On this week's Stansberry Investor Hour, Dan and Corey are joined by Chris Igou. Chris is a fellow Stansberry Research analyst and the editor of DailyWealth Trader, a daily trading advisory. Over the past seven years, Chris has worked with some of the industry's best editors, including Dr. Steve Sjuggerud and Brett Eversole. So he has a unique perspective to share with us today.
But first, Dan and Corey argue that banking regulations "hand the incumbents an advantage" and restrict competition. According to Dan, consolidation in the banking industry – like JPMorgan Chase's recent takeover of First Republic Bank – can create backstop and incentive issues. Dan also shares his belief that interest rates will remain higher than expected for longer, despite the market consensus for the Federal Reserve to cut rates.
Then, Chris joins the conversation to discuss his trading style and macroeconomic outlook for the market. He shares how the Fed's rate hikes are increasing the cost of borrowing and squeezing earnings, leading to smaller profit margins. Chris also notes that the S&P 500 Index's most significant drawdown in this current bear market has been 25%. That number is relatively normal for a bear market, since the average drop during a recession is typically around 40% from peak to trough. He explains...
We've got some time where credit is going to be tight and unemployment is still at 3.5%... Historically, you just don't bottom there.
After that, the conversation shifts to specific sectors that Chris favors – particularly gold, which has rallied as the dollar has fallen. Although gold remained flat during the dollar's two-year rally, it's now taking off and still has "a lot of runway left," according to Chris.
Gold is not dead. It was just catching that headwind [of sentiment], and that headwind is now tailwinds.
Finally, the trio analyzes previous false bear market rallies that would get investors excited and optimistic before hitting a sudden downturn. Chris warns that the same could happen this time around. He cites the bear markets of 2000, 2008, and 2020 as examples and shares that he expects more pain in the coming months based on historical patterns.
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 we talk with our friend and colleague Chris Igou of DailyWealth Trader.
Dan Ferris: And today we'll also talk about the Fed, of course, again, and the JPMorgan Chase First Republic deal.
Corey McLaughlin: And remember, send your feedback to us at [email protected]. Tell us what's on your mind.
Dan Ferris: That and more right now on the Stansberry Investor Hour.
OK, so two huge events happened this week. I think they're connected. We have JPMorgan Chase taking over First Republic on Monday, and then of course on Wednesday we got the 10th rate hike by the Federal Reserve in their fastest, steepest, biggest, goodest – I don't know, whatever – rate-hiking cycle since 1980 when Paul Volcker shoved the fed funds up to 20% four times. And I think that – you know, I know you've written some about this too, so I know that you have a lot of thoughts about this, and I certainly agree that there is an implied pause when they leave out some of that more hawkish language, but I think the market – if you look at the futures, the market has the fed funds back to like below 3% by December 2024 and even 4% I think by later this year, by December this year.
I don't see that, and I think folks just don't get how much Jerome has changed his mind, you know? Here's what I think. People have heard it before. I'll repeat it just all in one place as a reminder. I think in the 1970's, Arthur Burns tried to lick inflation, he thought he had it licked, he didn't, so then Paul Volcker was hired to beat inflation, and he beat the daylights out of it.
You know, shoved the fed funds up to 20%, blah, blah, blah, and caused a big, brutal recession. Historically, we look back and a lot of people – not me necessarily at all – say Paul Volcker's a hero because he saved us from the ravages of inflation and he restored the Fed's credibility, right? And so what happened after him to the credibility? Well, Alan Greenspan, Ben Bernanke, Janet Yellen, and even for the first part of his tenure, Jerome Powell. They were all these sort of extremely dovish types who their go-to move was just lowering rates at the first sign of trouble.
And so people have gotten used to that and I think it's wrong. I think Jerome definitely changed his mind and I think he's looking at Paul Volcker and saying, see, I want to be just like him. I want to beat the daylights out of inflation once and for all, and if it causes a brutal recession, OK. You know, Paul did it. I can get away with it too and, you know, I want a legacy for myself, I want to be the guy who did it, blah, blah, blah. I still think that is the right narrative.
Corey McLaughlin: Yeah, I think he's – I think that's what he's set on. You know, even when you hear him talk – you know, Jerome Powell talked last week at the latest Fed meeting, he actually actively talked about a recession for kind of the first time, you know, at any significant length. And he said, "Well, I hope we get a mild recession," but that's not – that's a hope, right? Hope is not always a great strategy or something to always believe in.
So yeah, I mean I'm kind of with you on – especially like 2024 with rates going to 3%. I have more trouble with that one than maybe till 4% at the end of this year should something happen, you know, the rest of this year that causes them to hike rates a little bit. I think that's an underestimated point too, it's like even if they cut rates, we're not going to zero again. That is not going to happen. [Laughs] The people that have been conditioned for that for the last 15 years, that behavior or that conditioning is just changing I feel like incrementally, but it's still pervasive as far as that's the recency bias of – that's all a decent generation of people know, like younger people who are in the financial industry.
So, you know, it's the same reason so many people got caught off guard in 2022 and couldn't imagine a world where stocks and bonds were falling at the same time. You know, it's that sort of idea. So yes, if you're not thinking kind of that way that you're talking about as far as, you know, Jerome Powell actually is going to use the Fed's ability to fight inflation, until further notice, that's what they're doing. This is the last thing I'll say on it.
The futures, if you looked at it a year back into the past, you know, they were pricing in cuts probably as we're speaking a year ago, and that's obviously not happening. So there's a lot of, you know, stuff that needs to get kind of worked out of people's memory and be believing new behaviors.
Dan Ferris: Yeah. And if you look – like I looked through the FOMC statement and I am sensitive to the hawkish language that is now omitted to talk about further rate hikes. OK. But I went through and I graded every sentence – hawkish, dovish, or other – and I still wound up with – there's 16 sentences, and I wound up with nine of them hawkish, you know, and only one –
Corey McLaughlin: Who needs ChatGPT when we've got Dan's – the Dan indicator? I love it.
Dan Ferris: That's right. Dan's Fed grading service. You know, it only costs $10,000 a week – per meeting. $10,000 per meeting and I'll rate every sentence.
Corey McLaughlin: All right.
Dan Ferris: But when they say things like, you know, economic activity expanded at a modest pace, I'm going to say that's neutral, but then job gains have been robust in recent months and the unemployment rate has remained low. I'm saying that's hawkish because that means, whoa, maybe there's still inflation. Then the next sentence is inflation remains elevated. Then the next sentence is the U.S. banking system is sound and resilient.
Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation, you know, not so hawkish, but you get it, right? It's like there's plenty of language left in there, in my opinion.
Corey McLaughlin: Yeah, I think so too.
Dan Ferris: Yeah.
Corey McLaughlin: I think they're taking a step down from where they've been, which to me means they're going to maybe hold rates at this 5%, 5.2% range for a bit – that's my opinion – and see what happens. But from there, say there's reasons for inflation to go higher. You know, say there's something that kicks inflation higher. Are they going to cut rates in that scenario? I doubt it, unless, I don't know, they really need to. I think, you know, Jerome Powell has read the books on the '70s and the '80s, and I think he knows, and so –
Dan Ferris: I completely agree.
Corey McLaughlin: I think he knows also that inflation is not going to get to 2% if they start cutting rates too, and I think the Fed officials know that too. At one point, Powell said something like – they asked him about his regrets of 2020 and 2021, and I think the only thing he acknowledged was that he wouldn't have set a market around that 2% inflation goal.
Dan Ferris: Right. Yeah.
Corey McLaughlin: So that tells you something that a lot of people I don't think heard.
Dan Ferris: Yeah. I'm still saying – so I'm just going to wrap this up and say higher for longer. If you had to wrap this Fed thing up, what would you – I would say higher for longer.
Corey McLaughlin: Yeah. Yes, higher than most people think for longer than most people think, I think.
Dan Ferris: Right. That's the thing, right? Higher than the perception in the futures market for December of 2024. [Laughs] All right. So I want to talk about JPMorgan Chase taking over First Republic because I don't like the narrative here either because I think it's too much, you know, bank failures can't be avoided.
Jamie Dimon said almost something exactly like this on the call that they had Monday to talk about the deal, and it was, you know, you're not going to have no bank failures, he said, but we have this process in place and, you know, this is about as well as it can work out. I mean, sure, it worked out well for them. [Laughs] You know, they're getting loans at a discount and securities and they're not having to take all the liabilities on and they get deposits and they get lost sharing with the FDIC, they get five-year $50 billion worth of FDIC financing, and an interest rate so good that they won't say it out loud in public.
The CFO was asked about it on the call. He said, "Well, we don't really want to say." So the thing that irks me about all this is that what do we have? We have these banks that failed because they had deposit runs, you know, plain and simple, and they had a lot of uninsured deposits, that is to say deposits over the $250,000 limit, and then when they fail, FDIC comes in and says the government says, well, we'll insure all the deposits, OK? So if you're JPMorgan Chase, you're Jamie Dimon, you're sitting back and saying, huh, they're going to backstop all the deposits so those people are safe.
And, you know, the shareholders, they're taking risks so they're screwed. It's going to cost me a lot less to take these banks over if I just wait for them to fail, right?
Corey McLaughlin: Right, right.
Dan Ferris: Because I know that the deposits are all going to be backstopped.
Corey McLaughlin: Yep. Exactly.
Dan Ferris: And the incentives are in place for a bad thing, which is for all of the – more of these assets and more of these deposits to wind up at too-big-to-fail banks, right? Because JPMorgan Chase is too big to fail. The government will always save it. They'll always bail it out. They'll do whatever they have to, which means that Jamie Dimon's fortune is effectively backed by the Federal Reserve.
Corey McLaughlin: Yeah.
Dan Ferris: I don't like this. I don't think this is the way this is supposed to work.
Corey McLaughlin: I think you bring up a good point, yes. [Laughs] Yeah. The problem with backstops, right? I don't know what else to say.
Dan Ferris: Yeah.
Corey McLaughlin: Yeah. No, you're right. I thought similar when I saw this announced that JPMorgan won the auction, right? So they paid the most money. But in reality, it was not a big deal for them to take this on at all.
Dan Ferris: No. And they won because they were willing to take some of the loans that other people weren't willing to take. I'm like, they've got 80% of the losses covered for seven years on the residential and five years on the commercial. Of course they – you know? [Laughs] Who didn't want the loans under that kind of a deal? I don't know.
Corey McLaughlin: Right. So you would say, yeah, if anything, obviously this points to consolidation in the banking industry and some of these – yeah, I mean the big get bigger and, yes, right? They are still too big to fail, right? And I guess that's the idea here.
Dan Ferris: They're too bigger than ever.
Corey McLaughlin: Yeah.
Dan Ferris: Yeah. I don't think this is necessarily a good thing. I think that if we had real competition in banking, we wouldn't get the behemoths that we have. I think the only reason we have those behemoths is because the regulations make it harder to compete with the bigger banks, right? At about $10 billion of assets and then at about $50 billion of assets, which is not that big compared to, you know, trillions, the regulations kind of step up and get more expensive and you need another $2 billion in assets to pay for it all.
So, you know, we've made it harder to compete. The regulations always have this affect, especially in finance. I was reading a book today that was written in 1873, Lombard Street by Walter Bagehot, very famous, classic book about banking, about banking in England.
Corey McLaughlin: Original edition?
Dan Ferris: No. I was reading it on Kindle. [Laughs]
Corey McLaughlin: OK.
Dan Ferris: So they do those things where they take the original and they kind of almost like photograph it or something, but I can't read that. So I'm reading it on Kindle because my eyes are getting old and I read too much, and he described the exact same thing. Back then, the regulation was – I think it was called the Peel Act or the Act of 1845 maybe, and they wanted to restrict – they were getting worried about what they called joint stock banks, right? Joint stock being, you know, stock, publicly traded, public banks.
So they restricted them, and Bagehot described exactly what I just said. They said, well – the guy who hated them and wanted them restricted, this Sir Peel, he became their greatest champion because then they didn't have any more competition after that because they made it impossible for new ones to come into existence. [Laughs] It always works that way. The incumbents are always right in the frontlines of regulation.
I'll never forget when they were talking about licensing tax preparers, H&R Block was right up front. Yes, do that! Make it more expensive, you know, because we'll pay for it with our tax preparers, but other people don't have that kind of money.
Corey McLaughlin: My mind all of a sudden is wandering toward cryptocurrencies, you know? [Laughs]
Dan Ferris: Bitcoin fixes this.
Corey McLaughlin: Bitcoin fixes this in a couple ways though. Well, we've just seen that it can and it can't because we just saw what happened with – sorry, who was our friend, the fraudster? Oh my god, I can't believe I'm forgetting his name right now.
Dan Ferris: Oh, Sam Bankman-Fried.
Corey McLaughlin: Sam Bankman-Fried, right? Part of the reason he got into trouble was because he was allegedly pushing for regulations that would benefit certain parts of the crypto world and not everybody, and another crypto major called him out on it and started that whole thing really.
Dan Ferris: Sam was just asking for it.
Corey McLaughlin: Yeah. So that part is the bad part about cryptos that would lead you to believe like anything that happens in banking could happen there. But the underlying technology allows for individual people to not work through this Federal Reserve banking system and could be an alternative if enough people adopt it and it doesn't fly off the rails to the point where people call for regulation. It's like this – I don't know what you would call that scenario, but I think it's happened a lot throughout history is what you're saying.
Dan Ferris: Right, right. It's just a standard thing that we get upset about some industry or another so we regulate it, and the regulation hands the incumbents an advantage right away. I mean, if you were a tobacco company after the Master Settlement, you were golden. [Laughs] You were never going to have competition after that, you know?
Corey McLaughlin: Right. I mean, there's –
Dan Ferris: So, yeah. It's like, can you imagine coming into business and saying, "First thing you need to do is, you know, pay every municipality in the country," or however the deal was structured – I forget how it went, but –
Corey McLaughlin: Yeah, and look at the railroads too.
Dan Ferris: Yep.
Corey McLaughlin: It's so concentrated in, what, four or five freight lines and we see all the issues there. Yeah.
Dan Ferris: Yeah. And so banking is heavily regulated and it's consolidating like crazy, and the consolidation is going – it's always going to head back to the backstop, right? The backstop starts out as saying just in case, and then it ends up being, well, the backstop is there so we're going to run everything this way. It just naturally goes that way. You naturally will have a bad incentive as soon as you put the backstop in place.
As soon as you say Jamie Dimon's always going to be a billionaire because we will print all the money we need to keep him fat and happy, you know, by printing all the money we need to keep his bank bailed out. So it's just a question of incentives and human nature and the way things go.
Corey McLaughlin: Yeah. The other part of this story that this reminded me of – and that's the thing. These things happen and people just gloss over them sort of that, you know, OK, this solves one thing. But what are the consequences of it is what we're talking about I think. To me, this showed that the Fed and the Treasury don't want to cover all those uninsured deposits that they did with the initial crisis. They don't want to do that.
I don't think they can afford to. I've already been reading stories about how the plans to replenish the FDIC fund, and so it's not – I think people forget – and this also came up on my mind with this debt ceiling quote/unquote debate ongoing. They moved up the hard deadline for it because apparently the government didn't get as much taxes in as they were expecting. So, oh wait, taxes do matter. All of those economists that said, "Oh, you know, we could just spend and then, you know, the taxes don't matter."
Dan Ferris: Right, the MMT crowd, yeah.
Corey McLaughlin: Yeah, yeah, that whole crowd, like what happened? I feel like they've been proven almost completely wrong to this point.
Dan Ferris: Yeah. Another thing about that JPMorgan deal, now that you mention it, is the FDIC is going to pay out $13 billion in deposit losses JPMorgan paid in as part of the deal $10.6 billion. [Laughs] So, you know, they waited until it failed. They waited until things got really bad and then they came in and, you know, used their balance sheet and their backstop and got a sweet deal.
They recorded a gain of $2.6 billion on the closing of the transaction, and the expenses, the restructuring expenses are spread over from now to the end of 2024 of $2 billion. So, you know, by a conservative accounting they're saying it's – they're calling it $500 million accretive to net income this year. [Laughs] And Jamie Dimon says it was the cleanest way to get a clean bank, right? Because the assets aren't just stressed, the loans and things. The securities aren't great, but it's not like Bear Stearns or Washington Mutual or something, both of which JPMorgan also took over.
It's different. It's a clean bank. He said it like two or three times, cleanest bank in the cleanest possible way. It was like, OK, OK, OK. [Laughs] Geez.
Corey McLaughlin: Clean bank. All right.
Dan Ferris: Yeah, yeah.
Corey McLaughlin: He also said this part of the crisis is over, so –
Dan Ferris: Oh, yeah, yeah.
Corey McLaughlin: Which hit me as a famous last words moment, but we'll see about that.
Dan Ferris: Yeah. I mean, there was a – like that day – he said that, he said the banking system is stable, Joe Biden said the banking system is safe and sound, and then on Wednesday, Powell said sound and resilient, and if it is, why do you need to tell us?
Corey McLaughlin: Yeah. In the meantime, regional bank stocks, like PacWest were down 40, 50%, and it's –
Dan Ferris: I know. [Laughs] Yeah. Which one goes next? I mean, by the market's accounting, it looks like PacWest. We'll see.
Corey McLaughlin: We will.
Dan Ferris: All right. Let's move on. Let's talk with our friend and colleague Chris Igou. Chris has been around for several years around Stansberry. He's a young guy. I remember the first time I ever met him, I was really impressed.
He's one of these people that – like Steve Sjuggerud is a magnet for these young, bright people, and Chris is one of them. We've never had him on the show. I'm really interested to talk with him, so let's do it right now.
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All right. It's time for our interview. Today's guest is a first-time guest on the podcast. Chris Igou. Chris is one of our colleagues and friends at Stansberry Research. And without further ado, Chris, welcome to the show.
Chris Igou: Thank you, Dan. Excited to be here.
Dan Ferris: So Chris, I just want to, you know, give our audience a little intro to you, but I'd like you to do it. So you're involved in more than one effort. Tell me all the things that you're involved in with Stansberry.
Chris Igou: Yeah, exactly. So I have been here seven years. I've worked on stuff with True Wealth Systems, I've done the Review of Market Extremes, in the past I've written DailyWealth and now I'm working on DailyWealth Trader, so that's the main publication I'm focused on now. It's a trading service. I mean, we buy stocks too. So we do anything from a month-long trade to a year-long trade, things of that nature.
Dan Ferris: Oh, a month to a year. That's pretty cool.
Chris Igou: Yeah, exactly. And it just depends on what we're looking at. If the goal is a short-term income opportunity, it's usually about 30 days, and if we're looking to buy a stock or recommend something longer, it's between six months and a year.
Dan Ferris: Neat. So, you know, Corey, I bet you in your role of writing five or 10 times as many Digests as I do, I bet you come across Chris's stuff even more often than I do.
Corey McLaughlin: Yes. I read Chris's work and try to share it a good amount, and it helps me too as far as –
Chris Igou: I appreciate that.
Corey McLaughlin: And I've said this to him before, yes, I enjoy it because personally it kind of works with how I like to look at things with technicals and some fundamentals or sentiment I think, or Chris could explain more about all that stuff, but –
Chris Igou: Yes.
Corey McLaughlin: I think we just said something the other day about – I mean, you've talked about tightening credit conditions too and all kinds of different things, so it's not just recommending trades, although you do that a lot too.
Chris Igou: Yeah. There is definitely – you know, seven years here has been a macro-type view a lot of the time. So I definitely take into account the situation, the market environment that we're in, and then I home in on what I want to recommend based on the technicals afterward. So I try and have that top-down approach, but when it comes to why am I making this trade right now, the technicals are a great way to say, OK, it's time to act, let's do this right now.
Dan Ferris: So Chris, I want to back up for a minute. How long have you been with Stansberry?
Chris Igou: Seven years. Yeah, April 2016 is when I started.
Dan Ferris: I want the audience to know what kind of investor you are. What is your core? And you came to us right out of college, right? Is that correct?
Chris Igou: That's right. For DailyWealth Trader, specifically. If we're looking at long trades, if we're buying a stock, you know, I definitely have the cheap, hated-in-an-uptrend mentality. You know, I worked with Steve Sjuggerud for a while and that DNA is still very much in what I do. And we love, like Corey mentioned, sentiment. You know, if the market's really ignoring something completely, no one's looking at it or it's the most hated it's been in a really long time, I love it.
You know, I want to figure out what's going on there and combine that with the start of an uptrend. Things like that just lead to – you know, you see it over and over again. You can make big gains that way. So that's kind of the core that I've built around – whether it's, you know, our longer-term trades in investing or if it's a short-term trade, I look for ways that, you know, a stock is either on a trade it may have fallen too fast or gone up to the upside, everyone's excited about say to the upside, and then you're like, well, is this overdone?
Could it fall from here? So there's a bit of that DNA in everything I do for sure.
Dan Ferris: So rather than continuing to ask questions along this line, I'll just get to the point. All these guys down there in Florida where Chris works with Steve Sjuggerud and Brett Eversole and Vic Lederman, and I forget who all else – there's a bunch of you down there – they're all math heads. It's like math central, you know?
Chris Igou: [Laughs]
Dan Ferris: I just walk in there and I start feeling lightheaded because it's just too much math. So would you say then that you're a technically oriented trader or how would you characterize yourself?
Chris Igou: No, I would say that, and a lot of the times we like to – you know, like you said, we like to use history. So if we see some type of indicator that's worked really well for, you know, buying into a stock or trading a stock, we'll back test that and we'll look at, hey, how's it done over the last 20 years, 30 years? And by getting that market history, we have a better idea of what the odds are when we make the trade. So I like to have data on my side for sure, and technicals are, like I said, probably the last thing I put in place before acting, and it's the, OK, this is why I'm acting now. We have the historical data to be, you know, on our side and it's time to make the trade.
Dan Ferris: Oh, I see. That's interesting. And it still – it sounds like a very sort of quantitatively oriented approach. Do you care about the difference between certain industries other than trading price history or, you know, technicals at the current moment? Does the difference between a mining company and a software company mean anything at all to you? Because to a lot of quantitative people, it doesn't mean anything.
Chris Igou: Yeah, yeah. And actually, you know, we look at sectors in different parts of the market, and I think it doesn't mean anything as far as when we're placing a new trade, a very short-term trade. Let's say, for example, we recently put a trade on short technology stocks, and the reason being isn't specifically that it's different than, you know, another sector, but more it's like everyone's bought into that now. Everyone's getting into it as it's already up 20%, and it's run to the upside so fast and there are several indicators showing that, you know, it could drop lower in the near term, and that momentum is shifting.
So those are the type of things that we look at on a trade basis, but certainly when we're looking at longer-term trades or investments in that way, we take into account the different sectors. So it's kind of a two-part answer. It's, eh, on a short term, not really. I'm more worried about the technicals. On the longer term, yes, I want more quality and more value there.
Dan Ferris: Oh, OK. So longer term, it does mean something to you, for example, if a company is carrying lots of debt, generates a lot of cash, consumes a lot of cash, et cetera, et cetera. Can you give me the bullet points? What are the markers that mean a lot to you fundamentally in that regard?
Chris Igou: Yeah. So a lot of times we trade blue chips, big names. You might see Walmart or Procter & Gamble or things like that, and so we're looking for big, steady, dominant companies in their industry that we can trade on. One, we want to see that they're growing, maybe a stop line, but we also want to see that they're not super debt heavy, that they have free cash flow and their margins, their net income margins are high. They're not single digits.
You know, we're not looking at something that is barely eking profit every quarter, you know? So consistency at bringing in money and profits, and then we want to see that top line growth too.
Dan Ferris: OK. So without giving away any current – I don't want you to give away any current advice for free. I feel like maybe you almost have talked us through the process but, you know, maybe you could just sort of put it all in one place, like talk me through a trade from beginning to end for you.
Chris Igou: Yeah.
Dan Ferris: It could be a past one or a hypothetical one. Whatever you want.
Chris Igou: Right. We can do a past one. So for example, let's say Walmart. Walmart is a big brand. Everybody knows Walmart. We traded that quite a bit.
But if the company has recently pulled back and is still in an uptrend – so for an example, using like the 200-day moving average – let's say it moved way above the 200 day and now it's pulled back to it, so the trend line is coming back to the 200 day and it's bouncing higher, that to me shows support in the technicals for Walmart to head even higher. So it's a good, solid company, it's in an uptrend, and it's finding support at that level, we'll make a trade on that and say 30 days we're looking for 2% gains over that 30 days on Walmart.
Dan Ferris: OK. So if you're looking for 2% over 30 days, I mean that's with the equity.
Chris Igou: That's selling a put.
Dan Ferris: Selling a put, OK.
Chris Igou: Yep. So we sell a put, we earn that premium up front, and then if the stock stays above the level we think it's going to stay then we keep that premium and the trade's over and we move on.
Dan Ferris: Yeah. Selling puts, man. Everybody at Stansberry fell in love with that thing years ago. They've just been beating it to death.
Chris Igou: [Laughs] Hey, generate an income. It's a good way to do it.
Dan Ferris: Right. Yeah, yeah. Do you ever go the other way and do you ever buy puts or buy calls?
Chris Igou: No, we don't. We haven't really done that. I think the point being is those types of trades are really we want to generate income. We want to keep money coming in the door. And by having those little singles we'll call them over and over again, like especially in a bear market, you know, I think stocks are all over the place, you know, and we've had – you may look at the index like tech or the S&P and it's like, we've been trading sideways for two months. But I know Estee Lauder just fell, I think, 20% today.
Dan Ferris: Yeah.
Chris Igou: We want to keep that income coming in the door. Even if we trade sideways, we're making money.
Corey McLaughlin: Yeah, and Chris, that's where I was going to ask just your –
Dan Ferris: Yeah, I mean, it's ideal.
Corey McLaughlin: – thoughts on the market today. I know Steve and his team are rightly or wrongly known as, you know, bulls most of the time, but I would dare say you've been bearish the last year or two. Why is that and I guess what's kind of your macro outlook at the moment?
Chris Igou: Yeah. That's accurate. For the first six years I was definitely in the bullish camp, and now it's – we all know the cost of capital has gone up. You know, the Federal Reserve's raised rates to 5%, making it more expensive to borrow, you know, tougher on companies to expand, and that's squeezing earnings, margins. So you might be bringing in revenue still, but because the cost to do business is more expensive those profit margins are getting smaller.
So I don't think that's gone through the entire market yet, and one thing I look at is if you look at the history of markets, back to 1945, stock market hasn't bottomed until the Federal Reserve cut rates, you know, till they made conditions more favorable to grow. And we're not there yet. You know, the Fed is probably going to hike today again. So we've got some time where credit's going to be tight and unemployment is still at 3.5%.
So we're basically at full employment and historically – you know, unfortunately you just don't bottom there. And the last thing I'll say on that is, you know, I think the biggest drawdown for the S&P was 25% peak to trough to October. Yeah, it's a pretty standard bear market drop, but throw in a recession, the average drop becomes like 40% during a recession for a bear market. So if we're headed for a recession, I think we still got some downside to this market and that's kind of where I'm leaning. With everything so expensive as far as the cost to borrow, yeah, I'm waiting for that Fed to start to drop in rates.
Dan Ferris: Yeah. I think you're not alone in that. So overall then, overall, and I generally get to this question with traders and fundamental folks too, overall then, the macro picture, at least regarding interest rates and you mentioned, what, unemployment and rates, that does mean something to you. How close is the connection between the actual trades you put on and, you know, those macro factors?
Chris Igou: Yeah. And this will come back to our short-term trades. They're very technically based. It's less of an effect on those 30-day trades, but when it comes to anything out further, it definitely has more of a wait to it. You know, we've actually put some – not throwing any advice out there right now – we've put some shorts on in certain parts of the market that we feel like, OK – you know, I mentioned tech recently and things like that, but that is certainly macro driven. It's got technicals to it, but the idea there is that the technicals are why we are acting now and the macro setup is why we're taking that bearish stance overall, if that makes sense.
Dan Ferris: Yeah. Shorting is hard, isn't it? It's just like it doesn't even matter if the market's falling over time.
Chris Igou: Yeah.
Dan Ferris: Shorting is just hard.
Chris Igou: Absolutely. And, you know, the way I plan my shorts, it's very – I give it a very tight stop, so it's going to have – and if I'm wrong and it goes to the upside, I'll admit I'm wrong and it's over. But, you know, then we're looking at – let's say I use a 5% stop with 15 to 20% downside based on the technicals and based on recent history. So I'm just trying to keep my losses small and, you know, when those hit, they'll have a lot of weight to do other short trades.
Dan Ferris: Yeah. Also in the Sjuggerud DNA, huh?
Chris Igou: Yeah, exactly.
Dan Ferris: Keep those losses small.
Corey McLaughlin: Yeah, risk management is what Dan talks with a lot of our guests about, you know? It gets forgotten a lot of times or never gotten to by enough people I think.
Chris Igou: You've got to do it. And I think people – you know, when you get invested or get so attached, married to your trades, and you don't set a stop, you know, sometimes it's going to work in your favor, but I do think you've got to admit you're wrong sometimes. You've got to have that cutoff and you've got to make sure that you don't lose too much so that when you're right it way outweighs your little losses.
Dan Ferris: Right. There's a famous quote that I just can't grab the exact quote, but it's not how many times you win, it's how much you make when you win and how little, should we say, you lose when you lose.
Chris Igou: Absolutely. Absolutely.
Dan Ferris: All right. So again, I don't want you to give trades away for free that you have on right now, but are there particular sectors that are attractive to you at this moment as we speak in May of 2023?
Chris Igou: You know, stocks-wise, I think I'm more leaning to precious metals right now I think as far as a long play. You know, gold has been rallying as the dollar falls. The dollar has probably been falling for six months or so at this point, but it's coming off a two-year high – or not a two-year high, it's coming off of like a 20-year high and it rallied for two years straight.
So I think with the dollar going down in value, gold and precious metals in general, you know, still have a lot of runway left. I think gold traded sideways for about two years and people were saying like gold's dead, it's not the inflation hedge, but if you look at those two years, the dollar was soaring, so gold was just holding steady as the dollar was up. And now that the dollar's falling, gold is starting to take off, so that's an area of the market that I'm excited about.
Dan Ferris: Yeah. Yeah, I like it. I'm holding gold and hold stocks and I'm right there with you. And it's interesting isn't it how – you know, you mentioned that two-year period where people were saying gold is dead and, you know, gold is dead and bitcoin is the new gold and all this stuff.
Chris Igou: Yeah. [Laughs]
Dan Ferris: Oh, you're laughing at that. OK. Let's pursue that.
Chris Igou: Oh, sorry. [Laughs] I mean, I don't know. I'm not a bitcoin expert. I don't know much about that space. I'm more of a macro person to me. But usually when you hear that type of call, it's a sentiment thing, right?
Dan Ferris: Yeah.
Chris Igou: It's, hey, look, everybody's giving up on this and, you know, they're giving it up for this new thing, and it's like, OK, maybe the last 100, 200, thousands of years – today's different, but I'm not making that bet. And like I said – because the dollar situation was just hiding that overall fact. It was like, gold's not dead. It's just, you know, catching that headwind and now that headwind is now a tailwind.
Corey McLaughlin: Dan, I will say regarding the bitcoin discussion, and Chris, the last – I've noticed a pattern like the last, I don't know, month or so, like when stocks have been down, the "risk off" trade has been gold, bonds, and bitcoin's been up too on these days. That hadn't been a thing. You know, when tech stocks were down, bitcoin was down. For some reason it switched a little bit now. Now I don't know if that's fear around it, that ceiling debate or whatever it may be or who knows, but I will say that did get my attention, that bitcoin's been going up on the days that gold and bonds have bene up too.
Chris Igou: You know, I was thinking about that. I'd be curious to see bitcoin from August to October when tech fell and the S&P fell and all that because there was a period in 2022 where "risk on" assets just tanked, right? I think we've been in a period from, you know, the start of the year until now where everyone's kind of like, hey, we haven't gotten the unemployment number spike yet. We haven't gotten these bad scenarios that people have been talking about. Maybe it's OK.
You know, maybe I can get "risk on" and those kind of things. We see this happen in bear markets all the time. You look at 2000, 2008, 2020, there are false rallies, and people get excited or optimistic and they buy into it. I think the reason for that is you have such a lag in the unemployment data. It takes a long time for it to actually, you know, start to matter, and same with rates.
The higher rates have to work their way through the system. So this kind of like, oh, we're OK, we're all good right now, so I'm going to go "risk on" again, I think there's a little bit of that playing into why people are buying bitcoin. It's like, eh, it's OK. But if we get that next down, that's when people are going to go, no, never mind, I don't want to own anything "risk on." I just want to go back to protecting my wealth. So I think there's a bit of that going on.
Dan Ferris: Yeah. Unemployment is like the big laggard. When that has spiked up or it's been going up for months or whatever the case, that's when you start getting bullish, you know? [Laughs]
Chris Igou: Exactly. Exactly.
Dan Ferris: You're bearish when it's low, you know, really low, too low.
Chris Igou: Exactly. Yeah, yeah. And if you look at the Federal Reserve, their latest expectation for the end of the year is I think unemployment to be at 4.5%. So they're telling you that they expect things to worsen, and I think everybody right now is still kind of saying, "Hey, the Fed was going to stop hiking, that's great," you know? They don't see what comes after that.
The Fed is saying, "Hey, our job is finally working, we're slowing down the economy," and that could be the next catalyst that sends us back lower. We'll see.
Dan Ferris: Right. Yeah. We will see, won't we?
Chris Igou: Yeah.
Dan Ferris: You know, earlier you talked about bear market performance and then bear market performance with a recession, and I wanted to get back to that for a second because obviously you're a really data oriented kind of a guy, so for you to sort of telescope in and, you know, shrink that dataset from bear market merely to bear market during a recession, you've got less data to work with and in general that's less whatever, reliable or you can impute a probability with less confidence, let's say. So I want to know what you think of what I've done, which is I've gone completely off any ability to impute probability and just gone totally anecdotal and said, well, not just an average bear market but a bear market following an absolute financial mega-bubble – 1929, 2000, Japan 1989.
I mean, you could say there's no data there's so little. There's so few instances. But I'm saying this is one of them. And so when you're talking about, well, 25% average bear market, 40% with a recession, I'm like, no, no, no, no, no, 75. [Laughs]
Chris Igou: Right. Yeah. You're definitely in the rare territory, but if you look at – you know, we talk about sentiment – if you look at 2000, 1999 and how crazy everyone was for tech stocks, and we saw that bubble unwind. 2021 – I mean I wasn't in the market in 1999, but I had friends texting me that never bought stocks in their life buying EFTs, you know, and they were buying bitcoin and they were doing all of those things were I was like, you know, six years in or so and you guys have never texted me about buying a stock and now it's like they were getting into the risker stuff.
So I think sentiment was extremely bullish, you know, back then, and we've come off that certainly and it's been over a year since then but, you know, if you're taking enthusiasm, a bubble situation, yeah, I can see it. It adds up to those 1929s, 2000s, the bigger bust. So I'm not saying down 75% but, you know –
Corey McLaughlin: You're not saying it can't happen either. [Laughs]
Chris Igou: Exactly.
Dan Ferris: Yeah. It's a cult, Chris. We're trying to get you in the cult.
Corey McLaughlin: No, but it is a good point about bear markets with or without recessions. It's something, you know, probably a couple months ago we were at this point where that was a question, and then it kind of went away because it was like, oh, the recession isn't coming because we haven't seen it yet, but now I think it's kind of back or should be on people's minds at this point. Yeah, it would make a lot of sense. You know, the market doesn't need to be rational, but it would make a lot of sense that we've had this rally, these slash sideways action for a while now that could break one way or another.
Chris Igou: Yeah. And you look from June to August, I think the S&P soared 17% over that two months, and I think we're about 16, 17% off the October low right now. So because it's been grinding higher for more months, it kind of feels like, OK, is this the Real McCoy? Are we heading into a bull market? But just like from August to October, it can turn right back around and head back to that low in no time.
So I do agree with you though that around probably June 2022 when a lot of people were saying, OK, the recession's coming, and that lag in data has just been taking a long time, that's the optimism happening in there eventually, and now we're getting to the point where I think GDP came in at one point 1% growth for the first quarter and it was lower than expected. I think they had 1.9% as the expectation, and the Conference Board has the probability of a recession around 99%.
Corey McLaughlin: Oh, is that all? OK.
Chris Igou: Yeah, exactly. [Laughs] But, yeah, we'll see. I mean, that's the thing. You know, I think we're getting close. And again, for six years of working here, I was bullish.
You know, I just think as you're in these bear markets, you've got to be smart. You don't want to just be trying to jump the gun on, hey, it's time to buy. We want to peg the bottom. I think that's a very dangerous game to play and history shows that there's likely some more pain in the coming months.
Dan Ferris: All right. I told you he was on our side. Anyway.
Chris Igou: Just a little bit. Not saying 75%. [Laughs]
Dan Ferris: No, I'm totally messing with you. Totally messing with you.
Chris Igou: All good.
Dan Ferris: Actually though, I do want to get one more – like you said gold, gold stocks, that's kind of looking favorable to you right now. You got another one for me? Just like a sector that has recently come on your radar screen or something you like?
Chris Igou: Yeah. I mean, thinking about long positions, I'd say precious metals in general, but commodities have even started to pull back a little bit. So I think we take more of an individual stock approach in that aspect rather than looking at which sector overall, especially in our 30-day trades and such. So really, I'm trading for income right now the majority of the time and, you know, at some point there will be the right time to get long on a lot of things.
I just think that last drawdown is when you get the cube point, you know? And if we look at previous bear markets, going back to I think 1990, small caps, the Nasdaq and the S&P all bottom around the same time. If not the same day, within a couple weeks of each other. This bear market, the S&P bottomed in October, tech stocks hit a bottom in December, and small caps were in June. So they're all spread out. We haven't had that moment.
So I think I'm trading for income right now, keep the money coming in, and once we get some of that shakeout then I'll be more optimistic on different sectors.
Dan Ferris: I like the sound of that. I like that observation that these sort of different bottoms that are months apart kind of show you that we're not at the big bottom yet.
Chris Igou: Yeah.
Dan Ferris: I think that's a nice, simple handle for folks to kind of grasp onto because let's face it, you know, in a real bear market you do get this one final panic where people basically give up on stocks, and some of them don't come back for years. You know, the action just doesn't suggest that we've seen that, and that's great.
Chris Igou: Exactly. And to the last point to that, the third drawdown or the last drawdown of a bear market is usually the biggest one or, you know, near the biggest one, so it happens quick and it's pretty rough when it happens.
Dan Ferris: All right, Chris. I think it's time for my final question.
Chris Igou: All right.
Dan Ferris: Unless Corey has anything else for you.
Corey McLaughlin: No, take it away.
Dan Ferris: All right. Here we go. So the final question is the same for every guest no matter what the topic, even if it's a nonfinance topic. Exact same final question, and it is simply if you could leave our listeners with a single thought today, what would it be?
Chris Igou: Oh, wow. I would say that's a big question. You know, I would say for the markets – I'll keep it in the markets, how about that?
Dan Ferris: Yep.
Chris Igou: You know, playing defense right now as other people are saying it's time to get in this as the new bull market. It may feel like you're being left behind, but earning income, playing defense in this kind of market, you know, surviving the bear is the important thing. And when the bull market comes, we'll be ready for it and it'll be time to profit. I think that's the best way to look at it.
Dan Ferris: You are wise beyond your years, sir.
Chris Igou: [Laughs] Oh, man.
Dan Ferris: That's a self-serving state because, you know, I agree with every word of it. Thanks for being here, Chris. It was really great to talk to you.
Chris Igou: Yeah, thank you guys for having me. This has been great. Fun to be on.
Dan Ferris: Yeah. All right. And, you know, we'll give you a call in another six or 12 months and see how this bear has progressed and talk some more.
Chris Igou: Yeah. Sounds like a good plan.
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I thought that went very well. What did you think? I thought it went really well.
Corey McLaughlin: Yes, me too. I'm not surprised at all. So actually just reading his stuff all the time, yeah, he does good stuff.
Dan Ferris: So it doesn't surprise me – a couple of things don't surprise me, that he's still here after seven years or whatever it's been, and that he's just kind of done better and better and grown in his position. I have to give some credit, of course, to Steve. He has attracted these people, like Brett Eversole, Vic Lederman, you know, Chris, and I know I'm leaving someone out that isn't coming readily to mind, but he just seems to attract these really bright, young people. They read his letter and they say I want to work for this guy. I think when he talks about surfing that helps too. [Laughs]
Corey McLaughlin: I think so. Chris is a big surfer too, I think, from what I remember. But, yeah –
Dan Ferris: Well, he's already in a cult so we shouldn't try to get him into bear cult, right? So he's in the Sjuggerud cult.
Corey McLaughlin: Yeah, he's in the – well, that's why I kind of asked him because he is like the bear in the Florida office, which is interesting. So I wondered how he handles that, but he does look at it so short term that, you know, it's – and long – you know, like he was saying, like there's no reason to be super bullish right now.
Dan Ferris: Right. And you're right, on the flipside of that, maybe there's no reason to be bullish right now, but if there is a reason, he'll change his mind a lot faster than I will because I'm looking for this megatrend and he's just looking at technicals and history and – yeah.
Corey McLaughlin: Right, right, right. Exactly. So, yeah, I thought it went well. Glad he's doing more stuff.
Dan Ferris: Yeah. And I hope our listeners will, you know, maybe check out – you can just go to StansberryResearch.com and type his name and you'll find out stuff about him. Very bright young guy. I think he's going to be with us for a while. I think he's hitting his stride.
All right. That's another interview and that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as I did. We do provide a transcript for every episode. Just go to www.investorhour.com. Click on the episode you want, scroll all the way down, click on the word "transcript," and enjoy.
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