We think the market is vulnerable to a final bull market peak.It's at least vulnerable to a strong correction.If you get a strong correction and the market generates buy signals off the corrected lows, of course you're going to go long.
Which assets that we've talked about today are you most bullish on following a Trump victory?
Well, to be honest, you must say in the United States on a long term basis, you have to be bullish on what happened to the economy and the markets following a Trump victory.
We're here to discuss this with our next guest, Milton Burke, founder of MB Advisors.Welcome back to the show, Milton.Always good to see you.
Your initial reaction to the Trump election victory that we got this week, Milton, how do you think markets are gonna respond in the next, we'll break our conversation down by timeframe, but immediately following the announcement that Trump won the White House, stock markets rallied on Wednesday, risk assets overall rallied, Bitcoin was up, stock markets were up, the NASDAQ is up more than two and a half percent on the day.
Is this a kind of the buy the rumor, sell the news kind of event, or is this the beginning of a longer term sustained momentum upwards?In other words, a new bull market.What do you think?
This is a very important event because Donald Trump surrounds himself with very competent people.And I know certainly on the economic front, he's going to surround himself with people, maybe Scott Besson, certainly Elon Musk, and so on.
And he's more of a capitalist than a socialist.I go back to Ronald Reagan's time, when at the Ronald Reagan election, the market boomed into the election.
The day after the election, the market gained nearly 2%, gained for nine of the next 10 days, and that was the bull market peak.
You have a chart.You can show us this chart.
Yeah, let me show you the chart.This chart is right on the radar.You see the market was rallying as it is now, making new highs.This is the day of the election, gained 1.77%, declined the next day.
then gain 9 in the next 10 days to the final bull market peak.Now, it makes sense to have a final bull market peak when someone like Reagan gets elected or someone like Trump gets elected, because they're going to look towards austerity.
They're not interested in just throwing money at the economy.Elon Musk is looking to cut government expenses, and by cut government expenses, by definition, government spending is reduced.
And if government spending is reduced, by definition, again, you have a slowdown in economy. On top of that, we have a much worse situation now than we had in the times of Ronald Reagan.
Of course, in times of Ronald Reagan, there's a very huge deficit.And Reagan was running and cutting the deficit.But the debt-to-GDP ratio was way below 50% in that time.Now it's 120% on the balance sheet and 200% plus off the balance sheet.
So I think if Trump does his job, that is to cut inflation, to bring austerity to the to the government, to get rid of a lot of the waste and incompetence that takes place in government.
That's enough of a reason to suggest a slowdown and possibly a stock market peak.Realize that if Trump is smart and his advisors are smart, they won't care about the economy for the first two years after the election.A president really would like to
do create all the problems he had to create during the first two years and hopefully grow out of it the third and fourth year after the election.That's what Ronald Reagan did.
I know at the end of two years Reagan was very nervous about whether he'll be re-elected again.He's thinking of resigning at the end of the term because the economy was weak.
However, come 1982, 1983, the economy started booming again, the market started booming again, and Reagan went on a landslide.So I think, yes, it's going to be good for the long term to have someone like Trump in office.
I think for the short term, it's very obvious and very logical for them to do all they can to slow down inflation, cut waste, which is not positive on the short term for the economy at all.
Milton, which sectors in the stock market do you think will likely outperform now that Trump is in the White House?
I don't think it really depends on Trump being in the White House necessary to know which sector outperform.Currently, we run a portfolio where we do two things.
Firstly, we do market timing macro analysis, where we have bullish and bearish views on bonds and gold and the stock market.We also run a portfolio that is long only.It's always 100% long. And I'll just give you some idea.We always must be 100% long.
We were into some of the market leaders early in the year, but we got out of stocks like a super microcomputer.Give you an example.If you can see the screen, we got out of Eli Lilly during the year, a super microcomputer.
Clean Harbors, United Rentals, Builders FirstSource, and so on.We were actually capitalizing on the fact that there was a building boom.
It wasn't a new house boom, but people who owned houses were fixing them up, and rather than buy Home Depot or Lowe's at that time,
What we were buying was electrical contractors, air conditioning contractors, United Rentals is rents equipment to people who are to builders and so on.And we had a very good year of some 50, 54 percent or so to date because we get out there.
Currently, we're looking for stocks that are defensive. We were 19% invested in gold stocks up until this week.We got out of 10% of our gold issues.
We're investing in insurance companies, some medical type companies, because we're really looking for some sort of a safety for the next bear market.
I don't think there's any great sector, you could say, which will do well initially under a Trump market.But ultimately, ultimately, when the economy does start growing again,
I mean, after the next slowdown or recession, then we'll try to decide which are the sectors that will lead.And usually, it's the growth sectors that lead.
People are arguing that oil stocks are cheap and they will lead, but there's no evidence of that in the stock price action at this point.
So we're really diversified, as I say, trying to get stocks that are not as vulnerable to market decline as currently.And I say, year to date, we're up some 53.27% versus 21 for the S&P.And this portfolio, which started back in
in 2016 is up 327% versus 182%.Again, there's no timing in this portfolio.Always 100% invested, no leverage, no cash.By the way, one of our largest positions is Berkshire Hathaway because that's sort of a way of getting into cash.
It's an insurance company.It's an industrial company, but he has $300 billion in cash.
So we figure that may not be a growth stock at this point, but certainly it's a safe place to park money with a great manager who knows what kind of industries to get into.
Okay, so let me come back to the sectors in just a minute then.So you talked about the post-Reagan election days, 27% bear market following his election.First of all, Milton, why are we comparing
Donald Trump's recent victory to Ronald Reagan's victory in 1980.Why don't we compare it to his last victory in 2017?
If you take a look at my screen here, I'll let you share your screen in just a minute, but if you flip over to my screen now, you can see the stock markets following Trump's win in 2016 and his inauguration in 2017, continued to rally with periods of volatility, of course, but the overall direction of the markets was up, borrowing in 2019, stock market correction, and into 2020, we had COVID.
Let's see, Reagan was elected in 2016, I believe, right?Yeah.He started in January 2017.That's right.It was not a vulnerable market.We're not just saying that just because the president is elected, the market is vulnerable.
We're saying, since it's a vulnerable market, as the Reagan market was, because you had inflation, you had the slowdown.
We're saying, therefore, don't be surprised if the market rallies 8% in the next 17 days like it did then, because ultimately, the vulnerability of the market still remains.The fact that Trump is elected changes nothing immediately.
First of all, he doesn't get into office until January.And secondly, even once he's in office, it takes quite a while until he makes changes.And thirdly, the changes are initially very painful to the economy.
So my point really is being is don't get so excited about the fact that the market rallied some 3% or so the first day after he's elected.
Also, bear in mind, we're seeing interest rates rise and mortgage rates rise tremendously, and that's not necessarily a positive fact for stocks.At times, it is.
We're in a growth phase, but it's hard to suggest we're really in a growth phase at this point.We're actually at the tail end of an inflationary phase, most likely leading to disinflation or deflation, which, again, won't be good for markets.
One sec, so do you think we're entering inflation or disinflation?
I've been saying last time around as well, I think the risk is when you have great government debt outstanding, the risk is always deflationary.It's a mistake people make.
People argue when the government spends a lot of money and borrows a lot of money, It's inflationary.That is not true.The initial effect of spending is inflationary, but the long-term effect is deflationary.Look at China.
China's debt-to-GDP ratio is far greater than ours.They've been buying far more money than we have.And as you know, they're not trying to fight a deflationary spiral.
If it's true that governments who borrow money automatically generate inflation, then you should see hyperinflation in Japan.The same story, excuse me, in China.The same thing took place in the United States in 2007, 2008.
When the Fed tried to lower rates to get out of the mini-depression, you can call it, inflation didn't take off due to the fact of outstanding government debt.
Most of the inflation in the last two years was due to the fact that rates were low and the money supply was increasing, but that has been offset at this point.So I really think the risk is disinflation or deflation. And it's just logical.
The more debts a person has outstanding, the less likely he's able to continue spending the way he has.And it's a fallacy to say that the government prints money.The government doesn't print money.The Federal Reserve lends money to the Treasury.
The Treasury must pay it back. If they would forgive the Treasury loans, that will be hyperinflationary.But at this point, they still lend money and the government still has to pay it back.The Federal Reserve is still showing losses.
They can't pay the Treasury any of their profit balances because there aren't any profits.So no, I think the risk is deflationary, disinflationary at this point, definitely.
So I think this is the chart you're referring to.So China's nominal GDP three-year rate of change has been going down over the last couple of decades.And then the private domestic non-financial debt as a percentage of GDP has been rising.
That's the chart of GDP.I also have a chart of inflation.It might be on page two on the next page.Yeah, the China inflation chart here.This chart shows that they're in a disinflationary period.The solid line is CPI.
So you can see the CPI was as high as 8.5% per annum in 2007, as high as 5% in 2019, and now it's currently 0.4%, but it was negative for a short period of time, despite the fact that debts in China are increasing.
The reason people think that when the government borrows, it's inflationary is because they think we're in a banana republic, and the Federal Reserve has no responsibility, and all they will do is print and forgive debts.
We are the world's reserve currency, and no Federal Reserve chairman in his right mind will allow our country to create hyperinflation or even strong inflation.They're all going to fight it.Now, sometimes they don't know how to fight it.
Arthur Byrd didn't know how to fight it, but Paul Volcker did.It seems that J-PAL knows how to fight inflation, and if they're going to fight inflation caused by the increase in government debts, you're not going to see increasing inflation.
That's just my view.I think it's pretty correct. And I think there's really no logic in arguing that the more government borrows, the more there's inflation.It's just the opposite.
Well, it's been projected that the deficit level will rise under either Harris or Trump, now that we have a Trump victory.Let's assume that he spends money, as projected, and let's assume that the deficit level rises.
Are we then expecting that the inflation level will eventually stabilize around where we currently are?
The economists who are arguing that deficits will go up under Trump really are Kamala Harris's economists.The economists that Trump uses do not have that view.
Their view is that we're going to try to maintain debt at current levels and we will cover that debt through growth.
Now, that would have worked in Trump's first term, if not for the fact that the COVID fiasco, and really, I must say, Trump didn't know how to handle it, but no one knew how to handle it.
It was like a once-in-a-lifetime event, and many, many errors due to COVID.But Trump is spending money for the right things. the growth was increasing and the growth ultimately would have allowed the government to pay down the debts.
By the way, one of the first things Trump said in his speech last night, I think it was last night or the day before, he said we're going to pay down debts, quote-unquote.We're going to pay down debts.
Kamala Harris never talked about paying down debts, so I don't agree with the economists who suggest that deficit will increase dramatically.Look at Elon Musk.Elon Musk said, I have $2 billion out of the $5 trillion I can cut.
That is not increasing a deficit.Not only that, Donald Trump goes around bragging that when he was president, he asked for a new Boeing 737, and they asked $5.5 trillion for the plane.And Trump says, I'm not going to pay that much.
Then he says, have anyone ever negotiated contracts?They said, no, they just take the price we give them. So Trump is a, he wrote a book, The Art of the Deal.Trump is a negotiator.Trump doesn't like to spend money.
He certainly does not want to waste the taxpayers' money.So I disagree with those economists who say that the deficit will go up under Trump.That is not the case.
Trump's view is that he's going to cut the deficit, cut the debt, pay down the debt, and so on, which will initially be negative, ultimately be very positive.
Let's assume he follows through on that and pays down the debt.How will he finance paying down this debt, and is the Federal Reserve going to be involved in this, do you think?
Well, the way you pay down debt in Trump terms, in capitalist terms, is through growth.The more there's growth, there's more capital gains, there's more income, people earn more money, real, real money.And that's really how they did it.
If you look at United States revenue sources, a good portion of the revenue sources is capital gains on stocks.We had a boom in stocks.
And if you lower rates and you allow people to earn, you know, it's been proven that when you lower rates, government receipts go up.If government receipts go up and spending remains flat, that itself allows you to pay down debt.
So I can't tell you exactly how it's going to happen, but I can tell you that the plan is not, Trump's plan is not, to increase the debt of the United States.
His plan is to pay down the debt, lower the debt, which again is initially disinflationary, but ultimately it's very, very positive for an economy.And I really think it's a mistake economists make.
The economists who are claiming there's no difference between Trump and Harris were Harris's economists, not Trump's economists.
OK, well, we're actually speaking right ahead of a Federal Reserve meeting.So let's talk about what the Fed is going to do in the medium term.Quantitative easing, is that in the cards?
I hope it's not in the cards, because one of the reasons they stopped the inflation wasn't due to their raising of rates.It was more because of quantitative easing.
Inflation, basically, is more money chasing fewer goods, or there's more money to chase the goods.And the quantitative easing is the most direct method the Fed has to combat inflation.I hope they don't stop quantitative tightening.
I do hope that they lower rates a bit.I think real rates may be a bit too high.They can lower it a quarter of a point.I don't think you should stop quantitative tightening at this point.I don't think so.
Especially if you look at the Fed's balance sheet going back 10 years, I mean, it's doubled and tripled.I mean, definitely they should cut it lower.
Okay, let's talk about interest rates.So your outlook on interest rates, the Fed fund rate is going to fall as the Fed cuts.It's debatable as to how many cuts they'll engage in over the next couple of months.But what about the long end of the curve?
The 10-year yield has been rising.And that's been, you know, usually you don't see the 10-year yield rising as much as it has following a Fed pivot.What's going on there, do you think?
Well, I'm going to look at the 2-year for a second because usually the 2-year is not going to be rising when the Fed lowers rates.And the strange thing is the 2-year was at 3.53%.
on September 24th, just when the Fed was cutting the rates, and now it's at 4.25 percent.This is a two-year.So there's something strange going on.To be honest with you, I don't understand it.
Some people argue because the economy is exhibiting underlying growth, which is unexpected by the market, and the interest rates are reflecting underlying growth. I don't know the answer to the question.
I would just say if you're going to follow the trend and you follow the kind of seasonality and cycle work we look at, September was a period in which you should see a turn in some markets.It looks like you saw a turn in the yields.
Is it because some are arguing it's because we're anticipating inflation?I actually heard some people on your show think the rates are going up because we're anticipating inflation. I don't think that's the case.
Maybe people, maybe we're anticipating the fact that the government will have more difficulties paying down, paying interest and therefore the United States has a greater credit risk.That's highly unlikely.
So my opinion is I'm still studying, I'm still learning.I can't tell you exactly why rates are going up.I would say the trend seems to be up at this point. And I wouldn't fight it.I certainly wouldn't buy bonds.Now listen, it could be a mistake.
It could be that many smart, most smart money managers out there are afraid of inflation and they say it wouldn't touch the bonds.So maybe the demand for bonds has decreased because of that.
As you know, I think many people even on your show said we wouldn't touch the bonds because of inflation.So maybe it's just a technical problem we've had since September where the demand for bonds has subsided.
I don't have a real clear answer to this.
Let's take a look at the dollar then.So the dollar today on Wednesday went up a lot.The DXY went up a lot following the announcement that Trump won the White House.What is your outlook on the dollar and is this move sustainable here?
Well, the problem with the dollar is the dollar moves are only relative.The dollar is down some 98, 99% since the Federal Reserve was established in the early 1900s.
So the dollar is good relative to other currencies, but a dollar really is not a place to park your money, at least it hasn't been for the last century.So relative to other currencies, of course, the dollar is better.
The United States is the greatest country in the world. The United States, if you get a president like Trump coming in, it's going to increase the value of the dollar.
Plus, of course, an increasing dollar is suggesting that inflation will be declining.And then you have gold down today.It was down $80 earlier today, which is also suggestive, possibly, that with Trump being elected, they might fight the inflation.
As I say, the risk is not just lower inflation.The risk is disinflation or somewhat deflation early in Trump's presidency.I wouldn't count that out.
But that might be reflected by the sharp decline in gold today and by the sharp increase in the dollar today.
Would you take trades on the bond market now following Trump's victory?Because let's assume that he's going to fight inflation.Well, the Fed doesn't have to cut as much.The Fed doesn't have to cut as much.
Short end of the curve doesn't have to fall down as much.Maybe that's bullish.Or maybe that's bearish, rather.Maybe that's bearish for bonds, for the Treasuries.
Well, bonds, since September 24th, bonds have been bearish.Yields have been going up.
On a macro basis, I would not touch the bonds, because disinflation won't be good for the bonds, because United States is at credit risk in real deflation, and inflation is not good for the bonds.On a technical basis, if I see a turn,
I would buy the bonds.Right now, we're really out of the bonds.We're not recommending the bonds.We're neutral on bonds.
I have to say that I saw people suggesting that yields will go up when the Fed cuts rates, and I thought that made a lot of sense at the time.But I wouldn't touch the bonds at this point either way, not short and not long.
That may change, but at this point, I have no real opinion on that.
What about gold?Do you have an opinion on gold?You mentioned that.
Yes, yes, yes.We were 19% long gold stocks in our portfolio for over a year.We've done, you know, years ago I managed the largest gold, I think the largest gold for the United States in the 80s at Oppenheimer.
I'm very familiar with gold and I look at gold as basically being a commodity.I have a lot of things I'd like to show you about gold.Yes.It might be fascinating to your clients.This is gold. relative to CPI.Gold relative to CPI going back to 1915.
As you can see, the red line on the bottom is showing the ratio of gold to CPI inflation.At the latest peak this month, gold basically matched its ratio to inflation back at the 1980 peak, when gold declined dramatically after 1980.
It climbed from $8.50 to roughly $2.50 or so.So I think gold is certainly not an undervalued asset relative to inflation.
Since half of gold's usage are not for monetary purposes, I think it's a combination between industrial usage and jewelry usages and so on.It's about 52% of gold usage.Gold is highly affected by the economy and highly affected by inflation.
That's why gold tracks inflation.And I think that gold is no longer undervalued. Not only is it no longer undervalued, gold is very overvalued relative to inflation.It's historically overvalued.That's really to get out of gold.
We actually cut our gold stock position from 19% to 9% this week.We got out of the two large gold producers, Newmont, and we got out of Barrick Resources.So I'm starting to turn negative on gold.It had a nice run.
The run that it had is historical, meaning that you look at the history of the gold run-ups, We should be near a peak now, and the decline should be anywhere from 10% to roughly 27% in the corrective.
Now, I'm not arguing that gold won't go back up, but I just think it has to correct somewhere between 9% and 27% before the bull market continues.On the other hand, I want to show you some fascinating charts.This is gold relative CPI.
The problem is people argue that the United States CPI is incorrect.It's been manipulated.It doesn't really tell you the true underlying inflation in the United States.There's a fellow named John Williams.His email is johnwilliams.shadowstats.
You can google shadowstats.com.He was once a very famous economist years ago.People follow him.And he has what's called the alternative inflation.Based on his measure of inflation, gold is now fairly valued.That's his chart right over here.
If you don't look at the United States official CPI, These are shadow stats, alternate CPI.Then gold just hit its fair value just now, just at the last peak.This is only through September.So through October, it hit its peak.
And I think it could go much higher in the past.It's gone above its inflationary peak.But those who are bullish on gold will argue that the CPI of the United States is not a correct reading.The actual CPI has been much higher.
And therefore, gold has more to go relative to CPI. That's my basic view on gold.And we shall see what happens.
Silver, on the other hand, which has not traded the way gold has traded, silver is now fairly valued relative to even the United States CPI inflation.So I wouldn't say it's a buy.You want to buy these things when they're undervalued.
But silver certainly is not as risky as gold relative to historical inflation.Now, there's a Bitcoin aspect to this.And that is, Bitcoin has no real underlying value.Its value is based on what people are willing to pay for it.
To the extent that gold is a monetary asset, remember, 50% of gold is industrial and jewelry, 52%.To the extent that 48% of gold is central bank buying and investors buying, that has a Bitcoin aspect.It's worth whatever people want to pay for it.
People want safety.They'll buy gold regardless of what the price is.It's not affected by inflation.
So that's one of the reasons you see gold trading differently than other commodities, where gold has these major spikes up because people are buying for its monetary value.But ultimately, what happens then is that people who own jewelry
sell the gold to capitalize on the fact that the monetary aspect of gold has moved up.
It's sort of a hedging gold, certainly a balancing gold that prevents it from having the Bitcoin aspect and goes up to infinity simply because people are buying it. So in short, my answer is I was bullish on gold.I'm no longer as bullish.
We're getting out of our gold stocks.I would have gotten out of all my gold stocks, but I can't find alternatives.
I find every sector of the market I look at is either way overvalued or technically is not showing any evidence that it's going to be turning up.So we're in a sort of a limbo land.
We want to lighten up our exposure to the stocks that made us all this money, but we don't find alternatives that we believe won't go down along with the market.So that's where we stand.
The argument I've gotten from some commodities analysts that the new all-time high is in gold, and of course, with the gold stocks picking up from these highs, it's not an indicator of more bullish momentum to come.
In other words, this is a strong momentum.We shouldn't be selling it.
Well, if people are arguing that there's momentum, I have momentum indicators on gold.I have actually gold hit some records, I think 15 out of 17 days, which sometimes takes place off a low and sometimes takes place into a final high.
So my momentum measures aren't suggesting gold is going to go up.
But again, I'm not going to discount the fact that it may go up but due to the fact that this I don't remember the exact Rally was at 40 or 45 percent off his lows of a year and a half ago That's a typical first leg in a bull market followed usually by correction of 9 to 27 percent So even if the bull market continues, I think you're gonna pull back right now and that's where we're out of gold I don't believe that just because inflation is going to continue gold will continue going up.
Let's face it from that from the year 2000 until the year From the peak in the late 80s until 2000 low, inflation doubled, and gold was cut in half.So gold doesn't always move where inflation moves.And I think gold is a nice commodity.
It's a great commodity to trade.There's no magic to gold.There's no magic to Bitcoin, except Bitcoin, since it has no intrinsic value, people could justify whatever they pay for it.
Gold has some intrinsic value, so you really can't justify a $40,000 an ounce gold. Or $60,000 or $70,000 a ounce gold, you can justify a $70,000 price for a Bitcoin.
Okay.Okay.Let's move on to another interesting chart that you have here, Milton.It's called projections to highs in 2024.Yes.Okay.
This is a table.This is going back. Since I've been on your show, literally this year and now, I've been sort of suggesting the bearish aspects to the market.
Although last time, I recall, we met on a Sunday, and I said, for all I know, the market generated low on Friday.The S&P had been at 8.5%.That actually was the low.
So on the other hand, as you know, let me just show you some other charts for a moment before we get to this projections just regarding the market itself. Let's just look at this one.This is the semiconductor index.You see?You see that?
It's much higher.Currently, it's now October.It's 3.18% below.It's much higher. So, we really, and the Semiconductor Index was the market leader.It's not as if we've had this broadening where every group of stocks is going up.
Semiconductors are very volatile, but currently, it was, this chart was made yesterday, the day before, 3.18% below its March high, and it's down 14.65% below July 10th high.
Other things I showed you, I think I may have showed you the 10 stocks, these 10 stocks that are market leaders. Notice, they've done nothing since July, July peak.This is Nvidia.They really talk about a breakout, but it hasn't been breaking out.
It's been what you call churning at the top.This is Apple.You see Apple made a double top.It didn't break.It's from July 10th.It hasn't broken out.It's pulling back, churning at the top.
Microsoft, which everyone's so excited about on July 5th, is now at the lower end of the trading range.That's not breaking out.These are the top stocks in the S&P.Amazon has a failure at the top.You see that?Also double top.
Now, META seems to have broken out, but you notice it's been a weak breakout, but this is one exception.It did get above its slice highs, got above its, but it's not showing the kind of breakout.
Look, the volume is on the downside, not on the upside in META. Let's not tell anything positive alphabet as well.We had a couple of good days.
No, we're back to the July highs So to a Tesla test had a nice update today because Musk is gonna be part of administration But really test been done here for a year, but I'm going and this Broadcom which is a stock We owned in our long only portfolio as you see July July June 18th high.
We haven't been able to surpass the June 18th high Eli Lilly we got out of it this year the long portfolio again has been hasn't surpassed the July 15th high and Exxon Mobil, same thing.
The point I'm making with this is simply that people are under the impression that we're in a major bull market.The reality is we're in a major topping process, the way I see it technically.It could be proven wrong.
All of a sudden, you might see breakouts.But even today's action, as I pointed out, after an election in a global market, you're going to see this kind of action.So that doesn't really make any change.These projections, OK, back in November,
The way we work is we look for tops, we look for bottoms in the market on a macro basis, and we have 30,000 indicators that we look at, basically indicators and combinations of indicators that generate buy signals or sell signals.
Of course, buy signals are much easier to get because market tops are much more difficult.They're very often broad tops, and market bottoms generally are sharp bottoms. In any event, we had 24 bicycles in November.
They projected, using the average of all the projections of the bicycles in 12 months, projected a S&P of 5658.63.So at that time, people couldn't believe it, but that's what the indicator suggested, and we actually got to 5864.67.
So we actually got to 3.64% above the projection.So in December, we had another 29 buy signals, and that projected to 56.8548.We got to 58.64, 3.8% above the projection.
What I'm trying to say is that we had a bull market, but the projections have been achieved.
Unless you get new buy signals, unless you get new reasons for the market to go higher, based on our discipline, we have to assume the market has to pull back and generate sufficient buy signals.
Now, to be honest with you, the market declined 8% from March to April.We were looking with our magnifying glasses to find buy signals off those lows.We didn't find buy signals, which told us the next leg will be a leg to sell into, not a leg to buy.
And again, we had a mini pullback in August.And that also didn't generate buy signals.So we're saying that the market looks vulnerable to us rather than it looks like it's going to extend.
And the fact that the sentiment is that we're in a very strong market at new highs, those new highs are minor new highs.And therefore, we're not so sure that the market's going to go higher.
I'd like to show you something else regarding the stock market as well.And that is This is what we call the technos at the high.It goes back to 1966.We look at all major market peaks, major defined market peak followed by a decline of 19% or greater.
And we have four pages of technical indicators and see what were the technical indicators at that time, at the time the market made a peak.So at the October 18th, 2024, last peak in the S&P 500, and I don't know if we're above it today.
We might be above it today slightly, minor to high.At that point, as you can see, all the bottom lines are yellow. This is the first four line.Let me see.One, two, three.No, only one red.
Basically, it means that all consistent with levels you saw at previous market peaks.For example, the 10-day Nasdaq traded at 0.71, a very, very low and a very bearish reading.
It means a lot of money has been going into the stocks that are moving on the upside, which is usually a sign of panic buying. Historically, the median you'd see was 0.78 at a market peak.
The number of new highs in the S&P, there were 77 new highs, which also fits in within the parameters of what you see at market peaks.The market, the most you've ever seen at a high was 87, and the median is 47.And we have various indicators.
For example, the Russell 2000, 63.79% of the stocks traded above the 10-day average.At market peaks, the median is 55%, and the maximum is 79%. Not only that, but we did after we, and then we did the same with the Nasdaq.Nasdaq peaked later on.
Nasdaq peaked on October 29th, and we did the same thing.We matched the Nasdaq to the previous peaks in the market.But more fascinating than that is we did the following.We took First, we looked at the market made a high.
The S&P made an all-time high on July 16th, made another all-time high on October 18th.We compared the technical indicators at the time it made a peak on October 18th to the peak it made in July 16th.And we saw what we call divergences.
Let me give you an example.At the peak in July, the 10-day trend of the New York Stocks is 1.12.1.03 means more panic buying, more signs of a top where we are now. Let's look at the advanced decline line.
On July 16th, the 10-day advanced decline line in the S&P, the New York Stock Exchange, was 1.84 over 1, almost a breath thrust.In other words, at that high, there's a tremendous, tremendous upside breath. relative to downside action.
On the other hand, currently it's only 1.19 over 1.Let's take another one.The number of new highs in the S&P 1500.At the July 16th peak, there are 369 highs in the 1500 stocks that comprise the S&P 1500.
Now, the other 149, these are called negative divergences, so which is a sign of a double top.On October 18th, the S&P was fractionally above its July 16th high, yet the underlying indicators were weaker.
That's one thing we looked at to suggest not to chase this market to the upside.But there's something else we looked at.This is October 18th, okay?We took a list of, what is it?Three, six, nine, about 12 to 15 indicators. We said, where were they?
And this is technical data.Where were they on October 18th, the day the S&P made a high?10-day New York Stock Exchange was 1.03.25-day New York Stock Exchange was 0.94.S&P generated 77 new highs, three new lows.
We looked at any time in history where all these indicators matched.Matched meaning either at this level or a greater extreme.In other words, any time in history, going back to 1957, any time you had these indicators matching,
And the next page shows we had five instances.And one instance is a failed signal market year much higher.May 25, 2005, we had these indicators matching, and the market did not top out.It continued higher.
However, in 1981, the S&P peaked one day later, 0.71% higher and declined 16%. In 81, the Nasdaq gained for one day, gained 0.67%, declined 18%.Russell gained for 10 days, declined 17%.So basically, this is through yesterday.
The S&P did not gain at all since October 18th. And Russell did not gain since October 18th.Now they gain for seven days at 1.21%.So what we do is we track the current market relative to the stock market when the same indicator signaled.
And this is also telling you we're a very, very vulnerable indicator.
Now, as long as the market doesn't make major highs above the October 18th high, as long as it matches these medians or matches the extremes, which is in the S&P, I think the maximum gain you saw off a low was 0.83%. And yet in NASDAQ, it was 4.47%.
As long as it was in these parameters, we would expect the market to decline anywhere between, well, we're still at 14% and 32%.Medium is 18.92%.This is one of the things that we look at in this instance. So that's something else.
I hope I clarified this.It might be a little bit more than you're expecting to see.
So the bottom line is now, Milton, are you expecting the markets to peak anytime soon?
We think the market is vulnerable to final bull market peak.It's at least vulnerable to a strong correction.If you get a strong correction and the market generates buy signals off the corrective lows, of course, you're going to go long.
The market's decline off the March highs and the market declines off the July highs did not generate any types of oversold, nor did it generate the type of signals off the lows that suggest the market's going too high.
Yet, as I showed you in the technicals at the high table, there are many, many reasons to believe the market's peaking.There's many, many reasons to suggest the market is peaking.
There's one chart I forgot to put in here, and that is going back to the situation where the S&P The S&P peaked within days of the first Fed rate cut.
Okay, so Milton, you have a chart showing what the S&P 500 did in 1990. A rate cut that happened then, can you explain what's going on at this chart?
The first rate cut, 1990, the market had the 1987 crash and you had the Fed easing post that.Ultimately in 1990, they saw the economy starting to slow down and they cut the rates July 13th, 1990.
Then you saw sharp declines in the S&P and sharp declines in NASDAQ. And the market actually peaked.It actually peaked the day after the rate.What's interesting is usually they cut rates after the market declines.
It's very rare that they do what they do now.They cut rates at a market peak.So I'm giving you an analog.Here's a case in history where they cut rates after the market rallies significantly. And yet, what happened then is the market declined.
Currently, the cut rates, we know the bond market started declining.The stock market has not yet started declining.But the point I'm just making is that cutting rates after the market has rallied is not necessarily a bearish event.
It is generally a bearish event when it takes place after the market or the economy has declined significantly. But in this case, with the stock market at highs, in a vulnerable market, a first rate cut isn't necessarily bullish.
And thus far, the market really hasn't done that much since the first rate cut.And I do point out, this first rate cut did have a negative effect on bonds and not yet had a negative effect on stocks.
Finally, let's flip over to Bitcoin.I think I'd like to talk about Bitcoin and commodities for the next part of our interview now, Milton.Bitcoin rose to new all-time highs last night, or on the night of the election, rather.
And the question is whether or not, again, this is just a buy-the-news kind of event, because Trump won and Trump has been pro-Bitcoin in many ways.It hasn't sustained above $75,000.What's your reading on Bitcoin?
Well, my reading of Bitcoin is, I can't tell you it's worth that much, my reading of Bitcoin, because I can tell you I never understood Bitcoin.Bitcoin is a very speculative asset and there's really no way to judge what it should be worth.
Bitcoin can have the same functionality, meaning to use in transactions, whether it's trades for a penny or trades for $60,000, $70,000, $80,000. The value of Bitcoin is just an imaginary superficial value.
It's really based on what people are willing to pay for it.A currency, I mean, you don't see currencies accelerating in price the way you see Bitcoin accelerating in price, which tells you that Bitcoin isn't acting as a currency.
So I would just say on a technical basis, I do think Bitcoin is overhyped.I think there are people who are convinced that Bitcoin can never go down in price.But on the other hand, you know,
I know someone who paid $0.04 for Bitcoin and sold it for $0.08 because it doubled in value.Clearly, I would say it's speculative.I think if the stock markets decline, if gold declines, I think you could see Bitcoin decline as well.
I don't think Bitcoin is directly associated with economic growth or with Federal Reserve policy.I think it's basically a speculative asset.It has very unique characteristics.The blockchain gives it some very unique characteristics.
But there's no really intrinsic value.There's no way to measure.If it goes down from $75,000 to $25,000, no one can tell you there's something wrong with the asset.
In other words, if gold goes down from $2,000 to $500, we'll be saying, wow, people are going to stop buying it.Because for jewelry producers or the industrial users of gold will start stocking up. of building inventory because it's cheap.
You can't make that argument with Bitcoin.Bitcoin is only worth what people are willing to pay for it.So my view is, yes, Bitcoin is vulnerable based on the psychology that I see.I think Bitcoin will be vulnerable if the stock market is vulnerable.
I think today's action is certainly just a reaction to Trump.By the way, Trump said something which I believe is very, very ill-advised.He said he's going to set up a reserve in Bitcoin. The United States does not have a reserve.
There used to be something called a treasury department because the government owned treasure.The government no longer owns treasure.The government owns debt.The government owes money.They're not a creditor nation, they're a debtor nation.
So it doesn't make sense to borrow more money to buy Bitcoin to make a reserve.It makes absolutely zero sense.So I think that's one error that Trump is making.
I think he should leave Bitcoin to the free market and government should not get involved in it at all. If people want to speculate, if people want to get rich in Bitcoin, that should be fine.
But I don't think the government should have any hand in Bitcoin at all.They should just manage the monetary situation they currently have, which is difficult itself to manage, if they want to have a Federal Reserve.
I mean, the best thing to do would be abolish the Federal Reserve and have banks issue their own currencies, which took place before the Federal Reserve.
They don't have competition and you'll have probably a currency that won't lose 99% of its values over a century.
And commodities, which commodities do you think will specifically do well?
I have a bit of a conundrum with commodities.And as I pointed out a little bit earlier, a gold relative to the CPI. is basically overvalued, as overvalued as it's always been.And gold really is basically a commodity.
So that's one commodity that really is overvalued.This is a chart of Ned Davis' research.It's showing the 10-year moving average of the annual rate of change of commodities.As you can see, it oscillates.
You see, it gets up to 12% on a 10-year average.It gets down to minus 2% in deflationary periods.Currently at 3%.So based on this long-term chart, commodities have a long way to go. to get back to a 10-year average rate of change of 12% per annum.
So this would be a bullish chart for commodities, right?Obviously.The next page, on the other hand, is something pretty fascinating.This is also through Nativist Research, and they're showing the secular bull and secular bear markets and commodities.
The gray areas represent the secular bull markets.As you can see, we had a major bull market beginning in 2000, ending roughly in 2010. Then the market pulled back in a much shorter time than it usually does.And now it's back to a new high.
They're still grading this as a secular bear market.But to me, it looks like it was a continuation of that bull market.It may be ending right.It may have ended a few months ago, as you can see in this chart.
So the first chart shows you there's, on a 10-year basis, we haven't reached the 10-year average rate of change that you get in commodities.
On the other hand, on a long-term basis, this looks like a long-term uptrend that began in the year 2000 that really didn't end.It had a sharp correction, and it came back up. And gold is reflecting that, too, because gold bottomed in 2000.
It shot up in 2011, corrected and churned for the next number of years.Now it's shot up to new highs.So that's a reason to be negative on commodities.This is a long-term chart.This is my own chart.
This is my own chart of the CPI and the PPI relative to commodities.And this case basically shows commodities in general are fairly valued relative to the consumer price index.Does that mean they can't go up? No, it doesn't mean it can't go down.
No, it means it's neutral.There's really not much of an edge.So my view on commodities is, yes, if inflation continues, which I don't expect, you should expect commodities to continue increasing along with inflation.
If I'm correct, and the risk due to the outstanding debts throughout the world, the risk is disinflation or deflationary, I do not see why commodities should rally.I know there are many smart people out there telling me to buy oil stocks.
And they load up on oil stocks because they're cheap, and the oil commodity is cheap.I will wait till I see evidence in the chart patterns.I don't see evidence in the chart patterns.
For example, in this chart pattern here in commodities, if we break out above the highs you saw a couple of years ago on this chart, that might be a sign that the commodities will increase.
But at this point, since it was at fair value relative to inflation, now you had a pullback.This is just normal action.I can't capitalize on it.That's my view about commodities.
Final thoughts, Milton, which assets that we've talked about today are you most bullish on following a Trump victory?
Well, to be honest, you must say in the United States on a long-term basis, you have to be bullish on capitalism. as long as the people running the government are capitalists.
When you're bullish on capitalism, it means you'll always be able to find businesses or companies that are going to utilize the free markets and generate gains.
So throughout nearly every bear market in history, there have been sectors of the market that you're able to buy. So I say, yes, for long-term investors, you really want to focus on the stock market.
Don't necessarily buy the SPYs or buy the baskets, because in the bear market, the baskets will decline.But try to get a money manager or an advisor who can help you pick stocks that can do well during bear markets.
Realize during bear markets, it's going to decline.So yes, on a long-term basis, you want to own stocks.On a short-term basis, currently, you really want to own cash.
You don't want to own bonds because there is a risk of inflation or there's a credit risk in the United States.You don't want to own stocks because we're topping here.
If you're topping, we correct 15%, 16%, 17% and see a bottom, then you won't put your cash to work.But cash is really paying you enough money, what is it, 4%, 5%, 6% now to park your money in cash.
I think Warren Buffett is one of the most astute investors. You know, in the last almost a century, actually, he's put a record amount of his money in T-bills.
I think that's really the typical investor should do that and just wait for the opportunity.Right now, there are no clear opportunities.I can't pound the table and say there's a clear opportunity to short the market.I will pound the table.
There's a clear opportunity not to buy the market currently.There's really very little evidence to suggest that the market is headed much higher, even if it heads up another 8%. Like it did after Reagan was elected, then it declined 27%.
And that might be the most likely scenario, where we hold the highs for a while, and then decline some 15%, 20%, 25%.That's what I would say.I'm wondering if there's anything else I failed to discuss.
Yes, something very important that I failed to discuss.If you have another minute, I'll bring it up.As I say, we trade based on indicators.But sometimes indicators fail.Are you able to see this table? Yes.OK.
In July, July 15th, the day before the July 16th high, there's a major momentum surge in the market.The Russell 2000 was up 1.5% on that day.The Russell 2000 had gained 3% two days prior.And of all the 2000 stocks in the Russell 2000,
90% are trading above the 10-day average.This is a very rare occurrence.It's called a momentum thrust, and it only happened in the past five times.As you can see, each time it happened, the market rallied to the S&P.
The S&P rallied significantly with a median gain over the next 12 months of 22.3%.We actually went long at the July top, and we got out quickly because the market didn't follow the pattern.What am I saying? 79 days later, we're only up 1.45%.
Median gain was 11.35%.The smallest gain was 7.42%.We call this a failed signal.One of the benefits of having data is if the data, nothing works perfectly, but if you follow the data, you know when it's not working.
More than that, we had a decline of 7.9% in 15 days. The greatest decline in the successful signal was 6% in 23 days.So we had to nix that signal.Then again, and these are the charts of the historical signals.
This is our market relative to the others.Then we got another signal the next day, July 16, which is the day at the top.And they say that was the, we call it the internal top for the market.The external top was just, is taking place now.
And here you saw 50% of issues in a broad market.It's not simply the S&P, but we have a broad index of big cap, small caps, and mid cap stocks. 55% closed on July 16th at a 30-day high.That has happened very rarely, only eight times in the past.
As you can see, the median return within 12 months is 29%.But again, since then, day 78, we're only up 0.80%.The median was 8.2%, the minimum was 3.27, and we pulled back 8.49%, which is higher than seven of the eight previous instances.
So again, total losses signals not following the pattern it usually follows. These are the historical signals.This is the pattern.As you can see, we're way down there.We're not following the pattern you'd expect to follow.
So we say that wasn't a great buy signal.The third signal was on July 16th, and I'm trying to show what we do.We do have data.It gives us buy signals.Generally, they're right, but sometimes the signal is wrong and the market doesn't follow through.
This was the Russell gain 1% for four days in a row. And the seven-day advanced decline line in a broad market index was 2.3 to 1.So you had two signs of momentum, the momentum in the Russell and the momentum in the broad market using the AD line.
In this case, the median decline over the next 12 months is 23.74%.But again, we declined 8.49% in 14 days.It never declined more than 4%.And 78 days later, we're only up 0.8%.
This is telling me that although people are talking about a broadening market, yes, in July 16, I also thought there was a broadening market because you had the Russell making new highs, the S&P 600 moving new highs, the advanced declining was surging.
But now we're looking at that as what you call the internal market peak. The momentum peak in the market and now we're getting the external market peak where markets are making higher highs and lower momentum as I showed you in previous tables.
So therefore we're cautious.I'm not going to count the table to go short.We're actually recommending to people to be short to our institutional clients.Many of them are ignoring us.Many people are following us.
But the point is now is a vulnerable market.We cannot get long until we see evidence of buy signals.We do not have that at all. And I think the fact that Trump is gonna be so good to the economy is a negative for the market over the short term.
Reagan was great for the economy, but in order to do the great things he did, he had to first have some pain for two years, and we're going to have to have pain, austerity, and cutting government bloat is not bullish for stock markets initially.
It's actually very bearish for stock markets initially, and paying down debt is bearish for stock markets initially, and I think that's going to take place.So the bullishness of Trump should play out two years from now, not necessarily immediately.
All right.Great.Good analysis.Thank you very much, Milton.
I hope it was good.Listen, I did preparation.Today's action threw me off.I didn't expect to see Russell up 4% or 5% in one day, but I hope it's okay.
You think that Russell will outperform the large caps in the next quarter?
No, no, I think the Russell is very vulnerable because I think that the Russell is more vulnerable to recession.Although the Russell is cheaper, I think 35%, many stocks in Russell are zombie companies.
I don't think the Russell, Russell, I didn't mention this either, but the Russell, another chart I forgot to mention, we'll leave it out.There's a historical divergence between the Russell and the S&P, really historical.I'm gonna show you this.
This is, no, that's not it.The historical divergence is, let me get it.Yeah, this is it.Look at this, look at this. This is the Russell 2000.It's now 740 days since its last all-time high.The S&P made its all-time high I'm October 18th.
Okay, 740 days now look at in the past when you saw such a long divergence in 2020 was a 366 day divergence the Russell declined 41% in In 1990 the 193 a divergence Russell declined 33% So the fact that is such a long-term Diversions in the Russell between it's all-time high to the SP's all-time is negative now The Russell came close to making an all-time high today didn't quite do it I believe
So these diversions might ultimately disappear.Same thing with the banking index.It's been 694 days since the banking index made its high.And historically, the greatest you've ever seen was 256 days.In that case, the banking index declined 41%.
So we're concerned by the fact that although they say there's a broadening market, the Russell 2000 and the banking index has not made new highs in the so-called broadening market.And that is negative.
All right, that was very good.Thank you very much, Milton.Where can we learn more about MB Advisors and your work?
MB Advisors, you can send an email to info at mbadvisors.com, or you can look up on the internet, www.miltonbergadvisors.com, and they will help you in seeing whether or not you fit with generally institutional clients, some large family office retail clients.
So thank you very much, Milton.We'll speak again soon.I appreciate it.Thank you for having me.I appreciate it.Thank you, David. And thank you for watching.Don't forget to like and subscribe.
Sign in
