companies now have an Internet, that were very undervalued. Now, if stocks are fairly valued over the long term because the market is a weighing machine, why would a stock ever be undervalued of a stock of a third year history of earnings? Its long-term. If in the long-term markets are weighing machine, let General Motors always be weighed, let General Lake and Oils 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 in the book Graham data analysis, he says, ''Because although possibly, fundamental factors affect stock prices, and possibly monetary tax affect stock prices, and probably psychological factors affect stock prices, the reality was, in order for a stock price to change, you need a buyer and a seller.''. Yeah. 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. That's 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 and nearly I'd say, all trends in 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.'' The market is definitely going to collapse if they ever raised rates and one-day 400 basis points. It's not because of any effect fundamentally on the economy at all at that time, because it takes time. They say nuts are going to raise rates in six months, the market collapsed today. Yeah. There was no fundamental change in any company at all. Is just a psychologically that people understood that in the future, we're very poor, and still now it's a vote. Some of them might argue, oh, there have been so much inflation when Volker raised rates. In fact, markets went up. He raised far more than 40 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 coming to do better in the future when they buy the stock. But it is very difficult to quantify human behavior. Markets are essentially the collective representations, human psychology. Yes. That's it. There's nothing more really to your point. Exactly. So how do you go about building some framework that captures the uncapturable? Yes. Let's look at the bottom in December. If you don't mind, I can look at some of my notes. Yeah, sure. If I have it available. Let's look at the bottom in December of this year. Federal has just raise rates. Aspedo is down 20 percent, Russell was down 27, in just a matter of less than three months I believe. The peak in the Dow was in October, the button was December, the Russell peaked in August. Markets down nearly 30 percent. Now, we call the bounty of the day. We were 100 percent short on December 24th, by the end of the day, the mark was at four percent, we were up three-quarters of one percent, recovered a short and went long on that day. Why? Yeah. What is it? Then he asked you a very valid question. Is it difficult for archives to evaluate the psychology? How could a market analyst not evaluate psychology? So just as the example I gave earlier, when you see a big increase in five-day volume, is 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 do the buyers come in, price had come down to compensate for the fact that people weren't willing to buy. Let's look at the December. From December 19th till December 24th, the day of the law, we saw five-day volume surge, highest five-day volume in two years. We saw what we call 10-day reverse thrust, which is the opposite of a client line surge. The number of stock is down, the relative stock is up, also to great extreme. That's just a number. It's a data point. But why would all of a sudden people be willing to sell so many stocks because attended events decline? Although we look at it as data, it's actually psychology, it's actually measured. Yeah, sure. It's pixelation. We saw the number of new highs and new lows on both a one-year basis, two-year basis, and three-year basis. We also had extremes. We looked at the five-day rate of change definitely at 100, and so on and so forth. These are the things that you look at in the bottom. So thrust is just data calculated by the 30,000 indicators. Yeah. But it's in my view and I got some poor 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. 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 this 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 say like a rounding top? Bottoms in stocks are always V-bottom always. Tops in commodities are always V-tops always. Now, the question is why? Why does stock bottoms generally V? It's also psychology. In the stock market, people fear with far greater motion and greed, far greater motion. When people are fearful, all of a sudden, they look at it for one case, they look at the brokerage statement. They look at the fact they have this loans payoff with the catch can come from. So they panic at the lowest and commodities, which is a trade of the commodities market, it's really a zero-sum game. Can be long, there's a short. Okay. So the exposure to the short side is far more dangerous than exposures to the long side. If you have longer market, you can loose your capital, if you have shorter market, because cap of market. Since commodities are a zero-sum game, the futures market was very long as the short, the panic taking place when the market is rallying, because every long had to have a short. So that also proves that psychology turns markets. In commodity, psychology takes place to the top. The great dramatic shift in psychology takes place at the top, wherever there's fear for losing money, covering the shorts, and then open the market in turn. In the stock market, the other way round. Now, I don't necessarily agree that the nature of markets have changed. I still see generally the stock market, and its middle-term basis, long-term and short-term basis, I still see V-bottoms, but one change is, you're seeing tests. For example, the low in 2,000, we had our first low in July of 2002, and then market gained more than 20 percent, made a new low in October of 2002, gained 24 percent, made a slightly high or low in March of 2003. Each of those bottoms were V-bottoms, but there's 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 think in broader picture. In my opinion, if you traded the market right, you got long in July 2002, you get out in August, made 20 percent. You get short, you get long in October 2002, you made another 20 percent, sold up 24 percent, you went short. So I looked at three separate markets, each one showing a V-bottom. But the typical analysts say, ''Wow, he bought in July 2002, he held through the rounding bottom, you did very very well.'' Well, You did very well, but basically, that is where the market is. Everybody has impeded. You're lucky to have gotten long if you're short. You basically with the marketed, but he recognized that every turning point in the market as indicated suggested that 20 turning point, your attempt to do far better than all the mark. Now that we brought this up, let me just take it one step further. This is really where people doubt what we do and people don't understand what we do and what we do it. At $1 in the Dow Jones Industrial Average in 1900, January 1st, 1900, and you held, not look at dividends just held here. Your $1 would have grown, you can guess if you'd like. No, go ahead. It grew to $658, which is an amazing return. Okay. Six hundred and fifty times the money. That's to today. That's to today. Yeah. This is up to June 30th. We're close enough. If you got $58 which is, these long-term investors like the Nobel Foundation who has been around for over a 100 years, they could say, ''Well, let me take a long-term view on stocks.'' A $1-$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 they deserve it or not. However, let's say somebody only traded 73 times over the 120-year period, 73 times. But he happened to buy stocks at exact day of the bottom, and he added the short stocks at exact day at the top. Now, I'm not going to ask you to guess. That dollar would not be worth $600 or $800 or $1000, made 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. Right. But am arguing since you see how compounding boom market and bear market makes you so much money, why not attempt to do it? Sure, absolutely. Why not attempt to do it? Like everything else in this world, there are many people may attempt to do it, and maybe it will be one or two or dozen people successful at it, but people do and don't attempt to do it. I don't know anyone who has a hedge fund whose goal is to be 100 percent long term bull markets and 100 percent short-term bear markets. They don't do it. The clients wouldn't think it's going to. I think that's it. Its the client suffering. Well, that's the client, is the consultant side, it's psychology side, it's a business school side. I've just met about two months ago believe it or not, with. 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 fund that can have high capacity. High capacity meaning at least a billion dollars. Of course, if you're going to trade along the S&P, assure the S&P, that's easily have a high capacity. Sure. I imagine it is 10 or 20 billion capacity. 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 longer to the top of bull markets, attempt to go shorter the top of bull markets, attempt to go longer the bottom of bull markets. I said we're not going to catch every top or bottom. We're actually without even looking at bull market, we will look for 15 percent moves. We don't need that every 30 percent move, just let if you count every 15 percent move since 1900. You have six quintillion dollars, 18 zeros after the six. But the point being, we're not going to have a return. But we think we'll have returns far greater than the market. It's out for me as 5th day, simple transparent program, but in order for you to do the program, you have to have an hedge. Yeah. Your hedge has to be able to quote tops and bottoms. We spent years and years analyzing tops and bottoms and trying to pull hedges. 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, there's a market should I buy stock, shall I lose. They read all the analyst reports. The reality is if you quote the bottom, you can usually sit tight for quite a number of months before worrying about the top. Yeah. If you quote the top, you can usually sit quite a number of months before you worry about the bottom. Now, I was talking about the sentient psychology we saw in December. We have 27 bicycles beginning in January 4th. Twenty-seven distinct bicycles all based on the fact that we've modeled every bottom since 1900. We've modeled every top since 1900. We've modeled not only the 38 major bull and bear markets. We've modeled to every move of seven percent or greater. So we've modeled every move of seven percent or greater. I have to admit that we can't catch every seven percent move. We can't even catch every 15 percent move. If you only catch every other bear market, you will still way outperform the typical hedge for the typical investors. So let's look at what happened this year and how we implement our work. January 4th, there's a number of trading data. I think it's not even 10 trading days off the low. They actually have seven. Yeah. Because you have Christmas, you have New Years. Sure. January 4th was seven trading days off the low. The S&P 500 was up at three percent on that day since this took place seven days off the 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 of the bottom, no new low, two days of the bottom, no new low, three days of the bottom, we publish a report called boundaries to technical analysis in the Market Technicians Journal. You see a low and you count the day it is for 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, we saw an extreme of net new highs over total issues was minus 18.20 percent. That's the cutoff. That's an extreme. Seven days later, the S&P was up more than one percent at higher volume. We looked at every time in history, we saw this type of a low, also a low, and the seventh day after the low, history is up just one percent the greater in higher volume. That only took place twice before, but the median gain 12 months later was 35.42 percent. Now, people ask it only happened twice before, but that's exactly the point. We're trying to find aberrations which are trying to evidence that this time is different. If it happen a thousand times before, then you just a random analyst. Right. It happened twice before and each of those times the market rise significantly. This is something significant, just the opposite of what people think intuitively. Yeah. People want thousands of examples. Well, if you get a thousand examples, you get randomness. If you only get just a few examples of extremes, and this is very simple, almost so low based on the number of highs and lows. At day seventh up one percent, they're greater on higher volume. Beautiful. Simple. Sure. We're already long at January 4th. That's the first bicycle. So we have 27 bicycles. Another example. January, very simple, this is not my own bicycle. I looked at the signal from Ned Davis research, you know Davis. I think [inaudible] 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 was greater than 1.9 to one. Very simple indicator. I think actually the chart is, it goes back to the 1960. I think you'll see this indicator. If you look at the 10 days advance of the decline, if it's greater than 1.9 to one, you'd buy the market. Now, historically, the median gain within the next 12 months is 22.01 percent. We've gained 15.60 percent 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 1.9 to one 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 9 days after the low. But having 10-Days Advance/Decline line, including a negative day, which was 10 days ago and you still had a 1.9 to one. So what do we do? We don't just say, well, it looks to us that there is a high probability of the market's going to go up. No. We tell our clients if you're not long yet, get long. But what if it doesn't work this time? What if it doesn't work this time? You'll get out. Right. Because historically, we have a list of the drawdowns. Generally, the drawdown is less than three percent. So if you're going to mock the client's three percent, get out lose three percent. But take the risk, follow the data, follow the indicator, and get it to the market. But this is trust. This comes down to trusting the data 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 overtime it works. 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 see it all the time. They don't think it's possible. I say to you and you're smiling, hey, this sounds great. No. It's fascinating. When I speak to someone who's never seen this before, in their mind, this is a cuckoo. This is nuts. This is impossible. We were taught this can't be done. But that's exactly it. We were taught it can't be done, so people don't try this. Exactly, they don't try but. This January, there's going to lose some of that old not all 20 of indicators, I'm going through some of them. They in January 9th, the next day. At the low, the five day volume was greatest in two years. But we cut it off at six months. At the low, which was probably 12 days before, we had a high five day volume. On this day, the 10- day advancing volume over the declining volume, is greater than 70 percent. This is our own indicator. Rather than losing advancing issues over the declining issues, advancing volume over the declining volume is greater than 70 percent. It's just those two indicators. This took place six times prior, the median gain over the next 12 months is 23.40 percent. The worst drawdown was only 5.6 percent. Right. So again, if you guys haven't trust it. The second worst drawdown was 2.7 percent. What if the person ignore the 5.6, I'll get out if it declines to 2.6. 0.7 sure. It declined minus 0.09 percent the next day. That was it. The market continued to higher, for example, 15.30 percent since then. I can go through many indicators. The point I want to make is that although we try to pinpoint the low, we also feel that close to the low, if measure is not yet random. Once you get two or three months out of the low, general information is written. Although we did get a new bicycle yesterday while we were short, which is kind of funny. But we got a bicycle which we got yesterday is based on five-week Advance/Decline line. Now, five-week it's a very blunt instrument. Sure. You look at five weeks of data. So has very huge drawdowns of as much as 11 percent. Although each time we saw this indicator, the macro was up significantly over the next 12 months, but it's not indicated why I tell a client bye bye base to this. If I to say to a client should have bought in January, you'd be holding and sitting pretty right now. 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 happen all the time. How do you see through the fog? I mean, this might be the secret. You're asking the best question. There are no conflicting signals. Generally, there are no conflicting signals, so what we do is we count days of for bottom. If we're counting days of a bottom by definition, you're not going to get a top indicator. We're all looking for bottom. We modeled the hundreds of bottoms since 1900. We're counting one day, two day, three days, 10 days, 12 days, 15 days of a low, you're not going to get a sell signal if you counting days of the low if you're going to get a bicycle. So same thing with the top. Top is a little bit broader, as you mentioned earlier, but also we say the market is up five, six, eight, 10 percent and such and such is taking place at this level. I don't want to say that there are no conflicting signals but conflicting signals are very, very rare. Now, how do we combine it? Well, we spent 30 years creating this model. We have a huge computer database and our computers combine the models. We combine it based on reality. 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. It's somehow computerized. Of course, I have to pull the trigger. There's not a systematic type of trade, but it's serious work. First, I have to believe it as doable. Now, why do I believe is doable? Almost everything I've done, I've learned from people. First of all, I mentioned that Davis is my first exposure to technical analysis. There is a great market technician named [inaudible]. He was around for maybe 40 years. 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 is trying to find information on a daily basis. That's what I learned from him. But I also learned again, any technician who is successful in calling some tops and some bottoms taught me that it's possible. So [inaudible] was a fellow I tracked over the years. Of course, my favorite techno of all time no longer with us was a good friend of mine was Palmer Gamry. Palmer Gamry 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. Yeah. He used to use newspaper headline, magazine cover of Time Magazine, that was Palmer Gamry. He discovered and how in a moment, in what's called cycle turning points. That sounds very strange to make data. What's a cycle turning point? What is it? He had many of those. I'd say he mentioned them on how to use it and I developed 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, that was not the rational part of your brain that's getting into selling the loads. Yeah. Not the rational part of your brain that's getting to buy via the high-tech stocks in the year 2000 paying 160,000 times earnings are shown at half. Correct. It's that the rational part the brain or is the emotional part of your brain? Now, Paul was a manic depressive, which is very helpful in analyzing markets. [inaudible] He found out that when he gets depressed, at the same time, markets get abandonment and when he gets exuberant, at the same time that markets are topping. So he realized there's something affecting him and affecting the market at the same time. That makes sense. It really does make sense. What's affecting him was affecting the markets. Summoning one of his cycle, which is our favorite cycle, and that is called the Eclipse cycle. None of you know much about eclipse. I'm not trying to state too much about the solar system, about eclipses. But the electromagnetic and gravitational forces on the underworld are far greater during eclipses. For example, the earthquakes in California we just had, took place in July 2nd eclipse. Because when there's eclipse and sudden movements in 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, people settlement. So we monitor eclipses and the full moon and new moon adjacent to eclipses. Every eclipse has eclipse cycle, two cycles before, and two cycles afterwards. Because the eclipse is the sun and the moon affects psychology. Yeah. What's this guy talking about? Well, let's look at what happened last year. Russell 2013 picked on our cycle date. The S&P 500 September 21st, picked on a W Gain cycle dates. There was not quite eclipse cycle date given, December 24th was one of our cycle dates based on the adjacent to eclipse. July 2nd which so far as the latest high in the market. It's when bonds peak now, everything's a major peak is on the eclipse day. Bitcoin is having major cycle and I'll show you the charts later on. Bitcoin had major cycle turns on the cycle lists. Why is it? The more a commodity, the more a capital market is checked by psychology, the most likely to cycle. So gold isn't always a prime cycle because no intrinsic value to gold, the intrinsic value, but most of the gold mine or like any other commodity in the world, nearly all gold that have been mined in the history of the world is above-ground. It's still there. It's still there. So very hard to think their fundamental factors affecting the price of gold can be mining. People who say it's Federal Reserve, it's not really true. Gold is strictly a psychological commodity. Gold has traded very well in the psychometric testing. This is very true because a friend of mine once used every presentation back in Maido. They were trying to kick him off the stage. He was rattling through the rest of the Soviet. He very quickly threw in a study of full moons and new moons, and the returns that you would buy if he'd invested around that basis and when he brought it up, the room snicked. Yeah. Which I find fascinating because we know that the moon has an effect on us. We know that. The opposite of the caveat visit very important. I'll tell you why they snickered. They were right in snickering. Because you'd stop me right here, you'd have to snicker as well. The moons themselves do not affect market at all times. Every eclipse doesn't affect markets at all times. It is only when the combination of factors. People are already over exuberant about a market or very depressed about a market. That is when the moon effects. It's last year. Combination of factors. So we never ever treat a cycle based on the moon itself. So for example, with bonds making multi-year highs in July 2nd, with people shifting money out of equity funds, inter bank funds, all these sets we do that told us that it's possible that July 2nd will be a tough for the bond market. Went 75 percent short to long bond on July 2nd, and I stop it so the giver gets above that level was stopped out, right there we're making money. Yeah. The snickering is because there's a moon every month. Sure, market don't turn every month. Sure. So how can you argue that the moon turns 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, five-day volume. December 24th was a cycle that turned the market, but associated with that, was the highest inter they put call ratio in history. All right. 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 and accept the things that I've learned from my mentors, that the moon doesn't affect markets if you know how to analyze it. Why do you think it is? Because you said to me that people don't understand what you do and other people struggled to believe it, and you have these perception problems. What is it about us to bring 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 assume and struggle to accept it? Firstly, we're taught that we live in a very rational world. Right. We're taught that Federals Reserve lows rates, markets go up. In fact, it wants to tackle indicator. Federal lows rates twice, three times, market rise. Because that was the case until '90-2000. Because there in 2000, there were bare market Federal low rates, all the way down, 2007, 2008 beer market Federal Reserve market load rates before the market peaked. The load rates in September while the market peaked in October. But people want to be rational. People are much more comfortable living in a rational world. I'll tell you something else I have discovered, that is business. I'm not going to mention any names. But some of the greatest money managers have some metal quirks. They are either the autistic spectrum. Yeah. There's reasons for that. Because when you were 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 who can accept it, are very rational people that can't get the mind to focus on something other than something they've been taught. But people who have some personality quirks, many great money managers are known to have it. Absolutely. Part of that disability gives them the ability to look at things a little bit differently. But some of the guys you work for, some of the big name hedge formers you work for are very famous for talking about ignoring tops and bottoms, are sitting in the belly of the trend. If I missed the first 10 percent and the last 10 percent, I'm okay with that. When you look at that, how does your work jive with that sentiment of trying to capture the trend as opposed to the turnkey? I'm not sure which names you are talking about. I will tell you, I don't like to mention names, but I have to say George Soros is an excellent breakout trader. He buys breakouts and he shots breakdown, but he's very disciplined. Yeah. So he could write many books about fundamental surges and markets. But you watch my trading desk, you'll see that his buying is not based on the fundamentals alone, it's based on fundamental combined with action of the commodity or stock or currency you are looking up. Yeah. I would say buying a breakout in reality is, you're not getting the bottom, you are not getting the low. If the market, let's say you have gold in bottom that 1,000 and it churned and it's breaking out at 1,300. You are buying the breakout, you can argue, you are taking the belly of the moon. Sure. But the reality is what's making the trade, what's giving you the constant to make a trade is that pinpoint breakout that moved from $1,301-$1,302. So we're trying to do at the exact terms. These people are doing it at breakouts, but they still follow the same conformation. No one's out there saying, the market's up 15 percent where the value of the move, let's buy. None of the successful managers are doing that. These are the losers doing that. These are the people who are giving me the day that suggests the market is at the top Those are losing it. But I've worked with some of the greatest investors and traders on Wall Street and they will have an edge, and they are all non-conventional. Yeah. There are some people who are so-called trend followers. But even trend-following has the discipline. It's not just mark it. It's a discipline to trend following. So you need to have discipline, you need to have a view, and you need to rely on your data. If you don't rely on your data, you just lost. When you look across the landscape now, do you see anything that's got your radar twisting? Do you see any imminent tops or volumes or any asset losses? I'm glad you actually 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. Yeah. I never see a top or bottom. When you make one mistake, you miss the bottom, 175 is insured in December 24th. I miss that one bottom and I decided I have no evidence for low, 175 percent long with the SBA up 22 percent? That's crazy. So I look at probabilities. I went long and I say, based in history, there's a strong probability that there is low-ism. 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 well, it's 99 percent probability, there's one percent chance I was wrong. So the way you phrased the question was, what am I looking for at this point? That's the query. Well, this is what we are looking at the current market. We had a major low based on the data in December. Major low. Really major. I say, the higher interest ratio history, the number of lows relative to the highs. He had a record on Friday basis of net downs, ups and downs. He had many extremes, which told you, most likely, we are headed for new bull market. I called it a new bull market rather than a beer market rally. However, up and I have 27 bi-signal since then, which suggests on the median basis, the market should reach, I have the number right here if you don't mind, 327,643 and the mean base is 3320.65 based on the mean of those 27 indicates 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 value, and what does that mean? S&P's have a new high, Nasdaq has a new high, Russell peaked in 2018. The attaching index peaked in January 2018. Worldwide markets, believe it or not, most of them peaked in 2000 and 2007 when adjusted for US dollar. So but even on a short-term basis with the S&P at new highs and the Nasdaq have new highs, there too many lagging indicators. That's not a reason for me to go short. No. But there are other factors involved. I know that there is a time-bomb that grows every day. I'm not sure if time bomb is the right word to use. But there's something going on underlie our economy, on a fundamental basis, that's going to cause a authentic cause a major collapse and that the debt outstanding. Look at all government debt, state, city, local is about 176 than the GDP. Yeah. Look at our balance sheet, pensions and long guarantees, we're approaching 350 percent of GDP, and that I can't continue. Another thing I bear in mind is very important is that this great bull market we had beginning in 1982 until yesterday, until today., great bull market took place in conjunction with a great bull market and bonds. Ten years treasury yields are down from 15.75 percent, below the cycle is less than two percent. Yeah. This has goose markets worldwide. On top of that, you have a quantitative easing and all this other stuff. Yeah. So you had a great bull market that began in 1982, in a sense may have occurred only because of monetary reason. Maybe only occurred because of interest rates coming down, maybe the only reason companies are able to grow to the extent that they had was because rates were coming down. They're able to borrow free money. Yeah. Certainly, so I'm afraid that one day that's going to backfire. We're going to get a turn of the cycle. This is fundamental top of my data. So the way I say it, anytime I see evidence of a top, I'm going to assume that this is it until I'm proven wrong. On the year we had two portfolios. One is up about 26 percent, one is about 28 percent, and we were long most of the year. A couple of short period of short-range with which failed we got our quickly. We went short on July 2nd, we went short the S&P, we went short the Nasdaq, why? A, it's a major government cycle date. B, we have a list of more than 100 indicators that we match to previous market peaks, and of all these 100, only two are inconsistent with level scene at market peaks. PE ratios, invest intelligent sentiment, the number of new highs, the number of new lows. I may have the tailor. I don't have my list on the right at that moment, but the reality is everything is just saved for one thing, except bond, 30 year bonds on a six-month basis, and on a 12 month basis are doing far better than you've ever done at a final market peak. So but I say to myself, either that's only one indicates 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 and mark will be the bonds is still doing well and bonds and making the top coincident with the market up.'' So bond have done very well less 6-12 months until July 2nd. We went shorter bond market for that reason because the cycle may suggest a turn in the bond market. Sentiment is totally suggesting that the bond market is going to turn because worldwide everyone is buying US bonds, the only place to get yield, the only place to make real money. Now the same but stocks as well. So we shorted, we shorted stocks, and for all I know this is it. However, 27 indicates time is going higher. Right. So I short July 2nd, we will stab slightly above the high July 2nd. If we're tapped out, we go back one starts again, or retain my bond short because once a far more than cycle work involved bonds really are giving us signals of a top. Again from, long ago quickly very important flexibility, it must remain flexible, must know that everything works on probability. There's no such thing as 100 percent being correct. So stocks and bonds are risky market. That's a very risky market. You recognize you're taking risk and you recognize that you're not always be right, you also recognize they have know when you're wrong. Since we're pinpointing turning points, is so much easier to have a stop. Some will buy because all the economy looks great, I'm going to buy stocks. Has no way to get out, currently a little great by the time a market peaks too. But he say I'm buying because we believe it's July 2nd was a top, or I'm buying because early December 24th is a low, that makes below December 24th they're out. Yeah, sure. Makes a high bond July 2nd amount. So it's one of the benefits of our disciplines. So let me ask you this, because especially, this idea of emotion and sentiment is ultimately confidence. Your greatest fear at the extremes of confidence essentially. What do you think is more important, confidence in the 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 central banks are doing having this under control. How do you measure that and how do you react? I mean is confidence but with remembers one more step there's confidence and action. Many people are confident, maybe confident the economy is going to do well, without back and allow them to buy a speculative stock on margin. Sure. Let's say people are confident or not confident. It's when the confidence translates into actions that a top element is imminent or bond is eminent. People are so confident the market going much lower, they sell all of the stocks and then it turned eminence. Confidence is one thing, we don't measure confidence, we don't measure sentiment per say. You measure how sentiment reflects in the actions, and what's the actions of the data the market. So now here is the question, is it Federal Reserve, is it the economy, 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 federal reserve was easing, I don't care people going crazy selling stocks because the economy's taking. Remember that at the low Warren Buffett said, that the economy's autoclave his company they're all offer clip, that's 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 if they're wider buying and selling, I wanted to shop in my data. So if I see in this intelligence for example, now the danger zone or 57 percent bonds, which historically is a danger zone, that's another reason for me to sell stocks, but that's going to be reflected at five-day volume as one easy example. That's going to collect it and put call ratio with high coal buying. That's going to be reflected in high volume and starts moving to the upside which is a narrow leadership that will possibly give me high probability trade to go short. Very important to know that what economist mark about the stock market is one of the greatest things about trade in the market. One of the things they say is, ''Well, the stock market is cold 18 and less five recession.'' That's true because the stock market is not perfect, but A, we're not trading recession's, we're trading the stock market. So if I could trade those 15 or 18 tops without a recession I'm happy. So what the economy was they make no sense to stock traders. They not really speak to investors, not to speak to economists. Economists warn predict economy, they care that the stock market predicted only five recessions. But if someone was trading, all I care the market up or down as number one. But secondly, when I see the things aren't I want to know that things aren't perfect. I don't want to advocate court until idea that I could be perfect or that markets are perfect because that's when you'll make a mistake. So I like the fact that the eve of the economy that are a good indicator for the stock bond is regulated very economy. I'm great to tell you that's not perfect. That should be perfect. If any of you is really perfect should be stocked my correlation with economy and that's not. So it's always important to keep in mind in his business nothing is perfect or probability, we're not perfect. I had been in the business for quite a number of years and I realized you know my background was in finance I wasn't taught by professors, by the academics how market was supposed to work. So I have a little bit on my own and I'm fortunately I think I did a fairly good job for my clients and hope to continue doing that. Yeah. Well, this perfect place to wrap it up. We took longer than we said we were like I sit here all day because I find this stuff fascinating. But again, thank you so much for agreeing to do this and it comes to spend the time. I enjoyed on every second. Thank you. I really enjoyed. Thank you so much. Well, across your fascinating conversation, Milton as I said a very quiet Wall Street legend. He's a fascinating guy and the work he does is truly extraordinary. It's split opinion, a lot of people say, yeah, this is all bunker money, a lot of people are fascinated by the work Milton does, but one thing to certain, it'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 tell 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 will be settled. Did you know that some of our shows including the one that you just watched are available on Real Vision Free? As the name suggests, this are free channel that is distributed via cable networks, Apple, YouTube, and most importantly the biggest Finance website. This aggregation means that Real Vision Free is one of the biggest financed channels in the world. In fact, it gets in front of 50 million active traders and investors. You know what, you can sponsor our shows on Real Vision Free. If you want to put your company on the map email us at sponsorship@realvision.com.