Episodes

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Dan Ferris: Hello and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Digest. Today, Dan interviews our colleague, Greg Diamond, editor of our Ten Stock Trader newsletter.

Dan Ferris: Today, Corey and I will talk about inflation, the European Central Bank, bullishness, bearishness, oh my.

Corey McLaughlin: Remember, if you want to ask us a question or tell us what's on your mind, e-mail us at [email protected].

Dan Ferris: That and more right now on the Stansberry Investor Hour.

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Dan Ferris: Bullishness, bearishness, oh my, oh my. Well let's talk about inflation first, because I think that just dropped a couple days ago and people are sort of wondering about it. I mean do you even care at this point? The market doesn't.

Corey McLaughlin: I do and I don't. When these numbers came out, the CPI numbers and then we had some more commentary from European Central Bank, both basically talking about higher energy prices, which have been happening for the last month or two, haven't shown up in this backward-looking data yet. So I've kind of been expecting it.

Sop I do and I don't, because then I just keep thinking back to the real super-big trend of the pace of inflation coming down really still hasn't changed yet. I mean, yes, this was a higher month-over-month outcome for this CPI data based on energy, oil prices going up. Overall, it's still declining, but I think it does tell you ...

OK, before 2021, who was really paying attention to this monthly CPI data? Not a lot of people, other than it was what it was, and we have no inflation. Now, these variations, people are paying attention to them a lot. So I would just stick to paying attention to the trend, which could change, but for now I don't think it has yet.

Dan Ferris: OK. So by paying attention to the trend, you're talking about the trend in CPI, the trend in –

Corey McLaughlin: Yeah, but the month-over-month changes, because I can't pay attention to the year-over-year headline stuff anymore, because of just the base effects, year over year. It gets way out of whack very quickly.

Dan Ferris: Explain that for our listeners. Explain that.

Corey McLaughlin: Sure. So CPI, the headline number that you'll see in headlines, is year over year. It's a year-over-year comparison. So it's an annual comparison based on the month, the same month the year before. So it could be 3.5%, whatever, 4%. It was 9% at its peak. That was the difference.

But at this point in the inflation story, I think the more important thing to look at is the monthly change in inflation, which will tell you if the pace of inflation is actually accelerating or decelerating. I think the previous two months before this one is 0.2%, which historically is pretty normal.

Of course we would love no inflation. Some people would love no inflation in terms of devaluing currency and that sort of thing, but from a steady growth perspective at the same time it's been like 0.1%, 0.2%, in that sort of range in the last several decades, and definitely that low inflation era of before 2020. So that's kind of the number I think is important to pay attention to, if you're worried about whether inflation is going to rebound totally or not.

Dan Ferris: And this August was 0.6%, so a big difference. Yeah.

Corey McLaughlin: Right, a big difference with energy prices. I actually kind of see why the Fed strips out food energy prices to a certain extent when they're looking at this core number, which we've talked about before. Of course food and energy prices matter to a heck of a lot of people, so it doesn't really reflect reality, but it's what they do. Neither does monetary policy, so that kind of makes sense.

Dan Ferris: Yeah. Name an industry that doesn't bend more when oil prices go up. It's not easy. Food prices, oil prices, those are the core of everyone's life. I understand the focus on the data and looking at the headline number go from nine to three or four or whatever, and feeling good about it, but people are just paying more for stuff and real household income is down.

Corey McLaughlin: Right. A lot of market commentators and stuff are just kind of brushing off the fact that, oh, we can be stuck with 3% inflation. Like that'll be OK compared to 2%.

Dan Ferris: I know.

Corey McLaughlin: We're not talking huge numbers here. The scale of that, going from two to three is pretty significant over time, if you're just going to accept that as reality.

Dan Ferris: It sounds like a 50% increase to me, which is a lot in the rate of change of prices. Whoa.

Corey McLaughlin: Yeah. I know these are little numbers. I know we're not over 10. We're not talking about big numbers on the surface, but the scale of it is pretty big, and we're not even below four yet in the PC, the number that actually matters to the central bankers.

Dan Ferris: Speaking of central bankers, the central bankers in Europe have done a thing. They did a thing recently. They raised interest rates to an all-time high because their consumer prices are, in their opinion, so out of control. There's double-digit inflation over there. It's a different picture in some places.

So the ECB listed its deposit rate for the 10th consecutive time by 25 basis points to 4%, which doesn't sound like an all-time high of anything, but when you've been negative in the past and 0%, 4% is a lot. Four percent is very normal, but that's another thing about what's going on right now.

Five-and-a-quarter or whatever it is at the top in the United States and 4%, like these are normal rates. This is normal and everybody is complaining, "Oh, it's too high." No, no, no. It was way, way, way, way the hell too low. It's difficult to appreciate that, I think, for most people.

Corey McLaughlin: Yeah. I mean low rates, right? We don't say this enough – or I don't say it enough. Low rates benefit who? The people who have capital and are already OK. Higher rates, nobody really in the market likes that. Nobody wants essentially higher interest rates, if you're interested at all in stocks.

That's why I try to keep remembering this when I hear people on TV and radio fretting over the next 25-basis-point hike or something. Of course that's why you don't want higher rates, but at the same time, the inflation piece of this is just killing people on main street, racking up this credit card debt. It's over a trillion dollars in the U.S. There's a record amount of credit cards.

Real income isn't keeping up with real GDP. Yet stocks are going up on balance for the last year or so. So it just shows you again the dichotomy in the market and the real economy. I don't know how it ends, but I think it ends up with everyday people for now getting the short end of the stick, I would say.

Dan Ferris: Yeah, as always, right. As always. The one thing we can count on is the man sticking it to the little guy. It sounds cliché, but it's just too true. It's way too true. Certainly higher oil prices, people who own lots of oil stocks are doing great, but people who have to pay – for whom putting a tank of gas in their car is really a big deal, they pay. They have less, as we've seen in certainly Census Bureau data, what they call real median household income peaked in 2019 at around $78,000 and now it's below $75,000.

When I was a kid that was a lot of money. That was like – I remember being a preteen or a teenager or something and my father was talking to my mother. He didn't know I was right there. He said, "I made $25,000 last year," and he was kind of bragging a little bit. He had five kids at home and it was fine, and my mother didn't work at that time.

Corey McLaughlin: And now, obviously that $25,000 doesn't do what it did then. I also read over the past week the amount of people in the government's level of poverty is the largest rise on record in over 50 years recently. It goes back to the stimulus efforts over the pandemic, and specifically the child tax credits, which so many people were getting. Now they're not. Now prices are higher but incomes are not.

So what do you do? I don't know. It's not good. I think this will all come to a head somehow in the political cycle ahead.

[Crosstalk]

- so the market is going to be debated, yeah.

Dan Ferris: That's right. History kind of lays it out. Eventually there is too much pressure to bend more and borrow more. Essentially when the government borrows more, they print more. They issue lots of bonds.

If you listen to Ray Dalio, he says we're getting to the point where people don't want to buy the bonds. It makes you wonder, like all this backdrop of macro that we're discussing, it makes you wonder where all the bullishness comes from. Did it just get too overdone last fall, last October? The Nasdaq bottomed in December, I think it was, and yet here we are. The market is not too terribly far from making new highs, like, all-time highs.

I don't know. I have to say anybody can look at a chart and say, "Well, the market has been going up for months and months and months. It bottomed last October," November, December, whatever. So I understand it. I understand that basic idea.

People are buying and you want to buy too, but I don't know. All this other stuff that we talk about, it seems like they ought to figure in like bond yields just going up and up and up. There's a number of ways that affects the stock market.

I guess people are just so convinced that this is going to – we're near the top in bond yields or something, and they're going to start cutting rates soon or something. It all looks precarious. The bullishness looks precarious to me. But all bears say that, don't they?

Corey McLaughlin: I believe they do. That's why it's bulls versus bears. If you look at the last couple months, it really not the – the S&P 500 is not that much higher since June. It took a bit of a swoon in August. So it's not like a rip-roaring bull market, but the trends are up, as I'm sure Greg Diamond will talk about in his analysis.

So if you're looking at it from a price perspective, if you look at the charts, that is where it is. I'm not going to ignore that, but I'm also not going to ignore reality for people when we're talking about the economy and problems that inevitably will do something to the stock market. And when they do, it's generally pretty big, when the main street problems get to the point where people on Wall Street start freaking out. Those are the crises that they say happen, and then we get on dollar rescue measures and the cycle goes on and on.

So I think you can be bullish on stocks and still recognize these risks as the same. If you're in the market at all, you should always be paying attention to that and thinking of that. It's not a risk-free environment.

Dan Ferris: Right, which is not to say it's been easy to make money this year in stocks. I saw something from Mike Green of Simplify Asset Management – who I'd love to have on the show, Mike, if you're out there. He posted a chart of the Russell 2000 Equal Weight Index... so, equally weighted 2000 companies, 2,000 of the 3,000 largest.

He said most – just a quick reminder here. Most stocks are down for the year because the Equal Weight Russell 2000 is about flat. It's like minus 0.4 for the year. Or maybe minus 1.6. I'm not sure which chart to look at here. Anyway, it's down for the year, flat to down. That's interesting to me.

I recently wrote in the Digest about the phenomenon of so-called passive investing, which is not passive at all. I think in large part we have that to thank. People just keep putting money into their 401(k)s, and most of that money goes into the biggest stocks. So all the stocks that support the S&P 500 and the Nasdaq, they get all the money.

I think the top 10 market cap of those indexes gets close to a third, more than a quarter of all the money that you put into them, which is really interesting when you think about. So all these smaller companies, they're kind of sucking wind compared to the big daddies.

I'll tell you what. When those big indexes crack, that tells you something. It tells you something that people even sold those stocks. They sold the big stocks enough to push the S&P 500 down 25%, Nasdaq down 36% at the bottom there in December. That's when people are scared, when they're selling whatever they can sell to raise cash.

Corey McLaughlin: Yeah, any and everything to cover their losses.

Dan Ferris: To stop the bleeding, yeah. My fear is that the thing that supports those indexes will reverse. The algorithm is simple. They get a dollar of capital. They buy a dollar of equity. Thirty cents go into the top 10 stocks or whatever, and it just goes on and on and on.

My fear is that people will get scared enough – I saw an article. I didn't quite grasp it. It seemed a little nonspecific, but it was talking about the number of loans, the amount of loans against 401(k)s, because you can borrow against your 401(k), you know, ticking upward and the amount of what they call – I forget the name for it. It's like distress. You can declare distress and take money out of your 401(k), and that stuff is ticking up as well.

So it makes sense. You see the credit card defaults and the auto loan defaults, and then you see these loans and distress withdrawals ticking up. It makes sense. And banks performing poorly also makes sense and it's all a bit troubling, but as a trader like Greg Diamond might say, you've got to stick with the trend, right?

Corey McLaughlin: Yeah. There's definitely risks out there, but some people and traders, and technical traders in particular, all they care about is the charts. They don't care about anything we just said. They just care about: what is this price doing? How do I make money or not lose money? There's a lot to be said for that strategy, and if you can do it like Greg more power to you, because he's great at it.

Dan Ferris: Right. So on that note, let's check in with him. Let's talk with our friend and colleague here at Stansberry, Greg Diamond, one of the best trades we know. Let's talk with him. Let's do it right now.

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Dan Ferris: Greg, welcome back to the show. It's good to talk with you again.

Greg Diamond: Likewise. It's great to be here.

Dan Ferris: I am looking at some notes here that I made, and I noticed that lots of Stansberry editors are bullish, and we just had two of them on the show. We had Brett Eversole and we had Matt McCall together. They teamed up on me and went all bullish on me, which I survived. I was OK.

I know one of the great things about Stansberry is of course we all come at the market from a different perspective, and I wanted to get your sort to overall take, if you have one even – maybe you're neutral. I don't know – as to where you think things are going right now.

Greg Diamond: I think, as you know, I kind of look at the market different than most of our colleagues, in the fact that I'm technically based on price and time. With that said, I will switch if the market tells me to switch. In 2022, I was very bearish. I traded from the bearish side pretty much all year, and I was very successful doing that.

I called the bond in October. The first three months of this year were a little choppy with the banking prices and this, that, and the other thing. But I've been largely bullish since.

Just take today, yesterday and today. So the inflation number CPI is higher and PPI was higher and the markets around them. So again, from price and time, over the last few weeks I said, look, this, based on inflation and/or the Federal Reserve, future monetary policy, whatever it might be, if that dictates based on time and price, meaning the trend is going to break down and we see this inflection point, I have no problem switching from bullish to bearish. But we're not seeing that.

So if you would think that inflation is rising or expectations are higher than what the market might think, and the market still rallies, that tells me that there's too much fear. There's too much short positioning and we'll probably see another rally. So that's kind of where my mindset is. I reduced a little bit of risk over the last couple of weeks, but I'm still bullish.

Dan Ferris: OK, so reducing a little bit of risk, but still bullish.

Greg Diamond: Yeah.

Dan Ferris: I should know this. Forgive me for not knowing. Do you trade sectors, mostly sectors, mostly individual stocks, indexes? What do you really focus on the most?

Greg Diamond: All of the above. My service, Ten Stock Trader, is based upon the fact that I rarely hold more than 10 positions at any one time. You always hear about diversification. You always hear about don't put all your eggs in one basket. I kind of take the opposite approach. I put all my eggs in one basket and I watch them very, very closely.

So I tend to trade the same stocks, the same sectors, the same indexes, the indices all the time. So that's kind of – again, I narrow my focus and I trade what I like, for lack of a better explanation, and I stick with it.

Dan Ferris: All right. Let's see. I know you don't want to give away any picks or anything because they're for your subscribers, but is there – for example, I notice most stocks are down. So if it was possible to trade the Russel 2000 Equal Weight or something – I don't know. Maybe you would be bearish, maybe not. But is there a particular sector or – I don't know. Is there anything you could tell our listeners.

I'll put it this way. They love picks. They would love for you to give them a stock that you're bullish on or bearish on or a sector or anything. So how far can you let us in?

Greg Diamond: All right. You know what I'll do? I'll give you a little bit of bearishness to kind of pique your interest, and then a little bit of bullishness as well. What I mean is everyone is talking about AI and semiconductors. I get it. You know, it's ad nauseum. You get it on Twitter or when you watch the news or whatever. It's just all over the place.

That trend is going to run until it doesn't. However, when you see one sector largely outperform another sector, that's called price divergence, and we're seeing this in a large capacity. If you look at semiconductors relative to banks, the spread is incredibly wide.

You mentioned Russell 2000 small cap. A lot of regional banks are in the small-cap sector, also just wildly underperforming. So heading into next year, that's going to be a problem.

I'll give away a little bit of a secret. I think that 2024 is going to be a trader's market. What I mean by that is I don't think we're going to see these large, huge uptrends continue. I think it's going to be a little bit of a pause. I think it's going to be a little bit – especially heading into the election, which I won't get into because I knew it was going to happen and be a little crazy – but it's going to – so that spread, that price diversion I talked about, small caps, banks, and then AI and semiconductors, it's going to be a problem.

There isn't a healthy economy or a healthy stock market, for that matter, when the banks are underperforming. Why is that? Well, the banks provide all the liquidity for everything, for all businesses or whatever. If you want to blame mortgage rates, fine. If you want to blame inflation, I get it. if you want to blame the Federal Reserve, I get that too.

The why doesn't really matter. My point is that history has shown that when banks are underperforming there's a problem. So that's something, again, from a bearish perspective.

However, on the bullish perspective, I do think this trends rallies until the end of the year. We're in a seasonal point where everyone talks about September. I get that. However, the uptrend is still there, and the old saying is "Stay with the trend until it ends." "The trend is your friend until it ends." Whatever it might be, whatever particular phrase you want to use.

So unless that breaks, I'm not fading it. So watch out for the price to ricochet in 2024, but right now, I'm still bullish on as long as the trend holds.

Dan Ferris: OK. That's simple. A lot of people like to, like you said, a lot of people are obsessing about AI right now. A lot of people like to obsess about the Fed too. I mean obsessive.

It's funny because folks weren't obsessed when interest rates were zero. They were partying. Now, every tick higher, they're like, "Oh, they're going to kill the market. Oh, this is bad," or some people, "Oh, this is good. They're not far enough," too far, whatever.

It's like Jim Grant says. It's like we're watching a baseball game and everybody is talking about the umpire rather than the players. Do you care at all about the Fed?

Greg Diamond: Yeah, I do. I like that analogy from Jim Grant. People say that the Federal Reserve is independent and not political. That's a bunch of BS. It's just so ridiculous.

They're nominated by the president, and then they're confirmed by the Senate and the House. You don't get any more political than that. It's just ridiculous to think that they're independent, and the banks all have a share and then the – it's just absurd.

The Federal Reserve has two goals, inflation and unemployment. The Fed's goal is to make sure the stock market doesn't crash. Let's be honest. So that's their main goal, is to make sure that all the rich people that they serve, for lack of a better word, are happy. And they fail miserably at it.

We saw it in 2020. What they did to try to bail out this stuff was print more money than has ever been printed in the history of civilization, and now we are where we are. You saw that last year with 2022 and inflation. Regardless of what the numbers actually are, people are feeling it wherever they go. Inflation is ridiculous. It's out of control.

So that's the pessimistic side. The optimistic side is that the stock market discounts what's going to happen in the future based on what's happening now. So a lot of people are like, "I don't understand the stock market. It doesn't make any sense. Inflation is doing this." I know because inflation, CPI, official numbers, not what you see at the grocery store, but the official numbers went from 9% down to 3% or 3.7%, whatever.

So if you were a hindsight trader or a hindsight 2020, and if you could go back in time and say, "Hey, inflation went from 9% to 3.5%," what would you do with stocks? You'd buy them. That's what we saw in October of last year.

So I do care about the Fed because they do pull the levers, but I think we're kind of in this situation now where they're on hold or maybe they do 25, just to make sure that they don't screw up as much as they could, even though they probably will again.

Again, I mentioned today that yesterday CPI was higher. Today, PPI was higher. The market is still rallying. So to me, that tells me that people are too fearful. They don't have as much exposure to stocks or if not outright short. If the inflation number is higher and stocks don't rally, that tells me the pain trade is higher.

Dan Ferris: All right. Pain trade is another way of talking about the wall of worry, just for the listeners' sake.

Greg Diamond: Correct.

Dan Ferris: Meaning that stocks tend to climb a wall of worry rather than fall, like many would expect.

I want to switch to a little current pet peeve of mine, which is the bond market. I'm not a technical guy, Greg, but I can look at a chart for two or three years and see whether it's gone up or down in six months and stuff. So I get bullishness right now, based on technical factors. I think I do. I look at the charts and say, "Wow, the S&P 500 and Nasdaq, they're coming up on a year off the bottom here." So I get it. I get it all day long.

When I take the CBO 10-year-yield index and flip it upside-down and do a two- or three-year chart, it's just a bear market, period. That's all it is. It's not something that bottomed out very – it's just a bear market still.

I'm like, OK, let's see here. The bottom was like 8/21, August 21, very recently I think. So when I look at overall – the overall idea to me is if bonds are suffering, stocks can't be far behind because bonds are – in my mind, bonds are senior to stocks. In the capital structure of a company, we all know the bondholder gets paid first and the stockholder gets paid last, not just after the bondholder, but dead last.

And I think of equity the way a credit analyst does. It's the first layer that absorbs losses, but equities don't seem – you know, sure, most of the Russell 2000 is down about 2%, year to date, but being bullish has been the way to go this year. So nobody is looking at that layer and thinking, "Oh, they're going to take some hits here soon."

But when I look at the bond market I think equities have – earnings have to grow 10% or 12% in the next two years to justify the current situation. Then when I look at the bond market I'm like the alternative – like the farther down the price goes, the farther up the yield goes, and the alternatives are getting better and better to equities. I can throw a couple million bucks at Treasurys right now and have a nice income, have a six-figure income.

Does the bond market worry you, is what I should have just started out by saying?

Greg Diamond: Yeah. I'll say that the days of 0% interest rates or even 2% inflation, that's gone. I mean it's over. I mentioned that the Federal Reserve printed more money than any time in human history. I think that as a result that was the low in interest rates and inflation for now over a 5,000-year period or a 2,000-year period, whatever time period you want to look at.

We're not going back to that. That's a generational low. That's probably the best way to put it. So if you want to get a 2% mortgage, good luck. You're never going to see that again.

I remember my parents telling me that they bought their first house and their mortgage rate was 15%. We're heading there. We're already there. It's 7% now. So the days of low interest rates and you can buy a car and finance it for eight years on – it's game over. That's game over.

However, that fear, especially relative to the stock market is why we saw this push. You have to factor in artificial intelligence as a new technology, kind of like the Internet in 1995. It can last longer than you think.

I kind of mentioned the spread between banks, small caps, and these semiconductor technology stocks. That spread, along with what you're talking about in the bond market, is going to be a problem especially into next year. I mentioned it's going to be a traders' market. I'm actually looking forward to that.

So yeah, the bond market does worry me because it's not – the Fed can't cut – I just love how people are like, "Oh, they're going to start cutting." They're not going to cut rates. They can't afford to do it. They can't. They can pause, sure, but they're not cutting rates. It's just not going to happen, because they can't risk what happened in 2022. They just can't do it.

So the bond market does – I don't know if worry is the right word, but in terms of the way that I look at the market, in terms of price erosions, in terms of interest rates, it's a factor that says, "OK, how low can bonds go? How high can yields go?"

We saw it in the last month. Yields started ticking back up and we saw stocks kind of go sideways. So what's the level, whether it's a two-year, 10-year, 30-year, whatever you're looking at, what's the level where stocks react negatively? We kind of saw that.

So it's kind of hard to predict what that level is, but we see when it rallies too much, when yields rise too much, stocks don't like it. So it's definitely a factor that you be careful of. But to your point, what's the risk-free rate of return right now? It's pretty good. So throw some money at the bond market and you're going to be OK.

Dan Ferris: Just to be clear, when I say throw it at the bond market, I'm talking about Treasurys, but there are probably some really great corporates out there too. I mean there's plenty of investment-grade corporate debt out there. Companies like Apple and whoever, they're not going to default ever. So you're going to get paid. Yet, they respond to all the same cues as Treasurys and everything else. So the yields improve there as well.

I guess in general, where I'm headed here is when I'm asking about the Fed and the bond market and things, these things sort of are on your mind. But your trading is entirely about price and time. So even if you look at the bond market and say, "My god, if yields tick up one more bp, this thing is going to collapse."

You don't do that. If price and time tell you to be bullish, your ideas about the Fed and bonds and the economy and anything else, like you complained about inflation a moment ago. You said it's terrible. No matter what the numbers are, people are feeling it.

We could talk about things like bankruptcies ticking up and car loan defaults and credit card defaults, all of those things are like the highest since the financial crisis. But you don't look at those and say, "Oh, I better get cautious here." It's just price and time.

I find that to be just an exercise of discipline. Do you have trouble, do you look at your trades and go, "I better get off of this because I know it's going to collapse"?

Greg Diamond: No. I don't know if you're – you know, I'm in my office basement and – or basement office rather, and I never turn on the television. It's not that I don't see the news or hear the news. The older I get and the more that I keep doing this, the less noise that I have, the better I do.

Again, time and price... that is my discipline and that's what I've learned over a period of almost 20 years now. That's how my mind works. That's what has led me to be somewhat successful, and I'm sticking with it.

Here's the thing though. There's always something to worry about. Always. There's always going to be that wall of worry. There's always going to be, "Well, this is happening. This is happening." I get that, but at the end of the day, we are what our record says we are. And my job is to make money, no matter the market environment. Bull market, bear market, my job is to make money.

So I can sit here and list off 10 different things that could go wrong, but at the end of the day, it's really about the market behavior of all investors all over the world, and what they're doing at this moment in time. Are they too fearful? Are they too greedy?

That is reflected in price. That's what technology analysis is. It's the collective behavior of everyone in the room expressing their behavior through buying and selling. When those reach extremes, that's when the most money is made.

So do you want to talk about inflation? Do you want to talk about the bond market? Do you want to talk about the Federal Reserve? Do you want to talk about bankruptcies? I get it. All reasonable fundamental catalysts that could lead to something, but right now, again, it's simple. The trend is up.

I'm not feeling it, and especially when you see, and I mentioned it a couple times earlier and I'm going to mention it again. The catalyst for 2022 was inflation, and when inflation was rising stocks were crashing, for the most part. Now we're seeing it drop to 9%, 3.5%. Now it's ticking up a little bit, and yet stocks are still rallying. Why is that? Because we're fearful.

1. Then we revert back to, guess what, time and price. The trend is still up. It's not time to sell yet. So I'm bullish.

Dan Ferris: All right. There's no shaking your resolve when time and price are on your side.

Greg Diamond: Can't do it.

Dan Ferris: I always ask a question like that. I don't mean to doubt you or anything, but I ask a question like that because of an episode that I mentioned before. Steve Sjuggerud and I visited one of the turtle traders many years ago. This is 20 –

Greg Diamond: Richard Dennis.

Dan Ferris: Yeah. Of course, they're the people who practically invented the idea that you just pay attention to the price and time back then. Those were the old days of trading, like 21-day breakouts or something like that.

So we were on the trading floor and we were with the head trader. We were being walked around by this vice-president guy, and he said, "I'm going to leave you with the head trader here for a little bit."

I'll never forget this, Greg. There's a whole floor of PhDs underneath us, math PhDs working on this system to spit out these signals. There's these traders upstairs, where Steve and I were, and they were saying, "If you don't trade the signal, you're fired." The head trader looks at a chart. Actually, he was talking hypothetically. He drew a little five-day pattern. He said, "We're trading cable right now," the British pound.

He drew a little five-day downtrend, and he said, "Yeah, we trade the signals, but do you really want a short cable after five days of that?" I was like – you know, we didn't say anything, but I will never forget it. I wanted to say, "Are you telling me that you're not trading the signal?" So yeah, that's right. But clearly, the guy was not fired, so I don't know.

That's why I always ask. I always ask all the traders who talk about the discipline and price and time, "Don't you just change things a little bit now?" and all the best ones said, "No, Dan. No, no, no. You can't shake my faith. It's discipline. You stick to it."

To me, that's one of the very big lessons of what people like you do. Were you always that way? Did you always find it easy to have discipline as a technical trader?

Greg Diamond: Everyone thinks you come out of the womb and you're just like, "Hey, I'm going to go buy a Porsche and drink some champagne," like trading is this easy thing. No. There is a lot of pain. There is a lot of failure. And that failure and that pain led to the discipline. It led to risk management. It led to the strategies that I use. It's learned.

Are there certain qualities and characteristics that you're born with that could make you a better trader than some? Yeah, maybe. I've never met a really good trader that did not fail, because it leads you to a discipline that you have to have to be good.

I never met someone who was like, "Oh, right out of the gate I was making millions and it was all good forever." No, because the markets change. You have to change how you look at it. You're always going to have that discipline and risk management, and understanding that losing is part of the game, but you have to have some type of roadblock that changes you to get into the role that you have of understanding what your strategy is, and then maintaining that discipline.

So no, if it was easy I'd have a fleet of jets and have my own island, but I don't. A lot of people don't. I drive a Suburban. I cruise around on my John Deere tractor. I don't have a fleet of jets. But I'm happy where I'm at. I love this company and helping individual investors. I've found a home here. I'm going to be here as long as they don't fire me or I don't get hit by a bus. This is where I'm going to be.

But I like telling people or teaching people, rather, "Look, this is what it takes to be a successful trader. This is the discipline. This is the risk management. This is my strategy." Follow me and hopefully you learn something. If I'm not your cup of tea, that's OK too. Like I said, I'm different than most of our colleagues. I'm different than most editors.

But I trade every market, bull market, bear market. My job is to make money and showing people how to do it. That takes discipline. It does.

Dan Ferris: I'm glad you once again mentioned the differences between yourself and others. Over the past, gosh, many, at least 15 or so years, all I've been hearing within Stansberry, the overwhelming chorus when you ever mention trading options, the overwhelming chorus is selling. Selling puts, selling calls, etc., and the idea of this being like an insurance policy. And do you want to be in the business of buying insurance or selling it?

You're not one of those folks though, are you? You're a trader. You're a pure trader.

Greg Diamond: Yeah. I'm directional. Let's put it really simple. Is the market going to go up or is it going to go down? I don't care what market you're talking about. Is it going to go up or is it going to go down?

As a trader, a pure trader as you said, my job is to figure that out. Is the market going to go up or is it going to go down? There's no guarantees. I put together the probabilities based on time and price of what's going to happen. And I use long options, which as you said, not a lot of people do, as leverage.

The smart thing is to sell options, because the way that they're formulated or populated or just the nature of options is that they decay over time, and by selling them, you're taking the premium and over time they decay to zero. You keep your premium. I totally understand it. It's less risk.

I take the opposite side and use as much risk as possible, but I use position size and time to use that leverage to my advantage. So I didn't understand the concept of time, buying long options, I wouldn't be very successful. But because I use time analysis, time cycles, I can use that to my advantage to buy options. So that's kind of what differentiates me.

But also, every trade that I make I have a position-size recommendation. My position size recommendation is my stock loss. I talk about it over and over and over again in my newsletter. Losing is part of this game. Show me a trader who has never lost and I'll show you a liar.

So understanding that and having that mindset means "OK, I'm going to have this position size because I will be wrong. It's going to happen. It happens every year. It's fine. But as long as I'm right more than I'm wrong, we're going to win in the end." So that's kind of my mindset around trading options.

Dan Ferris: Right. So just in the simplest terms, last year I know you did really well. You said you were trading bearishly, so you would have been buying put options. This year, if you're bullish, you're buying call options, just in simple terms.

Greg Diamond: Correct.

Dan Ferris: All right. I'm glad you said that. I personally don't sell options either. I only buy them and I buy teeny-weeny tiny little amounts of them, mostly as kind of an insurance policy. But we won't talk about me because I don't know what I'm doing and you actually do.

So I find it very, very interesting. Of course we always wind up here whenever I talk with traders, and I've talked with like "market wizards." I mean we've had trader after trader on this program, market wizards, all kind of folks, and traders who were covered in Jack Schwager's Market Wizards books, and Schwager himself, and you and all kinds of other traders, and we always wind up at the same place. We always wind up talking about – you just mentioned position sizing and risk controls.

I'm actually currently writing a piece that by the time we get this podcast out, it'll be published in the Digest, the Stansberry Digest, that all our paying subscribers get. I couldn't help discussing it there. It's just incredible. People don't pay you for your ability to predict things. They pay you for your ability to have the discipline to exploit those trends, because if you don't have the discipline you're going to get killed.

Greg Diamond: Yeah. I love that.

Dan Ferris: It's got to be difficult. Look, you and I, we know human nature. You just talked about it a minute ago. You don't come out of the womb doing this. People fail and losing money is a part of it.

I said we had market wizards on. Some of these guys are like, "Yeah, I'm right about 40% of the time and I make plenty of money." So when you're right, you have to be right in greater magnitude than when you're wrong, etc. That's where the risk controls come in.

But I'm just thinking of your position as guy who is writing to people, who know less than him. Let's face it. They want to learn from you. It's got to be difficult to get the message across that you're paying me to teach you how to be disciplined. You're not paying me for magic secret sauce that's always right in my predictions. That has to be tough.

Greg Diamond: Yeah. I write sometimes, "Do you want to make money or do you want to trade?" There's a difference. Some people just want the action. I say if you want the action, go to a casino. Go to Atlantic City, go to Vegas, have at it. If you want to make money and you want to trade, if you want to be a successful trader you have to understand that discipline. It's not always about the action. Sometimes the best thing is to do nothing. Sit on your hands.

I mentioned earlier in the podcast I review some risk heading into inflation numbers, heading into the Federal Reserve. I want to see what happens. I've mentioned this over the last two weeks. Look, if price and time tell me that I need to flip, I won't just get out of my long positions. I will go max short, because that is what the market is telling me to do.

The market is a living, breathing organism that changes with human nature. It's the same thing. It's humans interacting and you see it in the market. So if the market is telling me, look, things are really changing, I'm not going to fight it. I'm going to go with it.

I always talk about the why or why I don't care about the why, which is the wall of worry, all the things that we talked about, inflation, blah, blah, blah, all this stuff. I care about what and when. When is something going to happen, and what is it going to do? It's really that simple.

I mean it's tough, but I receive great feedback from subscribers, for the most part, in terms of explaining that over the last few years, and not just explaining it, but putting real money on the line and making through the COVID crash, the bull market in 2021, the bear market last year and so far this year. So I'm doing it in real time, not just writing a book.

Dan Ferris: You're doing it in –

[Crosstalk]

Dan Ferris: I see. I was going to say as opposed to what, as opposed to just talking about it. I've talked to some of those folks, too. There's a whole industry of writing about trading without actually doing it, which I find a little strange.

Greg Diamond: I agree.

Dan Ferris: We of course do have rules at Stansberry that say you can't buy the stuff that you recommend in your newsletter, but you can always get close, can't you.

Greg Diamond: I don't trade any options personally. I have a strict rule of that. So I don't trade options for myself or my family.

Dan Ferris: Really?

Greg Diamond: Only for subscribers. No, I don't trade any options.

Dan Ferris: I see.

Greg Diamond: I'll trade the futures market, which in some respects has even more leverage than options.

Dan Ferris: It sure does, yeah.

Greg Diamond: But I don't trade any options.

Dan Ferris: I see. Let's face it. A futures newsletter wouldn't really cut it.

 

[Crosstalk]

Greg Diamond: We've had this conversation before, Dan. Maybe there are some people out there in the newsletter environment who can do it, futures. I traded futures when I was on Wall Street. You just cannot, in my opinion, have – you can't write and send out futures recommendation trades, because things can change in 30 seconds and you can lose $10,000 in 30 seconds.

Most people have careers. They're working. Yeah, the options thing, OK, it's one, maybe two times a day or a week rather. That's good. But I was going to trade futures in the newsletter industry, I'd be trading 50 times a day. Not everybody has the capacity to do that. So to me, it's not worthwhile.

Are there some people out there who would be willing to do it? I get it, yeah, but it's not the majority of people. So in my estimation, in my opinion, it's just not worth it.

Dan Ferris: All right. I like to talk about what not to do a lot, because I think all the things to avoid in life are at least as important, if not more important than the things you should do.

Greg Diamond: However, here's something else. People want to talk about: how do I learn how to trade? If you really want to learn how to trade, if you really want to understand failure and success and then discipline, most importantly, take $25,000 or $50,000. Go put up a futures account and trade crude oil for six months, one lot every day, buy and sell, and then let me know how you do.

You're going to find out really quick about failure, success, and most importantly, risk management. But don't hold me if you lose all your money. I'm just telling you that if you really want to learn how to trade, just figure that out.

Dan Ferris: There you go. Good advice. That'll teach you. That'll show you.

Greg Diamond: I mean that as a good thing. I don't mean it as a bad thing.

Dan Ferris: No, I got it.

Greg Diamond: If you really want to learn how to trade, this is what you need to do.

Dan Ferris: Understood. All right. Time for the final question, Greg. It's the same question for every guest, no matter what the topic, even if it's a non-financial topic. The same question. The question is very simple. If you could leave our listeners with a single thought today, what would it be?

Greg Diamond: We've had this a couple of times. I think last time I talked about risk management. Then before that I said, "What's your number?" meaning if you have $100,000 in the stock market and the stock market drops 30%, just get out. What's your number that you'd be most comfortable with? So those two things.

But as a new one, what would I leave subscribers with right now? Really simple... Follow the trend. We talked about it all through the podcast. Follow the trend, stay disciplined.

Dan Ferris: Follow the trend, stay disciplined. It sounds so simple, doesn't it, but it's not easy.

Greg Diamond: I think it was Richard Dennis actually, the turtle trader. He goes, "I will give you all the rules. I will tell you exactly how to be successful, and people still won't do it." It's human nature.

So it is that simple. Stay with the trend. Stay disciplined.

Dan Ferris: All right. Hey, Greg, it's always great to talk to you, man. Thanks for being here. I appreciate it.

Greg Diamond: Likewise, my friend.

[Music]

Dan Ferris: The Fed wants you to believe they've got inflation under control, but I believe we've only seen the beginning of a devastating new crisis, and if you don't prepare now you could see your savings evaporate and inflation and interest rates soar even higher over the next two years.

It all traces back to a golden thread that ties together the biggest financial calamities in America's history, but it seems the entire financial world is falling into this very same denial trap that led to massive devastation the last time this crisis played out. If you know your history, you know there will be winners and losers, and now is when you decide which one you'll be.

I've spelled it all out in an urgent new report. Go to www.BankRun2023.com to get your free copy. I'll also show you how to get my complete playbook for navigating this crisis, including the three critical steps to take immediately. Again, that's www.BankRun2023.com for your free copy of my new report.

[Music]

Dan Ferris: Greg and I are good friends. We've known each other for years. I still, every time I speak with him, including this time, I always learn something. Even if it's just a reminder, I always learn something about trading. I never heard him say that thing at the end about if you really want to learn how to trade, take an amount of money you can afford to lose and trade crude oil futures every day for six months and tell me how you do.

I almost want to do it as an experiment, but that's a – I mean you've got to have the six months to spend doing it, because you don't want to walk away from your computer, so you better have plenty of time.

But another great talk with Greg, and I hope you do understand his takeaway. Stick with the trend. Stay disciplined. Like I said, it sounds so simple, and it is simple. It's very simple, but it's really hard. If you're a trader, staying disciplined is everything. It's your religion. It's your North Star. It's your everything.

If you've listened to the podcast for any length of time, you know that that's the message again and again and again. Every trader, everybody, we stick to our strategy. We stay disciplined. When the stop tells us to sell, we're out.

In fact, that one thing, when the numbers tell us to exit, get out, that seems like the one single thing that is hardest for most new traders to understand, but it's the single most important thing. When Greg was talking about failure and losing money and it's all part of the game. That's really it. It's taking that loss and moving on, and Greg is like the guy to learn it from.

It's always a fun talk with Greg. I hope you enjoyed it as much as I did.

That's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we did.

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