David: Hi. My name is David Gurwitz. I’m Managing Director of Charles Nenner Research Center. I’d like to welcome you to this presentation of Charles – uninterrupted.
Part of the reason we decided to do this was because, after almost 100 media appearances over the last seven years, the world has gotten to know Charles’ unique style of forecasting based on pattern recognition and his realization to show the world that there is no randomness in things. However, we have found, most of the time in the media, for all sorts of reasons that we understand, that they don’t allow him to speak for that long nor without an agenda of questions that they are trying to ask he will discuss. So we thought we would try and do this uninterrupted, calm methodology to let you hear the true depth of what he has to say. And I’ve been working with him for over a decade and it’s been an honor to help present his vision to the world. I’ll be asking him questions later on and he’ll be providing answers and we look forward to people listening in a calm setting to what, I consider to be one of the most unique thinkers in the world about many different things and hopefully you’ll be very enlightened from the experience.
Let me explain what I do, and my background, and maybe that will help piece some of the puzzle together. I met Charles over a decade ago and I am an attorney, I’m a CPA and an MBA, but more importantly, I’m an ex-athlete, although ex-athletes never think they’re ex, they think they’re still athletes. And as a former basketball player, I was trained years ago by someone you might have heard of named Red Auerbach.
How did I know Red Auerbach? I was a bellhop at a hotel in the Catskills in NY State in the mid 1970s, when I was in my late teens and my early twenties and Red’s daughter Randi worked there as well. Red used to come visit her several times a summer and they used to have a game there known as the Maurice Stokes basketball game and he came for that, and that was to raise money for a basketball player who had actually been paralyzed from banging his head under the backboard and Will Chamberlain had taken care of him. I spent a lot of time with Red.
One of the things I learned, besides how he was able, for three decades, to put together the best team in basketball, the Boston Celtics, was how he picked talent, and how he understood talent and how they would fit together. So I was trained in talent recognition, and when I met Charles, I recognized, I think, as things have turned out to be, that he’s one of the most talented people I – and many others – have ever met. Not only in terms of vision of the markets, it’s really, when you get to know him, the market ability is almost the least part of him. It’s his sense of understanding humans so deeply and human interaction. Then we also discovered that we each had musical talent. I consider his talent rather amazing, as you can see on the www.charlesnenner.com site that we’ve recorded – HE’S recorded – many songs of classics from the 60s, and 70s and 80s and hopefully there will be many more.
I’m a pianist also – actually, it’s all on my site – I started playing because I had been a basketball player and a math person. I attended a high school called Bronx High School of Science, and I was able, with the scientific and mathematical background, to appreciate the real scientific essence of what Charles’ work is all about. So that is the main reason we were able to get together in terms of the overlap of some background skills but also we were able to get him into the press, which began to sing his praises because he made so many fabulous predictions across the major areas of stocks, bonds, commodities, currencies, grains. Lately, even though back then he was just as good, he’s become recognized basically one of the world’s leading economists, because of his predictions in the economy, and there will be many things, I think, coming out soon about that in the press.
So that’s why we look forward to this interview presentation. We would like you to just enjoy yourself and sit back and give Charles his well deserved time to understand what he’s talking about in terms of all the breadth of his thinking and his historical perspective.
I’d like to now speak a little bit about the business of the Charles Nenner Research Center. Charles does the research and the program and the system finds predictable patterns in all the major traded areas: stocks, bonds, commodities, and currencies. The actual business is a research business, it only provides research. What does it NOT do? It doesn’t manage money, and it’s not a brokerage firm. It only provides research.
Who are the users of the research? We’ll start with the fact that there are users all over the world, we have clients in over 50 countries, the largest ones are called sovereign wealth funds, which are investment pools of countries and they have many tens of billions of dollars generally, and they’re not generally day trading, they’re looking very long term, and they come to us because Charles has a system that’s able to, pretty precisely, predict moves over long periods of time, and they are placing investments, whether it’s in stocks or bonds or commodities or currencies, for long periods of time and they can’t do it in a day, and they plan it in advance.
There are also large institutions, hedge funds, brokerage firms, we have many of those all over the world.
In addition, there are family offices, which are a recent creature, maybe ten – fifteen years old, and that has grown to thousands and thousands of family owned offices over the world. They are an area that has grown a tremendous interest in the research that Charles Nenner Research Center does, because they don’t generally look for shorter term things; they’re looking for longer term placements. They use us in order to help plan their investments both directly that they do, and with managers that they give money to.
We also deal with many individual traders all over the world, and one of the things about our business that does not allow us to sleep much is because there is also the Far East, which has grown tremendously in the last thirty years, from Australia all the way up to Singapore, Hong Kong, China, etc.
Then there’s Europe, and all the different clients there. There’s South America, Brazil has grown tremendously, India has grown tremendously, and America, and obviously, Canada is a big growing area for our work.
One of the things that I have found in dealing with the different client bases all over the world is that there are certain country patterns just like there are patterns in the stocks and bonds etc., there are country patterns to ways of thinking that I won’t go into all the detail now because there’s not enough time, but, one of the things that I think people should consider when they’re looking at the world is that perhaps they themselves have a certain viewpoint that is governed by where they come from.
One of the things Charles is trying to show is that there are greater patterns then what they themselves may hold by that they should consider perhaps.
I’ll give you an example. Take India. It’s been very optimistic group, they don’t like to go short too much, they believe, especially in the last 20-25 years, things have gone up, and they’ll often to continue to go up. it is sometimes very difficult emotionally to accept what Charles is saying in the first place, let alone emotionally coming with a certain vantage point of where they have from the country that they are in, something that we like to think about and point out.
And finally, there are many pensions and state pensions, country pensions, individuals who, because of the feeling from the media that they’re missing something a lot, tend to do what I think Charles will address later on, which is overtrade, and think they have to put on a lot of trades, a lot of positions, and I’d like to simply stress that one of the things about Charles’ system is if you really follow it and don’t do things against cycles, it’s as important if not more so then feeling that a trade HAS to be made. The act of NOT losing money as we’ve seen over the last several years has become equally important to if not greater than the act of actually making money, and that’s something that the system is in fact used very often as a major source of risk control. So with that background, I’d like to present a Question and Answer session that I had with one of the world’s leading market predictors, Charles Nenner.
David: I got a lot of questions for you, Charles, but the first one is if you could tell everybody the story you told me when you were in medical school, how you first found out about cycles and patterns and what piqued your interest in all this.
Charles: When I was in medical school, I also studied psychiatry for a couple years, and I was involved in research when they wanted to know if people become more psychotic all over the world at the same time or it was local influences. I had done a couple of years of psychiatry study in Medical School in Amsterdam, and I studied some interesting cases when they were doing all kinds of unusual tests of unexplained patterns of behavior. In one case, they were looking into psychotic patients and they wanted to know if there were environmental problems with being psychotic or not, so they compared it to different places in the world. So we need to research with other countries, from Tokyo to Los Angeles, and Amsterdam, and indeed, in the same period, you get a big influx of psychotic patients all over the world. So then we start plotting, when does it happen? And we found a cycle, it means every six months, every nine months, you get a lot of patients who become psychotic. That was my first recognition of cycles.
David: You knew nothing of the Stock Market at that point?
Charles: No, no, nothing, I was in the medical field, I knew nothing about a stock market.
David: Wow. And so after that, what was the next step in the direction of finding out that you had this gift for talent- for pattern recognition?
Charles: I don’t have the gift, I was not working for a while, and a friend of mine went to United States for business and says, “Why don’t you come with me?” and every day when at meetings, I was sitting somewhere on the side watching CNBC-
David: Which had just started at the time?
Charles: Yeah, I didn’t even know what it was, it was FNN at that time in the eighties, and they explained why something went up or something goes down, didn’t seem reasonable to me, so when I came back I said to myself: let me look into it as a hobby. So then what I did is I went to university and I found the last eighty years of Wall Street Journal’s and read them and plotting things and said, “Hey, there’s a system here that nobody seems to see.” And that’s how it came about. Now, ten years later, since we have computers, I could do much more work, and it turned into being a very sophisticated program, which Goldman Sachs used for many years to invest their own money, and since they cannot do it anymore, we started our own thing, and, trying to help most people work through the difficult markets.
David: Right. I remember when you took me down to your office at Goldman downtown NYC.I also recall when you and I first met, you told me something that I will now tell a joke about it. When I first met Charles, he had said he was a doctor, and I said what do you do, and he said, I work at Goldman Sachs, and I said to him, Does that mean when the guys trip and twist their ankles, they bring them to you and you bandage their ankles and he said, No I tell them how to trade!
Charles: Well, I could have been on the medical staff of Goldman Sachs!
David : Right, so I actually went over with him down there and they gave him a standing ovation in the trading room, so he was right. But, how did Goldman their traders react to your cycles, knowing that they had never done anything like this before and at the time, they were considered as one big hedge fund?
Charles: Well, what actually happened was I was distributing a couple of programs and trying to explain to them so they could do the work themselves. They didn’t have too much interest, and they said, you know, “You do the work for us, and you tell us what your outlook is.” One the reasons they made so much money, they didn’t want to put any work in it, and the same thing is I was supporting the desk that helps all the hedge funds, and I said, come to my classes, because at that time I was teaching trading classes twice a week, and they said, “No, we’re too busy, we have to go out with clients”, and have dinner, so actually people were so short sighted they didn’t have the patience or the stamina to really look into what the theory was behind it and to learn how the system works. And I told them, you know, one day, it’s not going to be so great on Wall Street, and you better accumulate some knowledge, because if they throw you out, you will not have a job, and this is what happened. I came back a couple of years later and the floor where my office was empty because everyone was laid off.
David: I remember. I’m an attorney, I’m a CPA, and an MBA, and even though I studied all those things, when I met you, Charles, I realized all the stuff that I’d studied was not correct and that your theory was correct, and so I want to ask you, in terms of what is considered core economics and core fundamentals and core long term thinking, how do you look at the world of not just stocks, bonds, commodities, currencies, but the whole idea of how to knock out prior misconceptions? How would you recommend people begin to approach what you’re saying, given that you’ve been right so much, they still sometimes find it difficult?
Charles: Well, when I was professor in a university, I told the new students, if you don’t get this, it’s not an intellectual problem, it’s an emotional problem. I’m going to tell you the world doesn’t function like you thought it functions. So it’s an emotional problem because what you say is, “Listen, we take out free choice out of the equation. In general there’s not as much free choice as you think, and especially if billions of people and dollars are involved, it neutralizes each other, so it’s predictable. As long as you think everybody has free choice, you actually never know what happens tomorrow. So then you shouldn’t study anything then, it is not valid to study something if you think that there’s no free choice, otherwise why should you look into historical patterns and see what’s going to happen in the future. It’s an emotional problem. We’re brought up with the idea that we have control.
There were two big economists, one was Schumpeter, who didn’t believe in free choice, he had a fixed business cycle, and there was Keynes. And Keynes said that if you take care of the money supply, you’re not going to have depression, you’re not going to have recessions, and , I remember that that he wrote a paper and they thought he was nuts, but after the crash of 1929, the politicians thought, if we go in this direction, people will vote for me. Because they will say listen, I can do something about our future. If they would say there’s nothing you can do, because Schumpeter says it goes anyways the way it goes, why would you vote for me? So everybody liked Keynes, and since it’s very good for politicians, they just continued to follow that direction: that there is free choice, that they can make a change, and if you ask them which change, they don’t know, so I said the only way to know what change is coming is based on projecting the future based on the past.
David: You have become, in my opinion and in many others, the world’s leading expert in cycles in markets, stocks, bonds, commodities, currencies, grains, economic indicators. There are other things you look at, such as war cycles, such as mood cycles, and people often ask me, given that you are a doctor with a psychological focus to explain that as well, so if you could just begin to address that, that would be helpful to people. How that fits into the picture, those things also.
Charles: Well it doesn’t really fit in, but once the computer program was ready, by the way we didn’t change the program for the last 30 years, we put other stuff in there. And it goes as far as that I work with the, then it was called Phonogram, it was a big record company in Holland, and they wanted to issue a remake of all songs, so the idea was, does it matter when you bring it out?
Well, it’s the same thing as an IPO. If you bring out an IPO and a market goes down, it’s not successful. If you bring an IPO up in a market goes up, it’s successful. So then the question is, should you bring it out in the winter, should we bring in the summer, because a hit can be a hit in the summer, but not if it comes out in the winter. So even these things are predictable. So a lot of companies that work with this, they just tell me what they want to know, and I put in the data, and in whatever field they have, we can project it to the future.
David: So you’re saying, and I obviously have spent over a decade with you and I totally agree, that anything that, if we can get data and enough data points to be able to create multiple cycles, we can use it to predict.
Charles: Yeah. But it’s a leap of faith, you know, for three thousand years the apple fell from the tree, until Newton says, “Hey, there is some theory behind this. And now we all know that the apple fell from the tree, but for thousands of years, no one knew why the apple fell from the tree. So you have to look for it, and then you find it.
David: So you really consider yourself a scientist?
Charles: Yeah, definitely.
David: Which is what I tell people, you happen to be a doctor, and you happen to be a Talmudic scholar and a musician and multi talented, but the reality is you want people to know you as a scientist, utilizing very specific scientific methods to predict time, price, direction and levels.
David: And that’s something that most people. I went to a place called the Bronx High School of Science, so I was with a lot of people that like science. I happen to like science and math, most people don’t, and so what do you recommend people read and think about that they can understand where you’re coming from in an easier way in terms of quantum physics and all the things that you do talk about.
Charles: Well, quantum physics proves that there’s no cause and result. A lot of times there’s a result and then the cause – which psychologically and philosophically is very hard to understand. But mathematically, they prove it. So, it’s not such a simple thing that there’s cause and result. Actually, that’s Newton theory, but they come up with other ideas. So if you go deeper in it, you see that the way that we see the world is not exactly like it functions.
The problem for the average people is, it’s so sophisticated, and it’s very hard to understand. I also don’t understand all of it. I continue to study it, but again, the idea is, do things move at random or don’t at random. If they move at random, there’s nothing you should read, because you don’t know what happens tomorrow. If they don’t move at random, then you have to look for the underlying systematic of what happens. So the first thing is to read in a direction of people who say the world doesn’t move at random. And if you can make that leap, then you have to figure out then how does it work.
David: I want to switch for now, and I want to come back to it. I want to talk about your music, and when you began training in violin and singing. Being that I feel you’re a phenomenal musician as well, would you give us some of your background musically, family, yourself, when you were younger, how you became so broadly focused, I don’t mean broadly focused, I mean how you became so broad in your musical experience.
Charles: Well, I started playing the violin.
David: When you were how old?
Charles: Maybe 5, or 6 ,and my uncle was a professor in music and his friend was Isaac Stern, and Isaac Stern used to fly from the United States to teach in Israel and often made a stop in Amsterdam to say hello to my grandmother, in other words the mother of my uncle. And at that time, my parents were just in the middle of buying me a new violin, so I had three violins, and we asked Isaac Stern, who was sitting in the living room, “Can you check them out, can you play something, tell me which violin is the best?” And the lady says, “Let me see, can you play something,” and he says, “I like that.” and then we created the bond and from that point on, I continued to have my teacher, but also every time flew over, he was my teacher. So I studied violin with him.
David: For how many years? A year, two years?
Charles: Until I was 20 or so.
David: Oh, this I never knew, you studied for a decade?
Charles: More than a decade.
David: This was worth the entire filming just for me to learn that!
Charles: But what happened was, is, at that moment, I didn’t think I was good enough to be a soloist. So now you have to make a decision: are you going be for the rest of your life a player in an orchestra or not, that’s going to be your future or not. So I thought it would be too boring, so I didn’t want to do that. Now, violin, if you don’t play it 3-4 hours a day, it’s almost over, because you cannot play any difficult music anymore. So that stopped, and I did something else. Most of the things I do in life, I do them because I find them interesting, and actually once I know them, it’s not interesting anymore, so I move on.
David: Well how about singing? And piano playing?
Charles: Well, then I started the guitar, I played piano….Singing I didn’t do too much with, because what I sing is, as you know, I sing all the oldies, and I grew up in a time that was the Beatles and the Rolling Stones, and that wasn’t my style, so no one was interested in what I liked, and I didn’t like to sing hard rock or play hard rock, so it wasn’t my time. These days, when I go a little back to the oldies, it’s a bit my time now, and now people are interested, so I go in the studio, and I make CDs and I record the music.
David: As we’re going to do later this week! So basically, Charles, you are always finding not only cycles from the past but music from the past that still has relevance! Moving on: People have asked me many times -I deal with the clients, Charles comes up with what’s going to happen and I deal with getting the business and the media and talking to the clients and there used to be a concept known as ”Buy and hold”. Now, obviously the last several years have indicated that may not always be a good strategy. What do you tell people who insist on thinking when they say – when they write in to the site, they’ll say, “I’m a buy and hold person.”
Charles: I think it was instituted by big holders of stocks who had to get rid of their stock. They knew that there’s an end to the super boom market – which actually started after the crash of 1929, so you have to create a market. So if it goes down, the public will not buy your stocks, but if you say just hold it, they will still buy your stocks. So I think the public was conditioned by the insiders to buy and hold, just for their good, not for the good of the people. And in the end, although the market’s doing well, if you look at a lot of stocks – I have friends who own stocks from when they were priced over 200, they’re still 2, 3, 4 dollars and they will never come back. So I think it was a set up. To condition people to buy and hold.
David: Interesting. There are many people in the economic world and in the financial world who have seen your economic predictions over the last five years, not just stocks, bonds, commodities and currencies but also economic indicators. For example, in 2008, during that “not such fun” summer, you said that the economy would bottom and the stock market would bottom in the beginning of 2009, which it did and several other calls since, and others who are fairly well known, other writers have indicated to me they consider you to be one of the best economists in the world.
I’d like you to discuss two things about that. One is when someone says, “I can maybe understand stocks and bonds, that they have certain things. But how can an economy follow cycles; number one. And number two: what do you see in terms of the last 150 years leading into the next 50 years that the overall economic forces will lead to, given to your understanding of the repetition of things called cycles.
Charles: Well, first of all, you know, every knowledgeable person knows about business cycle. So I don’t think I have to explain that there are business cycles. If there are business cycles, there are economic cycles. Now the economic cycles are much longer then stock market cycles, and much more difficult to maneuver. How does it happen? Let me give you an idea. After 1929, people were in bankruptcy. In the 40s, let’s say someone starts a small business, but he’s not going to take a loan because he knows what happens if you get in trouble with the bank.
In the 50s, 60s, it gets better. So his son takes over and he takes a loan from the bank, and he starts expanding. In the 70s, 80s, they’re going to issue stocks to get him money to expand. After the 80s, he goes, “Why should I give away part of my company? I will issue bonds.” That’s how we got into the problem in the Milken era with the bonds. And then we got into the situation now that they thought there was no end to getting credit. Now this is a cycle, human cycle, psychological cycle that has certain stages. And it’s not that a FED president or a president of the United States can do anything to change that. So economic cycles are very long term cycles and they’re very predictable.
David: You mentioned to someone today that we were meeting with, we were talking about one very clear cycle, known as the Kondratiev cycle, that shows that interest rates were high in 1980, low recently, and then, every 30 years, they went down and up, and he had no problem with that. And then you explained to him, and I think it made some sense to him, that if you can see that as a cycle, maybe you can understand there’s all other types of cycles and everything else. Could you expand on that so somebody might be able to take that, which everybody agrees once you say to them rates were high in 1980, low in 1950, high in 1920, low in the 1890s, high in the civil war…how can they use that clear 60 year cycle which indicates rates will be going up for the next 30 years?
Charles: Well, there’s much more than that. Because everybody – well, not everybody but most people – believe in the January effect. The January effect says that if it’s the first week of January and the market is up, and the certain amount is up, the year’s going to be up. A lot of people maybe remember the saying: Sell in May and go away. So they believe that in certain periods there’s a cycle, certain things happen. But then if you say it became very sophisticated, we track down all these cycles, and we know how to do it the whole year, then suddenly they find it difficult to believe.
As I said, it’s an emotional problem; it’s not an intellectual problem. If you do your work, you see it’s not so difficult. But you have to believe that that’s how the world functions. I remember today we talked also with this person about global heating, where Al Gore’s very involved, and I said the only thing he didn’t do was that he didn’t look at cycles. If he would look at cycles, he would know we’re at the end of global warming. That’s why he’s so worried about global warming. It’s like everybody buys IBM at the top and soon we’re going in a cold spell, and they just have no idea what they’re doing.
David: And everyone will think because carbon dioxide’s increasing, all the reasons, etc?
Charles: Yeah, but the funny thing is – why does it just happen at the end of a warming cycle? Why not before? So my idea is, if people will look at the different reality, the world would look much better than it does today. The problem is, Al Gore wouldn’t make a couple hundred million dollars, and other people would also not, so they don’t want it to be true.
David: Right. One of the things we talked about for years, which is one the reasons we’re doing this interview – an uninterrupted interview to allow you to speak – is that, what the media generally has is a five minute appearance – which you’ve done dozens and dozens of times – which is approximately 2.5 minutes of you speaking and two and a half minutes of them interrupting and then trying to direct you with the questions they have. You occasionally will say to me, I see someone on a media show for thirty minutes, and yet I am trying to explain the cycle theory and it’s not that often heard, but I would like to do it, and that’s the reason we’re doing it.
We’ve discussed a number of things today, but are there some other areas that I would like to direct the conversation to – in terms of people who have now – hopefully, after reading or hearing this – had their minds open to the different way of looking at things now to begin to add to their understanding of your unique view of how things work?
Charles: Well, you must understand that the anchor – for a television program – wants to move the discussion in a direction that he has control over it. If I start talking about these things, there’s no control, he wants to move in a different direction. Now, one of the interesting examples is if you go to the website, you go to the first clip of CNBC, with Becky Quick whom I think is rather knowledgeable. She asked me, “Is it a good time to refinance your mortgage?” And it was the beginning of 2006. And I said, “Well, I wouldn’t buy a house because this is not a good investment, stay out of the housing market.” And she said, “Ok, but anyway, if you would refinance it, would you do it now?” So she was focused on the re-financing and she almost didn’t hear that I said at the beginning of 2006 stay out of the housing market. So when they prepare the questions, they will never ask the questions that have to do with my point of view, because that’s not what they know.
So that always throws me in a certain direction, as you know, is. I ask them many times could I just explain because to tell you if the market goes up or down and when it goes up or down, it’s not really what we’re talking about. We’re talking about a total different approach to economics, and how the world functions, and they never give you the time to explain why this works, and actually it overrules all economic theories. Because then all economic theories then seem to be just an explanation of this theory. So that’s why we’re doing this, that for once I can actually explain what we’re doing in our firm.
David: One of the things people always ask is, “How could it be that something that happened in the 1500s, in the 1600s, whatever, if it’s on a certain repeating is going to affect what’s happening next week?” Now, I usually say to them, Halley’s comet, nobody knew about originally, and when it came, it used to flip people out to the point when – I’ve studied it – people would commit suicide and in the end, we saw and expected that it came. I’d like you to explain.
Charles: Well I think that everybody will agree with me that what happened in the 60s has an influence on what happens now. I guess you can trace the 60s back to what happened in the second World War. The second World War, you can trace back to the Big Depression, that’s when Nazi Germany came up. So, of course, things happen based on the past, and if you look at what happened in the European Union today, you can trace it back to the time of Napoleon, so already we’re in the 1800s. So, of course, things that happen today have to do with what happened in the 1500s.
David: Could you explain – being that you are Dutch – the European history of how different phases of the past have lead to this attempt to try and create this union that’s come up with?
Charles: Well, the major idea behind it is that we Europeans have been fighting for thousands of years, how do we stop it? We stop it if we make each other dependant on one another. How do we do that? By having one currency, one economy, and let’s hope we don’t fight anymore.
Now, I don’t think you’re ever going to see a war between Holland and Belgium. But, you know, Yugoslavia, Czechoslovakia, in Hungary, there are different parts of the country that still could fight for their independence, but if they’re part of a union, they probably will not fight for independence, so the idea behind it is very understandable. However, the cultures are so different that it doesn’t seem to work.
David: Everybody asks about China. One of the things you taught me early on, which I tell people all the time, is that what is not generally known is that in the early 1900s, China had the second biggest economy in the world.
David: So this is nothing new, that’s going on. Where were they in 1850? Were they also, did they build themselves up to this?
Charles: They built themselves up. You know, it’s very difficult to get people in the East going, they have a total different idea. Let’s take the extreme idea in India. You belong to a certain group of people. If you lie in the street and you die from hunger, you’re not upset, because that’s what’s supposed to happen. So you don’t get the importance of saying, I’m going to do something with my life; I’m going to change it. Slowly in India, they are changing, but they’re still stuck in all these ideas.
Now China has a lot of Taoism going on over there, and I think I told you the story about the guy whose ship is on a beach on an island and he sees all these people not doing anything, and he says, you know what if I make a factory over here I get cheap labor?. So indeed, he opens a factory over there, the problem is that after three months of paying the people they don’t come back because they have enough money now for a couple of years to live. So what do you do? His friend says, I’m going to send some fliers out with things that we buy in the west, and they get an appetite. And they got an appetite, and since then, they’re working day and night in order to buy things that they don’t need at all.
In China, they have a certain way of looking at the world, and that’s why Communism stayed there longer then it was, and you have to turn them into Capitalists, and to turn them into Capitalists is against actually the Chinese philosophy. Will it succeed? It didn’t succeed in 1900, it will succeed as much as they can change the character of the Chinese people.
The same thing in Russia. Russia has an unclear history of dividing richness and power and people are conditioned like that, and they’re trying now to get it into certain behavior, but they still have hundreds of years of certain behavior of how you do business. If they succeed, Russia is very promising, but it’s a hard struggle.
David: I’m going to mention different groups one at a time. What would you like to be able have them, in a non-interrupting way, listen to you and listen to the advice you give them?
I’ll start with Central banks of different countries. What would you like them to hear you? And then I’ll go to different other categories. Pick the United States Central Bank. What advice would you give them? Or any other similar group?
Charles: Well, I would just give them an example. Right now, we’re in a situation that Japan decides, to try to get inflation up to 1%. How do they do that? By lowering the value of the Yen. So they have to intervene in the markets.
Now, the question is – how do you decide when to intervene in the markets? So if you know, if you have a cycle low, and let’s say the Yen goes in a certain direction, or cycle high, and it goes in a certain direction? It’s much easier to maneuver it in that direction to be stronger then it was before. If you go against the cycle, you can put in a lot of money, it’s not going to work. So if they would know the timing of when the Yen anyway would go up or down, they need less money to put in there in order to push it further up or down. Instead now, they just come out of a committee and they decide, well, let’s do it today, let’s do it tomorrow, and it costs them much more money, and sometimes, it doesn’t work ,because they’re at the wrong moment, at the wrong place.
David: So you would like for Central banks to be conscious of timing and what they’re trying to do with currency manipulation?
Charles: Well, also I know a lot of people in Amsterdam, and we have these state institutions that will tell the Parliament where the economy is going, and they can tell you one or two months ahead, and oh, a surprise, it’s stronger than expected, weaker than expected, etc. In this case, if we work with the cycles, we can make a long term arrangement. The good thing in China is that they don’t change political leaders all the time, so they can have a long term plan. In the United States, once the Republicans win or the Democrats win, you change your whole policy. But in order not to change the policy, you also have to know in the long term where the economic indicators are, and not look from week to week, from month to month.
As you know the markets are focusing on what was going on this week and that week. And we all know what it says in all the economic books, that the markets are about a year earlier. It reacts on what the economy is going to be in a year. So why are you focusing on what the numbers that comes out next week? You can only invest if you know what the number is next year. And that you can only know if you use systems like cycle systems and price projections. Otherwise you’re just in nowhere land.
David: So that’s number one, Central Banks?
Charles: And governments.
David: Central Banks and governments should, SHOULD listen to this whole viewpoint that would be a help to them if they could somehow incorporate it into the planning process. What about sovereign wealth funds? Let’s say there are 150 sovereign wealth funds in 80 countries around the world?
Charles: Well, you have the same problem over there. If you ask them if you think the next 15% of the market is up or down, they don’t know. So, maybe that’s also one reason why everyone is there for the long term. Why? Because if you’re there for the short term, and let’s say you run these offices, and you buy IBM and it goes down, if you don’t tell people you know I’m there for the long run, they fire you. But if you say no, it’ll take ½ a year, a year to come back, and you make a profit, you get paid and you function. Actually, it’s a camouflage of the fact that you don’t know what’s going on.
David: So it’s really a conflict between the people doing the job and what the honest work should be, according to you.
Charles: I don’t know how people choose these people. I will tell you something. These people who run the family offices have knowledge. But a brokerage firm that I work with, for example, has people that call you up for your birthday, they take you out to concerts, they take you out to bowling, golf, etc., They’re never in the office, and they try to convince you that they know what they’re doing, so you give them a lot of money. They put it in a fund, closed for the next 5 years, and they take 2% a year. And I don’t know how it is possible. It seems that it’s more important to play golf with people, or show that you have a nice watch, or you drive a Bentley, then people will trust you, then scientifically if you say hey, look at my work, and just check it out.
David: We wrote an article in Institutional Investor 6 months ago talking about all the different areas and you showed what happened in Australia. And I’d like to point out that nobody really focused on Australia until 5, 6, 7 years ago, when you were one of the first ones to call the Aussie Dollar when it was 60 something to go to par, which it did. But why don’t you explain what you focused on in terms of Australia in that article?
Charles: Well, the Institutional Investor piece that we wrote shows a chart of the last 20 years of the Australian dollar, and it shows a cycle. And from high to high from low to low is the exact same amount of weeks, and I explain there that it’s very interesting that although the economy in the 90s was totally different, or in the 80s, the cycle just showed you when there was a high and a low. So now, you can make a whole interpretation, does it have anything to do with the economy or not?
As you know, I’m a trained medical doctor, and if you’re sick, to save you with the red pill I give you the red pill, even if I don’t understand what that pill is going. So I’m in the business not always of explaining the correlations, I just say there’s a cycle high, there’s a cycle low, we’ll see later what kind of explanation the papers will give, we just want to make sure that you don’t lose money, so when the cycle top we sell, and when we cycle low we buy, and on top of that, I developed a system that is a momentum study system, that can tell you if the Australian dollar goes up anything else, how high it will go, it doesn’t move at random.
David: That too, not only does the cycle give you direction and timing, but the timing, the algorithm for price also indicates nothing is at random, just like the cycles show directionally that nothing is random.
Charles: Right. The same thing is if I were to take a cup and throw it up into the air, you can calculate how high it will go, and the assumption is that in stock, whatever you’re looking at has the same momentum, and based on that momentum, you can calculate how high it goes. So now you’re in safe ground, you buy something when a cycle is bottoming, you know when the top is there, you know what the price is, you were looking for, and compared to other systems in the world – I don’t even call them systems – it’s very simple to stay out of trouble.
David: Given those two things.
David: The cycles and the target.
David: And you look at many other things too. You look at all the stuff looked at by the “quote unquote regular technical analysts”.
Charles: I look at that also.
David: You look at what other people are looking at, so you know what you’re looking at, and you add your special sauce. What are the things that other things that technical analysts do- Point and Figure, Mac D? Oscillator, etc. ?
Charles: The problem with the technical analysis is the following: If you work with Goldman Sachs like I did, or you work with big pension funds, they have committees. A technical analyst will say: if it breaks out here in two or three days, it’s a buy signal. If you’re with a couple hundred billions on the market, you cannot react on that, because the market is too small. If you have a pension fund, you have committees, so they don’t come together every day, so they have to know what to expect is going to happen in a couple of months and prepare themselves if they want to participate, how they’re going to participate, and how long they’re going to keep the trade, so it’s a totally different situation. It’s not a system like generally accepted technical analysis that says, if this happened, that is expected. It says, months in advance, at this date this is going to start, this movement, and it’s going to take so many months, or so many years, and now you can make a plan.
David: So you have the world of this high speed, short term trading, and then you have a world that trades slowly and long. There’s a lot of money out there doing things at different speeds. And when people come and say things are different now, I would like you to talk about the flash crash, because that’s an example of how things aren’t different.
Charles: Well you remember when it was the flash crash, the next couple of days, we calculated that every stock went exactly down to where it had to go.
David: Based on a certain…?
Charles: Equation. So the “flash” crash, I don’t even know what it means, but things had to go the way they had to go, it doesn’t matter what you call it. So the interesting thing is, even if there was a flash crash with computers, people start buying at exactly the level my system said where it would go.
David: There’s another thing that people talk about all the time. I always ask them – and you taught this to me – what would normally be the answer which came first? The planes crashing on Sept 11, or the market coming down?
Charles: Well, I explained that, and I showed that in Europe that markets that day were already down big before the first plane hit. The question is, does the market come down because of a terrorist attack, or does a terrorist attack occur because the markets had to come down? So there’s an interesting thing. So we feel that a terrorist attack would not happen if we know the market goes up this week. A terrorist attack will only happen if the system shows the market will come down, because if there’s a big attack probably the market will come down. So now you get into more quantum physics and it becomes difficult because does a terrorist have free choice then, how does he know when a cycle is topping?
So then I came with these studies about sun cycles for instance, the intensity, and it shows that certain things happen when the intensity of sun spots is high, and other things happen when the intensity is low. And we’re all under the influence of this magnetic field of the sun. Now, it could be many more other causes that we didn’t figure out yet, so that person is part of that equation, like Greenspan was part of the equation of Wall Street; it’s not a Freudian figure that has an independent opinion it can save us.
David: Which people think.
Charles: Which people thought. The Feds will save us. So here, you get into very esoteric part of the work, which needs a lot of explanation, but, just to make the point: things are not exactly functioning like they teach you in school how the world is functioning.
David: I want to mention in five different areas stocks, bonds, commodities, currencies and grains and in another session we’ll actually look at the program and how you do it, but in stocks, since I know you, I mean, when you called it – it’s on the site – you called the DOW from the high ten thousands to low 14,000 and when you spoke and said, there was all this stuff going on, it didn’t seem to have any influence, and then in the summer of 2008, you took everybody out of the market and in the beginning 2009 went back in, many correct calls in stocks, in Bonds obviously, begging people to buy Bonds when rates were 4%.
Charles: The 10 Year Bond, 4%, yeah..
David: You were almost begging people. Gold, when it was down in the few hundreds, all the way up, all the way down. Oil, I remember when we started it was 30, you called it up to 147, and at that point you were one of the few people that actually uttered the very funny word that begins with a D – called deflation, and it went back down to the mid 30s, and now you’ve called it up to the hundreds, you could talk about you say in that? Nat Gas, which when it was around 5.50, 5.75, you actually said it’s going to 1.70, Lehman brothers, CitiGroup, several things, RIMM – when it was 74 – many things like this. And it’s all based on the same premise.
Charles: All on the same premise.
David: Grains, you believe are going to have a very big rally going forwards for years. So when someone puts this all together, and they say, these things say this, and those things say that, and you explain, you don’t put together A and B, you leave it for them. I’d like you to develop that further because I spent time doing that with people, saying it’s the most honest, intellectual exercise to NOT put them together-
Charles: Well, you can take as an example Gold. People think Gold goes up in inflationary periods because that’s what they remember for the last 60 years. However, If you look at the last 800 years, 1000 years, you see that Gold usually goes up in deflationary periods. So if people ask me why is Gold up?
I say it’s my business to tell you Gold goes up, and how high it goes. It could be an inflationary period, or it could be a deflationary era. I’m not trying to figure that out. I’m not the type of an economist who says I have models, etc. I remember there were people at Wall Street firms – high level market strategists – that I don’t want to mention that – you know who we’re talking about.
David: I might indeed!
Charles: That said the following: You know, the market is irrational, but my models are right, and they’re wrong. I say to that: in the meantime, everybody goes in bankruptcy, so what does it pay that your models are right? You know, you have to save those people. That is a big focus of what I am trying to do. You see, coming from the medical background provides a totally different attitude. You have to save a person, even if you don’t understand how it functions, you give them that red pill, and so I understand that people ask you, so why is Gold going up? Usually, we read it in the papers later, because we don’t really know.
David: So you don’t believe if someone says the economic indicators indicate strength, but the markets topping indicates weakness, they should start to try to put together each piece, like the expression “the hipbone is connected to the thighbone”, etc?
Charles: What most people don’t know is that the market likes very slow growth. Low interest rates, GDP growth of 1.5% would keep them very happy. Now, that’s not what people believe. What people believe is if the GDP is very high it’s good for the market. But then the market is overheating, and then they’re afraid for inflation or whatever, and the market comes down, and the economy is stronger and stronger, and the market comes down. So the correlation is not what everybody thinks. You can only find the correlation if you do your homework. Look at the periods, look if it’s really true what they teach you, and then you see that it functions totally different then you’re being taught.
David: You’ve always said that, in regard to hedge funds, let’s just pick that area, that generally the motto of hedge funds has been the people who run the fund have to have money invested, and they get what used to be two and twenty, it’s obviously changed now and obviously the world of hedge funds, like everything else, that world changes in terms of regulations and moving things off shore, and there are several large hedge funds that keep getting larger and larger because large pools of money have less places to send them to. And you’ve often said that psychologically, it really would be better if the person running the fund wouldn’t have his money invested there because he’d have a clearer head to manage it. I’d like you to expand on that because I’ve mentioned that to people and they always thought it was interesting.
Charles: Well, first of all, you should know – and you know I’m not going to mention names – that we work with some of the biggest hedge funds. I remember, a few years ago – I don’t know which year it was – we went long the Chinese market and the Brazilian market and we made 80% and 120%. And they made like 10, 11, per cent. So I said how is that possible? Well, they said that “we tried to get in and out and fine tune it”. I said, you should just stay in. You remember then that they said to us that they would set aside a hundred million dollars, follow you, and you’ll be the benchmark, and we’ll see how you do it. I says, so why are you in and out? He said because the head of the hedge fund says people don’t give us money to do nothing. So they’re overtrading, and that’s not good for the results.
David: So that’s another thing. You think hedge funds feel they have to always trade?
Charles: They feel that they have to do something all the time.
David: And your ideal, based on the system, is to do less trades, but stronger trades based on clearer cycle tops and bottoms.
Charles: But you must know the difference. The difference is that I know if a movement starts, when it’s going to stop. So I can just stay in until the top is there. They don’t know when the top is there. For them, every day is another day. Taking a chance every new day.
David: The research business has grown very much in terms of people who have money who don’t feel comfortable with their brokers, or with managers who now follow your system, in terms of less trading patience, not doing things; for example, this year, many people four months ago wanted to short the Europe. Everything worked there. And you said, despite the news, cycles are bottoming!
Charles: Right, don’t short the Euro. It didn’t make any sense under the circumstance.
David: You also said everyone wanted to short the Yen, you said don’t short the Yen.
Charles: Yeah, until now.
David: You also said at the end of last year, we’re going to have a rally in the first quarter! And things didn’t look so good.
Charles: Well, we came with this crazy target, when the S&P was 1080, with this crazy upside target of the S&P of 1449. Now we close at almost 1420. And I remember writing at the time, I said that it seems very strange, but this is what the system says. And we have worked with the system long enough to understand not to go against the system.
David: Even though we want to fight with it because we’re as human as everyone else.
Charles: Right, right. So it’s a way of not losing money, if you just go with the cycles, you get out at, let’s say we hit 1440. And you don’t say, well, could I make another 3, 4%. And we just tell people, listen, it’s very nice from 1080, to 1449, right, you’re up almost 500 points-
Charles: 40%. So what if you lose another small gain, or you didn’t make another 2%. People say I could have made, so it’s a whole mindset. And then if you tell people to just go in cash, they have a problem with that, because now maybe you can’t play on the short side. I say you don’t always have to play. I don’t say to go short, I say just sell, and stay in cash. If it goes a lot lower, maybe we’ll buy it again. So I know you’re very busy with educating people, to be much more conservative, and to be a lot of times in cash, especially if they know what’s going to happen, and most people will tell you, I have no clue what’s going to happen. So first of all, why are you in markets? I never get that. Right, if you don’t know what’s going on. So the idea of what we do is, if a certain price target is hit, or a cycle top, we go in cash, and we’ll see what happens.
David: There’s one more thing you’ve taught me also which a lot of people have learned is you have a target, and they go past there afterwards. When they get there, step aside.
Charles: Yeah, because now you’re very risky. 9.5 times out of 10 that’s the target, you don’t want to play that .5%. So, it’s an educational process.
David: I have two more questions. One is to tell us some joke you’re thinking of about, whatever, and then secondly, I’d like to conclude with how you think we should begin to approach the totality of what you’re trying to teach.
Charles: This is a very long interview, but here is one quick joke: it happened once, when I gave a seminar, somebody came up to me and said “ I listened to your last seminar, I couldn’t sleep all night. So I said, Oh, you found it that interesting? He says no, but if I fall asleep during the day, I can’t sleep at night”.
So I think it was long enough.
The cycle work we talked about is very theoretical. On the website (www.charlesnenner.com ), you gave a presentation from Bloomberg, a visualization of the cycles, and if people really want to understand what we’re talking about, I think it’s worthwhile to look at the presentation, I think it’s like 40 minutes, and then this is exactly what we’re talking about, what a system is, and how cycles work in investing. So if you want to know more about it, go to www.charlesnenner.com
David: That’s great. Thank you, Charles.
Charles: So if you want to learn more about it, and it’s visualized on the website, when you gave the presentation from Bloomberg, and it should be less theoretical. You should really be able to understand what cycles look like. Go to www.charlesnenner.com
and look for the presentation of David Gurwitz at Bloomberg HQ. It will clear up a lot questions that might come up now.