Market Outlook with Craig Basinger, Chief Market Strategist at Purpose Investments

August 19, 2022No Comments

Welcome everybody to the Smart Money Dumb Money Show. And I have a really interesting guest today. Some of you will remember, I interviewed Brooke Thackray, he’s a seasonal guy, a while back. And today I have Craig Basinger and I’ve known Craig for, I think, a quarter of a century or real close to it, you know, and, and it shows our age. But Craig, I met him at Merrill Lynch a long time ago and he’s always been to me one of these academically smart people that I wanted to know in my life. And what’s really interesting about, and I’ll give an introduction on Craig’s background in a second, but what’s really interesting is we talk maybe every year or two, Craig and I. I think that’s probably about right. Yeah. But I think what inspired me to ask Craig to come on the show today was his work in behavioral finance and anybody that knows me and watches this video and reads my blogs knows that I’m all about sentiment trading and contrarian analysis.

So Craig is actually managing a fund with that as a model background. And, he’s got a deep background though in fundamental analysis and he’s just a smart guy so I wanted to bring him on. So I’m gonna give the official introduction, but Craig, thank you for coming on. Well thanks for having me. Yeah. This is great. I’ve been, you know, wanting to do this for a while with you. So I’m gonna, this is the script. I’m gonna read Craig’s background right off a piece of paper. You can see I’m pulling up a piece of paper. Craig Basinger is the market strategist at, chief market strategist, at Purpose Investments. And they’re an active ETF company for those who don’t know who they are. He’s managing 1.2 billion dollars in various quant and fundamental asset allocation strategies.

And Craig is a CFA and that’s how I first came across him way back 25 years ago. He was on the research desk at Merrill and acting as a fundamental and quant guy back then. And he’s also, like myself, he’s been on BNN and he’s got this deep background and now I have to tell you something a little bit funny, because Craig’s been with a number of different firms and at one point in our conversations, Craig maybe you’ll remember this, you had written a report and you quoted some technical factors and a long time ago, and maybe you won’t remember this, but a long time ago. I’ve always been a technical analyst. I’ve had my, I was one of the first CMT’s in Canada and I got into a discussion many, many, probably 20 more or more years ago with Craig and I was espousing the benefits of technical analysis and Craig, you said, oh, this stuff doesn’t work. And of course, you know, Craig studied technical analysis since, and he is actually very adept at it. And I called him out on it. This is probably about 10 years ago, Craig. And I said, you used to used dish technical analysis and you said that’s because then it didn’t work, now it does. So I’m calling you out live on that anyways.

Well, I’m gonna, see, of course the great thing about the human mind and this does get into behavioral is, is everybody remembers things differently. So perhaps I think what I usually comment on the technical analysis is it’s similar to the CFA. It just has, you know, no words and no math.


Just kidding. Just kidding. I go. And for the record you did, you were also like, the chartered market technicians is a very eclectic group, which you are clearly one of the early, early Canadian members of, and to join the club you need other technical analysts to vote for you. And my head trader is Derek Benedet, which you thankfully were one of his, you know, thumbs up.


Approved. Yes. Yes. So we always thank you for that.

Well let’s, so we have a long background, Craig, and so I’m gonna get right to the nuts and bolts because Craig will have a different perspective because of his background in quant analysis and deep, deep, fundamental background. He’s also got a deep background in economics. So I really wanna hear from Craig on his take on the economy and we’re going to, after we maybe get you to talk a little bit about the economy, you can answer the question that’s on. Probably, I don’t think you can answer this question, but you can offer your opinion on where we are now in the investment cycle. Is the bear market over?Are we in for a consolidation and a move up or, you know, your opinion, but let’s start with your big picture take and love to hear what, you know, your overall thoughts on the, on the economy and markets are right now.

Yeah. Perfect. And, yeah, thanks everybody for joining us. I do a couple different things, obviously a purpose, but yeah, we manage, a bunch of money over here and, you know, in ETFs and funds and a lot of it is, you know, we have a chunk that’s quant driven, which again is sort of technicals. Let’s call them sister disciplines. And we do a fair bit of work on sort of portfolio construction, but I’ll be honest, I also write a lot of reports. So I’ve been sort of opining, commenting on the markets probably for 20 years now. And our Market Ethos is a weekly publication that’s free for anybody who wants to read it, where we sort of share our views, try and put some color on what is going on.

And let me tell you a lot has been going on obviously in the last number of years, and it is sort of disrupting most historical relationships, or certainly either being frayed or certainly being challenged in this kind of environment as the market and the economy and our behavior is gradually, you know, ebb and flow following the pandemic. And it’s, I think the impacts of that are gonna continue to reverberate through the markets and through the economy. Some good, some bad at times probably for even a number of years ahead. Albeit I think the sort of, if we wanna call them waves, are probably getting smaller, but yeah, this is, I’m an economist by education, so I can assume just about anything and make up a story. But, you know, so I do like to sort of study the economy and what’s going on from that perspective, but I’m also educated as a psychologist as well.

I studied psychology and not educated as a psychologist. I studied psychology. I don’t wanna get in trouble with another association by saying that, but, so I, I do incorporate a lot of behavioral kind of nuances because, you know, if you really think about the market, if you take a step back, it is the aggregate behavior of all the participants and those behaviors change over time, those mentalities change over time, those tools change over time. And that’s clearly what makes, you know, the market, a pretty dynamic, almost living creature that we’re all sort of investing in to, you know, get us to our longer term goals. But I would also comment that, you know, at Purpose, we do a lot of sort of portfolio construction work and approach that and work with a lot of advisors and their clients.

So that’s sort of where our sort of crux, and again, since we met when I was back at Merrill, that’s clearly what I was starting to do then, and just sort of, we’ve both clearly progressed quite nicely on our individual journeys, but it is great to see you again. So let’s jump into, I don’t know, let’s just say what the hell’s going on out there, because it’s pretty dynamic. Like there’s, you know, I like to think of it, you know, it was a pandemic, it was an exogenous shock. Like I’m not gonna get into this sort of the nuances of that, but it changed everybody’s behaviors. And, you know, when millions of people even changed their behavior a little bit, it sends a change through the economy and that also is attached to the market.

And sometimes those changes can get really amplified. And I think that’s what we sort of went through. So obviously we went through the uncertainty in the worst part of it of 2020 but then coming out of it, we entered this period where, you know, our mobility was down. We weren’t traveling as much. We weren’t eating out as much, and I’m not just talking here in Canada, I’m talking globally and I’m not talking in absolute terms. I’m talking relative to what it was before. And, but we did keet spending money and we kept spending money initially on goods. So we all sat at home and said, you know what, I want a desk that goes up and down in my home and I have one of those now,. You know, people renovated their homes. People, everybody got a new iPad.

I don’t know anybody who didn’t upgrade their hardware and all the tech they needed at home to sort of work in that environment. And then we, you know, bought cars and we renovated houses, and this is all good stuff. And cuz again, we were spending more time here, but it sent this massive demand wave through the economy for sort of durable goods. We all just started buying stuff and we bought so much stuff that it just like, it crushed supply chains and it’s not, you know, yes, COVID contributed to it. Yes, China with, you know, their zero COVID policy contributed to it. I’m not denying that contribution, but it was really the change in behavior that started to send that impulse that created that massive demand. And that’s not necessarily a bad thing. Demand is good. And of course there was stimulus on top of it and low interest rates.

But what it did do is, you know, the fact is you going out and buying an iPad or buying a car is a much better thing for the economy than us meeting up on the bay and having a pint on the patio. Like spending a dollar on a pint of beer is good for the economy, but it has a very limited sort of duration as to how far it ripples through. Going out and buying hardware or technology, home renovations has a much more bigger impact. And when, if you look at the composition of the TSX, the S&P, the global capital markets, durable goods spending or good spending on stuff has a much more dramatic impact on earnings. So all of a sudden this change of behavior, how we were spending our money, supercharged earnings at a time when interest rates were really low and markets just went zoom, right?

Like it was, you know, I don’t wanna say it was plain to see because everything’s plain to see in the rear view, but that’s what drove those market returns in, you know, the back half of 2020 and 2021 just to astronomical levels. And then fast forward to this year, and again, it’s not absolute cuz different places have reopened at different times and different, you know, you go to some parts of the US and there is, it’s completely back to normal. You go to some parts of Canada and not so much, you go to parts, but nonetheless like, that trend towards getting back to normal and mobility again has started. And you know, we’ve started to go out to eat more. We’ve started to go to patios more, we’ve stopped spending as much on goods. We’ve started to do travel a lot more, which we call revenge travel at the moment because we’ve all not traveled enough and we’re ready to go.

And low and behold, same as they had a problem with goods, on the services side, you know, there was a, there was no demand for a year and a half or limited demand. So capacity came down cuz that’s how businesses work. And then all of a sudden the demand comes back and surprise, surprise, they don’t have enough baggage handlers. Like, it’s nobody’s fault. Like, you know, they couldn’t have had enough baggage handlers to begin with. If they had employed them a year ago, waiting for everybody to start traveling again, you know, here again would be bankrupt again or the airlines would be bankrupt again. So they had to react to demand. That’s why we’re going through that phase. And again, these are all sort of waves washing through the market, but the wave we’re in right now obviously is very inflationary and that has been growing in a considerable amount.

And I’m just gonna share a quick, to give, I always find a picture is worth many, many of my words, but this chart on the left. So this is USdata. So I apologize, but it is very similar in Canada. It is very similar in Europe and a lot of the developed areas, but that chart on the left is what people spend on goods, like stuff, over the years in the US. And it’s in billions on the left. And as you can see, this goes back to the 1990s. It sort of just trends up pretty steadily, right? And you know, that dip in the middle of the chart on the left is, you know, the 2008 recession. It dipped down then it resumed its normal same path forward. And that crazy parabolic jump at the end. That is what I’m talking about.

That was us going out and buying stuff on goods. Now that’s starting to roll over and slow down. We don’t know if it’s gonna roll over and come back down to sort of its long term trend line. Or if it’s just gonna start to resume that steady line heading higher, nonetheless, that’s what happened. That’s what drove markets higher. And now we’re on the chart on the right, and this is where we spend money on services and you can see that dipped a lot more following the pandemic, took a lot longer to get back to even pre-pandemic levels. And that was that sort of when we just weren’t traveling, using services, but now that’s spiking higher and that’s now starting to contribute to inflation and other components like that. And I think if you take, so if you take a step back and look at our behaviors, like our behaviors kind of explain what’s going on in the economy, inflation, the markets and we’re now in that period where inflation’s become a bigger problem.

And now the central banks are finally reacting and trying to sort of put the genie back in the bottle and that’s obviously creating an environment that’s much more challenging and hence, we have this bear market of 2022. But I think, you know, really the question comes down to, you know, is this, you know, is this big bounce that we’ve seen in the markets, cause it’s been pretty impressive, you know, is this was, you know, was that the bottom in the markets back in mid the middle of June? I would say a couple different things from a sort of portfolio and market composition or dynamics perspective, you know, the initial move for the first, call it five and a half months or six months of 2022 was a very challenging time because you know, a lot of, you know, central bank policy became unknown.

Inflation became very unknown. Like the future path of these things just became sort of wild cards the market doesn’t usually typically handle. And, really in my mind, what has been going on was we’ve re-priced assets. You know, during that time up until this year asset prices were being inflated, whether it’s, you know, the stock market, whether it’s the bond market, whether it’s your home. I mean, there’s, homes shouldn’t have gone up 40% in Ajax in a year and a half. Like that’s, I’ve been to Ajax, I’m not sure what and, to get to Ajax, you have to drive through like farmland. Like it, it just, it kind of got a bit ridiculous on that side. So I think we sort of, because of all these changes in dynamics and policy and interest rates, we inflated asset prices.

And then this year we’re sort of going through a bit of a deflating of asset prices. And I think that’s kind of what explains a lot of what happened in the first six months. But now the big question comes down to, and something did change in June and the market started to become fearful of a recession more so than inflation. And that’s where the sort of dynamics got back to normal. And I will tell you as a portfolio manager and as an investor recession risk is something that everybody kind of understands. Inflation risk is something that very few people understand the longer term dynamic. So the recession risk, while not good, it sounds kind of outta the frying pan into the fire. It is actually a good thing. Like a recession risk is much healthier. Now not saying inflation is over but the risk of it continuing accelerating to the upside does appear to be over. So that’s certainly a positive going forward, but back to, I’m trying to answer all your questions at once, but so, if you, and I will do this, so just jump in if you need, or if you wanna challenge something.

Actually, you know what? I might jump in right here. Just one quick question, if not statement. Yep. The market, we both have been in the market a long time, so I’m not saying this for your benefit, Im saying it for the audience. The stock market is thought to be a forward looking vehicle. So if you look at the composition and, people that read my blog, I’ve been talking about this for a long time, but particularly the last two years. And that is that the composition of the big indexs, particularly the S &P 500, has been heavily weighted in, you know, the growth stocks and also discretionary and so your stuff chart, the one on the left there that you just showed, that I’m going to assume is the discretionary sort of stocks and the market itself.

But if you really look at the growth, but also the discretionary type of stocks, they rolled over pretty good. I mean, when you compare that to staples, not so much, right.? So, is this basically telling us that your chart is maybe it’s not quite up to date as far as the consumption of stuff. But it’s basically leading into telling us that yeah, there might be a recession as less stuff is bought. And like you said, though, the recession is actually not a bad thing, because then they have to ease back on the tightening, which they’re dealing with right now. So anyways, that’s sort of two or three questions all in one, but maybe you can comment on that.

Yeah. So a hundred percent agree. I like to think the stock market is, I like your terminology, forward looking machine, but I think it’s more of a, which is, this is very similar, but a forward guessing machine. Yeah. Because it’ll get, like, I think the joke is the stock market is a accurately predicted the last seven of four recessions. In other words, three of the times it forecasted a recession and it just didn’t happen. So it’s a bit of a guessing machine as well. And again, it, but it also comes down to sort of people’s behaviors. And I agree, like, because we’ve like, because the behavior’s changed so much in one direction, even if we went back to normal on spending on goods, it may feel like a recession in some industries because, you know, we’ve just bought so many things.

And I think, quote, David Rosenberg said, you know, if you bought a new RV, you don’t need another new one next year. Like, that’s the actual definition of durable goods, like they’re durable. So, you know, people loaded up on RVs. That’s, they’re not gonna be buying a whole bunch more in the next two to three years. So these kind of behaviors, these changes of behaviors could very well cause like a recession of some degree, even without like the normal components of recession, because normally in a recession you have, you know, you have an excess that got too large, which there isn’t really in the marketplace right now. I mean, there might be a few pockets. You have a draw down on the employment side, which may not actually even come to fruition because at the same time you’ve got sort of the good spending rolling over which again could trigger a recession of some degree. The services is still catching up on capacity because people are just getting back to normal.

And so you could actually have like a recession with actually improving employment, which as an economist is just lunacy, but the point I’m trying to make, and I’m not making that as like my forecast, but the point I’m trying to make is like, there’s these weird, like behavioral waves going back and forth. And these things take months, quarters, years to sort of ebb and flow and work themselves out and things to correct size and right size. So in that environment, like we’ve just got these, you know, sea changes going on, whether it’s, you know, going away from normal or back to normal. Everybody likes to talk about normal, but, and that creates this sort of weird dynamic, uh, and that carries over into the investment world as well. So, from my perspective as an economist from our sort of outlook, we do a hundred percent agree that the risk of a recession is certainly material and rising into next year.

And I think the talk on recession will grow louder as this year progresses, but before, because that doesn’t sound very positive, it might not actually be that negative for the stock market. Because again like this market has absorbed a whole bunch of negative data and a big chunk of that is our view on heightened recession risk is, this is the house view on the street or in the market right now. So that’s not a surprise to anybody. What did surprise people I think of late, and this is, you know, what’s fueled this rally in the market and I mean, you know, we published our midyear outlook at the beginning of July and said, you know, we’re pretty positive on the back year because of sort of where valuations, how much bad news priced in, how things have come down, how bond yields had came up, like, you know, and we expected inflation to roll over.

So, you know, we had a positive outlook on back half of the year, but you know, I’m sitting here seven weeks in going, that’s too fast. Like, you know, a couple days ago the S&P was down less than 10% from its all time high. So look at, you know, go back to its all time high, which was, I think in November, so, of last year, fast forward to today. And you’ve got a world that, you know, we’re running 8-9% inflation. We’ve got a Fed that clearly is gonna continue to raise interest rates. We’ve got higher bond yields. Real yields are positive. You know, we’ve got recession risk on the horizon. We have this war thing, trying to, you know, Trump’s coming back. Maybe, I don’t know. Just throw it all in there. You throw all that in there and you say, hold on.

Oh, and we’ve also got earnings that are extremely elevated, which, you know, I’m pretty sure those are gonna have to start coming down. Like whether the cost catch up or the top line slows down. You know, we’re probably due for some negative revisions on the earning side and you know, you pile all that in and you say, so we’re now down less than 10%, which as, you know, 10 percent’s a correction. So it was an inter day period, because it’s dipped back down a little bit more, but like think of it. It’s not even a, for that brief period of time, it wasn’t even a correction anymore.

So let me interject again. Again, a lot of people watching this video are, I have, a lot of blog followers. We have about 3,500 people that read my blog every week. So they’re pretty familiar with my message, but a chart that I posted recently and I assume anybody watching this video right now will be familiar with it, is I compared the last number of bear markets and not to be confused with corrections like December of 2018 and whatnot, I mean outright bears and the one commonality that bear markets have, and you can go right back to 29, it doesn’t matter, is that there’s a final capitulation. I like to call it the puke moment. You can see it on the charts. You can see it on the sentiment indicators. There were none in 29, but we can definitely look at the sentiment indicators in ’08 and ’01 and even COVID, you know, and what you see is, you know, washout, you know, VIX here and you know, optimism there. And also on the chart itself, you see this waterfall rather than a orderly selloff, you see vomiting by the market. They just capitulate, sell, just get me out. I don’t care of what, and it becomes from, at the beginning of this year, it was sell the FAANGS. They’re overdone. You know, the Facebook, Apple, Amazon, whatnot,

And it spreads. Yeah.

And then it spreads and it goes into sell everything mode. And then the final capitulation is just get me out, I don’t care. And it’s usually, it’s both a waterfall look on the chart and it’s usually pretty big, you know, 15-20% last leg down. And it’s signified by some sort, and this is my bias as a technical guy, but there’s usually some sort of a candle stick formation that signifies a washout. It could be, some of the viewers are familiar because they read my stuff, you know, a hammer formation, an engulfing formation or a series of three candles that show, you know, a reversal, so free white soldiers, whatever. I don’t care about all these fancy Japanese names they give, but it really is just a sign that okay, the market’s just thrown up, flushed and now they’re ready to move on and get well again.

But we haven’t seen that. Like June, if that was the low, I can’t even, like it was just another day, you know, on the low. It was just another day, it was whatever, a hundred points down or something. It was nothing. Right. So we haven’t seen that. Doesn’t mean it has to happen for sure. But that’s to your point, Craig, what you’re talking about is that, hmm, you know, and then we get this monster reset and everybody’s like, oh, it’s good again, you know. So, I wonder coming into Jackson Hole. What do you think about the Jackson Hole meeting and what do you think the sentiment, will it stay the same? Will it change? Like, what are your thoughts?

Well, alright, so take what one step back. And so, I agree. This has been, I want to say it’s been orderly, but I would also point out, you know, this is very interesting because you know, the global markets have lost, you know, many trillions in the stock market so far this year, if you look at sort of the global market capitalization of the world. On the bond side, it’s many more trillions. So like the wealth depression has been pretty material here and you’re right. It has been, it has been orderly, but it’s also, I’ve found very interesting, and this has gone from client events to advisors across the board. You know, if you look at the magnitude of how the markets had come down earlier this year into June, you know, people weren’t freaking out as much, which I found very interesting because I, and I couldn’t figure out, and again, you never really know the answer, but were they have, were people calm because maybe they viewed, you know, the outsized gains they enjoyed the previous year and a half as like, you know what, all right, my house isn’t worth 40% more.

And my portfolio shouldn’t be worth, you know, 25% more. It’s probably a bit of house money. So giving some of that is, you know, probably due. But it’s interesting, you know, you’re right, we haven’t seen the capitulation. But again, I would also say like a lot of historical relationships are very challenged in the last number of years and it, and I think that carries over to sentiment. I think it carries over to survey data. I mean, think about it. The consumer survey data has a consumer that is more bearish today than they were in the debts of ’08 Now think about that in the debts of ’08, people were losing their jobs, losing their homes, the financial system was let’s call it teetering. And today everybody’s got a job and gas costs too much. I’m really unhappy. Like, it’s just really weird, like the, you know, and I think it’s become very challenging a lot of historical relationships, but nonetheless, I think that’s, you know, I would just throw that in there as an additional like consideration.

Can I throw something in? I’m going to publish a blog, probably this afternoon, which is people be watching this a week later, but so, and I just posted a chart. Now, it wasn’t my research. I steal ideas from smart people like you. This one came from Larry McDonald, The Bear Traps, and basically he was showing that the consumer sentiment, the consumer confidence index. Yeah, you’re right. Like really, really people are very paranoid. Okay.?And what he was saying is, look, it hasn’t been this high since like 1980 really. And I looked at the chart a little bit differently and I said, you know, because I’m wondering out loud, Craig and I, my associate Craig, not you. Craig and I published a report recently where we suggested that there’s a possibility that the market could go in through like that 65 to 82 sideways period where the Dow couldn’t pop through 1000. During that period of time, inflation was very high.

It was up and then down and Volcker I think, you know, was in power and he made a few mistakes originally. And then he had to spike rates a lot because he realized that their soft stance wasn’t working. The market stayed sideways for like the better part of 15, 16, 17 years. Right? Inflation was there. And at that same moment, consumer sentiment was at the same level as it is at right now and it kind of stayed there. It did go down a couple, you know, it went up and down with the markets, but generally speaking, it hovered in the same level it is today. So it does, there is some history to consumer confidence index, I should say. It’s not consumer sentiments. It’s consumer confidence and crappy markets. It is not, you know, bearish but go nowhere, up and down like a toilet seat. So anyways, I just thought I’d.

Yeah, no, no, again, it’s like a fascinating worl. Going into Jackson Hole, I encourage everybody and I’m an economist, is to stop listening to the Fed. Like, I mean, why do people actually listen to what they say? You know, they’ve literally been lying the whole way for the last like eight years. You know, they lied about keeping interest rates really low and encouraged people to like load up. And then they lied about how fast they were going to go. And, you know, look at the two year yields. That really kind of tells you what the market is thinking is going happen, whether it’s the Fed and other components and, you know, it’s sort of they’ve come up. And then they came back down and stabilized. And I think that’s probably a better indication than listening to the moral suasion nuances of Fed chair, not just chairman, just Fed governors around the board, because again, they’re talking what they want to happen and how they want to alter behavior.

But, that being said, I do agree like this, and I think we are in agreement, this really does feel like a bear market rally. I don’t know if there’s a capitulation moment, but this is probably too far, too fast on some certainly good news. Like inflation did get better and inflation in the US is likely going to roll over and probably accelerate to the downside. It will take a very long time, in my opinion, to get anywhere close to where the, you know, back to the 2% level. I think we’re going to come down. I think the first number of percentage points are gonna be pretty easy and then it’s gonna get stuck in somewhere between 3, 4, 4.5. And that’s going to change the environment because again, portfolios are not designed for that. Financial plans need to be sort of tweaked a little bit, like how sensitive are you to, you know, changes of inflation and, and that environment does create, different asset classes, different leadership.

And if you think about what’s worked really well for the past 20 years, um, a lot, not saying there what’s worked in the last 20 years, isn’t gonna work in the next, you know, four or five, 10 years. Uh, but, but the playbook has got to be sort of updated for sort of this change dynamic that we’re in. So, so that’s, you know, our view, I, you know, I think recession risk is out there, but, you know, I think, uh, you know, it all comes down to, you know, maybe the portfolio gets tilted a little bit more on inflation, defensive components and, and, and more strategies to sort of mitigate. If we do get into more of a range bound market, simply going out and buying the Fang stocks seems like a poor idea, uh, for the next, you know, three or four years. And, and really that comes, goes back to, as we mentioned at the beginning, a fair bit of what I do is kind of on the portfolio construction side.

And in my mind, there’s like, there’s two components. There’s, I’ll, I’ll be, we’ve now shared what we think is kind of gonna happen in the markets. And, and I don’t think the markets are in a bad place right now because of how far they came down. I just think they’ve run too far short term. Um, but I would say that there’s sort of two components. There’s two levers that investors have that are probably, there are best levers for sort of getting to where they want to go. Um, and I will also comment listening to people talk about where they think the market’s gonna go. Isn’t one of them, uh, because there is no shortage of really smart people. Who’ve got very big views on the market. And again, that’s kind of what makes the market, but the, the two things are like proper portfolio construction and having a very thoughtful approach to how portfolios are put together.

Uh, and then the other is during times of stress avoiding making behavioral mistakes. And we do a fair bit of sort of behavioral coaching as far as, and getting into confirmation bias, why we behave the way we do and really understanding, um, that nuance, because the more you understand doesn’t make you immune, uh, but helps you navigate those periods that might, that have a higher risk of creating a bigger damage or a larger, you know, issue with your longer term plans and on the behavioral side. And I know you’re, that’s part of the reason that you rang me on this, but, uh, yeah, that’s you, and, and that’s also working like with an advisor, like that’s where actually the quality of advice comes in because, you know, you, you can sort of step back and have a conversation and check the emotions and even emotions from a different perspective can help sort of balance and mitigate some of those. So I think that’s, you know, some of the areas that we’re, we focus a fair bit in, and, and we publish a fair bit of that in our sort of market ethos type thing. So, uh, yeah, I would encourage people to sort of take a look at that and help them become better investors.

I’ll interjected again, Craig. Um, so back in the 1990s, when I was early in my career, I just started studying technical analysis. And I must say I was not a good technical analyst for much of my career, even when I was studying it because I knew what to do, but I didn’t do it. Um, and I learned valuable lessons coming into 2000 and, and one actually, because even though I had already been studying, in fact, I got my C T in 2001, and yet I got spanked on that, that crash. And the reason is because I knew what to do, but I didn’t do it cuz my emotions and that actually, uh, helped me become interested in behavioral finance and, and sentiment and contrarian investing and all that stuff. But one of the, the things that came out of that mistake, if you wanna call it that, that lesson that I learned in oh one, um, was I, I, I actually got this printed in, I put it on my wall and I it’s it’s it’s my own saying, but I’ve said it before, and that is a system will save you from yourself because ourselves are our worst enemies, right?

We are all emotional. I don’t care who you are when you see the market go down. You’re like, why didn’t I sell yesterday? When you see it go up, you go, why didn’t I buy yesterday? And, and that’s just the way we are, right? We’re human beings. So we have to have a system that says, well, here’s the rules for me to be able to buy. And here’s the rules for me to be able to sell. So this is to your point, it’s, it’s interesting. We, we are human beings and we feel the same way. We all, do you think I’m different? I’m I can remove myself. You, you, don’t the other thing that can remove you is your system that makes you remove yourself. <laugh>

Yeah. You’re I, I, I totally agree. Um, so as, as I’ve just shared what I think’s gonna happen in the market, the like the largest strategy and I, we, we call it a quantitative strategy, but we’ll say that’s close enough. Um, the, the largest strategy that we manage at sort of 700 and change, uh, million is a tactical strategy that is rules based. Like we created this back in 2011, um, and you know, launched the strategy and then partnered with purpose to, you know, went to work for purpose, launched it in 2015. And it, it is literally like a strategy that is rules based that is designed. And it’s very straightforward, is designed to sort of reduce equity exposure and added bond exposure. When the market shows signs of weakness, rolling over loss of momentum, all those, all of our fancy keywords and, you know, it’s, and it moves a lot.

Like it goes actually all the way up. It can be a hundred percent equity and we use ETFs and it can be almost down to zero equity. So it, it moves all over the place and, and can move very quickly. And it’s really designed. We made it so that a, an, an advisor or an investor can plug that onto the side of their portfolio and say, you know what? I’m not very good myself at being tactical and trying to read all the T leaves and making those tactical shifts in my portfolio, I can attach this. That’s a rules based strategy that will sort of give my portfolio a bit of a tactical tilt, more bit more towards equities and good times, bit more towards bonds and bad times. Uh, and then, but it’ll do it without emotion. And, and I, 100% agree. Uh, you know, we’ve been managing this since 2011 and from an emotional perspective, not every trade, but very many of the trades when it’s giving a signal and we’re moving it and we’re reducing equity, or we’re adding equity 100% does not feel like the right thing to do.

And you know, whether it was, you know, the market was already down, you know, 10% in 2020, and we’re selling like our last bit of equity. And we’re like, we kind of missed it on part. I mean, we, we had sold some earlier, but like, we’re really, we wanna sell the last little bit now, like the market’s already down 10%. And then of course it goes down, you know, 20, 25, 30%. Um, and then even on the other side, coming out of that, coming out of, you know, the past that bear market past corrections, it’s like, it doesn’t feel like it’s over. It started, you know, we started adding to equity at the end of March in 2020, and it’s, you know, they still, we still didn’t know if we could walk safely around outside, but because it’s rules based, it doesn’t care about the narrative. It doesn’t care about the news. It doesn’t care about what, you know, the feds saying or the economic data it’s reacting to the market. It just, it provides a different, and this is what your technical approach does as well. It provides a very different investment, uh, parameter style into a portfolio. And that can actually add a lot of value on, on the diversification side. So I, I totally agree that the rules based is

So, so was it Dren Meyer? And maybe I say his name wrong, Stan Dren. Was it Dren, Miller, Dren, whatever his last name is. I quote him a lot. I should know. Cause, but it spelt his name out enough times. Um, but I think it was him that said buying and selling. Right. Never feels good.

Yeah. That’s it’s right.

Yeah. So it can’t feel good. Right. So yeah. You know, it’s, I was actually just point in,

In, investing’s like going to the gym, if it doesn’t hurt a little, then you’re not doing it right.

You got it. That’s right. Yeah. Yeah, absolutely. So, uh, one other point and I, you know, my, my readers know this from my books, actually, I’m gonna send you my, my latest book and you’ll see the story of 2001, how it changed my life, but it really 2001 was a great thing for me because it made me follow rules. And the interesting thing that came out of 2001 was by 2008, like we literally had our best performance in a bear market. And I, I talked to other technical analysts and I won’t mention names. One’s very well known in Canada who just lost a ton of money during the oh 8 0 9 correction crash, really. And they weren’t following their own rules, even though they’re CMT in the whole bit. Right. Uh, and, and I’m grateful that I lived through the oh one to actually force myself to, oh, look, this moving average broken.

I gotta get out lower, high, lower, low, gotta get out some more and just stepping out. I didn’t know the top. I, you know, so this is what we’re talking about is momentum trading using, using rules, whatever those rules are. And it was a, a long time ago, I went to a CSDA conference and I don’t remember the name of the trader, but he was some very quantitative trader. And he said, did, did you know that if you’re gonna be a trader and you don’t have a system that you follow, then even flipping a coin. And if it’s heads, you go along that day, and if it’s tails, you go short that day, he goes, did you know that over time, that’s gonna work better than following your emotions because cuz your emotions are gonna, at least the head, the, the, the flipping the coin is completely random, 50, 50 chance. Whereas he goes, it’s almost, um, absolute that your emotions will steer you the wrong way. And I remember that lesson too. So this is

What we’re talking. Yeah. Our, our, our wiring is not built. Like the human wiring is just not built for investing. Um, and that’s what makes it more challenging. But again, there’s, uh, everything keeps getting better as far as the approach. So, so yeah, that’s, uh, you know, I like, I don’t wanna be all doom and gloom. Like I, I, I do think this, this sort of bear Mar I think this is a bear market rally. Um, I think there’s probably some negative ions out there that are, we’re gonna have to sort of the market’s gonna have to wrestle through. And, and I think this bounce has been a bit too aggressive, but, uh, and, and I do think the, the talk of recession will grow louder this year. So I think we are gonna have, I think, a positive back half of the year, but I still think it’s gonna be pretty choppy and not smooth sailing. Um, and up to, up to the rate, it’s not gonna be that either, but again, I could be wrong, which is why our largest fund follows algo quant rules. And if the market’s gonna go on a rip, we’re gonna go along with it. So it’s, uh,

Everybody’s got an opinion. So the

I’m diversified because how we manage money there versus, you know, how we talk. So it all, it all works out.

Awesome. Well, Craig, listen, this is, uh, this has been really eye opening and, and very, you know, I love your perspective. I love the fact that you incorporate, uh, your deep background and fundamentals into your models on top of the type of stuff that I do as a, uh, as a behavioral technical guy. So, um, you know, I encourage anybody watching the video, you know, take a look at the purpose ETFs, if you’re a do it yourself investor, it’s probably, um, the models that Craiger is running are, are probably something worth looking at. And, uh, again, I appreciate you for coming on the show and we’ll continue to talk back and forth here and there. And, uh, maybe we’ll have another conversation and in the future.



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