Episode 50: Navigating Market Cycles with Dan Wantrobski, CMT
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Welcome to Fill the Gap, the official podcast series of the CMT Association, hosted by David Lundgren and Tyler Wood. This monthly podcast will bring veteran market analysts and money managers into conversations that will explore the interviewee's investment philosophy, their process, and decision-making tools.

By learning more about their key mentors, early influences, and their long careers in financial services, Fill the Gap will highlight lessons our guests have learned over many decades and multiple market cycles. Join us in conversation with the men and women of Wall Street who discovered, engineered, and refined the discipline of technical market analysis. ♪

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Hello and welcome to episode 50 of Fill the Gap, the official podcast of CMT Association. It is my distinct pleasure to introduce you to Dan Wontrowski, who's the Associate Director of Research, a fellow CMT charterholder, and an all-around fantastic human being to spend an hour with. Dan,

Dave Lundgren and I had a great conversation with Dan, not just about what's happening with current markets, but also getting to understand his story, entering the business at a time when valuations were stretched and the crowded trade was to the long side. Dan began investigating other sources of information and data over much longer periods of market history, looking at both commodity cycles, government intervention, liquidity cycles, to help understand what might be

helpful drivers to keep in mind in the bigger picture view. We talked at length about perhaps overreaction from equity market participants in the United States, spotting signs of oversold conditions and thinking that perhaps recent pullbacks were as deep as they could possibly go.

And when you are in doubt, the lesson is to zoom out. And if you look at your monthly charts, we certainly don't have what looks like a massive washout and the end of corrective material.

Dan Wontrowski is the associate director of research at Janney Montgomery Scott. He's an incredible macro strategist and equity strategist and has delivered insights with an authoritative voice and tons of important data to his clients for multiple decades.

We talked a little bit about his background and first introduction to technical analysis with folks like Jeff Weiss, perennial optimist and just an all-around wonderful human being, but also really dug into Dan's process and tools that help him stay on the right side of trends and on occasion, take the contrarian view to what the street is telling you.

I hope you enjoy this episode, number 50, with Dan Wontrowski, CMT, Associate Director of Research at Janie Montgomery Scott. Welcome to Fill the Gap, the official podcast of the CMT Association. In the 50th episode, Tyler and I are excited to connect with Dan Wontrowski, CMT Charterholder.

Dan is the Associate Director of Research at JANI. I've known Dan for probably 20 years, and I've always found his research into demographics to be incredibly compelling, particularly his ability to weave it into his technical narrative. So a lot has happened, obviously, on the demographics front in the past few years, and much lies on the horizon. So I'm really looking forward to catching up with Dan again and get his latest insights on how he's seeing demographics change.

and other things of interest in his work playing out in the markets going forward. So without further ado, Dan Wontropski, welcome to Fill the Gap. Thanks, Dave. Thanks, Tyler. Appreciate the opportunity to be here. Great to see you, Dan. And congrats to your Eagles on a big win. Yeah. You know, it's a fun area to be in here, sort of in South Jersey. A lot of good teams, you know, more recently. And so it's really kind of built the community up. It's a lot of fun.

Awesome. Are you an Eagles fan or is it something that you just kind of like drifted over to? Dan's like, my clients are in New York. Don't talk about the Eagles. Yeah, I was trying to be nice to Tyler. Really, I'm a pilgrim in an unholy land. I'm actually a Jets, Mets and Islanders fan. I originally hail from North Jersey. So being a bit of a transplant down here, you know, you kind of assimilate into the team structure, right? Just to get along. But listen, you know,

Eagles fans, at least on the Jersey side, great people, love having them as our neighbor in our community. And it's fun to support the teams here for sure.

Oh, fantastic. Well, they're a great team. It looks like they've got a lot of durability for the years ahead. So good luck in the future. Okay, so we're going to dive into markets here. Being a Patriots fan, that's a very difficult, painful conversation to continue. So let's change the subject. So we have a lot to talk about. And

I think it might be helpful for our listeners to learn a little bit about yourself. What got you to JANI? What was your what was your journey? But most importantly, you know, what what was it about technicals that kind of drew you? What was it? What was it about that that flashing light that drew you to technicals?

Yeah, sure. So, you know, about my story. So I'm a Gen Xer and as someone that follows demographics, as you had pointed out, Dave, you know, we, I sort of, you know, give a category to my folks. We came up through the ranks and moving into Wall Street as an industry really in the early 90s, you know, having gone through college in the early 90s and being part of really a generational bust. What

I had found, and I attended Villanova University outside of Philly. I graduated right in 94. And I have this conversation with my daughters who are Gen Z today and will be entering the workforce in a couple of years. They're still in college. But as I remember it back in the day, jobs were much more plentiful for folks, for college graduates back then. And I was lucky enough to

to secure employment before I graduated Villanova at Payne Weber as a part of their finance department. So it wasn't really on the, you know, revenue producing side, wasn't on the trading side, wasn't on the equity research side. But, you know, cut my teeth in financial analysis. And after two years there, I looked to move over either, you know, in a trading capacity and maybe a research capacity. I'll be honest with you guys. I

you know, I didn't know much. You know, they teach you so much at business school undergrad, but, you know, you really got to get your feet wet out in the world to see what's out there. And so, you know, working at Payne Weber, even in the finance department, there was a revelation to me to see how much, you know, and all the different careers you could kind of pursue on Wall Street. And at the time, what really

What sort of excited me was seeing the traders, whether it was equity trading, fixed income trading. I met with a lot of them, seeing what they do, how they analyze the markets in really like a quick-paced environment. And that was kind of where I wanted to sort of steer my career.

So I was lucky enough after two years to get into the fixed income department as a strategist and as a bond trader. And I did that a couple of years on the fixed income side and just a great bunch of people in the strategy portion we had worked on.

sort of under the regime of Mike Ryan, who you may know from UBS, you know, Payne Webber. He was a big bond guy back in the days of strategists today. And so I worked for him in fixed income. And that really allowed me

As we were sort of beginning to analyze in the fixed income markets, it actually helped me to hone my writing chops, really, because we wrote a lot of sales material, wrote a lot of marketing material. We would structure bond portfolios for our traders and our clients, but then write descriptions and write reports. And that gave me a tremendous amount.

of practice just in writing day after day. So you kind of, you gain the math skills from you sitting in between these traders. And I was sitting between mortgage traders and corporate bond traders behind me where the agency and the government folks and the Fannie Mae folks, and everybody's throwing sort of the math and how they, you know, calculate their convexities and the durations. And so you're trying to absorb all that. And at the same time I was writing about it,

And that just took it to another level to say, well, this is exciting. I could analyze and write and you get an audience and then people start listening to you, which is helpful for the confidence and the ego. And it was around that time I became a part of it like a mentorship program. I was a young person and Payne Webber, like a lot of good places, they pair you with a mentor.

And I met Jeff Weiss. So Jeff Weiss, you may know that name. Yeah, I see how you smiled. I mean, Jeff Weiss is the perennial character on Wall Street. He was a huge fixture at Payne Weber. He was the firm's technical strategist there for years. I met him. I had lunch with him. And I was immediately enamored by what he had to say about the markets. But more so, I was so inspired by his passion.

The way he would talk about the markets and get so excited using his hands. He talked with his mouth full. He would get up and look around and say hello to somebody passing by and then immediately come back. It was I was like, wow, this is something else. I really wanted to go work for the guy. So I I pursued him.

And he finally gave in and said, all right, I'll throw you on our technical research team. David Talley probably remember this back in the day. So in the 90s, it was a rip roaring bull market. It was a rip roaring economy. And, you know, budgets and departments were big. You know, most places today have one technical analyst on staff. Back then, Payne Weber, for a brief shining moment, we had five.

at one point, five technical analysts, which was amazing. Can you name the team members? Yes, it was Jeff Weiss, Peter Lee, Dave Pasquale, myself, and then, so it was a young guy that was younger than me, and he got, he's the one name I forget, so I got four out of five. But he was actually a great guy, and he had a Polish last name, just like mine, Kevin, Kevin...

It's neither here nor there. That wasn't a pop quiz. I was just curious. Yeah, Kevin with a Polish last name. And we all worked together and we were situated on the retail side to more PCG. But we had a foothold on the institutional desk as well. So they used our work.

but primarily we were for the FA teams. We called them stockbrokers back then. But that's where I really learned about technical analysis and made the transition from

It was fundamental fixed income analysis, I guess, for lack of a better word. That's really where I started. And then a lot of the mathematics and the quant side of it from the traders on the fixed income side. But it was really once moving over to Jeff and that group that I learned about technical analysis. And again, the way this started, Dave, was you talk to a guy like Jeff Weiss, who could make something as innocuous as a chart.

you know, become alive and be exciting. And that's really what drew me to it. I was like, this is a different approach to analysis that is really working with this guy. He's got the smarts to decipher what this is telling us. But more importantly,

He has such a way about him that can explain it on any level. He really knew his audience. He could talk to institutional traders. He could talk to hedge fund managers. And he could talk to retail mom and prop brokers and retail investors. And I just thought this is a great design that he has for a career here. And I just wanted to get behind it. And then the charts, again, at that time,

It was very exciting. In the 90s was the stock market bubble, is the NASDAQ bubble. So we watched that move up, right, you know, exponentially. And then we also saw the thing crash, you know, in 2000 and 2002. And it was so I was already working with that group for a couple of years, you know, learning the basics of it, right, what they teach in the books, you know, the chart patterns, the trend lines, you know, the different stochastics and things like that.

And it was around that time that I started looking at the longer term charts, really long term stuff that could go back as far as we could get it. And back then we actually had a library in Payne Webber and you could get like big books and big chart books. And you would write down what we would we would transpose it into, like Lotus Excel or Microsoft Excel. Yeah.

And try to chart some of these long-term gauges. And that was really when I became interested in sort of more the long-term cycles of the markets, as opposed to, here's your trend lines, here's your moving averages, here's correlations, here's relative strength, here's stochastics. Those are so many great things you could put in the toolkit.

And then, you know, once I was getting familiar with them, it was the long cycle stuff that really, really got to me. And I was like, wait, there's big picture stuff here that I don't think we're seeing in the day to day.

And it was great to take that step back and see, well, all this that's occurring in the markets on a short-term basis, this is how it's all packaged into one mega cycle that not a lot of people are really talking about, but could give us clues, right, as to what the future is going to bring. We're definitely going to talk about demographics because I've got a bunch of questions for you on it, but

First of all, were you as upset as me when Excel displaced Lotus 1, 2, 3? I mean, I was pissed. I was upset because I didn't have stock in it. For our listeners, these gentlemen are talking about something that occurred in the 1900s. Yeah. So don't worry about the references. It's true. Like I said, I'm a Gen Xer. I'm a proud Gen Xer. So we've been around for a little while now. I loved Lotus. Yeah.

Excel was clunky to me and in many respects still kind of is, but that's neither here nor there. Yeah, it's gone. It's in the dustbin. But yeah, when you started digging into long term cycles, I mean, were you reading about Kondratiev wave and, you know, even longer term views on market history? Yeah, so it's a good question. So the first thing I saw, which really blew my mind, and Jeff Weiss, he did long term charts. It wasn't really like his ballad.

That wasn't his focus necessarily. He showed me a couple of them, but it was maybe 10 years back.

What really blew my mind was, remember the Ibbotson's charts that they used to publish that go back to the 1800s? I mean, they got, listen, they have timelines that you could chart to go back to the Roman Empire and you have to squint to look at some of this stuff. But that absolutely fascinates me because it really does document the evolution of humankind. I mean, you know, the markets are barometers.

for the human race, but they're also, they can mark different periods and different cycles. So it was when I saw that, that it immediately struck me, wait, this thing doesn't just go up, it goes up and sideways. And when you look into those sideways periods, they're actually pretty nasty. A lot of it's down. So this thing kind of goes up and down, sideways. And that was a lot different than

I mean, you have to remember, and this is a little bit of a knock against our industry. I mean, Wall Street is selling something. We have this widget that we want to sell and it's your future and your future depends on the stock market and the stock market depends on in the long run. Yeah. Markets always go up in the long run. You have eight to 10 percent average returns. And this is how you plan for things. And so, you know, Wall Street never wants to sell a lemon. Right.

They want to sell a Ferrari. This is the product that they're selling. And so it was a revelation to me that on the sell side, and especially during the 90s, which was go-go. I mean, you were just buying, buying, buying. Things were so bullish then. It was a revelation to me to see, A, the markets underneath the service really didn't work that way. And nobody told me that. They didn't teach us that in business school. Jeff...

Jeff is a perennial bull. And I only think that's not a knock against him. It's because he's he's such an optimist. He's such a positive person. He can see he's a wonderful day. He's a wonderful guy, too. He's one of the nicest guys in the business.

Absolutely, absolutely. Yeah. And so that was his side of him, which is great and is very important. But I was also kind of enticed by the dark side of the markets. Like, wait a minute, there's a lot we're missing here. So then, Tyler, that brought me into Kondratiev and say, hey, there's this guy that was back in the 1800s, whatever it was, from Russia. And he was looking at basically commodity and government cycles.

goals. And when we looked at the, you know, just sort of the overlay read a little bit about what he had put forth, you see how the markets kind of acted throughout the centuries. It was like, oh, there's more of a pattern here than Wall Street has been talking about. And so that's really what got me into it. And I remember the first piece I published

was in early 2001. So it was before 9/11, which was obviously a watershed event. And it was obviously before the 2002 market bottom of that bear market. But in early 2001, I published a piece in the group under our technical research group,

showing the sideways range bound markets, 1966 to 1982, or the Great Depression after the '29 crash kind of went sideways and popped back up then went back down and you see, okay, these are these big bases.

And I remember publishing that and my tagline was like, this is most likely the next cycle we're running into. This was your first, what a killjoy. This was your first report ever on Wall Street. And this is what you came out with. Yeah.

Depressing Dan Wontraub. I was trying to differentiate myself. I wasn't, you know, trying to sell financial porn or anything like that. It wasn't, you know, but I was trying to differentiate myself. And I was like, this is something we have to focus on. I think there's something to this.

And then when you put other pieces together, because in the 90s, remember valuations? I mean, at one time, S&P historical 12, trailing 12, was north of like 46 times. It was something ridiculous.

And so we're saying, okay, everybody's lopsided on this one side of the market. Valuations are really stretched. The markets are very overbought according to all these technical indicators. And then here comes this sort of historical analysis of these different cycles saying, you know what? When you get to this period like we're in today, sometimes it comes right before a structural or a secular turn in the cycles. And then that's kind of where we were. Now, remember,

His name was Lee Feinberg. He was the head of equities at the time. And he was kind of pissed that we wrote that piece. He came over and gave me a couple of raps on the knuckles and said, you know, that's not the business we're in here. And I, I, I took, I said, I understand. Thank you. But the, the light went off in my mind that, that I was on to something I knew, you know, I knew that if everybody's moving that way, especially like leadership, um,

You know, you got to you have to stay true to what you believe. And so I kept pursuing this.

And we kept putting the pieces together. So we first looked at the bull and bear cycles and equities. That was obviously the place to start. You can parse that up and sideways, up and sideways, right over these long periods of time. And it's driven by just multiple expansion and multiple contraction. I mean, the multiple just goes from being very cheap to being very expensive and back down again, right? It's an oscillator. And then as months and even years went by, we started looking at the other data sets. And so fixed income and yields.

came in and we started plotting that. And then we saw, wow, there's major correlations. So it's not just

bull and bear cycles in equities, it's inflationary bull cycles and inflationary bear cycles and deflationary bull cycles and deflationary bear cycles. And that gave it another dimension of sort of the type of playing field that we were really operating on, even though we're all so myopically focused over the short run, right? What are we doing today? Everything's like, is Trump going to talk about tariffs this afternoon?

If he does, the market's going to do this. We're so focusing on short-term and developmental stuff in the new cycle or whatever. These big cycles underneath the surface, I remain convinced to this day that it is the invisible hand and it guides what we're doing. We integrated fixed income and really government yields into our analysis.

Then, of course, the third and obvious piece, which came later was commodities, which is more Kondratiev-based, but we overlay the commodity cycle and you could overlay all three

With decent data, going back to, I'd say, the early 1900s, possibly the late 1800s. So I think that's a pretty decent sample size. It's not perfect, but it gives us an edge as to, ultimately, what's the playing field under the day-to-day noise?

That's a much bigger mosaic than a lot of technicians are able to get access to. Like you're saying, the more tactical stuff, shorter term, is prevalent everywhere, but you really got to dig to get a dataset that goes back 150 years. Yeah, and it's worth it because our

My contention is that technology changes. Yes, of course, technology changes duration of events and sort of the duration of evolution itself. But, you know, people don't necessarily change. And certainly where their money is concerned, I don't believe they change significantly. And so for that reason, you can go back.

into historical periods and see the same patterns reflected today. I mean, they made the same mistakes back then that we make today. It was just like a different set of circumstances, right? The play on the stage is the same. It's just the actors are different coming in from different generations that really don't have prior experience.

And I think today it's especially true. I mean, so I see the industry skewing more and more to the younger generations, especially the buy side. And I don't know in school if they're taught sort of the historical data sets and sort of some of the precedent that's creating our trading environment today.

So they're very focused on formulas and quant strategies that deal with the short run, which work out. Right. But they don't see how, you know, where it exists, where it's suspended sort of in the in the big picture, the grand scheme of things. And so that's where I think, you know, we can help. And I think it takes it makes sense to take a step back, you know, and just see how is this all fitting in. Let's see.

There's so many things to talk about. And I don't know much. You know, maybe we have an hour in total, but we could easily talk for because we can. We used to talk for hours when you join us in the offices back in the day. So I'm mindful of how many rabbit holes we can go down here. But let's get started. Let's start at a high level.

Just talking about where we are today, when you pull together all of these cycles, rates, commodities, PE expansion, contraction, throw in some demographics and all these things, just kind of levels at us. Where are we today as we have this conversation?

Yeah. So our model, again, in our model, there's only four market environments you're ever going to find yourself in at any given time throughout your lifetime. Inflationary expansion, which means multiple expansion, economic expansion, and interest rates are rising. And the level from which they're rising from is it can be debatable. The

point is, is that you have a more normalized rate environment. You're not at ZERP or zero interest rate policy. Nothing's being synthetically engineered necessarily. Rates are allowed to freely float and they're bumping higher. So reflationary growth. So that's 1942 to 66? Yeah, roughly. Yeah. And I believe that is where we are. So the four cycles, right, are reflationary growth,

followed by inflationary contraction, followed by disinflationary growth, followed by disinflationary or deflationary contraction. So bull bear, bull bear, and then inflation, deflation. And that pattern does go back to the late 1800s when we look at the data set. So Dave, yes, according to our model and our theory on it,

Our analog right now is we transitioned from the deflationary, disinflationary contraction period, which was

Basically, the year 2000 into 2009. Remember, we talked about those sideways big trading ranges. You had a massive 10-year trading range. And throughout that entire time, even though the S&P or the markets itself were going up and down, look at what your multiple did. It only went one way, and that was down. It peaked in 2000 and bottomed in 2009. And so that was your multiple contraction cycle.

and that was deflationary so rates were pressing lower um and you know the the average duration for these cycles and this is where there's no science to it guys and and it can't be it's it's

But the average duration is anywhere from about 10 to 15 years. Now, it doesn't mean that some of them can't be shorter. It doesn't mean some of them can't be longer. Those are for the expansion periods. And for the interest, that's in equities. And then for the interest rate environment, it tends to be double the length of the equity cycle. So it could be anywhere from 30 to 40 years in length, the interest rate cycle in the U.S.,

So really, to go back, if you remember 1982, Dave, you and I were little kids back then. But 1982 was the peak in interest rates. The 10-year note yield hit about 14%, 15%. The prior bottom was in the 40s, in the 1940s. And they didn't have a 10-year note yield back then. They didn't have the modern-day debt markets like they do today. But the prevailing rate was around 1%.

So from the 1940s up until 1980s, you had that reflationary cycle in rates. And then you had one bull cycle and one bear cycle. Your first bull or your expansion cycle was 1942. Some people rounded up to 1949 saying that's where it began. But 1949 or 1942, 1966 was secular expansion in the US. It was the biggest bull market, stocks bull market in history up to that time.

And it all came against a rising interest rate environment, so reflationary expansion. So even a few years ago when we were going through COVID, our work always said the next cycle is going to be reflationary growth. And you probably remember this, but it was only a couple of years ago people thought it would have been impossible to get any growth, to get any multiple expansion in a rising rate environment.

And that was because we were so conditioned by the Fed and our central planners that they pressed down rates, keep pressing rates lower and lower. And that's what creates growth. That's what creates multiple expansion. Right. So it was a combination really of rates and liquidity.

um that really kind of juiced the system but we had said at some point this is this cycle is going to change you're going to see reflate rates reflate back to normal so we took the 10-year was basically at zero percent a couple years ago it was like zero point something uh it's translated back to about four or five percent we've had massive growth here um we've had good gdp growth but massive growth in the stock market so

So, you know, again, history is proving itself again. You can have reflationary growth. You can have multiple expansion in a rising interest rate environment. That's what we've seen. It's what we think is you do continue to see that we don't think this cycle is over yet.

We think the other thing we looked at was in reflationary growth cycles, what's the big driver? And this is another interesting analog to our history, but it points to the private sector. So we don't get political on these things, but we know the current administration is looking towards the private sector to drive growth. They're curbing back on the government, the public sector, right? And it's causing some liquidity constraints over the short run.

But exactly how the 40s, 50s, early 1960s period unfolded, at least from a market perspective, we're seeing very much the same echoes here. So we believe the model is intact, even though the times have changed. The history itself is different. The model is the same. These are like seasons of the year.

And we think there's more to go on this. So 2025, we can talk about that in a second. 2025, I think, is going to be a rough year. But for investors on a longer-term basis, we still have reflationary growth for the US. We think it's going to lead. We think the private sector is going to be a huge engine involved in this. And we do think the S&P is probably going north of 6,500, probably closer to 7,000 in the coming years. So

We were still bullish on the US story, on the US cycle. It does not mean that rates are going to go up that entire time, but again,

You can see anywhere from 4% to 6% on the 10-year note and still achieve decent GDP and multiple expansion in stocks. We think that's going to be how this layout works here. Every time you speak, you open up another can of worms, and I'm taking notes as we go here. So, yeah.

At this stage of the game where it's reflationary expansion, reflationary expansion. Yes. What where where are we supposed to be from a valuation standpoint? Because it seems like it would be pretty pressing, a pressing ask to expect valuation expansion from here. So is that are we supposed to be expensive at this part of the cycle or is it or is that just a little bit of flying the ointment?

So in a reflationary expansion, technically, you're never going to get as expensive in your valuations as you would be in a deflationary expansion. Right. Because, look, in a deflationary expansion, rates are going to wear low. They were just at zero. That triggers massive risk taking. I mean, you're basically giving away free money. So that's sort of the recklessness and creates sort of some of the bubbles.

So I don't suspect or I don't expect the S&P, the valuation, at least on the S&P, to track back towards where it was at the peak in 1999. That was the peak of the deflationary growth cycle. 1982 to 2000 was an 18-year expansion cycle against declining interest rates, a disinflationary bull market cycle. And that's what pushed valuations up to their bubble.

That being said, you know, current valuations here, I think the markets are rich, but they're not at bubble valuation. And I think actually they can continue to press higher even in this environment. And I think you can get I think you can get back to a 30 times multiple. And then at the peak of our cycle in 99, it was closer to 46 times at one shining point. Again, I don't think you get there.

But I think upper 20s, low 30s is manageable here.

And this may go down another rabbit hole. And for that, I apologize, but it's very important. You know, in my opinion, you know, people focus on rate policy as many times the be all and end all right of our financial constriction or, you know, those levers that allow massive growth. And that really is only one side of it. And in my opinion, and this is going to be.

This will be vetted in the coming years. That's not the most important thing. In other words, interest rate policy by the Fed, not the most important thing in their toolkit. In my opinion, it is real liquidity creation, real underlying money supply creation, and

This is what we learned not only as a function of the great financial crisis in 08, but more so in the COVID crisis, where the Fed had very little bandwidth to lower interest rates. They were already close to zero. So what do you do? This function called quantitative easing, which is just a fancy word for a digital keystroke creating money and flushing it into the system. It's exactly what it is. They learned this plight.

Late modern central bankers learned this playbook during the great financial crisis when we kind of did their first modern QE. But they realized, you know, having the world's reserve as your currency, you could get away with this without hyper inflating any currency. And so this quantitative easing sort of emergency program became a part of their regular playbook.

They blew out the doors on it as a function of COVID. And you nearly doubled M2 money supply in about 14 months as a result of COVID. That's never happened in the history of our central bank, such a grand experiment. So you're asking me, can we push multiples higher in a higher rate environment? All else being equal, you probably can't.

And I always hate saying this time is different because central banks actually have used quantitative easing in the past. It just wasn't called that. But this time has been a little bit different only because the.

the amount that central banks, and not just our central banks, central banks around the world have been doing this, right? They print up money and flush it into the system. There's two levers, right? There's monetary policy and there's fiscal policy or monetary stimulus, fiscal stimulus, right? So the amount that

The central bank, our central bank created in excess liquidity is off the charts. So given where our demographics stand for the next few years, we could talk about that in a second, where valuations currently are, where rate policy is, but where with real underlying liquidity conditions are, I do think, Dave, yeah, you can continue to push this multiple higher in this more normalized rate environment.

If you look at M2 divided into basically the velocity of money, so take GDP and divide it by M2, that metric basically peaked in 98, I think, basically with the Asian financial crisis. And to me, that's when the Fed and later on the Treasury became

so focal in basically, quote unquote, saving the financial economy. And so since then, that line has been on a straight downslope, indicating that the efficiency of every dollar that's in the economy produces less and less GDP, right? That's right. So I always thought that that was part of the reason for why valuations had become so extreme. But my question is, if you're right about us moving away from

a public sector driven economy. We're going to private sector. How on earth do we get velocity of money to expand again in a world that's so dependent on Fed and Treasury interventions with every little hiccup? Yeah, no. And that's why I said I think 2025 is going to be year X in many regards. There is...

you know, a massive shift taking place underneath the surface. I mean, when we, and again, we don't talk political. I mean, we do have to talk political, right? Because Trump 2.0 is impacting the markets. But, you know, you know, one of the things we're seeing is that, you know, Trump 2.0 is really coming out guns a-blazing to curb back fiscal stimulus.

Fiscal stimulus for the last four years has been very explosive in itself. And we all learn this in our textbooks that the number one inflator of an economy tends to be war spending. Well, look what we've done in the last four years in terms of that. And that's just the tip of the iceberg there. So you had massive public sector fiscal stimulus over the last four years that I think has really juiced this economy and brought us to these

unusually high valuations on a short-term basis. Again, I think years from now, it's going to continue to move higher off of real organic growth and velocity in the private sector. But for now, absolutely, Dave, this is, you know, we're addicted to something here. The markets are, and they're going to try to wean us off that. And that's why I am cautious over the short run, because I think it's going to be a lot bigger than people, you know,

expect. People are myopically focused on tariffs here. I don't know that tariffs have as big of an impact as the real shifting liquidity conditions underneath the surface. So at the same time that we're going to pull back fiscal stimulus, look what Europe is doing. They're going in-- ASH BENNINGTON You mean monetary stimulus?

See, monetary-- so it all comes from monetary, right? The Fed has to pull it up. RAOUL PAL: So you're saying that at the same time, we pull back fiscal stimulus? And you're referring to what?

Government spending. Oh, you're talking in the grand scheme of things. That's right. They are attempting fiscal stimulus with the CHIPS Act and all that stuff. So you're talking bigger picture. Public spending, that type of fiscal stimulus. Right. In terms of how they want to generate organic growth through new policy.

separate. From pulling back on the spending that's been going out from the fiscal side over the last several years, that's where a drain in liquidity is coming. And that's going to slow down the broader economy we already see. You see areas like DC are struggling, and the ripple effects that we have outside of there. But at the same time, so we're pulling back on

on that fiscal sort of spending, Europe is ramping up. Europe, in my opinion, is set to pursue war against Russia via the proxy Ukraine, and they're going to spend a lot of money to do it. So I'm just looking at this very simplistically. You have one side pulling back on, say, liquidity, on that type of fiscal stimulus. And again, our Fed is not restrictive, but rates are...

Rates are normalized. We're not at 0% interest rates. And they still have been pursuing quantitative tightening. So they're paring back their balance sheet. So they're pulling off a little bit of liquidity. It's not that much. So you see on this one side, the U.S.'s liquidity is becoming –

you know, more constrained, yeah. Or it's under, it's under fire. It's not going to be as plentiful and as excessive as it was over the last several years. But to balance that out, you have Europe is going in that direction and they are going to do massive, in my opinion, they're going to do massive fiscal stimulus and push towards war. So you can even see capital flow. You know, one of the things, you know,

We look at it, and we looked at it the last four years. The amount of foreign investment, foreign capital that came to our equity markets and our bond markets in the last four years, there's a chart of it. I published it in some of our reports, maybe one a year ago. You can do it on Bloomberg.com.

It is like night and day. Post-COVID, we had massive foreign investment flow into the US, into our equity and bond markets. And I'm not saying there is a trigger, but if there ever were to be a trigger where that capital gets backed out and retreats back home, that's a lot of potential selling pressure here. I think that's one of the biggest risks, because if you look at the

the real trade weighted dollar, it's almost at a record high. The amount of capital that's allocated to the US from foreign investors is at a record high. So those two things together could easily tip the scales towards an outflow from the US, which is largely concentrated in Mag7, which could just result in, I think as you said, maybe it's like a transition period where it results in a bit of a bear market for 2025, but ultimately you want to be buying it.

Is that the takeaway? Yes. Ultimately, we want to be buying it. So the other thing alongside that, too, because we track retail flow. So, you know, what they're coming out telling us that a lot of bulls are coming out of the woodwork like today and last week saying, hey, the bottom's in and oh, the buy side is now positioned. You know, they're not overweight anymore. And CTAs have pared down their positioning. So it's all fine. Everything's good.

No one's focusing on retail. I can tell you, man, I talked to a lot of retail folks and not just, you know, January retail folks. The main street client has not been selling. The main street client has been on a buyer strike. So they haven't been, there hasn't been a lot of inflow buying on this weakness, but they have yet to sell there at their most concentrated position in history. So it's, it's two potential triggers, right? It's, it's, if you have a foreign, you know, outflow, right.

And there's some estimates. This is not my estimate. It's up to a trillion dollars worth of firepower that could rotate out. And that's just your foreign capital. But then there's our own retail and our Main Street investor here, which has not been triggered yet. So, you know, I can't say that's going to happen. We can't predict the future. What we're saying is.

If there is a bad enough trigger, there is a lot of firepower to unwind this thing. And so what I do there is then I cross-reference it, not with your short-term charts. You got to pull up the monthly charts of the NASDAQ 100 or the S&P 500. Those things are way overbought. I mean, those are tip-toppy looking. Now, that's not to say we're in a structural downturn, but you can't tell me that that's basing and that's a bottom.

That's a vulnerability on those long-term charts that has not been erased yet. And so we have this firepower to potentially push that lower. We don't have the trigger yet, but we have a number of macro uncertainties out there, right, from war to fiscal stimulus being cut off, monetary, you know, any number of things, right, that we can go down those rabbit

holes. So yeah, I think 2025 is year X. We're not looking for structural downturn, but a healthy correction. I think it does start to concentrate more towards S&P, NASDAQ, and that MAG-7 concentration. Because if you look, small and mid-cap have been flushed out. Russell and S&P small cap 600 are already down about 20%. So they've been flushed out a good deal. So I think

The brunt of the damage from here could probably come in those large cap benchmarks like the S&P and NASDAQ. However, again, this is all part of a grand cycle, and it's a correction. So yeah, Dave, I mean, at some point, we're going to be buying the correction and probably buying the hell out of it because the US story on a longer term basis is still the one to beat at this point, all other things being equal in our analysis. OK, three questions for you.

Sorry, Tyler. No, I love it. I love it. Keep going. Okay. So let's, I want to finish with a, with more of a, your tactical view, like what should we be, what should we be looking for in the downside? We'll finish with that as a takeaway, but just let's, let's proceed that with just some final high level conversation. So in the event that the U S does roll over this year,

And you're talking more bullishly about Europe, maybe just ex-US generally speaking, but it sounds like Europe. Is that a scenario where you envision the US going through a bear market and Europe goes up? Or is just Europe outperforms during the bear market? And during that bear market, you want to actually be buying Europe, not because you think it's going to go up in 2025, but because when you think this cyclical bear is over, Europe leads. We're not buying Europe outperforming.

outside of any short-term trading opportunities. So I'll say that at the outset. I think US is going to be the story and the markets to be in the coming years, not 2025. Before you go on, how do you adhere to that view with the dollar at the highest ever, with allocations from Europe at the highest level ever?

in U.S. equities? Is it not in the U.S. having outperformed since 2010 or 11, which right by the way is when Superman gave up his U.S. citizenship, poor timing on his part. But how do you envision the market, the U.S. market continuing to be leadership from here, given all these extremes you mentioned?

DAVID ROSENBERG: Right. So over the short run, the US is not going to be the leader. We're underperforming. This is that outflow. This is the correction cycle. So you mentioned it's either a cyclical downturn, not secular, or it's a correction, or it's a crash. I mean, you could have market crashes and V bottoms, anything like that. The point, based on our work, is that bear markets, what people rarely talk about is duration of bear markets and time in bear markets.

And so I don't believe we have that this time. We're not going to have a structural downturn that's last years and years like we had from 2000 to 2009. Money and returns chase liquidity. The thing we've always said for years now is the Dunkin' Donuts commercial. America runs on Dunkin', the markets run on liquidity, and they chase liquidity. They go to where it's being presented.

And so we think the function of current capital outflow of the U.S. is exactly what I'm talking about here. You're getting tougher fiscal and monetary policy, tougher monetary conditions in the U.S. right through fiscal restraint.

through where rate hikes are or where the Fed is on policy, which is it's still really fighting some inflation out there. And you're getting much looser liquidity conditions for the time being over in Europe. And that is why we're seeing that outflow. That is why over the short run, US markets are going to underperform Europe. So yeah, we can trace that. And I think the VEA is an ETF that looks at that. The VEU is one that looks at that. And you can see,

They're all crushing it, and they may even be breaking out. So it's my opinion money is chasing liquidity and stimulus overseas.

No one can predict the future. I don't know that that's necessarily a recipe for long-term gains because back at home, away from the current disruption in our monetary and fiscal policy, the U.S. still has one of the best stories. And this is where we talk about demographics. So Europe demographics are horrendous. And, you know, that's maybe even putting it lightly. Right.

Europe is top heavy with more elderly than young population. China, believe it or not, is very much the same way. China is close to a population crisis as it stands maybe within a couple of years or so.

There is the thesis of the global aging population, which is very real, but which does not come home to roost on a global scale for probably another 25, 30 years. It's going to be localized, right? So Europe's going to hit, and then China. And I don't know the timing on that. I didn't necessarily mean it that way. So the way the US stands out demographically is this. Look, we don't...

We don't know what the future is going to bring. We know that birth rates are declining. We know that in general, the trajectory of the human race is on a decline per population, birth and household family formation. As portfolio managers, the way we look at this is we're not investing for 40 years out, for 30 years out for the decline of humanity. We're looking at the next five years, maybe the next seven years. And then what does the U.S., even maybe the next 10 years,

And what does the US population profile look like? If you look at it under that lens, it's a lot different and relative. Remember, capital just goes to where it's treated relatively the best or relatively the safest. We're all given these choices and it's all on a relative basis.

The US on a relative basis has one of the best demographic profiles in probably the coming decade, probably a little less than 10 years. So the way we break this down is this way. You have the silent generation, which is our oldest generation now. There's only maybe probably less than 15 million that are still alive. Behind them, you have the baby boomers. This is the one that everybody worries about. They're about 82 to 83 million.

They are actively engaged in transitioning towards retirement, but they are the wealthiest generation in nominal terms, and they remain very active as consumers. They actually remain pretty well engaged in the workforce as well. So they're still generating economic velocity, right? But you do. That's going to be this concern that we have this $82, $83 million that will be retiring. There'll be transfer payments involved. Everybody's worried about Social Security. What comes next after this? So

The way the profile breaks down from there is it's a boom-bust cycle in our demographics since around the late 1800s. My theory is that's when you had modern marvels in science and technology, sanitation, running water, indoor plumbing, electricity, indoor heat. This allowed lifespans to grow. We could

grow and evolve and just be a healthier sort of, you know, human race. And so we've looked at the census studies going back, and that's really where these little bubblets and bubbles and denouements all started was really back earlier towards the late 1800s, early 1900s.

So you have this boom-bust cycle in population. Baby booms are followed by these busts and another baby boom. And so what we have sort of on the map today are, you know, you have the 15 million silent generation. You have the 82 million, 83 million or so baby boomers that are moving towards retirement. Now look at how our profile skews going down from there. You have Gen X, which is our generation here. There's about 50 million of us. So you can see it's a bust cycle relative to the boomers.

Behind Gen X is the nation's biggest in nominal terms, and that's the millennials. And anywhere from 92 to 93 million is the count. Again, you're going to find different data sources. We try to just get a sense of rough because that's what we're looking at. And so you have that big baby boom, which are the millennials, and they're the biggest baby boom we had ever seen in terms of nominal absolute numbers.

And they are headlong into being major producers, consumers, and investor savers right now. They're our biggest engine driving things right now. They don't have the biggest net worth stored up, but they are the biggest generators of economic velocity, of movement in the system. And that's that money supply pumping through the veins, driving GDP, driving up valuations.

So but here's where it gets very interesting, because it's a boom bust cycle behind the millennials is going to be another baby bust. And there is this is Gen Z is my kids. I got two in college. So, you know, I need to make my mortgage payments and my tuition payments like everybody else. So we're making it through.

But so Gen Z is a very interesting demographic coming up the ranks because their numbers are pretty big. They're about 84 to 85 million.

that is still in school for the most part. Some older Gen Zers are out among us and entering the workforce, but the big pot of that group is still largely in school at this point. Within the next three to four, maybe five years, big influx of this generation is going to be entering the workforce. So think about how this is going to shift

the profile of our country. You're going to have the boomers moving out towards retirement. There's still going to be huge consumers, though, because they have some of the highest net worth. You have 50 million Gen X that are full-time producers, consumers, investors. We're in the mix. You have millennials that are absolutely generating a ton of velocity through all those activities. Then we're going to have another 85 million. Now, on the backs of immigration and everything that's going on there,

I could add another probably 10 million to the Gen Z number, close to it. So that cohort may be even a little bit bigger than we think. The point is, guys, is that where other places like Europe

or China have sort of these top heavy demographic profiles with not, they don't have any young population coming up the ranks to drive future economic growth. We have a bit of a pyramid still and actually in the next couple of years our workforce is going to be skewed to the predominantly younger side. So that's a lot of economic velocity that could be potentially generated.

I think the key, you know, is going to rest on, you know, birth rates for millennials and Gen Z. But, you know, what's very funny about that is I'm already starting to see a shift in the sublime narrative.

going on with these generations. And I can, if you could believe it, I even saw Bill Clinton talk about this on the campaign trail. He wants to see people have more babies out there. We need them. We need Americans. We need, you know, and so I think as, as, as the different generational sort of cohorts have different feelings and different views about things,

I wouldn't be surprised that the pendulum has swung one way to very low birth rates. I wouldn't be surprised to start swinging it the other way. Obviously, I can't predict the future. But that's where we'd be relying on. But I think, look, for the time being, we have a strong workforce coming up the ranks. I think the baby boomers are going to be more than adequately paid for by the younger generations paying into the pot.

for those Social Security payments because you have $50 million plus $94 million plus another $85 million that are going to be paying into the Social Security pot for $82, $83 million.

We can get it done. There's no Social Security bus there. We were never worried about that from a demographic standpoint. From a policy standpoint, maybe something different. But from the numbers of people, our economy is in good shape to grow or at least sustain a decent level of growth on an organic basis, away from fiscal and monetary policy, through people alone.

And we have to wrap up with maybe some downside targets where you think people should be buyers in 2025. But very quickly, where were the demographic cycles tilting in 99-2000? Was demographics a part of a contributor to the bear market that followed? I think it was. I think it was. Because you...

So demographics, and Harvard came up with a study, it was the my ratio or the Moe ratio. It's the ratio of middle-aged to older, Moe, middle-aged to younger, my. And so we looked at all those different ratios. So what happened was the baby boomers, that was the big baby boom that made all the...

all the noise. They came back from Vietnam and came out of college in the mid to late '70s. That big group descended upon the economy in the early 1980s, causing a lot of dislocation in the very early '80s. Too many people crowding into the job markets at a time where we were still reeling from stagflation of late 1970s. You had very high employment in the early 1980s, but what that group did was

As that got ingrained into the economy, that fueled that 82 to 99 bull market, that 18-year bull run. So then fast forward to the next cohort to enter the workforce, which was Gen X. That's me and you, Dave. Back in the day, we weren't 50 million. We were closer to about 44 million. We were a tiny population.

So as we entered the workforce, we were tiny, we were insignificant. You don't really move the GDP or the multiple needle in major ways from just purely people power at that point. We didn't have enough numbers to really grow things to grow the system.

Conversely, at that time, you had pushed valuations way up into the stratosphere. That bear market from 2000 to 2009, in my opinion, was a combination of radical multiples and a baby bust entering the workforce, which had very little impact moving the needle on GDP. Now fast forward to post-Great Financial Crisis.

Now you have from basically 2010 to 2013. So remember, the bottom's in 2009. From about 2010, 2013, now we start to see the millennials start entering the workforce. And their numbers really ramped up from, you know, post-2012, 2013. That's that 90-plus million that, okay, you reset your multiple numbers.

You have rates at zero and you're adding a ton of liquidity through quantitative easing after the great financial crisis. And now you're entering this new generational cohort, which is the biggest in history that is starting to ingrain itself in the workforce and become producers, consumers and savers. That was a recipe for a massive, massive bull run. And so post that.

Here we are back again, waiting on Gen Z. Gen Z is going to be smaller than the millennials. You know, that may be the biggest, you know, cohort we ever see in our history. Maybe the millennials. We'll see. Right. Time will tell. Still bigger than baby boomer, though, right? But right. So that's my point, is that you have this next cohort coming in.

that is smaller than the millennials, but is the same size. I believe it's bigger, actually, if we account for other factors off the books, that it's bigger than the boomers. And so we have at least the numbers to sustain decent GDP, not an all-out contraction, and I think even decent growth. We have the liquidity.

Because the Fed, regardless of the fiscal side, what Trump 2.0 wants to do on the fiscal side of the equation, the Fed is going to remain committed to-- remember, the Fed has three mandates, not two. It's low inflation, employment, and the third is market stability. They taught us that lesson in '07 to '08. And they've had QE multiple times since then, not just COVID. With the banking crisis, they did it again.

a couple of years back. So they know they're going to do that. So basically, what I'm saying is we have a very accommodative Fed, despite rates being normalized at a higher level. We have a Fed that's willing to inject liquidity into the system when needed. And we have a demographic base that is going to really offset the retiring boomers and provide decent economic velocity in the coming years.

So this is really a transition period off of sort of the public sector, which has kind of bridged a gap here over the last four years through massive fiscal stimulus. But it's going to bridge a gap over to the private sector. Yeah. No. OK. All right. So we're longer term bullish cyclically concerned. So what are we looking for on the downside? And obviously not a 50 percent decline. That would be more along the lines of a.

2000 to 2002 or GFC kind of thing. So this is more like a 20% decline. Yeah, I would say anywhere from 20 to 30%. Um, you know, our target, our targeted range was, is, and remains about 4650 to 5,000 on the S and P 500. Uh, so we, I think at the three 13 lows, we got to 5,500. Uh,

We're scraping right above there. I think you can see that before this is out. We would be buyers there, but we have to see what the world looks like there. We have to see when we get there, what the new world looks like. Is it safe to get off the ship yet? Exactly. What about rates?

in that environment. Actually, David, quick follow-up on that. Does the classical technical analysis inform some of those targets? Are you looking at January 22 resistance as potential support level? We come back to test those. Yeah, Todd, I use some. For long-term cycle stuff, I'll do a combination. I love Fibonacci retracements. It's uncanny how those things work. And I love that the markets are fractal. Or you could do a Fibonacci retracement on a tick chart.

You could use it on a 30-year monthly chart. And for some reason, it tracks back to these things. So I use a combination of like Fib retracements,

and moving averages so the a moving average that i use key for long-term cycle stuff is the 30 month and the 10 month and so if you look on a 30 month moving average for the sp it's going to be somewhere around that 46 50 to 5 000 range it may be like 4 800 i'm not sure where it is right now um but it's going to be right in that sweet spot so moving averages retracement studies um

That's what we look at. Yeah, we keep it basic and simple on that front. Yeah, it's 4897 right now. There it is. Yeah, so that's right in my spot. A couple of things we don't do, we never do targets to the decimal. We'll always give ranges because things get sloppy around any targets. And then we typically don't give year-end targets either.

The market's got to dictate to where we're going. I mean, if things look like it's pointing lower, we're going to say, hey, hold off. And we have told our clients in our reports, we're not buyers here yet. We're not saying the world's going to end or there's Armageddon coming, but hold off. Speaking of Wall Street targets, I was looking March 14th.

There was a list, I think it was presented by MarketWatch, and the lowest target is 9%, is a 9% gain. That's the lowest target. Wow.

So that's where you're at. From where you began or from current levels? From current levels. From current levels. OK. I mean, look, you could do much more than that on a short-term basis. I mean, listen, the correction that we've seen thus far pushed us into very oversold levels. And Dave, you actually know this from working with me. I've been a horrible market timer when things get overbought and oversold. Because I see it right away. And I'm like, oh, the markets are oversold. Let's prepare.

Usually it takes some time. It drags me out. It drags itself along. But I would say this. On a short-term basis, markets were pressed in the very oversold territory. I think this is a mean reversion move higher. I'm not convinced that it's anything else. The other thing I'll look at...

I will use Elliott Wave when it suits me. Meaning when I could see something from it, when other people read it to me, I sometimes struggle seeing what they're seeing. I'm not saying what they're saying is wrong. Just for me personally, I struggle seeing it. When it's clearly visible to me, I will use Elliott Wave. And right now, the legs down on the S&P and the NASDAQ for sure, that does smell of a wave one.

Or that's a big, big ABC, but it seems too big to be an ABC. Too impulsive, right? It seems impulsive to me. And the other thing that's fascinating, I know we maybe went over time, but it's always fascinating to talk about this stuff.

People have been coming to me because we've had one at least 90% upside day. Today may be another. And they're saying, well, this is it. We bought them because now they're panicking back into the markets. But we did this study, too. Be very careful. You could have several 90% upside days at market tops. And we saw that in 07. We saw about five of them.

It's 590% upside days in the year 2007, which was a market top. So I'm not convinced. It looks like an impulse wave lower, I think. Yeah, interesting. Well, don't worry about going over. We did warn our very, very valued listeners that we might do that because there's so much to talk about. Tyler, anything else on your mind before we let Dan go? Yeah, there's about 10,000 things on my mind here, Dan. Yeah.

I guess, three years or something. I think that the lesson that I am taking away from this is when you think about multiple timeframes, the short-term action that tends to eclipse everybody's more rational thinking about markets, because we are such immediate creatures of immediacy,

I think it was such a breath of fresh air to think about what those longer term moves look like. And yeah, you're right. That monthly chart is not looking oversold by any definition. Right? I mean, yeah, that's, you know, anytime someone gets in my face, like Dan, it's a bottom and it's mostly the institutional folks getting in my

phase because they they got to get their work done that's i don't blame them and they're looking to get in they have their shopping lists ready um and i'm saying you know as oversold as you think this daily chart or this 10 minute chart is take a look at this you know you're you know it's so there's always a bunch of ways to look at it so yeah so we try to look at things across multiple time frames and when things line up all in the same way across multiple time frames so look at the 09 bottom

What did you have? You had all oversold daily charts and weekly charts, but the monthly chart was massively oversold. So everything lines up. That gives you your high conviction signal. We don't have a high conviction bottom signal here yet. We maybe have a trading bottom, but again, that could be an impulse wave lower here that we're seeing unfold. So we'll see what happens.

Define your time frame. Define your time frame. It's going to be, I think it's going to be an exciting year. I think this is going to be a year that I think maybe changes a lot of people's perceptions in a lot of things. That's just my opinion. I think the markets are teed up to be a part of that too. We'll see.

Times of great change bring great opportunity. Yeah, absolutely. Absolutely. It is so good to see you. We need to get together again back in New York. Next NYC event is the 14th, Monday, April 14th. But I'll try to make it down to Philly, too, so we could grab a decent lunch at the right kind of price. That sounds great, Tyler. Yeah, you're welcome. You're

Excellent. Thank you so much for your time, Dan. We'll do this again real soon. Thanks, Dave. Thanks. Good seeing you guys. Here at CMT Association, 2025 is a landmark year. For the first time ever, the official CMT program curriculum will be included with exam registration. That means if you register for an exam, the corresponding study materials are immediately made available. The CMT curriculum was specifically crafted

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