This publication recently caught up with a firm that makes a virtue of taking a very specific approach to investments - it is all about tracking cycles.
Volatile markets, as seen with wrenching falls to the oil price and China’s mainland stock market, are a test of investment philosophies and their limitations.
One distinctive approach to money management comes from the Charles Nenner Research Center, a New York-based firm. The organization uses proprietary and price target algorithms to forecast short-, medium- and long-term moves in stocks, bonds and currencies.
The Center’s investment clients include family offices, hedge funds and individuals. The firm's approach centers on the notion that repeating patterns, such as equidistant tops in any data series, determine price and timings moves across the spectrum of global markets.
This publication has spoken to this organization several times in recent years (see here), and took the chance to catch up with again. We spoke to David Gurwitz, managing director.
There has been, clearly, a great deal of volatility, and not just in China. How would you describe market behavior at present in terms of how it compares/contrasts with previous episodes?
This question relates to stocks. We were able to accurately predict a flat year overall for the Dow and S&P, and the Q1 down move. We continue to be negative for stocks for the first part of the year and more positive in the second part. Therefore, volatility, which generally goes opposite market direction, has become an area of active trading (VIX, etc) and is part of what we cover in our three times-a-week morning update.
What are the main forecasts that you see with your cycles?
Stocks as indicated; in bonds, we see strength with the US 30 Year reaching 170 before rates start to rise for many years. This follows a 60-year cycle with interest rates high in the 1980s, low in the 1950s, high in the 192s, etc. Currencies - we have predicted dollar strength for the past several years, and are looking for a top this year.
When you look at how much of the mainstream economics/investment sector is positioned, where do you see opportunity?
By not following the "news" and being influenced by it. Cycles, breaks in quarterly trend lines in currencies, gold, crude oil - these have been quite accurate tools that we consider to be more fundamental than so-called fundamentals. Thinking beyond the 200-day moving average which approximates a year of trading, and substituting multi-year and multi-decade analyses, provides realistic views on human behavior expressed in the various decisions of prices in asset classes.
Where do you think people are getting things wrong?
War cycles - There has been a major war in the second decade of every century for the last 20 centuries. Dr Nenner said this several years ago, that these cycles have already started. We leave to your readers to decide whether world events support our thesis.
There appears to be a lot of pessimism/worry at the moment around China, and we have also seen big falls in energy prices. How does your cycle analysis inform you about what to make of all this?
First, regarding crude oil, we called two major tops. First, when crude reached 147 over five years ago, Dr Nenner went on CNBC and said we would see deflation. Six months later, crude was under 50.
Over a year ago, after being around 97 for year, we said that crude was topping. We did not know what the news was. Now, we feel, unlike most observers, that crude will be much higher by year-end, based on cycles and targets.
We prefer to let the other commentators who did not call these tops provide reasons. We are not that smart. Second, people generally don't realize that China was once the second biggest world economy in 1900. They also don't remember that the Dow was around 1000 in 1966 and remained there. For 16 years until 1982 - Therefore, rising since then 17 times does not guarantee a continuation, even if investors claim that technology has changed everything including trend analysis.