You might know him as a Curzio Research contributing editor… but back in the day, Rich Suttmeier helped man land on the moon.
It’s true. In Rich’s engineering days, he worked on the lunar model, which led to the first moon landing by the U.S. He went on to create the first government bond department. And all of this led to him developing an incredible proprietary trading system. Now he’s working with Curzio Research to produce our first weekly trading advisory, 2-Second Trader. We go into all of that and more on today’s episode. Plus, Rich shares a few of his favorite ideas right now [20:12].
Sentiment can make you fantastic returns in the short term. In my educational segment, I break down how to use “sentiment” indicators to your advantage [45:27].
- Rant: Elizabeth Warren [00:30]
- Guest: Rich Suttmeier, editor of 2-Second Trader [20:12]
- Educational segment: Sentiment indicators [45:27]
Wall Street Unplugged | 694
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Frank Curzio: What’s going on out there? It’s November 6th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I break down the headlines, and tell you what’s really moving these markets. So, I was watching Fast Money, it was the Halftime Report. This was Monday. Leon Cooperman was being interviewed. He started talking about our economy, our current political system. How we have record low employment under Trump, the economy’s growing. How he will open up trade dialogues with China, our National Defense has never been stronger. And Trump’s done a good job of scaling back some aggressive legislation that’s helping companies grow faster while still maintaining a very tight regulatory structure. These guys can get super aggressive. They did 2008 in credit crisis
Frank Curzio: But Cooperman also criticized Trump for a lot of things; for deporting illegal immigrants. And he said, “While I love some of his policies, I don’t like the way Trump goes about getting things done.” And he said, “We need a unifier because this country’s being torn apart.” So he cited a pretty good example when Ronald Reagan was in office. Now, the comedian who made a living making fun of him, or playing him on Saturday Night Live with Joe Piscopo, who was actually great. Millennials, probably don’t know who Joe Piscopo is. I mean, he did so many commercials for Bud Light, hysterical, hysterical, just very, very funny comedian. And, Reagan picked up the phone and invited Joe Piscopo to the White House to have a drink with him. He said, “Hey buddy, why don’t you come over, have a drink. A little fun and everything.” He said, “That’s presidential.”
Frank Curzio: “Today, we have Alec Baldwin and others make fun of the president.”, this is Leon Cooperman talking. And he says how we have Trump who’s tweeting how these people are not talented, how terrible Saturday Night Live ratings are. So, Cooperman says, “You know what? This is not presidential.” And he’s right. And he says, “That’s dividing the country despite Trump having some really good policies in place that are driving the US economy, which, it’s hard to argue.” You look where stocks are, look where the economy is, there’s low unemployment, a lot of good things going on. But surprisingly, during this interview, Cooperman got emotional, and he actually had tears in his eyes about this. I mean, you can go to CNBC, just type in CNBC Leon Cooperman, and you better watch that interview.
Frank Curzio: And when Scott Wapner which you know, being the judge, asked him, “Hey, Leon, why are you so emotional for?” And, he replied, saying, “I’m emotional because I care. And in 2020, people are going to have to make a decision on who they want to lead our nation.” And he said, “When it comes to Elizabeth Warren, she’s not the answer, because, I don’t need this person telling me and every other billionaire that we’re deadbeats.” I’d be crying too if I had his money, and Warren got elected. So, 70% of everything he makes, at least going forward, is going to be gone. That’s based on the new taxes, that structure she’s going to levy on billionaires if she gets elected. And that doesn’t include estate taxes, doesn’t include the wealth tax plan, which will tax the net worth of families who have more than $50 million, another 2% just for no reason at all. “Well, you have money, well, we’re going to take 2%.”
Frank Curzio: So yes, I’d be probably crying as well. I’m just joking, of course. Although, I would definitely be upset. But, in all seriousness, I understand where Cooperman’s coming from. And people act like the rich don’t get taxed, yet, out of these 140 million people in the US who pay taxes, the top 1% accounted for more income taxes paid, than the bottom 90% combined. A stat people don’t tell you about. And let me tell you something about Leon Cooperman. Here’s a guy that was a plumber. He then became a quality control engineer at Xerox. This is 1965. Busted his ass in college to get an MBA from Columbia. Then joined Goldman directly out of college, which he stayed at the company for 25 years, where he was voted the number one portfolio strategist by Institutional Investor for nine consecutive years.
Frank Curzio: By the way, if you work at Goldman, Morgan Stanley, especially back then, you’re working minimum, 70-hour, 80-hour weeks, minimum. I know, I have people, have friends there. It was crazy. Might be a little bit less now. I don’t know if that’s true, but you work at Goldman, you’re there all the time. That’s how you move up, that’s how you become big. They like getting people in there from the start. They don’t like hiring people where you’re bringing all your outside everything that you’ve learned, which they consider problems or influences. They don’t want any of that in their culture. They start from scratch. They like hiring people right out of college, they build these people up. He’s talking about Goldman for 25 years, and that hard work led him to becoming CEO and President of Goldman Sachs Asset Management.
Frank Curzio: Then he started his own hedge fund, which you guys know, Omega Advisors, and became very successful. So, here’s a guy who was working at least 14, 15-hour days for over four decades, busting his ass every single day. And when you work that much, trust me on this, you have to give up a lot of stuff. Not a just little hanging out with some friends, maybe going golfing every now and then. No, I mean, that’s not the important stuff. But you also have to give up spending time with your family, and even your kids since you’re trying to provide a better living for them and it takes dedication to try to change the world for the better. So there’s a mix. And me, I work tons of hours, I make sure I spend time with my family. I’ll drop the kids off at school, I’m at the events with them. It’s awesome. But, of course, I wish I could spend every minute with them. They’re my kids and I love them.
Frank Curzio: But in the meantime, I’m trying to do something that’s going to change the landscape of this industry, which has taken a turn for the worse. And that requires a lot of work. It requires hiring people, it requires being really involved, at least, during these early stages, the first five, seven years. But you have to give up a lot. But Cooperman, here’s a guy that worked harder than anyone else to climb the corporate ladder at Goldman, and start his own hedge fund, become a billionaire, and what did the so-called deadbeat, because that’s what she called deadbeat, do with his money? Cooperman and his family committed $5,000,000 in 2010 to Anchor Activities supporting Jewish identity, continuity among young adults. He donated $25 million to his alma mater, which is Columbia, to support the construction of new facilities. 2014, Cooperman’s family foundation pledged $25 million to the St. Barnabas Medical Center for the construction of a new 200,000 square foot pavilion.
Frank Curzio: He launched a scholarship funding program, 2015, that assists high achieving high school students, and paying for their college educations. He served as a board member for the Damon Runyon Cancer Research Foundation. He’s a charitable member of the Songs of Love Foundation. That’s an organization that records personalized music for those facing chronic illnesses. He’s also a member of The Giving Pledge. Maybe you might know that’s what it’s called, but that was started by Bill and Melinda Gates, which is a pledge for rich people, mostly billionaires, that they’re going to sign where they’re going to donate most of their wealth to charities. And in 2010 when this was launched, Gates was able to get 40 pledges. Two years later, 69. Today, there are over 200 members. This include Buffett, Gates, Larry Ellison, Bloomberg, Zuckerberg, Harold Hamm, Paul Allen, Elon Musk, George Lucas, Barry Diller, Ted Turner, Paul Singer, keep going, the late T. Boone Pickens, so many others.
Frank Curzio: Now, if Elizabeth Warren gets elected, she wants to tax the shit out of billionaires, simply because they’re successful. And I’m not sure what she wants to do with this money, since a lot of the money flowing to charities from these people is going to be gone if she gets elected. But seriously, does she plan to distribute the wealth to people who hate to work, who will never work 15 hours a day or build something they’re passionate about? Where is this money going to go to? Will it go to keeping the post office afloat, which lost $4 billion in 2018. You know how much it lost this year? It’s on pace. $4 billion last year it lost. It’s on pace to lose $7 billion. How do you lose $7 billion in a business? $7 billion this year. The post office are the same industry as UPS and FedEx. These companies generate billions in gross profits every single year compared to the post office, which loses billions, and it keeps getting worse. Why? Because the government sucks at running things.
Frank Curzio: They don’t have to be accountable. There’s no accountants making sure that you’re making ends meet, or have enough cash to pay your bills since the government can afford… Well, I shouldn’t really use the word afford, but in going under water for 20, 30 years, whatever, off of tax credits with things like alternative energy, in the hopes that one day, solar, wind, electric, can one day replace fossil fuels, which by the way, it’s never going to happen, at least, for the next 200 years.
Frank Curzio: I mean the government can spend $80 million every year to look after wild horses. That’s true. That’s a fact. Want some other interesting things our government spends money on?
Frank Curzio: $2 billion for refugee programs, $500 million to train 5,400 Syrian rebels to fight against ISIS. That amounts to $4 million per rebel. It’s a lot of money. Well, I don’t know what kind of equipment they’re using, but that’s a lot of money.
Frank Curzio: $10 million from the US Agency for International Development that was spent to create a version of Sesame Street for Pakistani television. I’m not kidding, $10 million. This project’s being shut down since the managers of the puppet theater were stealing your hard earned money, taxpaying money. What a surprise.
Frank Curzio: $47 million to fund Atlanta’s streetcar line, which goes from Centennial Olympic Park to the Martin Luther King Jr. Center, which by the way, runs the exact same route as the existing subway system that’s underneath it. But, “Hey, let’s spend money to build stuff we don’t need.”
Frank Curzio: When it comes to billionaires, immediately when you see an interview, most of them have no problem paying a little bit more in taxes, outside of maybe Ken Fisher, who I interviewed a few months ago, basically said he hates giving money away even for philanthropy. But most of them, most of them said, “Look, we understand. Warren Buffett had said, even Leon Cooperman said, “I’m okay paying more money.” They get it, but 70%, because Warren is attacking these people like they’re the enemy, like they’re assholes for being successful.
Frank Curzio: It makes you think, what is the American dream? Come live in the home of the brave, land of the free, work your ass off to become successful. And start a family, buy a home, maybe you start to start your own business, and you start hiring tons of great people. But you know what? Don’t be too successful, because then, you’re one of those f-ing rich assholes. And we’re going to tax the crap out of you, and distribute this money to people who will never work as hard as you. Also distribute it to wasteful government programs that are never ever going to work. I mean, is the post office ever going to work, seriously? And the public’s going to hate you, politicians are going to attack you, actors, musicians, who, ironically also, have a lot of money, will also call you out as the enemy. What country do we live in?
Frank Curzio: Does Elizabeth Warren realize that, if she does this, and of course, this is going to … Listen, this is going to be a way for her to get votes, since we have a lot of more poor people in this country than rich. And everyone over 18 gets to vote, gets one vote. But, if she really puts some of these measures into place, there’s going to be a massive reduction in capital going to charity, which a lot of these charities need this money to survive, to explore, for research, for cures to diseases, to help underprivileged people. And that’s gone. You’re going to see billionaires move out of this country immediately, which means much lower income tax revenue, massive layoffs of U.S. workers as companies run by these billionaires are going to relocate their headquarters overseas. Of course, Warren knows this. She knows this is going to happen. So, do you know what she does in her tax plan? She actually included strong anti-evasion measures, where any billionaire leaving the country will immediately get hit with a 40% exit tax. She calls it an exit tax, which can be enforced by the IRS.
Frank Curzio: I’m sorry, if you don’t like cursing, turn this down. But you got to be fucking kidding me. I mean, you have to be fucking kidding me. So you’re going to force people to stay here, so you can tax the crap out of them and their families for life. Is that democracy? Is that the American dream? Because if you don’t have a job, you’ll love this policy. It means, “Hey, don’t work hard, we’re just going to take money from people who really worked, who are very successful, and will give you some money.” Name me one time ever in the history of any nation where the distribution of wealth actually worked. Never. There’s no studies, nothing, never ever worked. But for anyone who owns their own company, and works their ass off is trying to make the world a better place by disrupting industries, you now become the enemy of this country.
Frank Curzio: And if Warren gets elected, the U.S. economy is not going to fall into a recession, it could fall into depression as soon as these measures are implemented. Is it cool that she wants to double the capital gains tax? And what do you do when you have capital gains? Capital gains are a good thing, it means you’re making money on your investments. And what do you do with that money? You reinvest it. You buy stuff. It filters into the economy. You’re reinvesting whatever assets. You’re going to cut this as well? I mean, how do you plan to stimulate growth, stimulate jobs, encourage our younger generation to work harder and innovate. That’s our job as we get older, to teach the younger generation, “Listen, work hard. Get out there, bust your ass. That’s how you become successful. That’s how you learn. Find mentors that are going to help you out.”
Frank Curzio: Forget if you’re a Democrat or Republican, I mean, how does this make any sense at all? Because at the end of the day, what do we all care about most? Think about that. What do we care about most? It’s building generational wealth, so that our kids will have better lives than what we had. And every one of these policies that Elizabeth Warren was talking about goes totally against that, totally against the principles of what America was founded on. And I can’t believe so many people actually love this. So I see Cooperman’s point, I also see him getting emotional about trying to have the country come together. We have a leader that understands business, understands how to grow the economy, but also someone that’s presidential. Where this person is not attacking everyone who disagrees with them. Unfortunately, we don’t have anyone running with these qualifications. But man, we live in some pretty crazy times.
Frank Curzio: Anyway, let’s move on, before I continue with that rant, get myself in trouble. Because I do have an awesome interview setup. One of our newest hires at Curzio Research. Someone that we’re launching a new newsletter around in just a couple of weeks, is here to give you all the details. This person is Rich Suttmeier. Rich, the 40 year veteran of the market. Personally know Rich for over 10 years, and I have to tell you, we’re launching a product around him, which is called 2 Second Trader. This is only going to take two seconds for you to find out how to trade any stock in your portfolio, but over this time when we launch new newsletters for the first time, we basically create marketing packages you want to learn about details about this person’s history, how they got to this point, why they want to help individual investors.
Frank Curzio: And, I got to really know Rich’s history and some of the things that he’s accomplished, and pretty amazing guy. Mean, I know most of you already know that he’s a great analyst with a great track record, also built a proprietary trading system that’s extremely accurate and pretty amazing. It’s going to be a lots of picks off of it. But I didn’t know that Rich used to work for Northrop Grumman, where he engineered solutions for the lunar module that would make America the first country to land a man on the moon. During his bond trading career, he never had a losing year, created the first government bond department at L.F. Rothschild, grew it into a market maker in government bonds, the highest paid AC trader in New York City. I didn’t know a lot of this stuff about him. He’s been around for over four decades, and doing so much work, but I love talking to people like this.
Frank Curzio: And I’m going to have him share a lot of these stories, going to talk about, and talk about his system and everything. But I love learning that from people. That’s why I love talking to people who are older than me, people who are retired. I mean, just learning where they got … They’re successful, and successful isn’t measured by how much money you’re making, it’s measured by your happiness, it’s measured by being with your family. I mean, that’s success to people. For me, I’m always, always interested in that, and just to learn this stuff about Rich is pretty incredible. You’re going to see how incredible it is in a minute.
Frank Curzio: So, he was the highest paid AC trader in New York City, which I just mentioned, and this led him to creating this proprietary system that he back-tested using numerous datasets, where he would have predicted most of the booms and busts that happened over the past 50 years, and that’s from back testing. So, Rich is a credible guy, very lucky to have him aboard, really looking forward to launching his trading newsletter, which will include a ticker box for subscribers where you can put any symbol, not just symbols from Curzio Research or the newsletters that we have, but any symbol in all of your portfolios, and simply going to tell you whether to buy and sell. But don’t worry, Rich is here to explain everything to you, how it works, just going to share his predictions on the markets after this incredible run up we’ve had, what, over the past few weeks, in month and a half? Where stocks are now trading at all time highs.
Frank Curzio: As always, Rich is going to share some of his favorite stocks to buy and sell, which come directly from his system, which shoots out these names on a daily basis, which now you’re going to get. Now that we hired Rich when we launch his newsletter. So, really good interview coming up, then my educational segment. Let me talk about something that’s very, very important to my research process, and that’s sentiment. One of most important gauges that I use to determine what stock to buy and sell in my portfolios. A lot of people talk about sentiment, but there’s so many sentiment indicators, so many of them. It’s not just the traditional ones, which I’ll break down, it’s simply looking out your window, seeing what’s going on around you. I’m going to tell you how you could use this, use the tools that you have, to become a better investor that’s going to help you invest in companies near the bottom, and sell companies at the high, based on what the crowd is doing. And again, numerous sentiment indicators around the cover’s could be a fantastic, fantastic segment. Before we get to that, let’s bring in 40 year market veteran, expert trader, and good friend, Rich Suttmeier, and here’s that interview right now.
Frank Curzio: Rich Suttmeier, thanks so much for joining us on Wall Street Unplugged.
Rich Suttmeier: Hey Frank, how you doing today?
Frank Curzio: So, good news for everyone out there, because you’re about to launch a new service for us called 2 Second Trader, and this revolves around your proprietary system you designed for decades, and now you’re going to share this with the general public. And I want to say, pretty much for the first time, when I say general public, I’m talking about non-sell side. Let’s start with this, because I’m getting this question a lot from people who are already reading Chart of the Week on our site, what led you to create this system?
Rich Suttmeier: Well, when you’re an engineer by education, Frank, and you’re looking for cause and effect relationships, and you know fundamental analysts look at PE ratios and all sorts of other numbers, which are inconsistent from site to site, I had to do something that’s based upon price, because price is there, and prices are real. And so, I figured out a combination of formulas that would generate what I call value levels, risky levels, and pivots. And it’s based upon the last nine closes in several time horizons from weekly, monthly, quarterly, semi-annual and annual, and it’s worked pretty well for 30 years plus.
Frank Curzio: Now, when did you realize you’re onto something? Because if I was going to create a system from scratch, and it’s going to start with different indicators, whatever, maybe I put inside buying in there, cheap stocks, low PE, whatever it is, you’re putting different variables in there, but when did you know you were onto something? Because I know when you first start something like this, and you built it over such a long period, I mean, why don’t you explain that process? Because it’s not just, “Hey, I came up with this system, and I built it in one day.” This is many, many years of back testing and throwing more information into this thing, which I’m sure … How long did it take you to develop the system?
Rich Suttmeier: Well, it evolved, but the major push started in 1984. I was the managing director running the government bond department, and forming the government bond department at L.F. Rothschild where I became a managing director. And eventually, at the peak, had 60 people working for me on trading desks and everything, and it turned out to be a primary dealer. As I got further and further away from looking at the market, I had to find a way to evaluate where yields, and the yield curve, and spread should be trading, and I consulted with someone, and we came up with the proprietary analytics, and it worked for yields very, very well. And, I know that it helps people on a trading desk for treasuries, but then the crash of ’87 came along, and I said, “Let me put in the nine annual closes, semi-annual closes, some of these longer term closes,” back then, “for the Dow Jones Industrial Average.” And lo and behold, almost the exact low on the crash of ’87 was a annual value level. And I said, “Let’s continue to develop this for the equity markets.”
Rich Suttmeier: And then I wanted to tie it into charts, and I was a beta tester for MarketVision for a bunch of analytics on a computer screen. That was in Athena Software was called the Athena system. And over the years, that evolved into the exact graphs I’m looking at today, over an evolutionary period. So, in a sense, I’m using the graphics that I helped design. So, it’s not just my proprietary analytics, it’s also using the indicators that I suggested should be kept on the platform, originally began by MarketVision, went to Bridge and eventually now, Refinitiv controls it as well as MetaStock.
Frank Curzio: Now I’m fascinated by this, and hopefully we’re not going to lose my audience here. I’m going to ask you another question about it… Once you come up with this system, you talk about predicting the ’87 crash, but now you’re going back to test it and back test it, because I know a lot of people that have systems, but it’s all, “Hey, this system works.” “Why?” “Because if this system was available 20 years ago, it would have predicted this, this, this and this.” Explain that process, because now you come up with a system that works, and how do you know it works? Is it by how far back are you back testing to the point where you’re like, “Wow, we got something great here.”?
Rich Suttmeier: Well, after the crash of ’87, for the rest of that year, all I did was back test, back test, back test, different moving averages, different kind of momentum readings, different kind of stochastic readings, different kind of moving averages, et cetera, et cetera, until I found the combination that resulted in the fewest fault signals. Because I wanted to be able to predict market tops and market bottoms. And, since I did that, and the original test worked for the 1987 crash in the Dow, it then worked moving forward when we got into 1999, 2000, when we got into 2002 lows, and when we got into 2007, and the pressure 2008, et cetera, et cetera. So, it helped me time market tops and market bottoms pretty consistently, and right now, I’m fearful of a market top right now.
Frank Curzio: Well, let’s go into that, because a lot of people that have listened to you .. One, is that I always, and we’ll do that in a few minutes guys, I know you love that. The audience loves when you share your ideas on the long side and short side based on your trading system, but you also been pretty bearish for a while over the years, but it was more a long term view where this doesn’t look that good, opposed to you giving us lots of long trading ideas during that, because you just said, “Listen, you can always trade within this.”, based on where the trading ranges are for break and moving average and stuff like that. Explain that, because, when people say, “Well, this system you say and back tested, but maybe, going forward, you’re saying that the market has going to come down.”
Frank Curzio: But there’s a disconnect there to the point where, this is more about stocks in your system, and explain that part, because you’ve been calling for the market, and be very cautious, but in the meantime, you’ve probably provided the best performance, almost, of anyone that I’ve interviewed, and we track this with Dollar Stock Club when it comes to the individual stocks and sectors that you’ve been telling us to short or either go long on.
Rich Suttmeier: Well, of course, you must admit in a recent podcast that I was bullish at the beginning of 2019. I saw a key reversal days wrapped around Christmas. And a lot of people on Wall Street missed that, because they look at closing highs and lows, and not the real lows, the interday lows and highs. And, they missed that call at the bottom, because if you look at the Dow and the S&P 500, they both set their intraday highs on December 26th, not December 24. So therefore, December 26 was what I call a key reversal day for the Dow and the S&P 500. And that made me extremely bullish for 2019. And then, you put in your numbers at the end of the year, at the end of the year you have new, monthly, quarterly, semi-annual and annual levels. And then, you track them to the upside and to the downside, and capturing the volatility throughout the year, and there was a lot more bullish trades that I found in 2019 than in any other year for quite some time. And now, I’m not being able to find this much good in the market at this point in time, because I think we went too far too fast.
Frank Curzio: And a lot of sentiment indicators are showing that as well, because we have moved up tremendously over the past month or two. It’s amazing how much sentiment changes over the past few months, or two months ago, “Recession fears, trade fears, we’re in a lot of trouble, market’s going to come down.”, and today everybody’s completely bullish. They all said, “Everything’s going right.”
Rich Suttmeier: The charts weren’t saying that. The charts were saying, we had a correction, we had a 20% correction, we have another one that was close to 20%, but they all held key levels, and the momentum returned to the upside, and the weekly charts supported it by being positive, and now we’re starting to get overboard again. And now I’m seeing it with regard to the calling them at the top. I mean, we set an all time high for the S&P 500 on Monday, not today, but it was on Monday, and that was between … I have risky levels where the stock failed at on Monday. And then the NASDAQ composite and the Dow set new highs, intraday highs, today, and still reaching for some of the risky levels. So, I’m saying, the maximum upside from here is 3.5%. And I say, let other investors bet on the last 3.5%, Not you, take money off the table.
Frank Curzio: It’s great advice. And, Rich, we know each other for a long time, I know you over 10 years, probably 12, 13. We worked at thestreet.com. And now that we’re writing a big marketing package around you, we’re about to launch this, we always get personal, and go back to the history. I didn’t know a lot of … You’d mentioned running the bond department at one firm, you had your own trading show at Yahoo Finance, but you’re also a engineer at Northrop a long time ago. Can you tell us about that? Because when you told me about that story, I was just fascinated. It’s just things I didn’t know. And, I think you should share that with the audience. This is a pretty cool story.
Rich Suttmeier: Well, I’m a Georgia Tech engineer, a hell of an engineer. It’s in industrial engineering. And then, I worked at Grumman for five years in the late ’60s, 1966 through to 1970. And during that time frame, that’s when the lunar module landed on the moon, and it’s also when they competed for the F-14 Tomcat fighter jet, which is in the Top Gun movie. And so, it was a thrill to be there, and Grummanites, they were very loyal and great employees of the company. And, I enjoyed it immensely. And, while I was doing that, I went to Brooklyn Poly. They had an off-campus … Not Brooklyn, in Farmingdale, right near where Grumman was. So a lot of Grumman employees went to Brooklyn Poly out in Farmingdale. And, I got a master of science in operations research systems analysis. That’s a mouthful. And when someone asked me once, “What do you do with an operations research systems analysis? How come you didn’t get an MBA?” And you know what I told him, “MBA is work for me.”
Frank Curzio: Go ahead. Keep going. That’s fascinating stuff.
Rich Suttmeier: But I mean, when you’re talking about operations research systems analysis, you’re looking for cause and effect relationships. You’re building economic models, you’re building economic models. And, in that proposition, I studied, and wrote, and read all the books by Jay Forrester, who was a professor at MIT. And, it taught me how to look at things with a cause and effect relationship, which is why I’m able to look at different markets and play them off each other, to make a guesstimate of when to go into financials, when to go into home builders, when to go this way or that way. Here we are in the market today, for example, or this week, while we’re hitting new highs on the Dow, S&P and NASDAQ, home builders are getting hit. The housing market stocks are getting hit this week. And, that’s a big part of our economy, is housing. And, if housing isn’t working, how far can this economy go? How far can the stock market go?
Rich Suttmeier: I mean, we’re being held up by positive thoughts on a trade agreement, but it’s almost like, here we are, one year away from the 2020 election, why not start booking profits with one year to go until the election? Because there’s going to be a lot of the potential black swan things that can happen to this market. And, if you have a flash crash again, and you know we can experience a flash crash for any reason at anytime, some of the big name stocks will get hit the worst. For example, take Apple. Apple has a PE ratio now of 21.59. The S&P PE ratio is 20 times. When have you seen Apple’s PE above the market PE. And, in fact, this PE is the highest since the end of 2007 for Apple. And what happened to Apple in 2008? It crashed with the market.
Frank Curzio: So, outside of Apple, what are some of the other stocks that you’re seeing right now? Because, there’s so much going on with the market, and it is earning season where, I don’t think I’ve ever seen so many companies decline by more than 20% after reporting earnings, especially over 10%, and a lot of these companies, the ones that they reported good earnings, without really depressed, and out of favor, are up a lot too, but the volatility is crazy, But let’s go into, outside of Apple, what are some other things that you see in the marketplace that your system is telling you?
Rich Suttmeier: Well, as I was saying, the housing market is not participating in this rally. That’s a big worry for me. And I noticed this morning that all these low-priced offshore drilling companies are getting hammered even though crude oil is trading higher. I like stocks like Exxon Mobil because of its dividend, and it’s bottoming out pattern on its chart, and it had better than expected earnings, and it pays a great dividend over 5%. So I’m looking, now, at stocks that pay a dividend. If it doesn’t pay a dividend, why bother at this point in time. And utilities are getting hit, but their dividend yields have got down to around 3%, which isn’t good enough when the dogs of the Dow offer so much more.
Frank Curzio: So what are some of your predictions? Because every time that I’ve spoken to you, I know you’re very cautious on the market, and you say, “Look, we got to prepare for the market coming down.” But, over that time, now, through the election, you said there could be a black swan event, and you could see the markets fall 20%. I know you’re going to be telling everybody, “Hey, right now’s a great time to buy.” What do you see heading into election year? Say, if we don’t have a black swan event, we have a president that his leading indicator of the economy is the S&P 500. He’s able to influence the Fed. I think very few people would argue with that to the point where we’re lowering rates with stocks at all times high, the unemployment rate doing record lows. What are some of your thoughts over the next 12 months?
Rich Suttmeier: All right. Well, today is Election Day. There were three key elections, and Donald Trump, President Trump has been visiting these cities where these elections are occurring. And let’s say the democrats win all three of them, that’s going to be a black swan event for tomorrow’s trading. Okay? If the democrats win those three elections, we got a problem. Because the republican should win those three seats. Now, let me give you some percentages, because I dug up an old chart off my computer this morning. In 1929, the crash was 89%, in 1937, the crash was 52%, in 87, it was 41%, in 2000, it was 38%, and in 2007, 2008, it was 54%. That’s the kind of decline I’m looking for again.
Frank Curzio: So, this is next year into election year.
Rich Suttmeier: Well, it could start this month.
Frank Curzio: Wow. So, the bearish forecast, I love it. And now, just to put in perspective, you’ve been bullish on this market pretty much the whole year, you’ve been bullish on Apple a few months ago, which you wrote in Chart of the Week, and the stocks up a ton since then. And now you basically said, “Okay, it’s time to take profits.” But you think even at these levels, we could see significant pullback heading into next year, which is kind of different from what everybody else out there is saying, especially now, right?
Rich Suttmeier: Exactly. I mean, when you look at the S&P 500, for some reason, I don’t know what stock’s causing it, it’s down fractionally while the Dow and the NASDAQ are setting new highs. And my quarterly risky level and monthly risky level, the high was 3085 for the S&P, and my risk levels of 3077 to 3089. So, we got right into there, and it stalled. Now, the NASDAQ can go higher, as I have … Right now, it’s hitting the monthly risky level, which is 8469, the quarterly is 8591. Now, the Dow, the quarterly risky level is 28,537. So, if you tack on to where the high is today, that’s another 3.5%. So that’s why I say it’s a maximum of 3.5%, And an investor should use that strength to take money off the table. Because, if we are making a list of mistakes investors must avoid, one of them is, don’t be afraid to leave money on the table. If your stock reaches your target, book some profits.
Rich Suttmeier: And I can’t hammer that home enough, and I will be hammering that home when I make my trading picks off of 2 Second Trader.
Frank Curzio: That’s great stuff. So, here’s the last question here, and thanks so much covering and hopefully, I’ll hear from my audience, email@example.com. For me, I always do these interviews as, it’s things that I want to know, that I want to learn. And sometimes, that might not be what my audience wants, because they love stock picks and things like that. But just take us through your whole system, and your history, and some stories, amazing, and also, of course you shared some ideas. Now, this might be the most important question, with your proprietary system, does this help you in any way with your bowling team to maximize your scores based on cause and effect, or …
Rich Suttmeier: Well, I’m a college champion in bowling, you know that. 1964, inter collegiate bowling champ, that’s me. But, Wednesday night’s my bowling night, Frank, and I’ve been improving because I’ve been watching the pros on TV, and I taught myself how to bowl when Earl Anthony, who’s a lefty, was on TV, I would look at him in the mirror and emulate his swing.
Frank Curzio: I’m always fascinated by, whenever I have guests on, I try to find that one thing that’s unique, where … Everyone talks about stocks, they’re all serious, they’re all, “This is my system, and this is that …”, but I love having that outside thing that people get excited about that has nothing to do with stocks, and I know you’re excited when it comes to bowling, and you’re a champion in that. So, Rich-
Rich Suttmeier: I’m also a golfer too, Frank.
Frank Curzio: That I didn’t know. I didn’t know you golfed.
Rich Suttmeier: In 1960, I was on the Georgia Tech freshman golf team. And so, I’m the only one that finished first in bowling, and then last in a golf tournament.
Frank Curzio: I love it. I love it. Well, if you ever come here, you want to golf, it’s nice that where I am in Florida, North Florida, Amelia Island, because there’s about eight championship courses within seven, eight miles from my house. And that’s on me. But Rich, listen, I’m looking forward to launching this newsletter. I know you’re excited. You’re calling me every week saying, “I want to do this. I want to do this.” And, I can’t wait to get this thing launched and everything’s coming together. And, I’m really excited. I know a lot of people are excited to have to just reading your stuff and Chart of the Week. That’s for free guys, at www.curzioresearch.com, just to get a better perspective and picture of what Rich is actually offering. So I appreciate it, bud. Thank you so much.
Rich Suttmeier: Okay, Frank.
Frank Curzio: Thanks so much for coming on, and I think I’m going to talk to you a lot. You just say, “Well, I’ll talk to you soon,” but it’s probably going to be really soon over the next … Because as we’re launching this thing, I’d be talking to you a lot. And, of course, I’ll have you back on the podcast as well.
Rich Suttmeier: Sure. Great.
Frank Curzio: All right. Bye, I’ll talk to you soon.
Rich Suttmeier: Looking forward to it.
Frank Curzio: Thanks Rich, take care then.
Frank Curzio: Oh, great stuff from Rich. I love the personal part of it. I love getting personal with people, and just getting the bowling thing is fun. I always do that in my interviews where I try to find something that people are passionate about. If I’m doing an interview and someone talked about basketball, I’ll be like, “Kansas plays. It’s great.” It’s just all over it. So I try to have that, and I try to include that component, because it just makes the interview more authentic. These are real people, these are people have families. Their kids are sometimes pain in the asses like our kids. They have the same problem as we do, except they’re really good at their jobs, and I just want to bring that realness here, where, hey, it’s not just the guy talking about stocks and bonds, and all this stuff, and trading levels where, hey, these are regular guys who like to have a little bit fun as well, and hopefully that comes out in my interviews.
Frank Curzio: But Rich is a fascinating person, someone I admire. Love his enthusiasm where he’s like, “I want to launch a blog, also another trading style newsletter.” And I’m like, “All right. Baby steps. It’s a lot of work. Let’s get the first newsletter launched.” When he was talking about the election results, we did tape this on Tuesday, today’s Wednesday, so that’s what he’s talking about, maybe a black swan event if … So, anyway … But I just wanted to bring that up in case you guys are like, “Wait a minute, elections already took place.” Anyway, just, really, really cool to get personal with him, because, when I see how passionate he is, these are the type of people I want working for my company. We’re passionate about the markets, they’re excited, and they’re also very excited to teach people how to invest, and educate them.
Frank Curzio: And, we’re planning to launch 2 Second Trader later this month, and provide special pricing, of course, to podcast listeners, to subscribers like I always do. But, I’m excited to launch this product, because, one, there’s nothing like it out there, make sure Rich can use algorithms within his system to trade, and everyone deserves to have access to these types of systems where major hedge funds are using algorithmic systems to time to market, generate monster returns to their investors, they’ve been doing this for over a decade. But those systems are really not available for mom and pop investors, and we wanted to bring this to you. So, I’m excited about it. It’s the first product that we’ll launch in about 18 months. So, expect to hear more from Rich in the coming weeks. He is going to be introducing you to some of his favorite trading strategies, going to be implementing in his new newsletter called 2 Second Trader.
Frank Curzio: Now, let’s move on to my educational segment, because you hear me talk about sentiment a lot. I don’t think I actually go into what’s sentiment in relation to the market, and what it actually means. And, there are numerous sentiment indicators. You have put/call options, stock breadth, which measures the advances, declines of volume of the New York Stock Exchange. You have market momentum, which measures how stocks’ moving against their moving average, 50-day, 200-day, 125-day even. Jump on demand’s other sentiment indicator. The VIX, of course, measures market volatility. It’s also called the fear index. Inflows of capital into certain sectors like fixed income, utilities, consumer staples, I mean, those are sentiment indicators. People are getting nervous, they want to go into safe havens.
Frank Curzio: So, CNN does a good job, they publish a thing called the fear and greed index, that combines most of these stuff that I just mentioned. Into one big indicator to measure sentiment. So, they based it on a system of 1 to 100 … Just go to Google, look it up, CNN fear and greed index, and it’ll come up for free. So, based on 1 to 100, where 100 is extreme greed, these people are very, very bullish, and of course, this is considered a contrarian indicator. So, a good time to sell since everyone is bullish, or was leaning one way, and 1 is extreme fear. Everyone’s worried the markets going to crash. Again, if you are a contrarian, this is a huge buy signal since everyone’s bearish, and chances are a lot of those people are going to become bullish over a certain time period.
Frank Curzio: There are also sentiment indicators that I use that probably 99% of analysts, investors don’t or never talk about, and one of those is CNBC and Fox Business. This is the reason why I watch these channels. Course, a lot of this could be fluff at times with analysts pitching their own ideas, their own book and stuff like that, which is expected, but you need to pay close attention to what the analysts are saying. For example, last month, and most are calling for a recession, the markets were about to fall, you got to sell everything, fast forward to today, every house is extremely bullish. “Stocks are going to run a lot higher from here into the elections”, something I’ve been saying, 10% ago. Why? Because everyone was leaning to being bearish, and I thought that was a very good indicator, is that stocks aren’t that cheap. We have great Fed policy, we have a president that’s going to do everything he can to keep the markets higher, including saying whatever he wants about everything. And you throw in that people are actually really bearish right now, it’s a good sign of getting to the markets, and you’re seeing the markets do very, very well.
Frank Curzio: So, you’re using all these sentiment indicators, but pay attention when you’re watching CNBC, because a lot of times it’s not 50/50. Right now, it’s not 50/50. You put on CNBC, everyone, it’s set at 90% bullish, 10% bearish. That’s a good portraying indicator. Now, when it comes to individual stocks, I love looking at consensus estimates. What does that mean? Those are the sell side analysts, the Goldman, the JP Morgan, Wells, whatever, Morgan … They’re the ones that provide models for these stocks, and these about 43 analysts, 45 analysts covering Apple, these are all sell side analysts. And when they say they beat consensus, this is the average target price, this is the average earnings estimate, this is the average sales estimate margins that the sell side is providing. That’s the number you see on CNBC when they say a company beat or didn’t beat those numbers.
Frank Curzio: But I like to look at those consensus estimates where a company like Apple, and 60% of the analysts are bullish, and have buy ratings on it, not super high, but high, expecting Apple whose sales decline year over year, by the way, nobody talks about that, but they’re expecting to grow revenue and earnings, and I covered this in educational segment last week, but they’re expected revenue and earnings to grow twice as fast as the overall market, which is not going to happen. I can’t see it happening. I give it a probably about 15% chance of happening. I don’t see it. More important, even though these analysts are expecting huge growth in the company, faster than the market, the average target price from these analysts with these high expectations is 250. Apple’s trading at 255 today. So, these guys are super, super, super bullish, yet they think the stock is fully valued here. And I don’t think they’re going to make those estimates. So sentiment-wise, people are extremely bullish on Apple right now.
Frank Curzio: I advise taking profits in it. This is how sentiment works. When I see the analyst leaning to one side, “We’re all super bullish.”, that’s when I get skeptical. When I see every analyst or most of them leaning bearish, what I saw at Mattel, which popped 20% after earnings, which I saw with Intel 12 months ago. You know I’ve been talking about Intel for how long, getting shit about that stock at a 20 year high. IBM, when I recommend the stock at CRA at $116, everybody hated it, it’s terrible, they’re horrible. When we had $200, I hated it. I said it’s going to be one of Warren Buffett’s worst investments. Actually Heinz turned out to be. At $116, I love it. All the risk, “Oh, revenue’s declining. They’re getting their lunch eaten by everybody.” No, they’re transitioning their business, and a lot of that story is factored in.
Frank Curzio: But for me and my newsletters, I love to jump all over these names, because most of the risk is priced in, and if you just have one small positive, or a hint of that company’s turning around, these stocks are going to jump 10, 15, 20% immediately, and then they go into momentum train. And that’s when you generate huge returns. And they pop 10, 15, 20% a couple days, because they’re so depressed. But now 40, 50% some of these names. Like I said, IBM’s down from what? Two and change to $116. I though it was great buy. Yes, all the risks, you’re right, but they’re priced in. You can’t say the same … The reason why I hate IBM on TV at $200 is because, your revenue, 22, 25. Consecutive quarters declined, getting their lunch eaten by Amazon and Microsoft, all this stuff.
Frank Curzio: And then, when you look at the stock losing 100 points, getting cut almost 50% value, you can’t cite the same risk that’s factored in. Everybody knows that you were right, pat yourself on the back. But now, at $116, you can’t say, “Well, I don’t like IBM because it was a …” No, that’s why the stock declined 50%. Again, that’s a sentiment indicator. But sentiment is huge, huge indicator, which could be measured in numerous ways. All these ways that I look at, especially when it comes to getting into a position. Now, I mentioned CNN has a cool sentiment indicator called the fear and greed index. A year ago today, it was trading at 9, remember, on a scale of 1 to 100. One would be extreme bearish, 100 is extreme greed. It was trading at 9, one of the lowest levels I’ve seen. It’s quite a crisis. Indicating extreme fear. That was a year ago. What happened? Look where the markets are today. It’s up a ton.
Frank Curzio: Today, this indicator is trading at 89. I don’t remember it being that high. I don’t think I’ve ever seen it that high. It’s been that high, I just haven’t seen it. So, what does this mean? It means we’re likely going to see a pullback in stocks in the weeks ahead. I mean, everyone and their mother, and their family is bullish right now. And when are we going to know to get back into the market? When all the bears start going on TV again saying that, “A recession is just around the corner, and our trade war with China is not a done deal, and our debt is running out of control, and the stock market,” which will probably fall 5% from here or so, on a nice little pullback, a healthy pullback, they’re going to say, “it’s going to fall another 25%.” That’s when you’re going to see this fear indicator go to 50, 40, 30, and it’s going to be a good time to buy stocks, again, similar to what I heard three months ago from these analysts on TV.
Frank Curzio: The recession fears, all of this nonsense, inverted yield curve pushing down the market 800 points in one day. It inverted for 10 seconds. Not inverted anymore. Well, fine. This is why I was so bullish and the markets are a lot higher, these sentiment indicators. Now, if you’re a buy and hold investor, don’t try to time the markets and sell your stocks and buy them back. Just hold on to your names, you’ll be fine. Instead, write down some of your favorite names that you want to buy at, at a 10, 15% discount to where they’re trading today. Because a lot of names will fall by this much if the market corrects a little bit. And they’re going to fall on little news. It’s not going to be stock related, it’s going to be market related, since most these companies already reported earnings. That’s how I would play this. I am playing it that way.
Frank Curzio: So I’m so super bullish through next year’s election, but we could see around a 5% pullback in stocks in the short term, after this incredible run higher, which stocks, everything’s at new all time highs. And I’m already seeing some evidence of this as money’s flowing out of single stocks for the first time in six weeks. This is according to Bank of America, Merrill Lynch, derived an amazing report. They’ve been doing it since the credit crisis, just tracking all the inflows, outflows from funds who do that … It’s great. But the clients who are still buying, because we’re seeing more outflows the first time in six weeks, than inflows, but the clients were still buying. They’re actually allocating money to defensive sectors like healthcare and utilities. That’s an indication, that’s a sign, that’s confirmation. People get nervous, they think it’s going to come down a little bit, see a lot of algorithms and trading and stuff like that, jump into the mix, and we’ll probably see a little bit of a correction, not a correction, not a 10% correction, but some of these stocks are going to get hit a little bit after running up tremendously.
Frank Curzio: So, be sure to pay close attention to sentiment indicators, which I know most value investors never, ever, ever do. They just see value and say, “Wow, this stock is worth … This stock fell from 20 to 10, it’s a great value. In 20 years …” And you’ll see that stock fall to 7, to 5, to 3. Look at sentiment indicators. It’s not just sentiment indicators, look at … Now, everyone really hates the stock. The kitchen sink was thrown in. They missed earnings estimates, insiders are now buying, you start throwing in other factors. But just to buy stocks on value without looking at any sentiment indicators, not looking at anything that’s good, that’s why value investors got the head handed to them over the past six, seven years. That’s like Einhorn who finally turning around. Again, I’m a fan of Einhorn, he’s had at a terrible performance, but this year’s he’s been doing great. Good to see.
Frank Curzio: To play close attention to the sentiment indicators, which could even be, listen, guys, it could be spending trends you’re seeing from friends and neighbors. Are they fixing up their home, did they buy a new car, are they eating out more, do they go on vacation a lot? You can learn about sentiment, and this is called economic sentiment, but by simply looking out your window. We’re not talking about stalking people, but you can if you just keep your eyes open, if you go into stores … These are indicators, are people spending money? Are the malls trying to get crowded again? If they are make sure they’re not just crowded from teenagers hanging out, do they have bags, which stores that … These are all indicators. If I feel comfortable, if people are happy, they’re going to spend more and more money. And right now, they’re spending a lot more money, and we’ll see if that goes into the holiday season.
Frank Curzio: But focus on these sentiment indicators. You can go to CNN fear and greed index, that’ll give you a indication of seven or eight different things they measure, they put into one gauge. That’s a good way to go, but right now it’s trading at, was it 89? It’s at levels that I haven’t seen in a very long time, and the contrarian in me says that there’s going to result in the market pulling back at least over the next few weeks, which provides some really nice buying opportunities for us, and for subscribers in my newsletters.
Frank Curzio: So guys, thanks so much for listening. We’ll be hearing a lot more from Rich in the coming weeks about his 2 Second Trader newsletter. Again, really excited for his product to launch in 18 months. We’re launching another one the first quarter. So, it’s getting pretty crazy here, really busy, and had a lot of fun, and I’m excited. And again, we’re spending a ton of money on this system to put it on our site, where you can enter any ticker in the box, it’s going to tell you if the stock’s a buy, sell, or hold. So you don’t have to worry about all that indicators, and all the stuff that’s tough to learn. Simple, put the ticker in a box, whether it’s a ticker from our company, from what we’re recommending in the newsletters, whichever the portfolios, it can tell you buy, sell, hold. To me, that’s really cool. I don’t know any system in our industry that’s like that, or has that on their site.
Frank Curzio: And I’m spending a lot of money to get that on the site for you, because I think it’s an amazing, amazing feature. Also know, Rich is excited to launch this product as well. Okay guys, that’s it for me. As always, thanks so much for listening, and I’ll see you guys in seven days. Take care.
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