While this year has presented a difficult trading environment for everyone so far, Greg's Ten Stock Trader advisory has been making a killing. Its win rate stems from Greg's expertise in technical analysis – a strategy that relies on studying past market and human behavior to predict what's next. With nearly two decades of experience trading and managing multibillion-dollar portfolios across every asset class, Greg is well-versed in guiding his subscribers to profits... while also knowing when to sit back and be patient.
But it's not just about technical analysis... Greg also underlines the importance of understanding the fundamentals of market behavior, inspired by his recent readings on legendary investor and trader Stanley Druckenmiller...
At the end of the day, follow the Fed. What's the Fed doing? Are they opening the spigot and releasing cash into the market? Or are they not?
So, what's Greg's secret to surviving – and thriving – in this rocky market while everyone else gets "whipsawed"?
Greg says it all boils down to making sure you have two crucial items in your trading toolkit, both of which have led his readers to consistently make money, regardless of what the market is doing. And he explains why he believes the popular notion of checking your emotions at the door before investing or trading is actually a misconception.
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 friend and Stansberry colleague, master trader Greg Diamond. He's got some thoughts you will not want to miss on where the market is going next.
In the mailbag today, crypto tattoos, Elon Musk, and more. And remember, you can call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my opening rant this week, why I sold bitcoin and also why I think there's a pretty good rally coming up. That and more right now on the Stansberry Investor Hour.
So, why I sold bitcoin. I sold bitcoin in the current issue of Extreme Value, which came out on Friday. I'm pretty sure most readers have had time to look at it. I sold late, late Friday night, and it didn't affect the market because bitcoin went up after I sold. So I think I sold in the 29,000 area and it was 30,000 pretty quick after that. [Laughs]
So why did I do it though and why did I recommend my readers sell? Well, I did it just, you know, maybe 10 hours or so – I was up pretty late – after publication, because our trading policy, which requires us normally to wait I think like 72 hours or something, it did not come into play with bitcoin. It doesn't affect bitcoin. So that's why I sold right away.
I thought, you know, I really have no reason to wait. I told the readers to do it. They've had several hours to look at it, et cetera. I obviously didn't move the market. So if you're an Extreme Value reader, OK, full disclosure, but let's get to the reasoning on why I did it.
Initially when I recommended bitcoin in early 2020, I actually gave most of the reasons that you're familiar with. I don't think that I added anything really different to the debate there on why you should own it or not own it. You know, the scarcity of it is attractive. When you're creating a currency, you don't want it to be something that can be just easily printed in trillions and trillions' worth at the drop of a hat like what we've seen with the U.S. dollar in the past couple years.
You don't want that, because you will get inflation, and that's what we have now. So that's an attractive quality of bitcoin. Don't ask me, I'm not a computer guy. I'm not a software engineer, but folks who I think know what they're talking about say, you know, the code isn't great but it's secure and it'll get better over time.
And by that I mean also just blockchain and bitcoin and anything to do with it. So why sell? Well, the main reason really is that I bought the line about this being a substitute for money, for dollars, and I thought, well, you know, it's like a call option on the failure on the U.S. dollar, isn't it, if it really does function as well as money. So why not just buy a little bit and you either lose a little bit or maybe you make like 100 times your money or something?
And then I became more confident in it and I added to my position over time. So I wound up slightly more than doubling my money, even though I started buying at 10,000 and sold at like 29,000. I did buy some above that, but overall I did a little more than double, I think. The main problem I had with it is that I had these ideas about it being potentially a currency or a store of value, and they aren't materializing at all. In fact, I've said this many, many, many times.
This shouldn't be a big shock to the folks – to you who listen to this show or to people who subscribe to my newsletter, because I've said many, many times here and in print, this bitcoin does not trade like a store of value or a currency. It trades like a speculative technology long. You know, it's your long technology, and therefore short volatility, right? So when your long technology and technology starts falling apart, bitcoin gets hit, you know?
It was $69,000 at the top and now it's, you know, high 20s, low 30s lately, and all over the place in between. It's just really volatile, and it correlates with the Nasdaq. We interviewed Hugh Hendry a couple weeks ago on the show and he mentioned that correlation with Nasdaq. And I was like, well, Nasdaq is kind of the opposite of what I want bitcoin to be. I don't want it to be a speculation on new technologies.
I want it to be a secure, scarce resource like gold or silver that works in this worldwide electronic network, you know? But [laughs] it's not acting that way. And then Michael Saylor from MicroStrategy, the CEO of MicroStrategy who came out a while ago, a couple years ago, and said I'm putting my company's treasury into bitcoin, and he borrowed a couple hundred million to buy bitcoin with it. And I saw a video of him telling people, "Buy bitcoin with all your cash, borrow money against your house and buy bitcoin, you know, sell everything you own and buy bitcoin." It was like the dumbest thing I've ever heard a CEO say in my life.
And levering up to bitcoin with the company treasury is one of the dumbest things I've ever seen a CEO or a corporation do in my life. You're inviting a problem. And then to make matters worse, both Michael Saylor and the CFO of the company said in public that they will get a margin call if bitcoin goes below $21,000. And he's got this slide deck out that you can look at that says, no, everything will be just fine. We'll have to pledge more collateral.
And I've been tweeting saying this guy's just put blood in the water and the water is filled with sharks, essentially. I don't think I tweeted that exact thing, but when you tell the world where you're going to get a margin call, it's like telling every trader in the world to come and kill you and crush your position and short you down to that level. Because once you get down to that level, a forced sale of your bitcoin or whatever your asset is that's margined – in this case it's bitcoin – becomes more likely. So I don't care if he has to pledge another 1% or 2% of collateral or 10% or 20% or 30%.
It doesn't matter. What matters is that he's now got a target on this back. Everybody knows where he's going to get the margin call and everybody knows where he's going to have to pledge more collateral. And you tell me – when you get a margin call and somebody says you've got to pledge more collateral, are you closer to a forced sale? Are you closer to your broker forcing you out of the position and selling no matter what the price, at any price, whether the thing is spiraling down or not, or are you farther away from it.
Are you just fine when you get a margin call? I don't think so. I don't think that's how this works. And I don't care what numbers he publishes about how much collateral he has to pledge, there's blood in the water. Everybody knows where the target is. It's 21,000. When the thing goes to 20,999, he gets a margin call, he's got to pledge more.
Then people start selling more, and before you know it it's 19,000 and, oh well, instead of having to pledge 1.8%, or whatever the number is – it's less than 2% – now we have to pledge 20%, then down and down it goes. And he says, "Well, you know, it's not really to – we don't really get in trouble until it's below 3,000 or something like that." Well, [laughs] thanks for the invitation. I think you just invited bitcoin to crash 90% after it's already down more than 50%.
So, you know, I'm not going to look at a situation like that and say, "Oh, it'll be fine." No. You have to assume it won't be fine. And go ahead, write in and say, "No, no, Dan, I read the slides, I read the MicroStrategy slides about this that they published. It'll be fine." No, you don't get it.
You haven't been through this before. It's a target. It's a target on his back. That's how this works. That's how markets work. When everybody knows that there might be a forced sale in something they go after it, and they short the daylights out of it so they can buy it dirt-cheap in the end. That's how this works.
So, fine. Quote me chapter and verse on the stupid slides he published. I don't care. I think it's a reason to get out now before the thing hits 21,000 minus one penny or whatever it is. [Laughs] So that's one of the reasons why I chose now, but there was that other underlying reason, which clearly bothered me because I mentioned it so many times on the program. The thing just doesn't trade like anything but a highly speculative technology play.
And what do you think? We're looking at a bear market here, a serious minus 50%, 60%, 70% on the Nasdaq kind of bear market. What do you think bitcoin is going to do? And what do you think it's going to do if it goes down another 50% and there's blood in the water and everybody's like, "Oh, Saylor's getting – you know, MicroStrategy is getting the margin call"?
It doesn't make any sense to me to hang on to it here. But, you know, if you can hang on, if you think it's a good idea to hang on, that's on you. It's not my advice, but it's not my money either. So anyway, that's why I did it, right? It's those two things. It trades like a speculative long – Saylor put blood in the water – I don't like that situation at all.
And one day I probably will be back in it in a big way. That's all I want to say about bitcoin, but I did also tell you that I think there's a rally coming up here. It's just a typical thing during a bear market or a downturn, eventually you get to this point where people capitulate and they're just selling like crazy, and the selling pressure is really, really heavy. And I'll talk about this a little bit more in the mailbag too, but there are momentum signs and technical signs that suggest that we are at or near that point where a relief rally or a dead-cat bounce or a bear market rally, whatever you want to call it, is likely, I believe.
Just historically speaking based on certain statistics and things. I just wanted to put that bug in your ear, because I've been so bearish and everything I've said is be careful, be careful, there's more downside, and I think there actually is more downside from here. Because if you look at things like the so-called Shiller PE ratio, the S&P 500, it's down from its peak, but it's still above the 1929 peak, which is one of the other most expensive moments in history, right? 1929, March of 2000, and earlier this year.
[Laughs] So it's still way up in stratospheric territory even though it's down, so I think there's more downside, but I don't think we'll get there in a straight line. Expect a bounce. Be ready for it. If you're trying to trade this mess, you be careful. You don't want to get caught with an aggressive short position in a blistering bear market rally.
All right. That's all I want to say about that. Let's talk with my friend Greg Diamond. Let's do it right now.
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It's time for our interview. Today's guest is Greg Diamond. Greg Diamond has nearly two decades 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 cross various asset classes, has spoken at business schools on trading and technical analysis, and holds the Chartered Market Technician designation, the CMT.
With Ten Stock Trader, Greg oversees technical analysis on Stansberry Research's equity recommendations and monitors the global macro environment, including currencies, commodities, futures, interest rates, and more. Greg, welcome back to the show. Good to have you back again.
Greg Diamond: Thanks for having me back on, Dan. Good to speak with you as always.
Dan Ferris: So normally, when we have guests on the show, we reach out to them because we'd like to just find out what's on their minds. Maybe I have something specific to talk about. But I have no qualms telling everyone you reached out to us. And I'm like, whoa. You know, we know you, right? So when you've got something on your mind and you're reaching out to me, I'm like, [laughs] oh yeah. I want some of this action all day long.
Greg Diamond: [Laughs]
Dan Ferris: So what prompted you to reach out and e-mail me about this, Greg? Why did you want to talk to us?
Greg Diamond: So we had spoken earlier this year or late last year, one of the two, and I was –
Dan Ferris: Earlier this year.
Greg Diamond: Yeah, earlier this year. I had a warning for my subscribers and for your listeners that 2022 is going to be marked with extreme volatility, most likely a bear market, and that has played out. So I just kind of wanted to follow up, kind of share my thoughts now where we are. The S&P is down 13% for the year, bitcoin is off 40% for the year, some semiconductor stocks are down over 50% on the year. So that's why I reached out, because I think it's important, and I don't see this changing any time soon. I think it's going to continue to be a rough environment.
Dan Ferris: Wow. You know, I almost thought you were going to say, hey, it's time. [Laughs] This is it. You can buy now. But no.
Greg Diamond: No, not yet, not yet. And really the reason is – and this is – as you know, I'm more aligned with the technical side of things and price and time, and those kind of rule the way in which I trade and invest. But I think it's no secret that there's a fundamental aspect in this environment that we're looking at that we haven't seen in half a century, and that is inflation and the Fed. And they go hand in hand.
And for the first time in decades, the Federal Reserve cannot stimulate growth without exacerbating what we're seeing in inflation. And they had to sacrifice, and I made this case over the last few months like, look, they're between a rock and a hard place. They cannot continue to support the economy like they have been because of their past policies, by the way, basically flooding the market and the economy with gazillions of dollars, the likes of which civilization has never seen, and now the chickens are coming home to roost, inflation is out of control, the supply chain is an issue, the lockdowns were a huge mistake, and the economy is suffering for it. The Fed has to do something, and we're seeing that with raising interest rates, reducing bond purchases.
That's going to affect growth, that's going to affect asset prices, and this is where we are. How they balance this act is going to be something down the road that maybe that is the time to say, you know what, they're going to have to reverse this monetary policy of trying to fight inflation to actually support growth, but I don't see that as another 12 to 18 months down the line.
Dan Ferris: OK. So to be clear, tell me what you're looking for. Twelve to 18 months? You don't think the Fed is going to sort of figure out what they've done wrong for another 12 to 18 months? Is that what I'm hearing?
Greg Diamond: Correct. Exactly.
Dan Ferris: Right. [Laughs] OK.
Greg Diamond: I think that they're going to try to tackle inflation until it breaks, and then we're going to see the same cycle that we saw after the 2000 bust, after the 2009 housing crisis, and then they come back and they're the savior.
Dan Ferris: Right. So maybe 2018 on steroids, right? They sort of figured it out and backtracked real quick.
Greg Diamond: Right. [Laughs] Exactly. So that's not going to be after a month or two. That's going to be, you know, after a year or two. Because again, back then there wasn't any inflation, so they could afford to do that. Now they can't. They can't do it or it's just going to get worse.
Dan Ferris: Right. And it's a strange situation because for a couple of decades, more than two decades now, we've had this hyper accommodative Fed, right? We've had a Fed that was – we've just assumed that their mandate about, you know, inflation and price stability and employment, we have long since ceased taking that seriously and we just assumed that they're interested in supporting asset prices, right? And that was like their source of credibility almost.
And now it seems like, you know, maybe Jay Powell wants to get his Paul Volcker on and convince us that he too can shove us into a deep recession. He too can jack rates up. [Laughs] I'm shocked that that is the narrative. I'm shocked at this change, frankly. And to tell you the truth, Greg, I don't even know if I believe it. We'll get another 50 basis point hike, right?
But if the excrement really hits the fan hard enough, I do expect them to backtrack. I'm still there. I'm still not believing this multiple 50-basis-point-rate-hike thing that is basked into the future markets. You sound like you think it will play out.
Greg Diamond: I agree with you. I don't think – so whether it's multiple 50-basis-point hikes or not, they're not going – they have to give it a little bit of time because they get back into that easing cycle. And there's an old saying, "Don't fight the Fed, and the Fed has your back." Well, none of those things – well one of those is not true anymore and one of them is.
Don't fight the Fed, and this time in the opposite direction, right? Because they're like, you know what? We don't care about asset prices. We care about inflation. And then they have to kill growth. I mean, they're not going to come out and say that. That's honestly what they're doing.
And then so don't fight the Fed, but then they don't have your back in terms of asset prices anymore. So all these investors are like – just like after 2018, 2019. Oh, we're just kidding. We're sorry. You know, we didn't mean to hike rates. We're just going to pull back and let everything go up.
Then it's just when we get to that point – again, I think it's going to be 12 to 18 months, but they have – if you look back at when this whole thing started, it started with Powell in November of 2021 saying, "You have to retire the word transitory." Now that was in a very interesting time period, and I actually went back and looked at this this morning. If you go back – and I pointed this out a couple weeks ago to my subscribers – if you go back and you look at all the major semiconductor stocks, you look at the Nasdaq and you look at bitcoin, they all topped out in November of 2021 as well, just when Powell was saying inflation's getting out of control, we have to retire it. And then, boom, everything's down 30%, 40%, 50%.
Dan Ferris: Yeah. That whole transitory thing, I think it took just a few months for them to say, "Oh, well, no, OK, we're going to retire this word, it's a bad word," and I think it was Bostic had a swear jar in his presentation. He said, "Every time we say that we've got to put $1 in it or something." So the posturing then – what's bearish posturing look like for you? Are you just short? Do you just make it short the daylights and just buy puts and sit back?
Greg Diamond: Trading is difficult. Bear markets are especially difficult because – and we've seen this over the last – well, this entire year.
Dan Ferris: Yes.
Greg Diamond: You get these big down moves and then you have equal short squeeze to the upside. So you really have to pick your spots. You have been "Johnny on the spot" in terms of where you're getting in, where you're getting out, and you have to withstand some pain. But the other thing that I was thinking about, look at it in terms of the mindset of the individual investor or institutional investor. From the lows of 2020, any time you saw this correction, boom, it was buy the dips we're in, and that would last for a considerable amount of time.
And so there was a natural correction. That has totally changed. The buy the dippers, yeah, they step in, but it's just the one or two-day short squeeze and then, boom, you're right back down again. So it's a difficult environment to trade in, but we've been successful at Ten Stock Trader this year. We're looking at like an 80% win rate so far.
Dan Ferris: [Laughs] Oh, nice.
Greg Diamond: So it's really about, you know, this is kind of where my technicals come into play and how I looked to trade, and again, where I'm going to be patient, where I'm going to take some profit, and then you just kind of keep it simple. I kept it simple in my weekly market outlook last week. Look, it's a downtrend. A simple downtrend is lower lows and lower highs, and until that breaks that's going to continue. It's like inertia, it's just going to keep going, the energy's going to keep going in that direction until probably we see the Federal Reserve reverse their stance.
Another thing I'll point out is legendary trader and investor Stanley Druckenmiller, I was rereading something that he had spoken about when he first started out, and he's like, "I want to understand why markets do what they do. Why do they act the way they act?" And he went into some technical things, but he also said, "At the end of the day, follow the Fed." What's the Fed doing?
Are they opening the spigot and releasing cash into the market or are they not? And we're seeing that right now, and guess what stock prices are doing? So simple but useful words of wisdom from a legend.
Dan Ferris: Right, right. Every time somebody tries to corner him like that he always says liquidity, liquidity, liquidity. I've heard him cornered like that in interviews maybe two or three times over, I don't know, 10 years or something, and he's been more in front of the public I think as he's gotten older. It's always the same answer. It's interesting, you know?
There are people who tell you – you know, Warren Buffett will say that Powell could whisper in his ear everything he's going to do before he does it. It wouldn't change anything he does. And there are a lot of fundamental investors who would say it doesn't change anything they do. And, you know, lots of other folks – we just talked with Hugh Hendry in our last episode, and he's one of these folks who says, you know – he just kind of points out you can't spend bank reserves at the grocery store, right?
So what the Fed is doing – the effects that we're talking about in especially like equity markets, they're second order effect, right? It's not a primary – it's not a direct cause and effect from the Fed. The Fed goes into the bond market, dorks around with interest rates, and then we see the second order effects. So it's interesting to me to have your view and Hugh and everybody else, and they all come down differently about the Fed, and yet we're all talking about the same second order effect, aren't we? Regardless of what you think of the Fed, here we are, and I don't know.
I'm feeling slightly vindicated, but of course I'm worried for our subscribers. But Greg, I wanted to talk about something that you kind of alluded to – well you said explicitly bear markets are tough to trade. And I did this thing a few years ago in Extreme Value, the newsletter I write, and I showed how ridiculous the moves in Apple were from like 1999 to 2002, just like straight up, straight down, straight – it was like an untradeable nightmare. So I wonder if there's anything you could tell our listeners like in terms of how you do – there must be something you're doing differently than all the folks who you and I both know are getting their asses whipsawed during this. I mean, with an 80% hit rate you've got to be doing – you've got to have some tools that most of us don't have, right?
Greg Diamond: So there's a few things. No. 1 is risk management. You know, I'm not going to be a cowboy with my own money and certainly not with my subscribers. So I have risk management principles that I utilize first and foremost. Second, is a strategy.
You know, if you think about all the newly minted traders from 2019 to 2022, whatever it was, in this huge move, I'm not here to say bad things about them, but they thought that their skill was involved, so you had this arbitrary entry point that you bought something, and it didn't really matter where you did it because chances are within this huge speculative bull market that we saw over that two, three-year period, guess what? Stocks just went up. You felt vindicated and, oh, this trading things is easy.
That's not a strategy. So what do I mean by strategy? You know, this is where I get into my technical things, and that is something that I talk about every day in my trading service. I don't want to get too bogged down with that here, but it has to do with price, it has to do with time, and then that – so those two things combined with the risk management principles are the strategy that I use, especially in this difficult bear market.
Dan Ferris: So once again, ladies and gentlemen, we're talking to a trader who knows what he's doing and who's crushing this current market. And where have we wound up? We've wound up where we wind up with every trader we've ever had on the program – risk management. It's just – I mean, it's so amazing, because you and I both know – you mentioned all those novices who got into the market recently and maybe don't know what they're doing, don't have an explicit strategy, and the thinking, of course, is I'm a trader. I want to be a trader because, you know, I make fast moves and I want to make money real fast.
But the diehard buy-and-hold fundamental investor and the experienced trader, they're not so different are they? The effects are over a – they're both focused on the long term and risk management.
Greg Diamond: Yeah, yeah.
Dan Ferris: It's amazing. Yeah.
Greg Diamond: And here's something that I stress all the time, and it's what a lot of people don't – you know, especially with crypto, millionaires and billionaires, and everyone thinking I can – with this get-rich stuff. What so many amateur, novice, or even some experienced traders really don't understand, that's something that I learned the hard way but then incorporated into my own trading as a professional, is I always try to be a "steady Eddie." And I don't care whether the S&P is up 50 or down 50 or just goes sideways. My strategy, my risk management is all about extracting what I can from the market over a 12-month period.
I look at it like a 12-inning baseball game, and every inning I just want to score some runs, score some runs, score some runs, get some guys on base. You're going to strike out. It's going to happen. But again, that's where risk management comes into play. But again, this steady-Eddie approach allows me to just steadily make money every year regardless of what the market is doing, up or down. So am I going to be in the next Market Wizards book?
Probably not. But over the next five to 10 years, if I'm getting 5%, 7%, 10%, 12% returns a year, guess what? That's good. Especially if you see volatility that we're seeing now, you know, S&P is down 13% and you're at 5% halfway into the year, that's pretty good. So I just really want to hit that home to anybody who's thinking about getting into trading or what's the right way to think about it. I always look at this steady-Eddie approach as like the right way to trade short term for the long term.
Dan Ferris: And to be clear, "steady Eddie" means – I think for our listeners we could say you always stick to your stops, you always stick to your position sizes, right?
Greg Diamond: Correct.
Dan Ferris: That doesn't change because you're extra bullish or extra bearish, right?
Greg Diamond: You nailed it on the head. Completely agree.
Dan Ferris: Yeah. And it's hard, isn't it? I mean, let's face it, we all see the headlines. You're a human being, you know? I mean, if you're doing what you're doing you're a passionate guy about it. But the passion has to be channeled and controlled and focused, and that is really, really hard.
Greg Diamond: Well, here's another misconception, is don't be emotional about investing and don't be emotional about trading and don't be – that's not the right way to look at it. Because like you said, we are human and emotions are a part – unless you are a cyborg, you have emotions. It's not about not having them, it's about controlling them, which is hard. But again, if you have a strategy – and somebody asked me a couple months ago, you know, amongst other things, what's one thing that you think separates amateur investors from professional investors? And my answer is usually my ability to handle a loss.
Because I know that it's still part of my strategy and losses happen. There's not a single soul on this planet who doesn't have some type of investing or trading loss. I don't care if you have the best algorithm that's ever been made, artificial intelligence. It's going to be wrong. It just is. So the ability to channel that and say, you know what, I followed my strategy, I followed my risk management principles, it was a loss, I'm going to come right back. Not a big deal. Whereas so many other people, the reason why those emotions get taken out usually is because their risk management is so poor, so they overexpose themselves to one trade, they get blown out, and now the emotional mindset for them to come back is very, very difficult.
Dan Ferris: Right. So you have – and I think all good traders have, all good investors have – you have the ability to think about your strategy over the long term, like in a probabilistic way. Just because you lost money on a trade doesn't mean you have a bad strategy.
Greg Diamond: Absolutely.
Dan Ferris: In fact, as you pointed out, it's basically impossible. There is no such strategy, right?
Greg Diamond: Correct, correct. You know, and you can have – some people are like, "Well, that was a loss, that was a bad trade." Well, if you followed your risk management and you followed your strategy, just because you have a loss doesn't make it a bad trade. It makes it a trade that didn't work, but it doesn't necessarily mean it's bad just because you lost. As long as you were following everything that you're supposed to be following, that's OK. And again, this is where the mindset of, you know what, these things are going to happen, but I followed my plan, I followed my strategy, I was disciplined about it. Let's move on to the next thing.
Dan Ferris: Right. Exactly. We talked to Annie Duke about this, and she called it resulting, when your only basis for judgment about your decision is the outcome. But that's not the right basis, especially as a trader. Or maybe you're focusing on the wrong outcome. Because as you pointed out, the outcome you want is I stuck to the plan, I sized right, I stuck to the stop, et cetera. You certainly have no control over whether the trade makes money, right?
You only have control over those things. And as long as you continue exercising that control – wow, I'm glad you reached out to us. So I keep wanting to come back to this whatever you're doing different thing, but I understand that, you know, your subscribers pay money and you don't want to give away the secrets for free. So let's see. We don't want to give away the trades, we don't want to do that. We don't want to give away the next inflection point.
But you are bearish, though. You started out telling me that the reason you reached out is because you see this current situation in the markets continuing for the rest of 2022. Do I get that right? For the rest of the year? Is that the outlook?
Greg Diamond: Yeah. Yeah, absolutely. And again, here's the other thing too, and you know this, but just following – this is kind of what I do – but I'm never too biased, meaning if I think the market's going to go up in the short term or long term then I'm just going to trade that. If I think it's going to go down I'll do the same thing. So does it mean that the entire rest of this year I'm going to be trading from the short side, meaning that I think it's going to keep going down? Not necessarily.
But what we are seeing and what – here's what I will give your subscribers, here's what I will give away. And this is something that I followed literally over the last three years. But if you pull up a chart of the Nasdaq 100 from 1998 to 2002, and then you mirror that with the low in 2020 to now, the correlation – I'm not a statistician, but it has to be close to 95%. And I'm talking in terms of length of time and the price action you see, it is almost uncanny. And I'm a big cycle person, I believe in cycles, both in nature but especially in the markets, and we're just seeing this cycle repeat almost to – it's uncanny how crazy similar it is.
So that's something that you can give away to your subscribers that I think they'll enjoy and be like, wow, how did I not see this before? So to the point as to why '22 is going to be bearish, look, I've been trading this cycle for the last two years. I'm not going to stop now unless the market proves me wrong. So far it hasn't. And then, you know, you can throw in the Fed, inflation, lack of growth, but all that does is – Paul Tudor Jones, famous trader, famously said, "I believe that price moves first and fundamentals comes second." That's a hard thing for people to grasp, but what he's talking about is exactly what we're seeing right now.
Stocks continue to go lower and then all of a sudden, again, back in November, the bitcoin and tech stocks and Powell that we talked about retiring transitory, look, markets topped out and then Powell comes out with this statement and then, whoa, whoa, whoa, inflation's out of control. No more transitory. But that kind of started this whole price move down and then the fundamentals are catching up and saying, this is a really big problem. And now we're seeing that with this hiking cycle.
Dan Ferris: You know, when you – that Tudor Jones quote, boy, that is really profound, especially for a guy who has spent his career focused really on fundamentals and finding good businesses, trading cheap or just mediocre businesses that are super dirt-cheap and have a lot of upside in them. And every now and then, Greg, at a conference or wherever, I'll meet an investor or maybe talk to one on the show, and they'll say, "I like stocks that are really cheap where I can see the catalysts. You know, there has to be a catalyst." I'm like, man, I just don't know how one can say I'm going to be the guy who sees the catalyst and no one else, right?
Greg Diamond: Right. Yeah.
Dan Ferris: Because by the time a catalyst is there it has to be getting priced in pretty quickly. So I don't believe in that. And Tudor Jones is spot on.
Greg Diamond: Yeah. That's the other concept, is it's always going to be priced in six months, 12 months ahead of the time. Not always, but majority of the time to what you're talking about, and that's where Tudor really gets it right. And he's worth $7 billion, so I think he knows what he's talking about.
Dan Ferris: [Laughs] Yeah, a little bit of credibility there trading markets for decades and decades. $7 billion. Yeah, you know?
Greg Diamond: Right.
Dan Ferris: And some of that was fees or whatever, but you know? Well, you've traded professionally. You haven't always been in the business you're in now. Give me a little – I don't know, give me a little taste of that. What is it like?
When you were trading and managing money full time, did it dominate your life? Did you wake up at 3 a.m. looking at the little quote device 24 hours a day? [Laughs]
Greg Diamond: I still do that. So even though I've moved on to the newsletter world, you know, I still can't get out of that. And honestly, it's a weakness of mine because my wife is like, "Can you please come to bed? This is getting ridiculous." But the reason why I'm like that is simply because I'm always looking for – whether it's the next catalyst, whether it's the next setup, and it takes time. It takes lot of hard work.
But when I first started out, you know, to your point about three in the morning, I went into the office at one in the morning, I traded the European shift for a very, very large hedge fund. We traded foreign exchange and options and futures and commodities. So, you know, I went into work around 1 a.m. and I didn't leave till noon. I did that for about four years. But that kind of taught me and showed me the experience of understanding how overseas markets affect U.S. markets, the whole macro-related picture.
And then the other thing is when I moved on from that I worked at a large pension fund and I traded, I don't know, 30 different portfolios across every single asset class. So yeah, I sometimes tell people it's a lifestyle. It's not necessarily a career. That old saying, "money never sleeps," you know? But if you don't have the passion for it, if you don't like to work hard, then the market's going to take you out. Fortunately I do like it, but what I like most about the newsletter world is I actually get to help people and not necessarily just make rich people richer.
Dan Ferris: A lot of guys in our business say the same thing, don't they? They say, "Well, I could manage money for a living, but then I wouldn't have a life." [Laughs] You know?
Greg Diamond: Right.
Dan Ferris: So I'd rather do this. Same thing, different schedule, better quality of life, and that's what I'm hearing from you, and that's certainly – I'm the same way. So right now though, we've been talking for a little while. I feel like we've gotten something out of you. You conveyed your message quite clearly, and I'm glad you reached out and did that.
But the final question is the same for every guest no matter what the topic, and you can answer any way you want. It doesn't even have to be an investing answer. And the final question is simply if you could leave our listeners with a single thought today, what would it be?
Greg Diamond: Capital preservation. In this environment, whether you follow me, don't follow me, whether you're a long-term investor, whether you trade once a day, once a year, once every 10 years, this is the time not to panic, but to say, you know what – follow your stops. It's what I talked about in the beginning, and risk management, whatever that might be. Maybe it's not what I'm doing, but whatever you're – and I always tell people this – what's your number?
And what I mean by that is, you know, let's say to keep it simple you have $100,000 invested in the market. How much are you willing to lose until you get really uncomfortable? Whatever that number is for you make sure that you abide by it, because bear markets are going to go down much faster and much longer than you think, just like bull markets can rally much longer and much higher than you think. You know, the Nasdaq in 2000 dropped 82% of its value, right?
It's down, what, 15%, 20% right now? So don't think that it can't keep going lower. So my point is, and to answer your question, capital preservation.
Dan Ferris: Perfect. Thank you. I'm glad you chose that one. All right, Greg. Listen, man, always great to talk with you. And if listeners want to go and see this presentation, you can go to May25Warning.com.
Greg Diamond: Fantastic, Dan. Thanks for having me on.
Dan Ferris: Always good to catch up with my friend and colleague, Greg Diamond. Greg is a master trader. I don't know of any other way to say it. And when he reaches out to me, you better believe we're going to get him on the show post haste and get his wisdom into your ears, and I hope you found it as valuable as I did. Like I said, when I'm bearish I always expect him to say, "No, no, no, I'm long now, Dan," because that's what the charts say and that's what the market is telling me. So when he says, wow, he's still bearish for the rest of the year, to me that's pretty significant simply because we haven't had an episode.
We talked about 2018 didn't we? We mentioned that during the interview and, you know, 2018 was a quick – it was 20% down in three and a half months I guess, and then we were off to the races again, right? So we're not there, and it doesn't surprise me. More and more, each week that goes by, I feel like it's becoming more and more apparent that, yeah, this is the bear market that we've all been sort of anticipating would eventually come, because they always do eventually come. And I feel like Greg is giving me another data point in that series.
So I hope you enjoyed it and found it as valuable as I did, and I hope you'll tune in and listen to what he has to say. So do that. Please. You know, Greg will have more to share with you at that time and you'll get more of a sense of how he does what he does and why he's bearish for the rest of the year. Good stuff. All right. Let's look at the mailbag. Let's do it right now.
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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. Or 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 Wade S. Wade S. says, "Dan, do you think that Elon is using his Twitter purchase as an excuse to sell a lot of shares of Tesla without causing a stampede of selling? Maybe he thinks the mega growth valuation season is over." Wade S. You know, Wade, I thought about your question – I stood in front of my computer and I smiled and I walked around my office and I'm like, hm, wat do I think about this?
OK, so I don't think – and I'm going to bet if we were sitting having a beer you'd agree with this, Wade – I don't think he woke up one morning and said, "I need to sell a whole bunch of Tesla shares. I'm going to buy Twitter." You know, it just didn't happen that way. But he's, you know, certainly several weeks into the process here, as far as anybody knows. Maybe he was thinking about it longer. And he's had to sell some shares just as part of the transaction.
You know, now we're getting these reports like the transaction itself is not as certain to close as maybe we previously thought, and your question is very timely, therefore. Maybe he just needed to sell some shares, and if the transaction doesn't close Twitter will certainly collapse. But he sold his Tesla much higher than where it is now. So I don't think that was a primary motivation, but he's sure not disappointed to have sold a lot higher, right? Let's just leave it at that.
But it's a great question. Next is Steven W., MD. Steven says, "Hello. I am an Alliance member of Stansberry and have benefitted greatly from your work and appreciate it. You have had many observations of the excesses and signs of a top, such as the banana taped to the wall as art selling for outrageous prices. So when I saw the drop in Luna crypto this week by 95%, it made me recall the tweet from January 4 where an investor had a tattoo placed on his arm saying Luna and a howling wolf saying, 'I'm a lunatic.'
Maybe having a tattoo done with your skyrocketing investment is another clue of a market top. Thank you for all that you do, Steven W." Well, you're welcome, Steven. And that wasn't just any old investor. It was a billion named Mike Novogratz who was a big tech bull, obviously, [laughs] with a tattoo on his arm. So yeah, I agree. If you're not just talking your book in public, you're having it tattooed on your arm, that's the end. That's how you know it's all over
Next up is Dan J., and Dan J. says, "Do you have any research that indicates events marking the bottom of sell-offs? For example, the March 23, 2020 Fed meeting where they committed to keep buying assets as well as supporting the flow of credit marked the bottom of the pandemic sell-off and it was a straight line up from there. So I'm wondering if you have any research that supports other events marking the bottom of bear markets or sell-offs. Was there an event in 1987 or 2002 or 2009? The reason I'm asking is obviously I'm wondering if we should be looking for an event that marks the bottom of this current sell-off. Dan J."
So I don't know about events like you're talking about, Dan, but it's funny you should ask about this. And I alluded to it a little bit in the opening rant today. There is something, but it's kind of a technical thing. It's not the sort of event you're talking about, like a Fed meeting or committing to buying assets or that kind of a thing. It's this 90% downside indicator, and I mentioned it in my recent Stansberry Digest on Friday, Friday the 13th of May. It's an award-winning paper, came out February 2002. It's called Identifying Bear Market Bottoms and New Bull Markets by Paul F. Desmond of Lawry's Reports.
And it basically talks about this 90% downside indicator, and it gets more complicated than that. He's talking about 90% downside days and 80% upside and downside days. So you have to read the paper, but the basic idea is simply that if 90% of the volume on one day is in declining stocks, and if you get two or more of these in pretty quick succession, you're highly likely, or more likely I should say, to be looking at a bottom. But single 90% downside days don't necessarily have that effect.
That's the big picture that I got from the paper. You know, read it for yourself to get all the details. But we had a couple of those lately, and folks have tweeted about them. You know, that's another thing that points to the potential for a bear market rally here. It's a good question.
Next is Anthony H., and I had to include this even though it's about Extreme Value, about my newsletter, and about a speech that I gave in 2017. And Anthony H. says, "I stumbled upon your speech at the Stansberry conference from what I believe was 2017. I wanted to say you killed it. The whole "opening the port-a-potty door" metaphor was great.
I keep realizing how important it is to have that zoomed out macro view about what is going on with the world and the stock market. With today's news, you never seem to get that narrative. For that reason, I will continue to be an Extreme Value subscriber and want to say keep up the great work. Even though these are unprecedented times, it is always good to have a voice of reason." Anthony H. Well, thank you, Anthony. I think you can find some of those speeches on the Stansberry website, and I've found some of them on YouTube now and then.
And yeah, the metaphor I used was when things are overvalued and the activity in the market gets really speculative and just really crazy – and the previous question by Steven W. talked about the developments in the art world that I've written about several times in the Stansberry Digest, such as the banana taped to the wall. I think it sold for like $250,000. [Laughs] It was ridiculous, you know? And of course the banana's taped to the wall at the art museum, so all you get is a certificate that lets you go home, take a piece of duct tape, tape the banana to the wall, mount the certificate and, you know, that's it, that's your art. [Laughs]
It's just crazy. So I actually started seeing stuff like that in 2017 and obviously I've been talking about it. Yeah. Crazy. And, you know, bananas taped to the wall, tattoo of your favorite crypto, great signs of the top, right? It was only a matter of time. So next up and last up this week, our faithful listener and frequent correspondent Lodewijk H. He says, "With the Fed needing to fight inflation, how can they increase interest rates? How would the U.S. government be capable of paying the interest in T-bills, especially now that the petrodollar is dead and midterm elections are coming?"
So I don't address the death of the petrodollar and midterm elections, but you do make a good point, and plenty of people have said the Fed is not going to be able to do what they want to do. They're not going to be able to target this hypothetical neutral interest-rate level of 2.5%, or 2.4%, 2.5%, something like that. And they will have to stop raising interest rates at some point for various reasons. You know, as far as the U.S. government is concerned, I mean, it's actually more inflationary, right? Because if they need to pay interest they'll probably print money to do it, and printing money means printing more debt, you know?
It's just a spiral that can get quite out of control. Having said that, you know, you won't catch me pretending to know what the Federal Reserve is going to do or how they're going to get themselves out of this, but I think the potential for quite a bit of ugliness is still in place. You know, if they do get more aggressive, that is if they simply continue with what they've said they're going to do and we do wind up with a fed-fund rate of 2.5%, well I think the stock market's going to be quite a bit lower. I think bitcoin is going to get absolutely murdered.
And in between those are lots of other things like junk bonds and all kinds of things. There can be quite the cascading effect when things start selling off and people start selling what they can sell, what's liquid enough to sell, right? I've talked about this before. So Lodewijk H., you raise a good question here. I don't really know if I have answers, but I think things could get really ugly either way. We'll see.
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 provide a transcript for every episode. Just go to www.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 else who might like it, tell them to check it out on their podcast app or at InvestorHour.com.
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Or call the listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. Till next week, I'm Dan Ferris. Thanks for listening.
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