Why Today's Market Is Unique But Signals a Coming Recession (w/ Tony Greer and Nick Sofocleous)
TONY GREER: I was hesitant to bring you out here on camera because I like to have my closest confidant in the stock market to myself, or at least as to myself since I can get you. Nick, I want to thank you. You're one of the guys that I don't make a major move in my portfolio unless I check with Nick. I don't put on a size position unless I have spoken with Nick in the last 24 hours. And that has to do with your experience in the markets. I want to thank you for coming down today and sharing this with us, man. NICK SOFOCLEOUS: Well, thanks very much for having me. It's a pleasure to be here. TONY GREER: Yeah. So, let's start right at the beginning. August of 1987, when you got your start in the markets. Take it away from there, man. The S&P at 340. Gold under 500. And US 10 Year Yields at 9%. NICK SOFOCLEOUS: So, yeah, fun times in in London. So, teenager, coming out of school. TONY GREER: How old? NICK SOFOCLEOUS: 17. TONY GREER: 17, right onto a desk. NICK SOFOCLEOUS: Yeah, well, not quite but close. But as close as you can get. And it wasn't on a desk and you weren't on the phones because there weren't enough phones for everybody. You weren't in front of screens, because there weren't enough screens for everybody. So, you had to work your way up. And that was post-Big Bang in London. There was some real jobs and real people in London in those mid80s. TONY GREER: And you get started right in the buy side, correct? NICK SOFOCLEOUS: I did get started on the buy side. I was very lucky. And there was some people that decided to take a bit of a punt from someone that was fairly good with numbers. That happened to be me. Yeah, it was a really fun time. The 25th of August 1987 was peak market, pre-crash of October '87. I knew absolutely nothing. And everybody around me was busy. And they were busy learning. They were busy trading, they were busy assets-allocating. And then after August of '87, in October of '87, we came up with a bit of a crash. And those days were amazing. Because when you know nothing, you learn everything. So, through the days in London, there was the hurricanes in '87. Lloyds of London was basically was touching go whether they were going to be around, they had massive losses, the crash of '87 in the US stock market. And there was one particular day, I remember it. I turned around to a colleague of mine, really senior, great, great asset manager. And I turned at him and said, so, yesterday we were buying, but today we're not. Can you explain that? And he politely asked me to sit down and mind my own business for a minute. TONY GREER: Stay out of the way for a bit. NICK SOFOCLEOUS: That's right. That was right. So, it was '87. TONY GREER: So now, you're in the middle of the firing lines, there is a market crash that takes the S&P down 22% or so and we probably wallowed around those levels for the next year or two before I guess the S&P broke out again in 1990. But what stuck with you from back then? What lessons did you pull away from being in such a volatile market with such little education at the time? Because I know all of that gets flipped on its head to where we are today. NICK SOFOCLEOUS: Right. That's really interesting. What do you learn from '87? You learn from really smart people in '87 to keep calm that if you can keep your head while all about are losing theirs, you're going to be just fine. And that's really difficult to do in high volatility environments. But that's what I learned from '87. TONY GREER: That's a very good point. So, from there, you started making observations on markets, taking it very seriously and picking up some tools into your toolkit as you grow as a trader. So, into the early '90s, we kicked the decade off with a war in the Gulf, we start moving into the very, very beginning of the internet boom, the infancy stages, I would say in the early '90s, '92, '93. Tell me about your experience on the buy side as a young, now, someone in your early 20s going into that experience. NICK SOFOCLEOUS: So, 1990, you've got Gulf War I. And the experience from '87 takes you into Gulf War I. Because when we started to rise in volatility in 1990, you could turn around today and say I've seen worse. So, all of a sudden, you weren't panicking anywhere near as much as you were in '87. Fast forward into now, you're catching a bit of a wave of a bull market from '91 through two, three and into '94. So, now you're into '94. And you start getting an IPO calendar that is taking flight. So, every day, every week, you've got these red herrings coming through the post, and you're having to read these red herrings, there's no email, and you're placing orders to buy these IPOs. And every day, there's more IPOs. Now, history has told you if you could sit through '87, through 1990 and '91, you were in a bonanza situation in '94 and into '95. Fast forward, you start getting into the Fed cheap money, Greenspan doing everything that he can do to calm everybody. Then Greenspan turns around and says irrational exuberance. And you think the bubble is burst? Far from it. TONY GREER: Yeah, exactly. So, we keep going. NICK SOFOCLEOUS: And we keep going. We're into 97- TONY GREER: Amazon is delivering everything to your house already. Starting with books and CDs, but we're getting there. NICK SOFOCLEOUS: Right. But then the real trades are, if you can hang on to the bull market in the US, your real trades are being driven by currencies and being driven by rates. So, with Russia having its troubles in '97, the US didn't care, as in the US stock market really didn't care. Fast forward, '98 and LTCM blows up. So, the lesson of '97 into '98 is as much as you think it matters in Russia, it doesn't matter until it's on your doorstep. And your doorstep was LTCM in '98, which was another episode of if you can keep your head while all about are losing theirs, you were in great shape. Because then you rode late '98 into '99 into early 2000s. TONY GREER: So now, were you actively- do you recall yourself thinking about your first days as a trader and the stock market sort of crashing back then, back in October of '87? Are you worrying about this the whole time? Are you seizing your opportunities on all the tips and stuff? NICK SOFOCLEOUS: It's so funny you should say that, that's so true. In your first experiences, you always think they're going to be replicated very soon. And it's good to have that as a mental record. But it's fatal for being able to trade correctly, because you miss your opportunities. And that's when you try to gauge when you have opportunities. Are you in a bull cycle? Are you in a bear cycle? Are asset prices going up? Are asset prices basically going down? By the way, asset prices going down might mean asset prices are just flat, which is what we have now. TONY GREER: So, the markets are rallying ferociously into '98, '99, toward the dot-com bubble, which we haven't gotten to yet. But in 1999, I know you made a tremendous life decision to change time zones, life centers, and everything. Tell me what was that about? How did you pick yourself up from being so entrenched in the markets in London and saying, okay, we're going overseas? NICK SOFOCLEOUS: Yeah, that's interesting. So, early '99, I get a call from the company in New York, Sanford Bernstein. And they basically asked me, do you want an adventure, and I thought to myself, I've traded US now for '99- probably eight years. I've been observant of the market now for 12. If you want to be in the lion's den for US equity trading, you have to be in New York. So, I said, I'd love to be part of that adventure, they were kind enough to say we'd love to have you. And off I came from London to New York. Now, the interesting thing about moving countries- and a lot of your viewers will see this, a lot of people will understand what I'm saying is it's damn difficult. TONY GREER: I can imagine. NICK SOFOCLEOUS: It's damn difficult. So, the people that you thought that you knew well in a city of any time, could be 24 million people, you can note that 12 million here, 24 in the tri-state area, you actually don't know anyone, it can be the loneliest experience. So, what that teaches you is take everything one step at a time, don't cross bridges you don't need to cross until you're asked to cross them. Because there's too much to take on board. It's a big city, you're being asked to be a professional in a professional firm, in a professional setting, where quite frankly, you're the underdog. And you have to understand you're the underdog. And you have to fight again and again, not only with the market, but with the people that are in New York, it's you- you almost feel it's you versus the world. But you can't take on the world at once, you have to do it one step at a time. It was a huge life lesson. It's one step at a time. Trying to do anything well take steps. And that was a huge lesson for me. TONY GREER: Well, I would imagine it was a huge challenge, both shifting sides of the pond, but you're also shifting sides of the business, from the buy side to the sell side. You're going from making decisions that affect the portfolio to make sure that you're making money, or at least protecting yourself to now, establishing client relationships, figuring out how to protect your clients, figuring out how to educate them. Were you ready to go on the sell side with your sort of bag of market tricks? Or was it very much a process of saying, oh, this is a totally different job now, I've got to really learn everything from scratch. What was it for you? NICK SOFOCLEOUS: No, it wasn't relearn everything. What you did is you took your information that you've gathered in previous years, you took your personal stats that you looked at on your screens that you made yourself, because they worked for you in how you looked at things, and then you applied it to the job at hand. And what you tried to do in those days, and it's the same for today, is help. You try to help. You try to use that information to help so that other people could maybe be successful using your tools. They may not find those tools to be helpful at all. But invariably, they did. And invariably, they became as successful as they wanted to be. And you were part of that success, which was tremendous. TONY GREER: Yes, I know. I have some remembrances of that from being on the sell side on a sort of later date. But it was very rewarding to be able to say, look, this is what I've learned in the markets, you guys have got to look at this and to point out a blind spot to somebody and have them say, oh, that was really helpful. You have got a seemingly endless number of market tools that you use to look at to formulate your views. When you and I speak on the phone, there's a sort of recurrence of let's look at this again. And let's look at this again. And where are we in cyclical versus non-cyclical? And what just happened in the tick index? And what has gone on with green to red days or red to green days? Can you tell me how that became part of your vernacular in any way? NICK SOFOCLEOUS: Yeah. It's amazing, really. Because when you're in a bull market, when your growths are going bottom left, top right. And you've missed the first move. How do you get in? You know you're in a bull market, how do you get in? So, I've tried to figure out how there were these consecutive down days. And this all took me- I don't know- probably took me two or three years to understand that when you had consecutive down days, sometimes at the end of that, it was the right time to buy, but nobody could tell me why it was the right time to buy. Why would they have these consecutive down days? Why were there three or four or five? Or in the crash, there was eight? Or nine? Why would they be this amount? And what was the difference between why there was three, or five? So, if I bought on the end day of the third consecutive down day, why did it go down on day four? Was I wrong on day three? If I was wrong, day three, why was I wrong on day three? So, I needed something that gave me an indicator of that's a waterfall, that's everybody selling at the same time, so that I could then go, I will take the other side to that trade, because I know that that usually marks somewhere near the zenith of a move. So, I found this index, the tick index, and it is the amount of stocks that have just moved higher than the last price versus lower than the last price. And then I had to find a number that equated to the bottom of the waterfall. TONY GREER: When was the selling the most intense? NICK SOFOCLEOUS: Right. Whatever was holding the market up, when did that go? When did the floor fall out? And if I was bullish, I wanted to catch the bottom of the waterfall. I didn't want to catch everything going down. That's a falling knife. Neither did I want to wait to see if it worked out sometime later. Because then, all of a sudden, you don't get that wonderful V and your great entry points. TONY GREER: At the bottom, they're near the bottom. NICK SOFOCLEOUS: That's right. So, the tick index was something that I looked at, and when I might be able to use that. And then it was a case of what's the number? What's the negative number of that? TONY GREER: How intense of a reading do you have to get on the downside or the upside, obviously, but we're talking about getting in on a waterfall. So, I'm assuming it's down. NICK SOFOCLEOUS: Absolutely right. That took me another three years to figure out because I was using 1000, negative thousand. And then I would find that there was too many days that you'd had negative 1000. And it wasn't timing anything. TONY GREER: They weren't determinable? NICK SOFOCLEOUS: No. It was just noise. So, then I went to 1100. And then I had to wait for the days to see if 1100 worked. 1100 didn't work. So, then I went to negative 1200 going look, at some point, I'm going to get the number. 1200 didn't work. And then I had to wait for another set of days. And by the way, you only get three consecutive down days about 15 times a year. You only get four, therefore, eight, five, six and you're at seven, eight, nine. You just read, you don't see a lot of. So, always having to wait to prove whether this was right, or this was wrong. So, I came up with this number 1300. And I remember the first time it worked and within a bull market. And as soon as it worked and as soon as we bounced, a light bulb went off. It was an utter light bulb moment. And then it had to be proven. And I was in a bull market. So, the cardsTONY GREER: You're getting the chances to prove it. NICK SOFOCLEOUS: The cards were stacked in my favor. And I knew that, so that you did want to buy. So, you had the most important function of I want to be a buyer, now, was a function of trying to find where I could get as close to an entry point as I wouldn't get stopped out. I found this negative 1300. I also had a rule of it had to be three consecutive down days. NowTONY GREER: Discipline is being applied. That's all. NICK SOFOCLEOUS: That's what I'm doing. There's going to be days when you have negative 1300 ticks and you go, what just happened? But that's not an entry point. That's a place to ask a question. I ended up finding this negative 1300 tick on at least the third consecutive down day. And during a bull market, it's bulletproof. Now subsequently, I've learned that something gets triggered within the market to pull some either strategies that otherwise would be applied, they're not allowed to be applied. Because you see the whole screen go slower. It's like a go slow market as soon as you hit that negative 1300 tick in a bull market. The last 18 months, we've seen this. On October last year, we saw that that negative 1300 tick was applied, was triggered. And then we had negative 1400. TONY GREER: That's where we had several days below that. Reading the mood, eight or 10. NICK SOFOCLEOUS: Now, this is where it gets interesting. You say, well, that rule applies. Surely. Yes, in a bull market. Totally. So, why did it break? Well, because we broke the market in October, and it manifested in December. That was brilliant information from the first week of October for me. And I looked at it and went, we got a broken market and discussed it with you, discussed it with friends, discussed it with other market participants. And then we get to Christmas Eve. And you go, wait a minute, we're doing something very strange here. What all we're doing is going down, going down, there's going to be a divergence and sure is X is X, Christmas Eve boxing day we got that divergence. And you knew at that point, with that divergence, with those amount of panics that something somewhere wasn't right. TONY GREER: Don't fade the Fed, immediately jumped in your face when Steven Mnuchin reached out to six banks. We don't want to fight the Fed after a 500-point slide either. NICK SOFOCLEOUS: If you learn anything from 2008, when the Fed are involved in walking up the steps of the Capitol, you owe phone calls to liquidity providers. Yeah, you don't want to fight back. And, look, we all do because we all go, this is a bigger problem. But it's not a bigger problem until it gets to be a bigger problem. TONY GREER: That's what's been so interesting in why I wanted to get you in here approximately 10 years since the day I met you, roughly. Now, if we look at that, that has been over the recent 10 Year bull market, the recent 10 Year recovery. But what was so amazing about calling Nick up on the phone when the market would dip, I would call you up and be like, is this the one or what? And you would give me the parameters. No, we haven't got the 13. And then you'd say you call me back after two or three down days, we'd get the tick. And you'd be like that was it. That's what we were looking for. That was it right there with 100% certainty. And it's because you tried the theory over the last 20 years. And because you knew where we were, but I think mainly because you had identified the type of bull market that we were in, which was going to be at that point from '09 to call it '15 was essentially a Fed QE-driven market. And you knew we were in a bull market. So, you got the tick readings. And every time I spoke to you, it was like, yep, this is the reading right here, boom, let's go, we're going back up. And to guys like me, who are looking and seeing things break down below moving averages, and you're starting to see oscillators just starting to curl over and things like that. I'm a momentum guy so I'm looking for this to continue. And you saved me about 100 times in the last 10 years, saying, nah, this isn't the one because we're still within the context of this bull market. And that was a really educational experience for me. NICK SOFOCLEOUS: So, we've had plenty of discussions. But when people say to me, the bull market started on March 9 th, 2009, I'm like did it really? Okay, prices went- that was the closing the low of the S&P. Okay. But does that mean that 1972 was the start of the bull market in the '70s? I don't know anybody that lived in the '70s that thought they were living in an equity bull market bearing in mind that Baron's had the end of equities in 1982. Because nobody was in a bull market in the '70s when it came to equities, you're in a commodity bull market. So, fast forward to 2009, I can apply the same action from March 2009 as 1972 when you read some of the articles written in 1972. And you say, well, was it really the start of the bull market? And my answer to that is I don't think it was. So, then someone will ask, well, when was the start of the bull market? And I will say it's the fourth of October 2011. TONY GREER: Why that date? NICK SOFOCLEOUS: So, we've gone through 2010, 2011 QE forever. We just had the debt downgrade in the July into the August. So, August, I think was August 3 rd , 4th, it was the Friday that we had the debt downgrade. And none of us knew what was going to happen. None of us knew what was going to happen to Treasuries. Now, Treasuries became bid only. And they just got downgraded. Amazing. But you do have something then that's on your doorstep again. It's LTCM. So, you go back and take your LTCM playbook and go, what happened then? It's now one of those debt. We didn't care of a debt downgrade in European sovereigns. Didn't matter to us. We were like, oh, that's a shame. Doesn't matter. It's not on our doorstep. Now, it's on our doorstep. What do we do? LTCM was on our doorstep. What did we do? And then you look for times when you start discounting bad news, which is what you said earlier about the trade from red to green. You get a really bad jobs number on the fourth of October 2011. It was a stinker. And we went down to 1075 intraday, and it was awful. And everybody threw their toys out the pram, and then we started to rally. And then your ears perk up and your eyes become glued to the screens. And all of a sudden, you're green, at the end of the day, on the worst non-pharm payroll print, you can imagine. TONY GREER: Right, that's the signal. NICK SOFOCLEOUS: At that point you go, we've just discounted bad news. TONY GREER: That's it. NICK SOFOCLEOUS: That's it. TONY GREER: That's your ego moment. NICK SOFOCLEOUS: The cycle, at that point, for me, was the yield curve. Because it had done everything you should have done. TONY GREER: Flat like a pancake. NICK SOFOCLEOUS: Well, it had steepened all the way from 2009, all the way into 2011. You'd steepened it dramatically. You'd cut rates, you'd had QE forever, that was still ongoing, rates were at zero. And then all of a sudden, you had 225 basis points of curve. And if you want to look at anything, 225 basis points of curve, somebody is going to get reflated. TONY GREER: And that's what happened. NICK SOFOCLEOUS: And that's what happened. And so, all of a sudden, if you can reflate your financial system, which is they were quite successful in doing it, whether we like it or whether we don't, they were quite successful in doing it. And then you had the curves on your side, financial systems on your side, Fed's on your side, who are you fighting against? And invariably, you're fighting against yourself. TONY GREER: We know that answer. Because it's very difficult to pay a new high, it's very difficult. NICK SOFOCLEOUS: It's very difficult. Until you do, and you get rewarded for it. And you go you know what? Nicely done. Because nobody gets the first trade consistently. You can go like, you know what? I just missed that. I've missed that one. But if I'm thinking about this correctly, I'm going to be okay getting involved. TONY GREER: There's the lesson that you taught me ultimately, is that you don't have to be afraid if you miss the first five minutes of a bull market, correct? You don't have to be afraid because it's going to have nine innings and there are going to be nine innings that you can make money in. And if we play it all right and we stick to our guidelines and stick to our discipline, it's okay to miss the first five. That's why when all these other markets have sprung to life, like crypto and cannabis, I just got very patient. And we're able to say, all right, we're going to get a chance to get in here. We'll get a chance, we're going to wait for everybody to throw the towel in. NICK SOFOCLEOUS: Applying all of those lessons. TONY GREER: Yeah. It's just deciding are going to be bullish crypto and cannabis, or we're going to be bearish? And we decided to be bullish, we applied those lessons and have had a number of opportunities. So, that's why I feel like that is the most valuable trading lesson that you've taught me. And I've been in off for 10 years about it. So, but like you said, things started to change October last year into December. Let's get up to speed now and talk about where the markets are versus where they are in the Fed. NICK SOFOCLEOUS: So, there's a couple of things that in the last 18 months, that you can just look at, and it could be price appreciation, the global growth momentum going into the start of 2018. And people forget how great January 2018 was, we were almost parabolic. Almost parabolic. And at that point, I was like, oh, these are usually the ends of moves not start of moves. This is when everybody's in the same boat and on the same side of the boat. TONY GREER: Right. And that can continue for a period but still worth making note over. NICK SOFOCLEOUS: Yeah. And then for some reason, still tricky to discern. We hit a bit of a speed bump in that February, we blew up the VIX ETN. And then we rebounded. And then through the summer, the broader market was rebounding. But for me, we weren't being led by those wonderful cyclicals. In a great bull market, you want to be led by the cyclicals. Those are the high growth earners where you are going to be well rewarded. TONY GREER: That gives you confidence that there's going to be more to follow. NICK SOFOCLEOUS: That's absolutely right. So, we started being led by some safer havens. The more that we were going up, the more we were being led by the safer havens. And the more cyclicals were being left in the dust. So, all of a sudden, the hairs on the back of your neck go up. And you go, wait a minute, what's happening? And you couldn't really figure it out. Couldn't really figure it out. The Fed were raising rates, the numbers were ok. But if your GDP numbers are okay and your growth numbers are okay and your PMIs are okay, why aren't the cyclicals running? Fast forward into September, and we start dislocating some currencies, and we start dislocating some bond markets because they're pricing for cuts, because they see something around the globe that isn't global growth. So, all of a suddenTONY GREER: First time? NICK SOFOCLEOUS: For first time in eight years. First time in eight years, they don't see global growth. They don't see global growth, bond market starts to sniff out a Fed cut. And yet, the Fed are like, no, we're going to raise. Then we get a very decent PMI in August, September- probably the first week of September. And the bond market dislocates. 10s go from 280 up through 3%. And quickly go up to 320. Now, there's no problem with having 10 Year paper trading from 280 to 320. If I told you that was over the next 25 years, you'd be like it's not a problem. Going 280 from 320 in three weeks, yeah, you have a velocity issue. You're going to have a problem somewhere with volatility. And you're going to have a problem somewhere with equities. And that's what we found in October, all of a sudden, something broke in October. No one's entirely sure what it was. But we could see it. TONY GREER: Yep. We had the trigger of Khashoggi disappearing and oil coming apart. That was one slight trigger that started. NICK SOFOCLEOUS: Entirely plausible. TONY GREER: Yeah. Just an idea. Maybe it wasn't, maybe it was, who knows, but the timing is similar. NICK SOFOCLEOUS: It's all part of the tapestry. It just stitch. And you will have your triggers that are on your screens and I will have my triggers that are on my screens. And all of a sudden, we might come to the same conclusion. But looking at different things. And when that happens you've got something. It's always the same. Somebody comes from the left, you come from the right, you come to the same conclusion. And you go, can you talk me through how you got there? And I'll talk you through how I got there. And that's where we find ourselves. TONY GREER: That's where we find ourselves. And we find ourselves I think, in an increasingly uncertain position due to the President. For the first time, we've got a White House that is barking like a dog at the Fed Chairman, floating stories about trying to decide whether or not they can legally remove the Fed Chairman. It's a new paradigm, and it has become the focus of the markets. How's the White House and the Fed are interacting? Are they getting along? Is Powell going to listen? Is Trump going to win? What's going to happen? Clearly, the markets have won over a lot of fans into thinking that the President is really going to have a serious control over the Fed. We just went from pricing in four rate hikes to pricing in three rate cuts in a year. And I feel like the Fed is compromised now. But what do you think? NICK SOFOCLEOUS: It's entirely plausible. I think that this is an environment where none of us have seen. I think it's an environment where history doesn't teach us too much. And you really don't want to jump the gun and say, the current environment reminds you of early '70s with Nixon and his then Fed chair. I'm not entirely sure that I'm in that camp. I think- and this is, again, this is new for everybody. I do believe that the Fed don't have a choice in cutting rates. I think that the market was ahead of itself last September, got caught offside, the dark plots of the Fed just came down by 50 basis points for the end of 2020. These are facts, these are- we know. TONY GREER: Known knowns. NICK SOFOCLEOUS: I think when you're dealing with the White House, you have to take the information, try to distill what your screens are reacting to. And once you are able to distill that, which is very difficult, and none of us know the answers because this is a different White House. It's a different Fed chair. This is not Janet Yellen. It's not Alan Greenspan. It's not Ben Bernanke. You were able to understand the environment that they were working in. This environment is different. The White House has made this environment a little bit different. Powell is a different man entirely. I did have a bit of an issue with how easy it looks to him in late 2018. I was like, it's never that easy. If it was that easy, this would have been done already. TONY GREER: He was a hot beaming with confidence. NICK SOFOCLEOUS: Seemed it. TONY GREER: And they're coming, we're going to raise rates, we're going to do what the country deserves kind of thing. NICK SOFOCLEOUS: We're on autopilot. I don't know about you, but autopilot- not the best of strategies when you're the Fed chair. We've basically got a Fed that is going to cut rates. If they don't, there will be a dislocation shock. And that is again on our doorstep. I think the market's pricing at 160 in end of 2020. And at the moment, the Fed is significantly above that. To tank. So, you've got a real issue. 10 Year papers trading at what, two or three today? TONY GREER: Give or take. NICK SOFOCLEOUS: Right. The curve's at 25 basis points, give or take. And there's no doubt in my mind that that curve has to steepen. There's no doubt in my mind. And the trouble with a bull steepening curve is you can count the days 'til you have a dislocating equity market. TONY GREER: Really? You think so? NICK SOFOCLEOUS: Yeah. TONY GREER: Or do you think we're going to have strong data that comes out? NICK SOFOCLEOUS: No, I think we're going to have- Okay, this is that's really interesting, strong data, as opposed to what? Weak data? TONY GREER: Yeah, I'm just thinking strong data potentially dislocating the bond market lower. NICK SOFOCLEOUS: Right. So, manufacturing data right now is appalling. It's terrible. Consumer data is very good. The unemployment data is very good. Consumer confidence is very good. The homebuilders index seems to be fine. New Home Sales seem to be fine. And as do with the consumer, she was not massively levered. The balance sheets look pretty fine. That's terrific. And then you look at the manufacturing data, and you go, this is tricky. This looks really bad. It looks a bit like 2050 when we had the earnings recession driven by energy of which you know only too well. So, then you end up with, so what data am I looking at? Am I looking at the manufacturing data? Or am I looking at the consumer data? Because the consumer data is okay, but the manufacturing data stinks. TONY GREER: How do we work out of it? NICK SOFOCLEOUS: How do we work out of it? I don't know, I really don't know. You don't ever want bad things to happen. Nobody wakes up in the morning and go, you know what? I really hope today bad things are going to happen. But at this point, we're going to have to manage our way through softer manufacturing data and okay consumer data. And what you don't want to see is more of the White House, more of China, more of the tariff, more of the trade talks, more of that uptick in rhetoric affecting the consumer data, because it's already affected the manufacturing data. Now, it might not only be that there might be several other estimates. TONY GREER: Nobody. Those are fair observations. NICK SOFOCLEOUS: This is where it triggers. So, does a weaker manufacturing data trigger some weaker consumer data? Or does the consumer data, being very good, help to mitigate and pull up some of the manufacturing data? And I don't have an answer to that. And I'm trying to find those answers every day, I'm trying to find has the market sniffed out that the consumer data is going to help the manufacturing data? At the moment, all of those cyclical cross currencies are not saying that's the case. TONY GREER: Right, that's true. NICK SOFOCLEOUS: The Chinese data, the base metals are not saying that's the case. Crypto, for interests of knowledge is not saying that is the case. You want copper to trade well. You want China to trade well, but China goes up because they stimulate. China goes up because they're issuing credit. And you go, okay, I understand that you need to do that. But that's really not a fully-fledged bull market. Then you go back to, okay, what did 2009 teach me? It taught me it wasn't a fully-fledged bull market. What did 2007 teach me? Well, it taught you that we were all offside all the way up into basically October of 2007. Because we were like, there is trouble. But the market kept going up. Now, what happened in 2008 is you could look at 2007 and say, I told you so. Well, great. Good for you. How do you trade it? You have to be really careful. If you want to trade that on the long side, you know that your trades are shallow. If you want to trade it on the short side, now, it's going to cost you money. Because every now and again, you're going to get a short squeeze. And that is going to hurt. And I do find that right now in 2019. Just fast forward into 2019. That's where we're at. Those short squeezes can be brutal. And the leadership is less than stellar. TONY GREER: Panic buying into highs on steep high magnitude game days, likeNICK SOFOCLEOUS: Right, and the one great sector right now is software. There's data galore saying people are buying software for productivity gains. Terrific. But at some point, you start pricing that as well today, little bit weaker on software. A lot of people asking questions, no normal answers. What did the market do? Market really didn't do too much. It was a few ups, a few downs. Oil was okay. Gold was at 1420. I know what caught my eye. A little bit bad on software, a little bit better in gold and precious metals. TONY GREER: Right. Well, let's speak to that right now. Gold's clearly staging a potential breakout. Technically speaking, we haven't been above 1400 in about three or four years. It's obviously a direct reaction, in my opinion, to the negative yield pool starting to expand again into the 12 and 13 trillion area. What are your thoughts on gold? Do you think gold has legs this time or? NICK SOFOCLEOUS: So, I was lucky. Like you, I played the precious metal trade from 2009 throughactually, into 2011 when I found that equities were going to be a little bit better for me. Thankfully, you don't have to catch the bottom. You don't have to trade the top. But there's an awful lot of things that look similar in regards to why you would own precious metals, you've got interest rates that are going lower. You got manufacturing that's down. Your only numbers that aren't deteriorating are in the consumer. Well, gold doesn't care about the consumer. Gold is, for want of a better word, a store of value. You might not like that value and you might not agree with what that value is, you might think that value is lower. That's okay. But it's still a store of value to many. For me, it's a ticker symbol on the screen. And if it trades well, I can get my head around why it's trading well, that's fine. That's fine. I don't have to marry it. But I do have to own it. There's always a bull market somewhere. You just need to be able to see it, and you need to be able to play it. TONY GREER: That is a great point. That's a great point. And with 30 years, or 30 years plus of your history, I have a lot of respect for you saying coming into the situation right now and saying totally different, something we haven't seen before. That's to me a sign that your eyes are wide open, and that this is a very different paradigm. And then you're not willing to just go back and compare it to something that happened 20 or 30 years ago, because to me, that was a scary comparisons as well, because the world is so much different. NICK SOFOCLEOUS: I would be very interested to have been around during something like the Cuban Missile Crisis. Where every day you woke up to a headline going, we're three minutes away from pressing big red buttons. Right, good grief. That and all we can do is read about those occasions. But it does seem to me as though as much as we think this is a really bad situation, it's 2019, it's not the early '60s. We're not quite there. So, as much as people say, this is terrible. This is a disaster for the country. I think some of those comments need to be tampered slightly. TONY GREER: Yeah, yeah, that makes sense. What's amazing is that they would have called Trump as a tremendous war hawk as he entered into office. And it seemed like he's been at least, maybe not in the best of class, but he's been sort of globally pretty careful. NICK SOFOCLEOUS: Yeah. Within the last week, we've seen the drone go down. And there was no air strike for whatever reason. TONY GREER: Right, following a Japanese tanker blowing up. Right yesterday. NICK SOFOCLEOUS: So, without knowing all the facts, all we know is these headlines. So, for someone to just turn around and say, all he wants to do is go to war. I'm like, well, that doesn't look it to me. Because he hasn't done that yet. Now, do I think that his international diplomacy is top class? No, I do not. But that's just an opinion. What matters to me is markets. How do we react? How did we react to that drone? How did we react to the tanker? But I thought the oil markets reacted perfectly to an increase in stress in the Middle East. TONY GREER: Yeah, that's about it. It took them a little while, but the price rallied 10% or so. And that the oil market respected at the gold market I think is respecting that among other things. There is certainly a good reason to be sort of looking into buying commodities on the dip. We like precious metals. Oil seems to be trading okay off the lows here. Most importantly, I wanted you to sort of define- you were really great. And I just want to wrap this equity portion up, you are outstanding in identifying the bull market from 2011 to 2015 as this is going to be a sort of Fed-assisted slow growth period that the S&P is going to be happy with. Then from '15 to '18, or soNICK SOFOCLEOUS: Well, '15 to '16. TONY GREER: To '16. We were raising rates, the economy was growing, we had global growth. So, that was the premise of the market, higher rate, stronger economy. The S&P is okay with that. NICK SOFOCLEOUS: So15, you had your energy issue, where we started to go down, but the larger picture was you're going to get an opportunity, because the cycle isn't over. And that was when you could buy S&Ps at 1835. If I told you right now, you could have bought S&P at 1835, what would you say? Thank you. You're 2950 and you say, okay. 1835, you're good to go. TONY GREER: So, where are we in the cycle now? NICK SOFOCLEOUS: Oh, we're really late, because we just changed. We just had the Fed- the Fed have just changed the cycle. Because now, we're in a lower rate environment, we're in a cutting rates environment. And the only time that the Fed have cut rates, and it's worked out well, was late '94 into '95. Difficult to see this being 1995. TONY GREER: Right. Exactly. It's just more like '08, '09 where they cut rates and the market wouldn't take it. NICK SOFOCLEOUS: Right, because you had deteriorating economic numbers and the productivity gains just- with the internet, that was amazing. You just don't have that now. You have business investment, business investment is not accelerating now. Back in '94, '95, business investment was as a percentage of GDP, was going through the roof. And you can see that, anyone can see that on their charts, you just need to know how to calculate it and you'll be able to see it. And it's a beautiful chart to show you the cycles. And if you overlay that with a curve, you really are 50% on the way to figuring out what does the cycle look like? TONY GREER: Well, I want to keep moving. Because we covered a lot of ground in the markets, we covered a lot of market history. And we let a couple of your tricks out of the bag, which was fun to do. But I want to sort of take a worldly view back, because our viewers have been enjoying me asking guys the question, if you are a young person in the markets today, and you see all these super traders and Masters of the Universe on television and you wanted to become one, what would your first step be into the financial markets? What do you think is available, whereas you and I could try to get a job at a big investment bank working on a desk of 30 guys, or men and women. Today, what are the opportunities for somebody that wants to become a trader? NICK SOFOCLEOUS: Yes. So, the environment has changed from when you and I decided that financial markets were where we wanted to be. Financial services have changed. There's a couple of places that I would look at, first of all. One is deciding what my skill set was at this time. You're 23, 24. What's my skill set at 23, 24? You've probably got boundless energy. Do you like the markets? If your answer is yes, and you want to test yourself against them, terrific. And you need to find yourself a seat, there are companies that will allow you to do so- whether it's using their capital, using your capital. Those aren't the large banks anymore, because we know that doesn't exist. But they do exist in a smaller environment, in a collegiate environment in different companies right now. TONY GREER: So, getting a job managing risk? NICK SOFOCLEOUS: Managing your own risk. And you can be taught by people, and there are plenty of well-versed, very successful people that would gladly have you on their team if you are successful. If you're a successful trader in front of your own screens, people will like to have you on their team. Trying to find those companies is quite tricky because it's a new set of ventures for people. As the banks lost to people, these new trading rooms did start up. That's one avenue. I think that's a very high risk avenue. I think that you need a counselor. You need somebody to teach you. And you need that constant because a lot of that is about confidence. The second thing is always- it's something on the wealth management, you can help people within the wealth management business, and being involved in markets. And be hugely successful while helping other people. That's a good gift. That's a terrific gift to have. So, it really does depend, I think, on how you perceive yourself at a given age within your cycle. Your personal cycle. TONY GREER: Yeah, that's a good point. If you are beaming with confidence, and you want to give it a try, and you're single, you could probably get a job trying your own day trading operation somewhere. It's not out of the question. NICK SOFOCLEOUS: It's not out of the question. I wouldn't advocate that. That's a high risk strategy where you don't even understand what your own risks are and how many risks you want to take and when. But there are plenty of operations when you're looking to get into that type of market. Trying to be within financial markets, trying to get into a hedge fund. Terrific. Brilliant. There are hugely successful hedge funds. Super smart people. They are a joy to work with. They are a joy to work with. Not everybody's on TV. Not everybody shouts from the rooftops. Sometimes, really, the best people, they're around, you need to listen to them. Do your homework. Some of these guys will take the best of the brightest. TONY GREER: Yeah, that's true. I like the wealth advisor idea too, because you can sort of swap your interpersonal skills and be wildly helpful to a wealth advisor operation and use that as your platform to learn about the markets rather than having them at your fingertips. NICK SOFOCLEOUS: Absolutely right. TONY GREER: Yeah, that's a really good point. NICK SOFOCLEOUS: Absolutely. There's a reason why family offices have grown. There's a reason why the very large, historically large Wall Street firms want wealth management operations. There is growth in wealth management. And it's okay to understand this. Well, there's growth in wealth management. That's okay. TONY GREER: So, even as the landscape changes quite a bit over the decades that there's still entry level opportunities for people that want to be in this business? NICK SOFOCLEOUS: Absolutely right. TONY GREER: Yeah, that's a fair point. That's a fair point. All right. Well, I want to get way off of the business cycle and the business topic for a minute and ask you, Beatles or Stones? NICK SOFOCLEOUS: Beatles. TONY GREER: That was an easy one, huh? NICK SOFOCLEOUS: Yeah. TONY GREER: You didn't think twice about it? NICK SOFOCLEOUS: Not twice. TONY GREER: What was your earliest turn on from the Beatles? When did they hook you? NICK SOFOCLEOUS: Oh, family. Family had their records. TONY GREER: Oh, yeah. It was all there before you. NICK SOFOCLEOUS: Oh, my goodness. Yeah. Absolutely. And also, they had melody. So, my record collection is nowhere near as vast as yours. It's not really my thing. But as I got older, the Stones- you started listening to some of the Stones and going, oh, these guys were good. These guys were good. So, nobody's bad here. It's just a preference. TONY GREER: That's for sure. Like the Beatles or Stones call you- the lesser of two greatness. You know what I mean. So, you can [inaudible]- NICK SOFOCLEOUS: Light blue, dark blue? Which one's your preference? TONY GREER: You look great in both. That's perfect, man. Well, we covered a lot of ground. I really appreciated you sharing a lot of your trade secrets, your history. All of this is so helpful, even for me to go over in an interview, and hopefully for the people that are watching to get your sea legs in the market and learn how to do that and learn how to survive. So, I can't thank you enough for taking the time today, Nick. NICK SOFOCLEOUS: Absolute pleasure. TONY GREER: Great job, my man. NICK SOFOCLEOUS: Let's see. TONY GREER: Brilliant.