We’ve got former portfolio manager and current editor of Ten Stock Trader, Greg Diamond, on the podcast this week. Greg has almost two decades of experience managing multimillion-dollar portfolios across every asset class. He uses his expert technical analysis to decipher the behaviors and patterns of the market.
Greg offers insights on the future of the S&P 500, the Dow, and the Nasdaq heading into 2022. Importantly, Greg warns that a huge wave of volatility is coming in the next few months. He’s holding a special webinar next week on January 13 about this approaching market shake-up. You can find out more at messagefromgreg.com.
Greg and Dan also discuss how to apply technical analysis to rising interest rates and how we can leverage historic market data to best understand the future of inflation. They walk through the importance of risk management and how to incorporate those principles into your daily investing approach for a sounder strategy.
After the interview, stay tuned for Dan’s musings on the crypto market, specifically his reactions to people questioning if it has any real utility in the world.
1:27 – For the rant this week Dan gives some opinions on a few articles.
8:30 – “And I do have a couple trading ideas” Dan gives us his opinion on some stocks to look into for long-term growth.
11:50 – This week’s guest is Greg diamond a fellow colleague at Stansberry Research who focuses on technical out analysis and trading. He is the editor of the Ten Stock Trader and publishes every Monday.
13:50 – Greg speaks about how he applies technical analysis to understand how the market behaves. “It’s a collective behavior of all the investors in that market expressed on a chart”
16:50 – Greg gives some pieces of information on how to learn technical analysis by “looking at long-term businesses and understanding what happens in between these cycles by looking for of uptrends and downtrends”
20:50 – Greg says that the S&P 500 will stay with consistent trends until the end of February, but wont be sustained for very long.
24:05 – Greg believes sometimes “you have to ignore the news” because interest rates don’t always match up to the charts.
25:15 – Greg applies technical analysis to the movement among interest rates by doing all the fundamentals and looking back in history
32:30 – Greg emphasizes the importance of technical analysis because it allows the trailer to focus on the facts rather than falling into the trap of treating on emotion
33:59 – Greg says that looking towards the horizon and using gain analysis to predict the flow of the market through favorable probability and analysis
47:20 – In the mailbag Dan answers a few questions about blockchain technology and gives some advice about managing money
Intro: Broadcasting from the Investor Hour studios and all around the world, you're listening to the Stansberry Investor Hour.
Tune in each Thursday on iTunes Google Play, and everywhere you find podcasts for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here's your host, Dan Ferris.
Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm your host, Dan Ferris. I'm also the editor of Extreme Value, published by Stansberry Research. Today, we'll talk with my Stansberry colleague and friend Greg Diamond. Greg is an excellent trader, he's got a lot of experience, he's a great technical analyst. I always like to get his views on where he thinks markets are headed. We'll do that today. In the mailbag, questions about bitcoin and gold. And is crypto a Ponzi scheme? You can also call our listener feedback line with your questions, 800-381-2357. Tell us what's on your mind and hear your voice on the show.
For my opening rant this week, I want to cover a couple of quick news items that I saw and give you what I think might be a decent trade idea for the next three or four weeks here. That and more right now on the Stansberry Investor Hour.
So let's start with these news items. The first one is by Shawn Tully at Fortune magazine. Shawn's been around for a long time. He's one of the better sort of more experienced financial journalists. And he's published these five reasons why he thinks stocks will do poorly from here, he says. But what I noticed is that there's really only two reasons. So let me read the five reasons. He says, "Reason one: valuations are dangerously stretched. Reason two: the Shiller P/E is flashing red." That's the Shiller P/E ratio of the S&P 500. "Reason three: real interest rates will rise, crushing multiples," right, equity multiples. "Reason four, maybe – " he says, "persistent inflation could make holding stocks riskier. Reason five: a handful of wildly expensive stocks are dominating the S&P 500 as never before."
So, four of these reasons are basically that stocks are really expensive, right? Because even reason three, he says, if real rates rise, it could crush multiples. In other words, stocks are so expensive, if real interest rates rise, it could be bad for equity valuations. And then reason four, he says persistent inflation. Well, generally speaking, interest rates should be expected to rise in inflation. So we really have two reasons, here, baked into these five reasons. Stocks are super expensive, and inflation is bad for stocks. That's really it, that's what he's saying.
And I agree with him, and I've said it before. I told you about this, I don't know, several episodes ago, when I told you that I looked at the P/E ratio of the S&P 500 going back to I think, like, 1954 or something. And, it's generally above 15, except during the '70s when it's below that. And of course, during the '70s, we had just brutal inflation and it just crushed equity valuations. The other thing I noticed was an article in the Financial Times by Robin Wigglesworth, who is a pretty experienced fellow and he's been around the block a few times, too, just like Shawn Tully. And he's just talking about how ETFs have just exploded over the past decade, OK? And that's not necessarily been a great thing for investors.
Like, he mentioned all the ETFs that track the VIX in various ways, the Volatility Index. He says, "Over the past decade, 19 such vehicles, currently tracked by Morningstar, have taken in a net $11 billion of investor money. Currently, only $2.4 billion of that $11 billion remains," right? He says, "That means investors would've recovered more of their money investing in Bernard Madoff's Ponzi scheme [laughs] than in the VIX-linked ETF ecosystem," right? So, this smells to me a lot like what happened in the '20s with the investment trusts, they were similar to, like, an ETF or mutual fund or something, just some vehicle for buying a bunch of equities, right? And that's what happens: when there's a frenzied speculative market and people want to buy stocks, they respond really well to new ways to buy stocks.
So, like, last year, SPACs exploded. Over the past year and a half, really, or so, SPACs just exploded and there were hundreds of them that came out. And, you know, last year, 700 new ETFs came out [laughs], globally. So people just are dying to buy stocks, and they'll respond to any new-sounding way to buy them. And it's just a characteristic of a really frenzied speculative market. The other news item that I wanted to talk about just briefly was the fact that this woman Elizabeth Holmes has been found guilty of four of 11 charges in her fraud trial. Remember, she was the founder and CEO of Theranos, the blood-testing company, and it was found out that the technology really didn't work and – they found her guilty of defrauding investors, and there were three charges, especially.
There's a Wall Street Journal article that pointed out that the jurors convicted Miss Holmes on three counts related to the largest investments in Theranos. It was never a public company, these were venture capital investments. And the funny thing is, and this was pointed out by Matt Levine at Bloomberg, like, this was back around 2010-ish, around that period of time. So, nowadays, like, it's routine for a company that wants venture capital investing to say, "You've got five days – " or three days or whatever it is, or two hours or something [laughs], we've heard all kinds of stories in the press – "You got to make a decision or you're out," you know? "And other people are going to make the investment, and we won't take your money, we'll take their money because they'll be back to us in less time than that."
So, this was the beginning of that with Theranos, and you could see, like, these idiots who gave her all this money, hundreds of millions of dollars, you know, who are now, she's convicted of defrauding these people, well, that's because they didn't do any work and they invested way too quickly, right? So, they're responsible for the money they invested. Yes, she's responsible for committing fraud, let's get that right,, she did something wrong. But, they didn't do much better, right? They're like all those people who invested in Bernie Madoff without having any clue of what he was doing. I mean, you can't do that, you can't. If somebody says, "You can invest in my thing here, and it's really great, and this is what it is, but you got to give me an answer right now," you know, the urgency that they insist upon, like, that's a red flag in and of itself, and I think these people should've known better.
And also, there was something about Elizabeth Holmes that has always been a little odd. She just has a very strange, almost theatrical way that she used to speak. And you can look around the Internet and find evidence that she even faked the tone of her voice, right. She pretended to have this deep voice that most women don't have, rather than her normal high pitch. You know, it's just, like, what was going on here? Why couldn't people smell this a mile away? I don't know. Anyway, that's all I wanted to say about that, and I do have a couple of trading ideas, real quick.
Well, you know my main ones, right? You know the main trading ideas that I think are best right now. They're longer term, like, long cannabis stocks is one of them, and long silver stocks was another one that we talked about recently, and long value, short growth, right? The last time it was this attractive, and it's never been this attractive, value stocks have never been this cheap relative to growth, but the last time was, like, right at the top of the dot-com boom and the trade really took off, over the next few years. It was fantastic. That was, like, the moment to buy value, it was awesome. And so, I think you could, like, buy the Russell 2000 or 3000 Value – a Russell 3000 Value ETF and short a Russell 3000 Growth ETF, for the next year or two or something like that, maybe?
I think shorting the Growth ETF right now [laughs] would be harder to buy the Value ETF, so maybe leg into it. You buy value, and then at some point after growth has ramped up another 10 or 15%, you could short that, maybe. Another one that I saw was on Jason Goepfert's feed. Jason Goepfert is the guy from SentimenTrader, we've had him on the program before, and he says, "Energy bulls are persistent, and for the second day in a row, XLE, the energy ETF, is on track for a greater-than-3% gain." This was yesterday. He said, "It's had back-to-back 3% gains 18 other times since its inception, and the average gain over the next 30 days was 7%." So, maybe the XLE is going to give us a 7% gain over the next 30 days. And maybe you could buy some at-the-money call options or something, and maybe, you know, 50 to 100% gain on that over the next 30 days, maybe? You know, do your own due diligence, but it's a trade, I think, that might have some good results over the next month.
All right, that is all I have to say about that. Let's go ahead and talk with my good friend and colleague Greg Diamond. Let's do it right now.
If you own gold or gold stocks, please listen to this warning immediately. The man who predicted the 2020 crash sees major warning signs. An event in 2022 could have a massive impact on gold and other sectors. The man is Marc Chaikin, and he says, "Move your money in the early days of 2022." That means right now, folks. The last time Marc issued a public warning like this, the market went on to see its biggest one-day drop in history. To get the full details, visit www.2022tradingsystem.com. Again, that website is www.2022tradingsystem, all one word, 2022tradingsystem.com. Check it out.
Today's guest is my Stansberry colleague and friend, Greg Diamond. Greg Diamond has 18 years of trading and portfolio-management experience across every asset class. He has traded for a $3 billion hedge fund and a $35 billion pension fund. He managed multimillion-dollar portfolios across various asset classes, has spoken at business schools on trading and technical analysis, is a member of the Market Technicians Association, and holds the Chartered Market Technician designation. Greg is the editor of Ten Stock Trader, a trading service based on technical analysis. He monitors the global macro environment, including equities, currencies, commodities, futures, interest rates, and more.
He publishes a weekly market outlook every Monday, and posts daily updates, technical analysis supporting his strategies, and trade alerts, through his live feed online. Greg, welcome back to the show. It's been a while.
Greg Diamond: Dan, thanks for having me on.
Dan Ferris: I feel like we should've had you on more by now because you're somebody who I always want to check in with... because you're great at something I know nothing about. Which, of course, is technical analysis. And I wonder if we could just reorient the listener back to your way of looking at the world. You've been on the show before, they've heard from you, but like I said, it's been too long. So maybe, like, if we were sitting in a bar and I said, "What kind of investor are you?" what would be the answer?
Greg Diamond: So, when I look at the markets, there is the long-term buy-and-holds, and then there's the trading side. And that's kind of where I started, where I come from. And it doesn't mean to say that I don't look at fundamentals, that I look at long-term, you know, quality capital-efficient companies because I do. But, you know, when I first started, my understanding of trading came from, really, the legendary trader Paul Tudor Jones, who I worked for one of his disciples. And he basically, he turned my direction from – because I worked for a hedge fund and we were very short-term traders, and even then, when I went to a pension fund, even though we had very long-term investments, we still manage a very active book.
So, I kind of wear both hats, but specifically with Stansberry, you know, the technical side of trading, from what I learned from my first boss who was under Paul Tudor Jones as I mentioned, is to understand how markets behave, to understand all those little wiggles that you see in a chart, you really have to look at it in terms of what it's telling you. What it's telling you is the collective behavior of all the investors within that market, within all markets, expressed on a chart. It's their behavior expressed on a chart. And the concept is that it takes time to understand, but technical analysis is really understanding those behaviors, understanding those patterns, understanding how these things rhyme over and over and over again. The difficult part is trying to understand when they're going to rhyme, when they're going to repeat, and then you assign risk and probability to those behaviors. And that's how the strategy ends up making money. So, it doesn't matter whether you only trade one time a year or 10 times a year or you trade 10 times a day, what I want to hit home to a lot of your listeners is that technical analysis has a place in your toolbox, regardless of how often or how little you trade.
Dan Ferris: I'm glad that you arrived at that because, like, I don't know diddly squat about it. I can't help but look at charts and see where prices have gone and think about whether or not a business is attractive and where the price might go. But when I hear people say, "You know, you ought to have it in your toolkit," I always think, "Man, I feel like I can only be really good at one thing." But maybe that's not true. Maybe I have that wrong, huh?
Greg Diamond: Well, I mean, obviously, you are good at more than one thing, but it doesn't hurt to learn some other things. But here's the other thing is to apply it to what you're really good at. So, you're looking at your Extreme Value, you have your list, well, just apply a little technical analysis to it and see if that is going to either confirm or deny, you know, what you might be looking at, at that particular time. So, I agree with you, you want to be good at one specific thing, but it doesn't hurt to be even better. And that is where you can add this kind of toolkit to your box.
Dan Ferris: All right, all right, cool. So, let's say, you know, I – well, actually, we can use me as an example because it's really the truth, I don't really know anything about it. Like, Greg, what is the first thing I should do? How do I start learning something about technical analysis, that would really be useful to me making real decisions as an investor? Where do I begin?
Greg Diamond: So, I'm going to answer that in two ways. No. 1, I'm going to say what not to do, and that's to get on Twitter or Facebook or LinkedIn and, you know, you'll – bebecause everyone now is an expert trader on social media, and you see this stuff and it really gives technical analysis a bad name.
Dan Ferris: [Laughs] That's right.
Greg Diamond: So, don't start there. Where to start is some simple understanding of technical analysis. You know, you look at long-term businesses, you look at the buy-and-hold, "I want to hold this forever. I want, to understand, 'OK, well, along that timeline, what happens to prices through various cycles?'" Whether you're looking at five years or 10 years, whatever it might be, understanding what an uptrend is and what a downtrend is. And that is, again, this is very, very basic, very, very simple stuff, but sometimes those simple things, there are many different funds that base their investments, their trade decisions, based on just simple, "Hey, is there a high or low? A lower low?"
And just understanding those basic principles will help you, especially if you're a long-term, you know, buy-and-hold type of guy, understand what makes an uptrend and what makes a downtrend. I mean, that's the basic, but it's a good place to start.
Dan Ferris: OK, and is there – like, when people ask me what's the first thing they should read, I have, like, a list of two or three books that I can just rattle off, if they're a real novice investor and they want to get started. Do you have that same list, or suggestions, or anything?
Greg Diamond: Yeah, so, the first book I would recommend reading is Intermarket Analysis by John Murphy, it's called Profiting from Global Market Relationships. And this is kind of an overview of, you know, you mentioned, earlier, that I traded for every asset class, having an understanding of how prices – when you're just looking at price, interact with each other is a very important concept to get started with technical analysis. So that's probably the first book. The second book is Market Wizards by Jack Schwager, and that's going to get you into the concept of how these guys are trading. And they talk about technical analysis in there as well, but also risk management, which is probably the most important thing. And then, I'd probably say the third isn't a book, it's really going to – this is what I tell everyone, so I'm going to tell you, I'm not going to be any different – is to go to the CMT organization, cmtassociation.org, and I'm not saying you have to spend three years and get your CMT designation like I did.
But you can go through and see what the required reading material is, and then just do it on your own, and maybe you'll come across something that you like and you will pursue your CMT. Or you just, "You know what, this book stuck out to me. I'm going to focus on this part of technical analysis," and go down that path.
Dan Ferris: Great, those are great suggestions. I'm sorry, what was the Murphy book title again, the first one?
Greg Diamond: Intermarket Analysis: Profiting from Global Market Relationships by John Murphy.
Dan Ferris: All right. I'm actually writing them down as you're talking [laughs], that's why I'm asking. All right, and I've read Market Wizards, but maybe I'll go back and look at it again. So that's great, thanks. All right, so you taught us how to fish, a little bit, and I appreciate that. But our readers, they like you to throw them the fish. But in your case, to me in my mind, that's not just, like, one trading idea. When I think about you, Greg, I think, "Jeez, I wonder just what Greg thinks about the S&P 500 and the Russell 2000 and the Nasdaq – " like, I want to know your view on the technicals and the setups on all the big indexes and all the big asset classes. I wonder if, you know, would we be giving away too much for free, because I know you have paying subscribers who pay for this from you, to run down the big indexes in asset classes?
Greg Diamond: No, not at all.
Dan Ferris: OK, good.
Greg Diamond: So, I'll start with the S&P 500. So you asked me what's the basic version of technical analysis for somebody to get started. Well, I'm going to skip all the way ahead to [laughs], call it, 10 years of doing technical analysis, or 15 years, and then get into some more advanced stuff. And I actually have something else for you: a fourth book that people should read is Elliott Wave Principle by Frost and Prechter. This is going to give you insight into price, and that's it, understanding how price works, understanding all those little wiggles. Now, with that out of the way, I'll answer your question. So, the S&P 500, we go back to some basic stuff, it's still within an uptrend, long-term uptrend, since March 2020.
Really simple stuff, and I've talked about this for, really, the last year and a half or so. Until that ends, you really just, it's difficult to go the other way against it. Even though you want to be contrarian, sometimes, it's really difficult to do that. So, my thinking, for the first, call it, month or two of 2022, is that we'll continue to see that uptrend occur, and then, in February, March, I'm expecting an incredible wave of volatility, based upon that book I just mentioned, what Elliott Wave is teaching us, along with extremely advanced technical methods that I learned from somebody called W. D. Gann, who is dead. But he was a famous trader back in the early 1900s, and he focused on time and when, and that is, again, much more advanced.
But, so, these two combinations of – and you can look at major index, it doesn't matter, you can look at S&P 500, the Dow, the transports, whatever you want to look at, they're all kind of signaling this, "Look, we're running into a high, and then, the time factor, coming into February, March, looks to be a little wobbly in terms of how the bull market's going to react."
Dan Ferris: OK, I see, all the equity indexes are signaling that same phenomenon. So what about –
Greg Diamond: So here's the other thing [crosstalk].
Dan Ferris: Go ahead.
Greg Diamond: So, there's a saying, and I know you've heard of it, tops are a process, bottoms are an event. Meaning, you think about March 2020, that was a huge, just V shape, boom, one day we're taking off, we're never looking back. And tops are a little bit different. So, what I'm expecting heading into February and March, is we'll see maybe the Russell 2000 doesn't make a new high, while tech does. Or the transports don't make a new high, and the industrials do. I don't know exactly which one of those is going to happen, but that's going to start the process to this volatility that I think we're going to see.
Dan Ferris: OK, so, like, right now, aren't we – let's see, do I have this wrong? Like, S&P 500 and Dow have just made new highs, but Russell and Nasdaq haven't, have they?
Greg Diamond: That's correct. And so, a lot of people are looking at interest rates as the issue but this just really hasn't been the case, when you look at it from a long-term perspective. Because, yeah, we'll see spike up in interest rates, and all of a sudden that is reflective of tech. I mean, I tell my subscribers all the time, sometimes you just have to ignore the news, ignore what the guys on CNBC are saying. Because they're not understanding that, look, rates have been going up since March 2020 on the expectations of growth and the Fed and whatever it might be and tech, for the most part, has been outperforming.
So this just happened over the last week where you've seen the Nasdaq not make a new high, and Russell 2000 not make a new high, and, OK, if that persists into February, March, I'm with you 100%, big, big, big problem. But over the course of we're just in the first few days of the year I'm not too concerned about that right now, but it's absolutely something to look forward to over the next two months.
Dan Ferris: OK, all right, fair enough. What about interest rates? Can you apply technical analysis to the movement in interest rates?
Greg Diamond: Without question. And I think the other part that some people think it's, like, "Well, you only look at technical analysis." Well, that's not necessarily true. I look at the fundamentals and the catalysts behind it. So, I was on with Trish Regan, American Consequences and her podcast, and I'll tell your listeners what I told them. And that is, so, the Fed has been signaling that they're going to raise interest rates, we've seen inflation at the highest in 40 years, and if you look at the chart of the 10-year and 30-year, it's actually not making new highs it topped out early last year. And you say, well, why would that happen?
Why would we have record inflation, the Fed is going to start pulling back, and then interest rates aren't rallying? What is that price action telling me? I don't know exactly what it's telling me, but we can figure it out just based on history is that a) the Federal Reserve is going to make a mistake and they're going to hike rates or reduce their tapering too much to the point where it breaks something. And the bond market is saying, "You know what, I don't believe them. I think interest rates are going to keep going down." So that, you know, or the other issue is the bond market is saying, "OK, maybe we've seen peak inflation," and things start going the opposite direction.
So, I don't know exactly what it is, but I look at the price action and I say, "Well, wait a minute, we have inflation, we have the Fed, we have all these things that suggest that interest rates should be skyrocketing, but they're not. So, why is that?" Now, that takes time to develop and you have to assess the risk and the probability of what you think that's going to be. But to answer your question, yeah, the price action is telling me something, "Look, the bond market – " and there's a little saying that the bond traders are the smartest in the room, what is this inability for interest rates to actually rise, when everything, fundamentally, says it should be?
Dan Ferris: So, in an edition of a publication called The Daily Shot – do you look at that, at all, Daily Shot?
Greg Diamond: I do not, no.
Dan Ferris: OK, it's just a bunch of macro charts, like every trading day. And earlier this week, they pointed out that there's a 76% chance that the Fed boosts rates by a full percentage point in 2022. So, it seems like the market is, like, looking well ahead at this and thinks it's perfectly OK, you know, with 30-year and 10-year where they are right now, right? You'd think they would be a lot higher, if anybody was worried about this, you know, allegedly high probability, right?
Greg Diamond: Right, and that speaks to exactly what I just explained, and that would be quite a jump. I don't know if that is what's going to break something, but, you know, we get the Fed minutes later today, and then– it's really going to be focused on the Fed in terms of what is their next game plan going to be, so. But one percentage, I mean, that's a big jump from where they've been, so, we'll see if the market has discounted that or not. But I think, again, the fact that the 10- and 30-year really just can't rally is something that I'm keeping my eye on.
Dan Ferris: Right, and also, there's a difference, isn't there, between Fed open market activity designed to push overnight rates high, on the one hand, and less – this tapering, which is just, like, less bond buying, really, on the other hand. These are two different items, aren't they?
Greg Diamond: Right, yeah, they are, and again, that's something that I think the bond market is starting to price in and how that the shift and how fast or how slow or – it's tough to say. Because we're definitely at an inflection point when it comes to Federal Reserve and monetary policy. I mean, that's just true. You know, first, "Oh, you know, it's transitory, it's transitory, it's transitory," and then Powell comes out and says, "OK, we need you to retire that word." I mean, that was a big moment, right?
Dan Ferris: Yeah.
Greg Diamond: So, you know, it's [laughs] – we're going to see how this plays out. And he tried to do this, I know you remember this, but back in 2018 when the trade war was going on with China and he tried to get hawkish, and you saw what the market did. So it's not as volatile as it is back then, but it's certainly similar. I mean, yes, he's being a little bit more cautious, I would say, and obviously we're coming off of the COVID and all the nonsense, you know, little different than 2018, but you saw what the market did. I mean, it just absolutely tanked. So, if he does something or says something or there's something that comes out of left field and says, "You know what, the Fed got this wrong," we can see exactly something like 2018 again.
Dan Ferris: Right, and that was after a few hikes, right? I mean, the market peaked, I think it was, like, September 3 or something, if I'm remembering correctly –
Greg Diamond: I think it was October 3, yeah.
Dan Ferris: In 2018? OK, October. And that was after I think it was, like, two or three hikes. So, I just, I wonder, I always wonder about the futures market's ability to look ahead at these things. And time will tell, right? There's no [laughs] – the only source of truth is time, right?
Greg Diamond: Yeah, well, the other thing, too, when you talk about interest rates and what they're going to do, I mean, I saw this yesterday and I almost had to double-check it – well, I didn't almost, I did: 4.5 million people quit their jobs? I mean, to me, so all of a sudden everyone's just leaving the workforce, nobody's working – I mean, not nobody, but a record amount of people are quitting their jobs, and you're going to raise interest rates? That doesn't really sound like a mix of good things in terms of what's going to happen for the economy, let alone the market. So if that is a trend that continues, I think that's a huge problem.
Dan Ferris: It doesn't, but then again, like, if you look at where rates are and sort of, we started the first day of the new year with rates kind of bumping up a little bit and – and Scott Garliss, our colleague at Stansberry, he pointed out between the ISM turning up and rates turning up a little bit, it just kind of looks like some growth. Which is probably appropriate if this winds up being another three-year pandemic, over the next 12 months, we sort of get back to something like normal or something, you know, not a pandemic anymore. And maybe it really all is no big deal, maybe it really isn't inflation so much as the effect of a pandemic.
Greg Diamond: Yeah, and I can't disagree with that. And again, I think this is where your listeners will appreciate the value of technical analysis because we don't know if that's going to take hold or not. But guess what, the price action and the ability to take risk with the underlying understanding of how that price action goes against your position will say, "Hey, look, you know what, maybe Scott is right," and this whole thing takes off. Well, guess what, I'm sticking with the trend, I'm sticking with my strategy, I'm sticking with what the markets are telling me based on the price action and I don't have to guess what somebody on CNBC says or all the rest of it. I'm following the strength or weakness of the market, whatever you might be trading or investing in.
Dan Ferris: Yeah, you know what I think's really interesting about what you said about the potential for a lot of volatility, you know, starting after the next couple of months, it's interesting to me. Because, like, you and I both know, like, there's no predicting a huge turn in the market, right? It's just, it's a really hard thing to predict. But your way of looking at the world, you know, as you've underscored several times, is that the price action is what it is and it says what it says, and – it's just – I guess I'm, having trouble formulating a question out of this, Greg. But it's just very interesting to me that you're saying, "The uptrend is fully intact, but I think there's something on the horizon."
Greg Diamond: So this is where some of the techniques that I use – and this is extremely advanced stuff with W. D. Gann, he talks about time and when. And again, it's very, very hard to predict these huge moves, but what Gann analysis is, what understanding time is, is when. And so, when I hear people say, "Well, you can't time the market," I don't actually agree with that, and here's why. So, based on Gann analysis, I have a probability, an increased probability, based on certain things that I've looked at, and I cover this every week in my Ten Stock Trader service. I said – and we just had, we had one today, we had one – I was on Trish Regan's show, and I said, "Trish – " this was before Christmas, I said, "Trish, if we get a low into the week of Christmas, buy it." And that's what happened.
Now, how did I know that? It was based on Gann analysis, it was based on probability. I didn't know exactly when it was going to be, but I had, like, a week window and said, "If the market trades down into it, it's a buy. If the market trades up into it, it's probably a sell." The same thing happened on December 3, and I'm looking at one this week, as well. So, back to understanding what a prediction is, I base it off of probability. And I watched – I'm sure you've seen the movie Zero Dark Thirty about the bin Laden raid, and there's a scene in there where they're in the CIA and the boss comes in and he says, "Is bin Laden in that compound or not?" And they go around the room and the one guy says, "Is he there or not?" he says, "Well, we don't deal in certainty. We deal in probability."
And that's kind of where I come from, that's how my thinking is, like, "I can't tell you that the market's going to crash 20%in one day or one week or one month. But I can give you, with a high certain amount of probability based on what has happened in the past, it's going to be a repetition in the future, based on price, and then based on this time analysis that I use with Gann, look, I think that there is going to be high probability of extreme volatility heading into February and March."
Dan Ferris: I see. I think the key, there, you're right, the key for listeners is: we don't deal in certainties... we deal in probabilities.
Greg Diamond: And then around that, it's all about risk management. I mean, you know, I really love the saying, if the most important thing in real estate is location, location, location, then the most important thing in investing and trading is risk management, risk management, risk management. I don't care if you throw darts at a board, you're a long-term fundamental buy-and-pull, you look for capital-efficient companies, or you're a technical trader like me, if you don't have risk management built into anything, you're done. It's a wrap. You might as well just not even start.
Dan Ferris: Right, yeah, and it shows you, too, you mentioned the capital-efficient companies, I'm a value investor, whatever, all the best strategies are based on this, aren't they? We always wind up here, Greg, no matter who we're talking to, but always especially with traders like you, we always wind up here. Because all the good strategies have risk management at their core. It's almost like you look down before you look up, right?
Greg Diamond: Yeah. The other thing I'll talk about, too, that I think a lot of people might not think about too much – well, they think about it too much, but I think they think about it in the wrong way, and that's bias. You know, permabears, permabulls, you see this, you know, stocks, gold, and especially now with crypto, you know, they're, "It's going to the moon," or "It's going to zero," and they just never change their stripes. And I think having traded for as many years as I have and seen so many different things, I just don't have any bias. Look, if my system is telling me that I need to buy, I'm going to buy, if it's not, then I'm going to sell. I don't hold any – I could care less about what I said three days ago or three months ago, if the market has changed while we've gotten here, guess what, I'm going to do what I think is best to make money.
Dan Ferris: Right, yeah, you're talking like an old successful trader, Greg. [Laughs] Like, time and time again, these are exactly the things that we hear people say. And I hope listeners write them down every time because repetition is important, because they're not – it's not a natural act to be a good trader, is it? I mean, it's like jumping out of a perfectly functional aircraft, even if there's a parachute, it's an unnatural act.
Greg Diamond: Well, you know what's funny is, in my 20s, I went to skydive for the first time, and I took – you could take a six-hour class and go by yourself or – when they say that you mean, they have two guys, but they're not attached to you, they're just on your side. And so, I did that, I was, like, "You know, I think this is going to be really exciting," and got 18,000 feet in the air, whatever it was. As soon as that door opened, I forgot everything I learned [laughs] in the last six hours, and I just went out, jumped out, and I was flailing. You know, luckily, they calmed me down and I was able to get my chute. But that's how you learn, and that's kind of how trading is and investing is... you just have to – you know, if you want to learn to swim, you have to jump in the deep end.
Dan Ferris: Wow, you jumped out of – I mean, for me, like, the jumping out of an airplane is just an analogy, but for you, it's real. [Laughter] That's incredible.
Greg Diamond: It was real, yeah. Yeah, I was a little crazy in my youth, but that's OK, I survived.
Dan Ferris: Yeah, that's pretty cool. Did you do it again or was that a one-time thing for you?
Greg Diamond: Nope, no, that was a one-and-done. [Laughs] I kissed the ground and I was, like, "OK, I'll see you guys later."
Dan Ferris: Yup, "Never again." [Laughs] All right, great. So, Greg, is there, again, like, I know you have paying subscribers, so I don't want to step on their toes any. Is there a specific trade that you like that you can share with us now, or no?
Greg Diamond: I'm not going to say a specific trade, but this is what I will tell you. You know, when you look at extreme volatility, when you look at real panic in the markets, and we saw this in February, March of 2020, and it was one of my better trades over the last two years. You know, for your subscribers that are listening, over the next two to three months, look at the financials, look at the banks. And I don't care what interest rates are doing, it doesn't matter right now. When things start to get volatile, look to take advantage of big banks, specifically the XLF, the SPDR Financial Sector, ticker XLF, that's something that I'm going to be targeting, not a specific trade, yet. But that's the sector, that's kind of where my head is going to be.
Especially if we see what we outlined earlier, in terms of that topping process. So, transports, Dow, Nasdaq, S&P... two of those four don't start making new highs, look at that banks. Because when things go, the banks are the first ones to go down hard. We saw that in 2008, we saw that in the initial COVID crash.
Dan Ferris: Oh, OK, so look at the XLF as a possible canary in the coal mine for a big move downward in the market.
Greg Diamond: Absolutely.
Dan Ferris: All right, that's a great idea, actually. I'd rather have that than a trade, actually. That's really interesting. All right, man, look, it's great to talk with you. I just, I want our listeners to know, like, I read the Ten Stock Trader because Greg, like I said, he does something that I don't know how to do, but it's very valuable what he does. So, [laughs] if I need to know about it, Greg is my guy. But you're going to do a webinar, what, coming up next week, aren't you, Greg?
Greg Diamond: That's right, yeah, and basically, so what we'll be looking over is what I discussed with you during this entire program. Listen, I'm expecting this topping process to take place, so, in that webinar, I'm going to go over exactly when I think that's going to happen, and then, how to play it. So, without giving too much away, that's basically the general theme of how the webinar is going to go, we're going to take a look at some past things, I'm going to talk about some long-term Gann cycles. Again, I mentioned W.D. Gann, you know, his whole thing is when, time. So that's something I'm going to get into, and then how we can apply that to 2022.
Dan Ferris: All right, and I want listeners to know they can sign up for the webinar at www.messagefromgreg.com, messagefromgreg.com. And do it, man, do it. Greg will help you become a better trader, he'll help you get a whole different perspective. If you're not used to doing technical analysis, especially, you know, he can help you make that part of your toolkit. And even if you're a trader, like, Greg's got 18 years' experience. He traded for, like billion-dollar funds. Definitely check it out: messagefromgreg.com.
All right, Greg, thanks for being here, man, but we have to get you back here on a more regular basis, OK? How do you feel about that?
Greg Diamond: Absolutely, no, I think that's a great idea.
Dan Ferris: Yeah, we should check in with you, like, every few months or something. And for sure, if the market goes up for, like, another two months like you're expecting, if I don't remember, Greg, you ping me and we'll say, "OK, now what's next." You know, if we just do, like, a five- or 10-minute segment, we want to check back in with you.
Greg Diamond: Definitely, I like that idea and I will definitely remember to give you a shout.
Dan Ferris: Great, yeah, I'll try to remember, too. All right, man, thanks for being here. Always great to talk with you. I love your stuff, love reading your stuff, love talking with you.
Greg Diamond: Likewise, Dan. Thanks for having me on. We'll be in touch, in a couple months.
Dan Ferris: Yeah, let's do that.
I hope you enjoyed that interview as much as I did because like I said, Greg is, he's, like, one of my very, very few go-to people when it comes to technical analysis. Just, he's got so much experience. It's just like anything else, right? The more you do it, the more you pay attention to it, and he's a very bright guy, too. The smarter you are, [laughs] the better your results are going to be over time. I mean, Greg has done really, really well for himself, and for his readers. So, I highly, highly recommend checking him out. Look, even if you don't buy his newsletter, just check out the webinar. You will learn a lot: messagefromgreg.com. All right?
All right, let's check out the mailbag, let's do it right now.
As we kick off 2022, I have good news and bad news. First, the good news: 2022 will be an extraordinary opportunity to make money. The last time we saw market conditions like this, you could've doubled your money 10 different times with our recommendations. The bad news? You'll need to try something completely new, a strategy we rarely advertise and which you likely have no experience with. In short, we predict a huge event is coming to America this year which will take most people completely by surprise. If you thought 2020 was strange, just wait for what's coming in 2022.
That's why we're doing something for the first time ever: we're posting a free recommendation from today's special guest, which I urge you to act on as soon as possible. You could've doubled your money 26 different times with his recommendations since he first joined Stansberry Research. Tomorrow, Friday, January 7, simply visit www.messagefromgreg.com. That's messagefromgreg.com. And of course, it's good news because our firm has a long history of making predictions like this. For example, on March 26, 2020, right after the market crash, our founder, Porter Stansberry, predicted a huge bull run. Sure enough, the S&P 500 saw its greatest 50-day rally in history, and you could've doubled your money seven different times with our recommendations.
Or consider October 19, 2017: that day, we recommended cryptocurrencies for the first time. In fact, we called for bitcoin to $50,000. Sure enough, bitcoin later passed $60,000, and we booked four different gains of 1,000% or better in our crypto recommendations. But tomorrow, Friday, January the 7, we're posting something even bigger. Go to messagefromgreg.com, tomorrow, Friday, January 7, to see why a once-in-seven-years moneymaking opportunity is taking shape. And that leads us right into today's episode with our special guest, the man behind this new prediction, Greg Diamond.
In the mailbag each week, you and I have an honest conversation about investing or whatever is on your mind. Send questions, comments, and politely worded criticisms to [email protected] I read as many e-mails as time allows, and I respond to as many as possible. You can also call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show.
First up this week is Bob S., and Bob S. says: "Dan, I've been skeptical of crypto all along. I see too many people pushing this in ads and media. Seems to me that it has the characteristics of a typical pyramid scheme. How do you disprove the thesis presented by Mr. Kapfidze, below?" and then he's got this little excerpt from an article. And Kapfidze is LendingTree chief economist Tendayi Kapfidze, and Kapfidze says, "It's a pyramid scheme. You only make money based on people who enter after you. It has no real utility in the world. They've been trying to create a utility for it for 10 years now. It's a solution in search of a problem and it still hasn't found a problem to solve." And that question came from Bob S.
Bob, I just totally disagree with Kapfidze. I think he's wrong, it's not a pyramid scheme, just by the technical definition of a pyramid scheme. You know, in the pyramid scheme, everybody who gets in later pays off everybody who [laughs] got in earlier. I mean, it's just a direct transfer of money with no investment whatsoever, right? That's a pyramid scheme. My purchase of crypto in no way pays off holders of crypto. Like, if I buy bitcoin today, I'm not paying off some previous owner of crypto... I'm buying it from him the same way I buy a share of stock from another shareholder in the market when I buy stocks. It's just a liquid market. So there's no pyramid aspect to it.
Now, look, people create crazy cryptos like Shiba Inu and Doge, and then they pump them up on Reddit or whatever, so sure, there's that. But that is a pump and it's hype and the underlying asset [laughs] has questionable value. Whereas I don't think bitcoin has questionable value. He says it has no real utility in the world. Well, you can't paint that brush over all of crypto. In fact, painting it over all of crypto is even more absurd: you're saying you know that the thousands of cryptocurrencies in existence, we won't find any utility for any of them ever. It's just crazy.
And I personally have conducted business using bitcoin, I've been paid in bitcoin. So, I don't see where he gets off saying it's a pyramid scheme. It's factually incorrect. And I don't see where he gets off saying it has no real utility in the world, when people are using it to pay for things, and more and more merchants and banks and other types of businesses are saying, "Yeah, we'll take crypto," "We accept crypto." I just, I think he's wrong, Bob, he's just plain wrong. And if that's your argument for staying from crypto, his argument, then, it's wrong to stay away from crypto. You know, unless you have some other argument to make. [Laughs]
Next up is Paul E. Paul E. says, "Hi, Dan. Do you believe that bitcoin will be manipulated via the paper market, to the extent that gold is being manipulated? It looks to me like it may have started with the bitcoin futures ETF. I'm a longtime gold investor, and I'm also a huge fan and investor in bitcoin. I'm worried that all the pain we see in the gold market due to paper manipulation by Wall Street is going to have similar effects on the bitcoin market." And then he says he talked with a couple other people and wants to know what I have to say, "What say you? Thanks, Paul E."
What say I, Paul E.? I say this: we know that the gold market is manipulated because folks have been prosecuted for manipulating it. [Laughs] However, you said you're worried that all the pain we see in the gold market is going to have similar effects on bitcoin. What pain? I don't see any pain. I see a 50-bagger since the U.S. dollar was completely cut off from gold in 1971. That's a 50-bagger. I see an asset that has outperformed the S&P 500 in the 21st century. That's what I see.
And the fact that gold doesn't maybe go up 5 or 10% every time the CPI print is higher is in no way indicative of it not being a good inflation hedge. In fact, gold hit an all-time high of 2,000 well before inflation went higher, well before the CPI was hitting 5 and 6, almost 7%, this last time around. So, you can say that gold looked way ahead, but you can't say it's not an inflation hedge [laughs], it's done better than stocks, I mean, it's done great in the 21st century, and it looked a year ahead at these huge CPI prints. So, this idea that it's not a good inflation hedge is so simple-minded, it's way too simple-minded. It's as though markets just sit there and then, you now, when the CPI print is higher, oh, it ticks up 5% that day, like it's some kind of lockstep relation.
No, they're large liquid markets, they trade every day, billions of dollars, all around the world. You can't expect that kind of simple relationship. It just doesn't exist. So, I disagree that this paper manipulation you fear in the bitcoin futures market will work out any differently. Bitcoin is a huge asset, it's basically a trillion-dollar asset at this point, large liquid market. And the fact that it's financialized, do I like it? No, I don't like it. But I don't think that it's going to be a huge problem long term. Same as for gold. Good question, though, I'm glad you asked, Paul.
Finally this week, we have Mark N., and Mark N. says, "Dear Dan, I love Stansberry Investor Hour and rarely miss an episode. I'm also a long-term subscriber to your Extreme Value and other Stansberry offerings." Well, thank you, Mark. And Mark says, "I have attempted to follow your wise counsel regarding the need to plan for rather than time the ups and downs of the market, and to use a variety of tactics to manage risk. These include investing in high-quality companies, using trailing stops assisted by TradeStops, retaining cash, physical gold and silver, mining stocks, and some bitcoin and Ethereum. I've missed some of the froth over the last year or so by being conservative, but have slept reasonably well.
"Who knows when the next major recession is coming, and do I understand the perils trying to time the market. However, given the sharp and fast drop in all asset classes, including mining stocks, during previous crashes, I wonder whether most people are holding sufficient levels of cash to take advantage of fire sales that will be coming when markets do eventually turn lower. Looking back, there seems to be ample time to get back in after precipitous drops. I would appreciate your perspective. Please keep up the great work. Regards, Mark N."
Mark, you're right to point this out, and this is something that we need to keep in mind at all times. In a big market crash, and we saw this in 2008, everything drops, gold, silver, commodities, everything except [laughs] cash. And at that time, bonds. But bonds can crash, too. That's another thing that you want to keep in mind, in this same mode, here, that we're thinking in. So, cash is the only true diversifier, bonds can correlate with stocks, so bonds can fall with stocks, we're just used to them not doing so because we live in the last two, three decades, here, of constantly falling interest rates. Really, four, if you go back, you know, just constantly falling interest rates. Every time interest rates tick up, well, they fall back lower.
So, it's just constantly lower lows and lower highs in interest rates, and we feel like that means bonds are always going to take care of us. Not necessarily true. And ultimately, I think the answer to your question, here, and the input that addresses the issue you're talking about is, cash is the only true diversifier, and it's hard to hold it. It's just hard to hold cash. I'm a human being, and no matter how much experience I have [laughs], it's hard for me to hold cash, too. In fact, I don't keep my cash in my brokerage account. I keep it elsewhere, and when I want to buy something new, I use the margin in that account, and then I shift the cash over and pay down the margin.
Because, like all human beings, cash burns a hole in my pocket, too, so I have to manage that. And you have to manage how much you keep on hand. It's hard, it's very hard. But I believe you are correct and that it's prudent to hold enough to make a really good impact when those fire sales and those market crashes happen. Great question, Mark, great question, thank you for that.
Well, that's another mailbag, and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We do provide a transcript for every episode. Just go to investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy. If you like this episode and know anybody who might enjoy listening to the show, tell them to check it out on their podcast app or at investorhour.com. Do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts, and while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram, our handle is @investorhour. On Twitter, our handle is @investor_hour. Have a guest you want me to interview? Drop me a note at [email protected], or call the listener feedback line, 800-381-2357. Tell me what's on your mind, and hear your voice on the show.
Till next week, I'm Dan Ferris. Thank you for listening.
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