Market Wizard, Vic Sperandeo interview: gold, inflation, and trading the QE wave

Trader, author, and Market Wizard, Victor Sperandeo joins us for an exclusive interview in our first Finance Trends podcast. To say we caught a lucky break with our first guest is a bit of an understatement. 

Victor is a highly regarded veteran trader who has been involved with the markets since his first job as a Wall Street quote boy back in 1966. When he began his independent trading career in 1971, his primary goal was to make money consistently, month after month, year after year. 

After 40+ years of consistent profitability, I'd say he's met that goal. 

Over the course of his career, Vic has traded independently, managed hedge funds and CTAs (commodity trading advisors), and ran portfolios for George Soros and Leon Cooperman. He has also written three books on trading, including, Trader Vic: Methods of a Wall Street Master, a personal favorite which interlaced Vic's trading insights with sections on Austrian economics and personal psychology!

In this rare, hour-long interview you'll hear "Trader Vic" discuss his recent editorial on Paul Krugman (a "political hack") and our debt problems, the Fed's quantitative easing program and prospects for future inflation, his outlook on gold prices, Austrian economics and economic and personal freedom (or lack thereof), as well as his insights on successful trading and the importance of trading psychology. 

Plus, you'll hear about the upcoming Trader Master Class with Vic in New York City (more info below).



Some highlights and quotes from our interview with Vic Sperandeo: 

On gold prices: "What gold doesn't like is higher growth...gold didn't do well from 1982 to 1999. Gold likes chaos and it likes inflation. With every central bank in the world inflating, long-term, gold is a buy. Short-term, there is someone putting pressure on the gold market. I believe it's the Fed or banks working through the Fed to keep gold prices down and to make money-printing policies more acceptable."

The effects of Quantitative Easing: "QEs have not worked to the degree that most people have assumed they would because nobody is spending the money. Money velocity (the turnover of money in the system) hasn't sped up to a degree that would create runaway inflation... and banks aren't making loans of any consequence. What it's doing [with the mix of current, offsetting fiscal policies] is slowing the economy and distorting the markets as people are putting their money in stocks, thinking that this is good for corporate profits."

Vic's insights on trading and the need for emotional discipline: "Sometimes the smartest people and those who have biases, like yours truly, can cost themselves money. You try to eliminate your biases. In my case, I'm biased against believing in the Fed and in Ben Bernanke knowing what he is doing. But that doesn't subtract from trading - if you're trading you really don't care what Bernanke knows or doesn't know [set aside your biases]." 

Investing vs. trading in 2013: "We're not in a real good investment environment here. We're in a very good trading environment and a great liquidity environment. If you're a trader, you should be doing well following the uptrend in stocks because of QE. If you're taking bigger positions and you're betting on longer-term growth, there's where the differences lie and you have to be very careful. Trends and the technicals trump the fundamentals here [in a Fed-driven market]." 

How crucial is psychology in trading and in life?: "The fact is you can train a number of people to do the same thing and you get different results. Why is that? The difference is emotions - it's psychology. The problem is not in the knowledge, it's in the execution. Very few people can discipline themselves to execute the knowledge. It takes emotional discipline." 

Victor Sperandeo will be sharing his global macro outlook and his trading techniques with a select group of participants in an upcoming (March 22nd) Trader Master Class in New York City. You can learn more and sign up (class size is tightly limited) at the link above. 

I hope you enjoyed listening to this interview half as much as I enjoyed doing it. If you'd like to help us spread this discussion to more listeners, please share and retweet this post with your friends and readers by choosing from the ShareThis buttons below (email is included). Thank you for reading and come back often

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. 

Related posts: 

1. Inner Voice of Trading: a lesson on ego and risk.

2. Nassim Taleb and Stan Druckenmiller on coming crisis (Bloomberg interviews). 

3. Lessons from Hedge Fund Market Wizards: Steve Clark (full post series).

Nassim Taleb, Stan Druckenmiller talk crisis on Bloomberg TV

Our future may be a bit more fragile than "Anti-fragile", if the latest warnings from Nassim Taleb and Stanley Druckenmiller prove correct. 

The pair recently sat down with Bloomberg TV to voice their concerns over America's social and economic strains. Taleb believes we are still loaded down with the unsafe systemic risks and toxic leaders of our recent past. Druckemiller sees a crisis "worse than 2008" ahead. 

We have their full interviews for you here, so let's jump right in. 

Nassim Taleb feels we are at a point where we have not learned or benefited from the mistakes of our recent financial crisis. This has made our society more susceptible to fragility and will deepen the effects of future crises.

Moral hazard has increased as bankers have paid themselves larger bonuses with our (taxpayers') money. Quantitative easing has lifted asset prices. Median incomes, and the average person's standard of living, have been dropping while the top tier of society ("the 1 percent of the 1 percent") has been absorbing the lion's share of recent economic growth.

As Taleb puts it, we are now paying for the bad debts and disastrous trades made by irresponsible, bailed-out parties in the last cycle. We have transferred private problems and failures into public problems by transforming private debt into public debt. 

In order to improve our situation and ensure future prosperity, we need to face our mistakes and make our regulations and tax codes less complex. Complex regulations are a boon to lawyers and big businesses who game the laws to their benefit. To quote Taleb, we need "sound, minimal regulations and more skin in the game (personal liability) for those who make mistakes.".  

Recently retired from running public money, star hedge fund manager, Stanley Druckenmiller has stepped back into the spotlight to warn of a looming entitlement spending crisis in the USA. 

"Every once in a while, the world of investing and what's going on in the country will intersect". 

Druckenmiller recounts his conversations with US officials about previous storms on the financial horizon. Based on his past experiences, he figured it was better to keep quiet and manage his investors' money than get caught up in public debates over politically sensitive issues, like the fallout from the 2000s housing bubble. 

He now feels he needs to speak out to warn citizens about a coming bust of America's demographic bubble. Druckenmiller notes that in 2030, the average population of the USA will be older than the average Floridian is now. "I don't know about the timing of when markets will respond to this, but I know it will happen based on the fundamentals.". 

Stan also offers his thoughts on the valuation of the equity markets, bonds, risk assets and zero rates, and competitive currency devaluations. "Every single major country is now running stimulative monetary policies, basically modeled after the Fed.". 

One great piece of investing advice from Stanley Druckenmiller (and a recurring theme in this interview): "You've got to think in an open minded fashion and look out into the future to judge companies [and stock prices]. Try and imagine the world 18-24 months from now and not the way it is today. Then think about where securities prices will be to reflect that view".

Related posts:

1. Victor Sperandeo exclusive interview: gold, inflation, and trading the QE wave. 

2. Nassim Taleb on Antifragile at Google.

3. Jim Rogers on Street Smarts and outsized returns.

Lessons from Hedge Fund Market Wizards: Steve Clark

Photo via marshfieldrodandgunclub.com

"Remarkable performance consistency". 

These are the words Jack Schwager uses at the outset to describe the track record of Steve Clark's Omni Global Fund. 

In his opening notes on Clark's event-driven hedge fund, Schwager points out that Omni Global has been profitable every year since its inception in 2001. This, of course, includes the panic year of 2008, during which Clark handily outperformed the Hedge Fund Research index of funds sharing this strategy. 

The combination of strong gains and moderate equity drawdowns and losing periods gave Omni Global an "extremely high Gain to Pain ratio", a return/risk measure favored by Hedge Fund Market Wizards author, Jack Schwager. In other words, he is very, very good. 

On to the interview lessons... 

1. Steve Clark was "brutally honest" in his interview with Schwager. In the opening, Clark describes his background; raised in a council house on the outskirts of London, no father in sight, no university degree, and no initial trading experience. Clark was installing stereo systems when a friend told him about trading jobs in the City.  Sometimes interest and motivation are more important than "pedigree".

2. He worked a series of back-office jobs and assistant roles before getting a shot at running a market-making book. He got his first chance to trade the book while filling in for a trader on holiday...during the week of the October 1987 crash. Trial by fire situation.

3. Steve learned a valuable lesson making prices on October 19, 1987: the price is where anyone is prepared to deal, and it can be anything. Steve found he had to quote prices so low until sell orders dried up. He still lost several million pounds on his book that day.

4. Eventually he became the most profitable trader in his group. Steve credits this shift to his ability to cut positions that were down or "wrong". He also traded around news to orientate himself on "the right side of the market". Plus, he was inexperienced and didn't have the fear that cripples people who've been in the business for a long time.

5. Traded on order flow info and screened for stocks making moves on big volume. He also used charts to see what happened when stocks reached certain levels in prior periods. Clark cautions that he is not a big believer in predictive chart analysis.

6. Clark left his market-making job at top-rated Warburg for a better salary offer from Lehman Brothers. He soon found that he couldn't make money at his new firm, having left behind an environment that was rich in order flow information. It was a shock to his ego and caused him to doubt his ability as a trader. It happens to the best of us.

7. Eventually he bounced back and over time developed contacts with trusted brokers. He used their order flow info to gauge near-term market sentiment on news events. If he was not aligned with momentum he would cut his position. Steve believes in buying on the way up.

8. Steve gives traders one key piece of advice: do more of what works and less of what doesn't. Dissect your P + L and see what works for you (types of trades, timing, etc.) and what doesn't.

9. Price is irrelevant, it's size that kills you. If you are too big in an illiquid position, there is no way out.

10. Clark discusses a period of professional ups and downs that begins after the initial seed money for his first hedge fund fell through. After seeding a small fund on a shoestring using his own money, he wound up closing shop and went back to work for others. Thus began a hard road which led to some contentious litigation and Clark's disillusionment with The City. 

11. Set up his own fund in 2001 after a successful career move to First New York Securities. Despite his trading success, Clark says he is still waiting to find out "what I want to do when I grow up". A revealing section of the interview follows, in which Clark feels he has nothing to show for his trading career except money. "What have I accomplished?",  he asks.

It may be worthwhile to reflect on this issue. What are we in this for? Your values and your assessments of the pros and cons of a trading career may vary. 

12. Back to trading. It's the size of your position rather than the price at which you put it on that determines your ability to keep the position. Trade within your emotional capacity. Don't take on a bigger position than you can handle. If you wake up thinking about a position, it's too big.

13. When everything lines up, you need to swing for the fences. However, if the position starts acting in a way you don't understand, you need to cut it because that is a sign you don't know what is going on. 

14. Your job as a trader is to make the line [your equity curve] go from bottom left to top right. That's it. Don't get hung up on other supposed "mandates". Protect your capital and the direction of that equity line.

. . . .

That's it for this latest edition in our interview series. We'll have some new "Lessons from Hedge Fund Market Wizards" posts for you over the next few weeks. In the meantime, do pick up a copy of Hedge Fund Market Wizards to get the full color and detail of all these great trader interviews.

You can revisit the earlier posts in our Hedge Fund Wizards series (it's like a Cliff's Notes of investing) here:

a) Jack Schwager's insights from Hedge Fund Market Wizards. 

b) Lessons from HF Market Wizards: Colm O'Shea.

c) Lessons from HF Market Wizards: Ray Dalio.

d) Lessons from HF Market Wizards: Scott Ramsey.  

We have some more great stuff in the works, so stay tuned to the Finance Trends blog feed and our Twitter updates for the latest on upcoming posts. Thanks for reading!

Links: Popular posts and new trading insights

 





Some Presidents' Day reading and insights to guide us into the coming week.

Recently popular posts on Finance Trends:

1. Trading psychologists: Overcoming your fear of pulling the trigger. 

2. Global macro trading: Lessons from Market Wizard, Colm O'Shea.

3. Lessons from Market Wizard, Ray Dalio. - "Markets teach you that you have to be an independent thinker."

4. Lauren Templeton shares investing lessons from Sir John Templeton. Real wisdom on markets, behavioral finance, and life here.

5. Jim Rogers on Street Smarts and outsized investing returns. Rogers says the 4,200 percent returns he and Soros achieved at Quantum Fund are replicable, if you are passionate and work hard enough.

Items of interest (markets, trading, and insights) from around the web:

1. Excellent Q+A with trader, Brian Shannon: Better Trading With Multiple Timeframes.

2. Joe Fahmy on The Greatest Trading Book Ever.

3. Napoleon Hill's Think and Grow Rich (e-book).

4. On the Invariant Nature of Investor Returns: "We were irrational then and we're irrational now.".

5. Q+A with Chris Kacher and Gil Morales: why they trade like William O'Neil.

Thanks for reading. Check back soon (via RSS and/or Twitter), we'll have a new post in our "Lessons from Hedge Fund Market Wizards" series to share with you and more.

Photo credit: George Washington via Newport Buzz.

Jim Rogers on Street Smarts and outsized investing returns

Jim Rogers has a new book out called Street Smarts and he's out talking about it, along with a few other favored subjects. 

Here are a few highlights from his recent interview with Open Currency: 

1. Asked about Germany's repatriation of gold from American vaults, Rogers says they're right to do it and he's surprised they haven't done it sooner. Recently, the Federal Reserve refused the Germans an audit of their own gold, and according to Rogers "it's clear some of that gold has been lent out, or something, as it will take 7 or 8 years to move the gold." 

2. Nearly all governments are printing money, for the first time in recorded history. All major banks are "printing" and debasing their currencies, which brings us to Rogers' favorite safe haven - hard assets. 

3. We are destroying all the people who save and invest. People are getting wiped out because interest rates are zero and below the rate of inflation. Those who borrowed huge amounts of money and went bust are being bailed out at the expense of those who saved. This is disastrous for society.

4. Is it possible for this generation's investors to replicate Quantum Fund's investment returns of 4,200% over 10 years? Rogers says such returns are entirely possible for those who work hard and are great investors. Of course not everyone will do it, but "there's gotta be someone who is smart enough and ambitious and driven enough" to achieve that. 

5. His new book, Street Smarts, contains much of what Jim has learned over the years and reflects on many of the things he has done. Jim's thought processes, mistakes, and successes are shared, along with his thoughts on how the world will look over the next 10-20+ years.

I've just received a review copy of Rogers' latest book, and I look forward to reading it. Look for a follow-up post on Street Smarts in the near future. Until then, you'll find a whole lot more from Jim Rogers in the posts below.

Related posts:

1. Jim Rogers' case for the Asian century (at CFA Atlanta via Jeffrey Tucker).

2. Jim Rogers interview: lessons on life and investing.

3. Jim Rogers interview with UK's Channel 4.

Steve Jobs on failure

 

Steve Jobs on failure: "You've got to act... and you've got to be willing to crash and burn." 

Apply to entrepreneurship, trading (try to manage risk to avoid complete crash and burn of your account), talking to that pretty girl... life.

Related posts: 

1. Steve Jobs: Billion Dollar Hippy (BBC documentary).

2. Steve Jobs PBS interview from 1990, recently surfaced.

Lauren Templeton shares investing lessons from Sir John Templeton

Investor Lauren Templeton shares some life wisdom and investing lessons from her great-uncle, Sir John Templeton in this VIC 2012 video. 

By way of background, John Templeton was a pioneer of global share investing who founded the Templeton Growth fund in 1954. As his wealth increased, he also became known for his philanthropic efforts and writings. In the 1960s, he renounced his U.S. citizenship (an increasingly popular move among the rich of late) and continued to live in the Bahamas as a Bahamian citizen.



In her talk at the Ben Graham Centre for Value Investing, Lauren Templeton shares some insights on Sir John's investment philosophy and his life. A few notable lessons and quotes: 

1. Born in Tennessee, Templeton was an excellent student who attended Yale and Oxford. While at Yale, young John found he had to work to pay for a part of his schooling. His skill with probabilities helped him earn a good part of the money playing poker. 

2. After studying at Oxford, Templeton took a 40-nation tour of the world. He was gone so long that his mother thought he had passed away! His travels provided a "bedrock of geopolitical knowledge" to guide his investing. 

3. Lauren relates the story of his first trade in "maximum pessimism", the famous deal in which Templeton borrowed $10,000 and purchased shares of all the U.S. companies trading below $1 a share. Even though many of the companies were facing bankruptcy at the time of his purchase (on the eve of World War II), most turned a profit and he sold his shares for a $40,000 profit a few years later. 

4. Listed among his personal attributes: self-reliance, flexibility, sense of stewardship, a drive towards diversity (seeking opportunities globally), a bargain-hunting mentality, devoting time to study, ability to retreat from daily pressures, developing a broad range of friendships and contacts, positive thinking, patience, simplicity, and great intuitive powers. 

5. "To buy when others are despondently selling, and to sell when others are avidly buying, requires the greatest fortitude and pays the greatest ultimate reward."

6.  "If you want to have better performance than the crowd, then you must do things differently from the crowd."

7. John was a thrifty saver and he advised his family and friends to live simply and save 50 percent of their income. He viewed his savings as the seed corn of future investments and opportunities. 

8. Templeton operated on a truly long-range view. He planned in advance for market panics by drawing up a list of securities to buy at bargain prices. When he discussed his charitable foundations, he spoke of finding the best investment opportunities for the next 200 years. After searching the globe for property investments that might suit his foundation, he still came back to stocks.    

There's a good deal more in this video on behavioral finance and human behavior in market panics. As Lauren Templeton says, "If you're aware of your biases you'll become a better investor.". 

Enjoy the video and the insights. You'll find more from Sir John and friends below.

Related posts: 

1. Jim Rogers interview: lessons on life and investing.

2. Lessons from Hedge Fund Market Wizards: Ray Dalio.

3. John Templeton's last memorandum from 2005.