Fill the Gap Episode 2, with Special Guest Louise Yamada


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Louise Yamada presents at the 2016 Symposium


Louise Yamada’s full CMT presenter biography

Market Magic book by Louise Yamada

The New York Institute of Finance

2016 Symposium Award Presentation video

Dec. 2020 Yamada Advisors worksheet

Brought to you with support from Optuma




Tyler Wood  00:13

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 interviewees’ 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 design of technical markets.

Tyler Wood  01:10

Fill the Gap is brought to you with support from Optuma, a professional charting and data analytics platform. Whether you are a professional analyst, portfolio manager or trader, Optuma provides advanced technical and quantitative software to help you discover financial opportunities. Candidates in the CMT program gain free access to these powerful tools during the course of their study. Learn more at Good afternoon, Dave Lundgren, how are you today?


Dave Lundgren  01:54

I’m excellent, Tyler. How are you doing?


Tyler Wood  01:57

Doing? Well, you know, it’s a pretty snowy week here in upstate New York. But nothing compared to the avalanche of short squeezes out on the street. How about yourself, big plans for all this snow?


Dave Lundgren  02:10

I actually have a ski trip coming up, heading out to Idaho next, this coming Friday actually, but I imagine I’ll be logging in every evening trying to check what’s going on in the markets. I had some crazy moves in; I wasn’t involved in GameStop. But it was just one of those periods in time where you just were, you just can’t believe the price behavior that’s taking place. And I just kept thinking about, there’s only one way that you can navigate these kinds of environments. And that’s, that’s technically knowing when to buy and when to sell. And, you know, we see a lot of commentary on Twitter and other social media about holding on to these gains. And, I think one of the points that’s lost is, is the importance of taking partial profits when you have a windfall gain almost immediately. And so I didn’t own GameStop. But I did own several names that were, unbeknownst to me, had high short interest, or rather, it was unbeknownst to me that high short interest would matter so quickly, they had short interest, but that it would matter in that moment. And you know, having stocks go up 50% in a such short order, not knowing what to do, and not having a plan for that is, can be … you know, this business is all about regret. No matter what you do, you can regret it. You either might have bought something and it goes up a lot and you regret not buying more, or you buy something and it goes straight down and you regret buying it at all, right. So what I just tried to do is try to manage positions to avoid regret, and that’s, you know, position sizing properly and taking windfall gains and things like that. And because beyond that, you can’t control anything. So this is what we just witnessed this past week, and in the past couple weeks. It’s not the first time it’s happened in history; surely won’t be the last. But I’m thankful that I have a means and a process to navigate it successfully.


Tyler Wood  03:58

Absolutely, Dave. Well said, I think there are a lot of perhaps novice investors or first time self directed investors that really enjoyed the ride up and perhaps got scorched on the way down. And that’s part of what the market teaches us. I thought it was a fascinating case study in trend following and what creates trend, obviously, this last week, we saw things accelerated on a really short timeframe. But the gentleman who is  one of the founders of the Reddit group Wall Street Bets basically created the crowd environment, created that herd behind his idea and got to ride the trend all the way up. It’ll be interesting to find out if if he was one of the the first sellers to pick the top and get out. But certainly in terms of the supply and demand relationship, we saw those prices go through the roof because there was just limited supply and a ton of demand. For trend followers out there. I’m not sure we’re promoting that; they talk their book up to create the demand for their own – for their own threads.


Dave Lundgren  05:01



Tyler Wood  05:02

This episode two was a real delight for me. I know it was for you as well, Dave, to have Louise Yamada, CMT as our second guest on Fill the Gap. For those of you who are new to the podcast, make sure you check out Bob Farrell. Our interview with him was the very first episode of this new series. Incredible evergreen takeaways from both of these veteran analysts. The thing I wanted to talk with you about Dave, just before we bring on the the guest and introduce our audience to Louisa Yamada, was her very circuitous path into Wall Street, nontraditional, at least, not coming to a job as a securities analyst through traditional means, but the way that she found education, how that got her into technical analysis, and just became an incredible macro economist, if that’s the right term for Louise’s work. But you yourself have taught a lot of the next generation about technical analysis, is that correct?


Dave Lundgren  05:59

Yeah, I actually spent five years at Brandeis International Business School teaching graduate level classes on technical analysis. So it was quite a journey for me, especially because all of these students come to this class with at least four years of undergrad in securities analysis and finance and some measure of advanced classes as well. They’re in graduate school, depending on when they took my class. And so they come into this class with a very strong understanding that the market is efficient. And we can all come to work in lab coats and just look at things formulaically and figure out the world based on these formulas we learned in this book. And it’s my – it was my great privilege to dispel that notion in the very first class. In fact, in the first class, I spent very little time at all, on specific technical analysis topics, it was more it was more trying to, as we have come to call this podcast, bridge the gap between or fill the gap between fundamental analysis and the reality of the way markets actually work. And the only way that you can really, truly bridge that gap is with technical analysis, which, again, we just had, I guess, an example of that on steroids in the past couple of weeks. But at the end of the day, that is that is the premise of technical analysis. And it’s the opportunity to teach that to graduate level students, many of whom were being exposed to it for the very first time. And then to see some students take what they learned. And I had one student go back to China and open a hedge fund, he basically took the foundations of what I taught in the class and turned it into an algorithm and began to trade on it and turned it into a hedge fund. And I had to sign papers saying that he took the class from me and things like that. So it was, you know, it’s just, you know, I get messages on LinkedIn, from past students talking, telling me or updating me about their current roles on trading desks and how their success there is directly tied to that the class at Brandeis. And so it was, didn’t make a lot of money, I can tell you that. Most procrastination, probably, it’s a labor of love. The truth is that you couldn’t, I mean, the greatest reward for that experience to me was just working with these young students and being able to impact them in an important way for the rest of their lives. If they plan on being in the investment business, then they, I believe, truly believe that they will be better for having gone through my class or any technical analysis class, if indeed, they do plan on spending the rest of their career in investing, because it’s a critical part of success. And as we’ve talked in the past, most of the best, the truly very best investors that we know of, in some form or another, they consult the chart, and they want to make sure that they respect the trend and things like that. So there’s obviously exceptions to that. But a very large percentage of truly successful investors are either very technically minded or at minimum have a technical overlying. And so I think students going through a program like that can get well grounded in an understanding of how markets really work. Vis a vis, technical analysis they’re just off to a great head start.


Tyler Wood  09:06

Well said; the practical application to what they’re going to do when they get that first job out of school can’t be overstated. I can’t wait for our listeners to hear Louise’s story. It’s truly inspiring and really born out of a practical need to understand what’s happening in the markets. Dave, I understand you did a pretty good job at Brandeis, you won their IBS Excellence in Teaching Award in 2016. Is that right?


Dave Lundgren  09:31

I did. It was, I guess maybe the other professors didn’t show up that year. So they had to give it to somebody. But I think you know, in every semester that you get feedback from the students and one of the things without exception, at the point of feedback that came across across all the semesters was my passion. And I think that just came through in that particular year. It was a great year. I actually think my final semester was, with the exception of the one that I unfortunately had to get over zoom given  the pandemic, but my final year is, let’s say they were just better because I just was able to really instill in the students the importance of providing me feedback on the course. And really stress the idea that to the extent that the course is getting better over this period of time, it’s because of your feedback. So they, they really truly did. Every student gave me feedback. And I tried to incorporate every bit of it as the course went on. And so although I got the the award for the first semester, I actually think the latter semesters were actually better.


Tyler Wood  10:29

Yeah, well, you never get the award for your actual best performance, right? Just look at the Oscars. You know, you bring up an interesting aspect of the CMT Association, Dave, which is that we have launched an academic partner program, I’m not going to get all of the history correct. But if you look back more than 30 years ago, University of Richmond, started teaching technical analysis, out of that very desire to prepare their students for the practical applications of what they’re going to do on the job. There was a gentleman there named John Earl, who got that class started. And it’s been part of the strategic mission for our organization to make sure that technical analysis is taught in the way that we see, you know, the most important elements of technical analysis for professional investors. So that academic partner program is available to degree granting accredited universities and colleges around the world. We now have more than 30, who are part of the program, and it’s not a commercial endeavor. There’s no exchange of funds. But we do offer scholarships to the students who are part of those participating universities, so they can get a glide path into the CMT program. I’m not sure about you, Dave. But I ate a lot of beans and rice, kept to a very low budget throughout college. Ramen noodles. Yeah, the ramen noodles exactly when you want to just, you know, spice it up a little. But for the universities that are joining the academic partner program, it just indicates that their institution is maintaining the highest standards of academic rigor and professional practice. But it also signals to the students their their commitment to career readiness, and applied learning, which I think is maybe more important than ever for institutions of higher learning. As we get through this pandemic, students are looking to make sure that all of their programs are most applicable to the career path they’re going down.


Dave Lundgren  12:22

Absolutely, couldn’t say it better. Tyler, as you know, this is a podcast for the CMT Association and the members. So whenever possible, we want to make sure we give proper updates for what’s happening in the association, anything that you want to provide for this episode.


Tyler Wood  12:41

Absolutely. Dave, right now, the early registration period for the CMT program for those candidates who are thinking about taking any of the three levels in June this year. That early registration period ends on Monday, February 8. So if you’re listening to this, hightail it over to and make sure you get your registration in early. The other piece I wanted to mention is that the CMT Association supports academic partners around the world. And as part of that effort, we are going to be at the GAME Forum. So for professors, students, faculty who are listening, we hope you are also bringing your student investment managed funds to the GAME Forum conference that’s going to take place virtually beginning March 26 this year, so lots happening at the CMT Association. Feel free to reach out to us at admin: with any questions.


Tyler Wood  13:41

So with Louise’s education, she went on to win the Oscars of institutional investing, the high ranked top analyst 2001 through 2004. She spent 25 years at Smith Barney, which then became Citigroup. And for the last decade, she’s been running Louise Yamada Advisors, and it was, I’m sure, bittersweet for her to let her clients know that she’s officially retiring at the end of 2020. And so we were able to grab this podcast recording this interview with Louise to pick her brain a little bit about her phenomenal work in the book Market Magic, and many of her institutional clients have been reading for decades of Louise’s work. So Dave, thank you very much for doing this podcast with me or letting me do it with you I should say. Hopefully our listeners will really enjoy this episode too with Louisa Yamada CMT.


Dave Lundgren  14:46

Good afternoon. It is our great privilege to welcome Louise Yamada as our second guest here on Fill the Gap. Thank you so much for joining us today, Louise.


Louise Yamada  14:55

Oh, David. It’s a pleasure for me very much.


Dave Lundgren  14:58

Well, with with all that you have accomplished, we could easily talk for a couple of hours and we don’t have time for that. So I can’t wait to have you back for the second installment.


Louise Yamada  15:08

Wow, we’re gonna have a second installment. Now fill up the first one pretty well.


Dave Lundgren  15:22

So Louise, can you can you take a moment to just tell our listeners a bit about your path into this business? It’s, it’s more than impressive. It’s inspiring. Can you share it with us?


Louise Yamada  15:33

Oh, sure. I don’t know that it’s inspiring. But it’s, it’s an unusual path. I was left with a 10 month old child and no money. And I went and got my master’s in early childhood education and psychology and started teaching nursery school at Horace Mann on 19th Street, and was trying to raise some money selling things and I would call my broker and put them in he put me into something and I’ve watched it go up and watch it come down. At one point I called him and said, Well, how do you know when to sell? And he said, he sent me some technical newsletters Grandville, I think was one of them. Oh, and I ended up going to the Finance Institute in the evening for the technical analysis classes. And of course, Ralph always taught the first class, Ralph Acampora. And he was a riot and a lot of fun and made it really seem like a no brainer. And then the second class, the advanced class was always taught in Allen Shaw’s chart room at Smith Barney. And I had the great pleasure of being offered a job from Alan during that class. And I worked part time after I finished with the children until the year was over. And then I went full time with Alan and learned on the job. I had no real economic background at all. So it was a real learning on the job. But I think the thing I say is that early childhood education held me in very good stead on Wall Street.


Tyler Wood  17:18

It is amazing how similar Wall Street pros are to preschool.


Louise Yamada  17:23

And many psychological ways. That’s very true.


Dave Lundgren  17:26

I resemble that remark.


Tyler Wood  17:30

So if I could pause you that that was the New York Institute of Finance, correct? Yeah.


Louise Yamada  17:35

That’s correct.


Tyler Wood  17:36

So you mean it all the way downtown? It was right across the street from the New York Stock Exchange? Correct?


Louise Yamada  17:42

Right. That’s a couple of nights a week.


Tyler Wood  17:44

And you said it was? It was your broker who introduced you to Joe Granville and some of the other market letter writers of the day. Yeah. What, what prompted you to to start the evening classes to learn technical analysis, rather than any other discipline for investing?


Louise Yamada  18:01

Well, because I had specifically asked how do you know when to sell. And that is the application that really encompasses technical analysis, when to buy and when to sell. You know, the concept in price there is knowledge. And the trend is your friend, those very short, simple statements that tell you the benefits that you can reap from technical analysis. And I found it very exciting. So it was fun. I learned on the job, we had these wonderful long walls like a gymnasium. And I redesigned them so that the walls overlapped and moved. And we had history, hands-on history all the way back to 1974 on a daily basis that people had charted. And when I started with Alan, I learned, I was the plotter. And I did it for 15 years, and I hated to give it up after 15 years, because when you’re plotting the advances and the declines in the highs and the lows, you really see the relationships you see the negative divergence is developing, you can feel the internals of the market. And that was very exciting.


Tyler Wood  19:12

And for our listeners benefit, what year was it that you started taking these classes? And when did you join Allen Shaw’s team at Smith Barney?


Louise Yamada  19:21

I joined in 1980 part time and full time in 1981. That’s not a bad time to get involved in in the market. It was wonderful. And Alan had a piece in Barrons calling for the bottom in 1982. It was very exciting. And part of what was exciting about it is that I was also plotting these huge charts of relative strength. And you could see the consumer goods 30 year breakout. in the consumer goods relative strength, and I remember hollering across the chart room Alan we’re getting a 30 year breakout and all the consumer stocks were coming to the fore and it started this incredible rise. And I remember the fundamental analyst for Clorox at the time went out with a buy. And the stock went up five points, and he wanted to pull it. And Alan talked to him and said, Don’t he said, we’ve got targets, you know, 45, 50, 65. And the fundamental analysts couldn’t believe it. But we know what the consumer goods did in the 80s. It was phenomenal.


Dave Lundgren  20:25

And it was. You will, we’ll talk a lot more about those trends and other things that you observed through the 80s and 90s. But I will just quickly want to just introduce this idea that you had written a book in 1998. Very interesting. You you call it Market Magic. So I want to dig into the book because not only was it incredibly important when you wrote it, but I think it’s as relevant today as it was the day you wrote it. So it was just a fantastic book. But before we dig into the book, what did you mean by the title Market Magic? What did you mean by that?


Louise Yamada  20:56

Oh, I just thought it was fun. To be honest with you. I thought it was fun. And the beginning of it really encompasses the research that I did for Smith Barney in 1995. The first piece was a big trends report calling for a bottle that we were seeing as a stealth bear market and that the market could could go significantly higher. And nobody paid any attention to it at Smith Barney. So I took a long shot. And I sent it to Kate Welling at Barron’s, and she called me up and she said, let’s publish it. And so she did an interview for me. And that sort of, I think, put me on the map. And then the next year, I did another one, which was stargazing or crystal ball gazing, something like that, for Smith Barney, and it was about the concept of old tech and new tech, the first one was showing that we were moving into a global, you know, the globally exposed stocks were the ones that were moving to the floor. And the second report really started to delve into what technology was doing. And that included, you know, how it was increasing the productivity and that there was much further that the stocks could go. And that was 1996. And Kate did another piece on that. And those were the the basics, went into the book. And then I did additional sections asking questions and brought into it, question of water and something that should have futures on it. Because we were running out of it. I did, I got the data from the United Nations and that was kind of fun. And then came up with a formulation that I took with me to broker presentations showing the productivity quotient of technology, and that it suggested that these stocks could go significantly higher.


Dave Lundgren  22:51

Yeah, I remember. I remember reading the book in 2000. It was shortly after I joined the technical team at Fidelity. And I remember reading it. And that was fascinating when I did it at that time. But of course, with the benefit of hindsight, and having just reread the book again, just in preparation for today’s discussion. You’re kidding. No, no, I did. It was. I’m so glad that I did because literally Louise, it’s it’s is shocking to me how many critical trends that you identified in that book. And of course, in the research that led up to that book that truly have, for all intents and purposes have been all that have mattered to the markets for the subsequent 20 years. So you pretty much hit a trend that mattered. And you did it in detail with it with a deep dive on history. And it was basically it’s an MBA class on on macro economics. And but what I loved about it was that it was guided by what you were seeing, for the most part, technically in these long term charts that you’ve you know, you’ve learned to lean on over the years. So what I’d love to do is just to jump into a couple of the topics, and this isn’t really necessarily a deep dive on your book, specifically what i want to talk about it because as I said, not only was the book important then but I think some of these trends are just as important today as they were when you wrote the book. And so I think you’ll see our listeners would be interested to hear and certainly I would be interested to hear an updated thinking from you on on on these trends. Because, again, they could be the most important things happening for the next 20 years. So chapter 10. Do you remember what the title was?


Louise Yamada  24:27

Chapter 10? No, I’m gonna go look –


Dave Lundgren  24:30

I’ll tell you, I’ll tell you “Looking for inflation in all the wrong places.” So that was right. 60 song, right.


Louise Yamada  24:36

That is right.


Dave Lundgren  24:38

Now looking for places, right. So you when you were sort of summarizing the book, at that particular chapter, you said that we’ve seen in this chapter how the conventional measuring sticks do not capture the frequently weightless, instantaneous near infinite and free of raw materials costs. Nature of technologies gifts, which was, again, we can look back in hindsight and say, “Well, that was obvious,” but back then it wasn’t obvious. So that was just a truly prescient statement. And so and again, we can make the argument that these trends don’t matter. And you also finished up by saying, perhaps by incorporating the laws of physics, which I’d love to hear you elaborate on, we can better assess the flow of the economy and understand the anomalies we have seen such as wage gains, coupled with nearly full employment, absent inflation, which again, both of those statements I could make today. And they’re just as relevant today. So you really hit the nail on the head when you when you made that observation, and I noticed that you had responded to Joe Carson on LinkedIn the other day, in agreement with him as he was basically making the same point. Today, here we are 20 some odd years later, and he’s still making the same point. So I just wonder, is it – are these trends going to drive continue to drive markets going forward as they have in the past? And is it conceivable that they’re just as misunderstood today as they were back then? Because the Fed doesn’t seem to doesn’t seem to be emphasizing it as much in their inflationary commentary?


Louise Yamada  26:06

Well, yeah, I think that yes, I think that these are concepts that will continue, but the reasons underneath them may be a little bit different. I mean, I can be, I can be very skeptical of what goes on in the government. And I think that a lot of why they want to keep inflation reported low has to do with not having to acknowledge the inflationary move that they have to make in Social Security. If they start to see inflationary trends, I think that part of it is changing from the CP whatever it was to the CP, which instead of counting meat, because people are eating less of it, they don’t have as much money, they count chicken and if they don’t have enough money for chicken, they do beans and rice, which although it’s healthier for you would they would prefer not to and therefore they come up with a much lesser food inflation. On the other hand, anybody who ever ate chocolate Hershey bars knows that Hershey bars became Hershey wafers. And now they’re sent now through thick, but they’re very narrow. The content of everything is is is the jury rating, and you’re paying the same price if not more for it. I mean, I happen to love that dark chocolate dove things and they changed the packaging not too long ago. And I said, I know they’ve done something else here. So I took out the the number of dove candies in the old package, and the new package had two fewer, two fewer pieces of candy and the price was the same but they kept the weight up because they put it in a heavier packaging drive. Now my mind is happening with anybody who shops, and mostly the men don’t shop; that may be different now. But you know, a five pound bag of Domino’s sugar, whether it was 2.50, or what have you is now a four pound bag of Domino’s sugar for 2.50. And it’s 20% inflation. And, and none of that is getting factored in. And not to mention the costs of healthcare and everything else. But I think that there is it has to do with the dollar. And the fact that we have so much debt and the value of the dollar is deteriorating. So you need more of them to buy what you used to buy for less. It was a wonderful, as was one of my favorite statements here, I just brought it to be able to share. In 1920 a $20 gold piece was worth $20 and could purchase a man’s suit, a $20 paper bill in 1920 could also purchase that suit. Today, the $20 gold piece is worth nearly $2000 and can purchase a man’s suit. That same $20 paper bill today can purchase a pair of socks. I mean, that’s what’s happening on the inflation trend and it’s not being picked up. And I think that it’s becoming more and more difficult for people; you know, if you have four people in your family, to feed them, because you have to buy more and more of what you bought less before.


Tyler Wood  29:21

Well, you know, Louise, we just keep adding more questions to the CMT exams. So inflation is not alive in our line of business.


Louise Yamada  29:31

You can see it on the charts. And if you use shadow stats, you’ll see that it’s running around 6% in that one point, whatever they’re reporting, but yeah, and the thing on physics that – David, I am so impressed that you reread this – I should have reread it myself to have a better idea of what you were going to ask but the chapter, it’s the new economic perceptions, chapter 30, to where I really get into the economy of physics and that wasn’t in any of the reports that I wrote for Smith Barney, but it really came to me as the concepts of the intangibles that you mentioned are available. So if you think of it was that the law of thermodynamics is what it is, productivity equals output over input, and product over cost, and then you take the energy both heat minus work, these are all. So it was really fascinating to pull up this formula. So if you if you think energy of productivity, we have the intangibles and work as the tangibles you have the concept that your productivity is going up because the intangibles are getting larger, and the tangibles are getting smaller. And then I played with the time factor, velocity equals distance over time. So if the velocity distance is the heat minus the work divided by time, or the energy divided by time equals the productivity divided by time, so the productivity is rising to such an extent that the time element is much shorter, right? It’s just, it’s fascinating how it all fits together.


Dave Lundgren  31:19

Tyler, I think we’re gonna have to put those formulas in the podcast notes from a physics textbook for all listening. I was gonna say that we should we should put this stuff on CMT level three. That’s some good stuff right there. So Louise, one of the things that you were very early on, along with Alan Shaw, highlighted in the early 80s. Was the breaking the inflation trend. And you wrote about this in the book about how, when you get to the questions, part of the book went towards the end, and you started asking questions about the research you were uncovering? And one of the questions you would ask was, and I’m sort of paraphrasing here, but is it possible that if interest rates are raised to allay inflation risk that such a move could boomerang, further hampering the old – what you refer to as the old economy stocks, and having no impact on the new economy stocks, and that, that’s pretty much what happened for the next 20 years. Because there was a time in the 80s and 90s, when interest rates went up, it would cause a problem for the broad market because everybody was still worried about inflation coming back. But when we turn the corner in 2000, when this sort of disinflationary trend turned into deflation, which you do read about in the book, it was at that point in time when interest rates going up really only started to impact the deeply cyclical parts of the market. And it really was like nonplussed for the growth, the sort of technology names, of course, with the implosion of the bubbles, but that’s a separate episode. But for the last, say, 10 or 15 years, interest rates really haven’t mattered to the growth part of the economy. And I’m curious, is there this again, is this something where it’s going to be like this until this particular cycle ends? Or do you see any changes afoot that that kind of might make for different patterns going forward?


Louise Yamada  33:05

Well, I think that a great deal of the old economy companies have utilized new technology to an extent to make them more productive, I would suggest, but the thing that worries me is not so much the inflation aspect of the interest rates. But the fact that I think the US, I think the dollar is probably losing its strength globally, if we go back and think about Britain, and the pound having been the major reserve currency for so, so long until post war, and then the baton was handed over to the United States as the economic leader and the dollar became the the reserve currency. I think we’re in a process, which is probably a multi-decade process where we’re seeing that being handed over probably to China and the yuan, and the economy, there’s going to be enormous, I mean, their population is enormous. It’s very much what happened here. And I wouldn’t be surprised to see a gold backed yuan down the road someplace. We are so indebted. And we are so indebted in terms of what we’ve spent in these, I would say ridiculous wars in the Middle East and what we’re doing now for the pandemic, not that everybody isn’t doing it, Europe is doing it too. But the question is, will we be able to get out of it. We know that China and Russia are buying less and less of our bonds. As a matter of fact, China’s actively decreasing their purchases of our bonds, which means the there will be excess supply, how much of that? Do we print money so the Fed can buy them back? I mean, at some point, interest rates are probably going to go up on their own basis of having too much supply of the bonds themselves, and I don’t know how we avoid that. I don’t know to what extent it leads to hyperinflation down the road. I’m not seeing that immediately. But I suspect that we’re looking at something like that unless we have. I mean, I think Yellen was a good appointee. And I think the government, well should be able to try and compensate for that let the bonds come do whatever it is that they do to unwind a lot of the debts that we have otherwise, what do we do end up like, Japan?


Dave Lundgren  35:29

What we’ll ask, we’ll see what what the future does hold. If you know, I think if John wrote over it both research, he coined the phrase, I think it’s broad … basis, which is just a gigantic base, if you look at the will, again, we’ll provide a copy of this down in the Episode Notes, but the Shanghai Composite is coming out of what looks like a 13 or 14 year base. That could be pretty telling and you know, Louise, you’ve proven to be a pretty good forecaster. So we’ll definitely be paying attention here going forward. Do you see a role for this sort of transition in currency dominance? Do you see how do you see Bitcoin fitting in? Or was that just a sideshow?


Louise Yamada  36:06

And Bitcoin is something that I have such a hard time trying to get my hands around. It’s something that it’s not as tangible to me as everything else. I’m just looking, I’m taking a side show here and looking at the Shanghai, after you mentioned it, or actually, and you have, well, you have from 1916, a flat base, it’s just drifting out through that. But if you took the draw up and 19, 14, 15 as the middle of something, you could call it an extended double bottom that goes all the way back to the … let’s see where, 2009 2008 right. So that’s an enormous potential. You know, I’d be inclined to agree with that.


Tyler Wood  36:50

Louise, you wrote in 2005, about a less America centric world, obviously seeing the outperformance of emerging markets going into what became the global financial crisis. Do you see these last 10 years as you know, a mere consolidation, and we’re gonna see that trend to continue from here.


Louise Yamada  37:09

I think that there’s a good chance, although the developed markets have outperformed until just recently just broken the long term downtrend on the ratio between developed and emerging and developed markets, the emerging markets and I think China is a heavy weight in that if I’m not mistaken. Yeah. China, I think, is playing a huge part in in the future.


Tyler Wood  37:36

I think one of my favorite phrases from the Smith Barney team, and you can you can set the record straight whether this was yours, or Ellen’s or Ralph’s. But the phrase that the bigger the base, the higher in space …


Louise Yamada  37:51

is bigger the top, the bigger the drop, and the bigger the drop, the longer the need for repair. It’s Alan and Ralph. Which one started it? I’m not sure, but it was definitely their phrase.


Tyler Wood  38:03



Dave Lundgren  38:05

I love the question because it actually dovetails in with another one of the themes that I thought was just really incredible that was highlighted in the book. And Louise, you talked about how developing nations were completely bypassing old tech just because they were they were sort of coming into the tech boom with no technology base to begin with. So they just began moving right into the new tech as the economy was unfolding in real time. So is it you know, Tyler was asking, is it? Is it possible that that, that the EM was sort of just taking a breather over the past 10 years? But is it – is it feasible that they come back into play again? And we’re talking about China here, breaking out of this base? And is it, is there something to that where these emerging markets have, they’ve already already, like adopted all this new technology, they just completely bypassed?


Louise Yamada  38:54

The ones that are starting, you know, with, with the advantage of having access to the new technology don’t have to have all the old telephone lines or buried anything, that’s all you know. I remember going in 1992, I went with the Financial Women’s Association, I went to Argentina, and I was so stunned to see everybody with, they weren’t cell phones, but they were the handheld phones where they communicated with one another. And it was stunning. I mean, they were already getting involved in the new technology. But that’s really helped them a whole lot. But it’s been a bit mismanaged. But yes, and I think that that’s one of the discouraging aspects of it, look at China with the new rail roads, etc. And we’re still struggling to get anything going that will connect our cities, and it’s all old tech, and it’s difficult and very expensive to make those changes. Whereas had we been able to start the way they’re starting it gives them an advantage. Of course, forget the fact that China’s … don’t let all the promises, I could do it even faster.


Tyler Wood  40:08

Louise, you asked just a moment ago about whether we become the next Japan, which leads us to her question about demographics. And that aging population has not being a tailwind to the growth. But in a lot of emerging markets, we’re seeing these population booms. How would you compare the millennials to the baby boomers in terms of their likely impact on markets?


Louise Yamada  40:30

Well, the demographics plays a big part in the stock market. I mean, we’ve seen – and I think it was Harry Dent that I used as an example, in the book where each population, each generation has had the equity market go up, according to how many people there were in that in that population group. And the baby boomers are the first and largest that we’d had now, 77 million. And it looked as though we weren’t going to have anything bigger coming along. So there could have been a big dip between us and the next generation. But you know, we have now having been born population that’s even larger than the baby boomers. So I think that alone could argue that our market go higher, forget the depreciation in the dollar, which I think will also serve to push it higher. Without interest rates, there are no other assets really, that you can throw your money at. But it is a large population. And this 33 billion or so that’s come in this last year in terms of new accounts on the part of perhaps young people is perhaps the starting point at which they become interested in putting money in the market. Unfortunately, a lot of it is speculative. And we’ve seen some of that, from the web, you know, from their talk websites, or whatever it is that they use Reddit and all that where they’re on top of it all. But I think that we have a good chance of having a continuation of a good stock market based on purely just demographics. We have a large upcoming younger population.


Tyler Wood  42:15

And we know the millennials are just now coming into their family formation phase, with impacts on real estate and expanding their own families. What sectors should we be looking at going forward if we wanted to capture the impact of millennial spending patterns, and feel free? If you want to mention, you know, favorite stock specifics? or ideas you might have just on where we should look for those trends?


Louise Yamada  42:43

That’s a very good question. And we do an awful lot of relative strength work on a monthly basis. And it has held us in good stead in terms of identifying the tremendous relative strength tops that was taking place in 2007, and the breakdown in financials, which allowed us to get our clients out of the financial – same thing for energy in 2014, a large top in the relative strength progression, which suggested to us that that, too, was entering a structural bear market. What’s very interesting to me is that we haven’t gotten a real sense of which sectors might be forming enormous bases. I mean, clearly, we think technology is going to be a part of it. But I think I’m just trying to pull up some of the – I mean, you still see technology as being a leader here. Industrials is a lot less impressive in terms of the relative, as a matter of fact, it’s made another downturn in an already five year decline. I think there may be something developing in healthcare where it has been in a flat pattern since 2016, has not yet broken that support level. So you have like a sideways action taking place, something to be watched, financials have underperformed since 2009. And there’s nothing very exciting about that pattern even today. The same thing can be said for energy. Consumer staples has been disappointing. It had a nice consolidation but it’s gone to new lows. Consumer discretionary, of course, now that you’ve got Tesla in there, I don’t know what to make of it, but that’s been in an uptrend. So it’s not as though it’s a new base, but it looks like obviously a continuation of an uptrend that started back in 2009. Telecommunication services of course, which did not have all the technology names in it but now has broken out of an absolute price base that goes back to about 2007, and now we need to wait for some kind of turn in the relative strength. So maybe healthcare is what showing up as a potential for a new relative base that would give us a sense that there’s something coming there. But I’d like to see the breakout. So yeah.


Dave Lundgren  45:24

So in our first episode with Bob Farrell, he made a comment that, that you don’t typically see leadership transitions during a bull market, you see them after, which would imply pretty much everything you just said, which is that energy financials, industrials, they don’t hold any hopes for holding on to sustained leadership until this bull market is over. Is that is that something you agree with it? Or would you? Would you have the evidence –


Louise Yamada  45:50

Well, I think one of the things that well, I don’t see anything about even stabilization and energy, it’s still in a downtrend that it has been in since it broke down in 2014. That’s the relative downtrend. Price is trying to stabilize. And you have, at the very least the potential for a rally and maybe some basing, but nothing that’s going to give us six years yet, that suggests it’s coming back. I think if you put a lot of the solar names in with or some of the alternate energy in with the energy sector, which s&p is always late and doing this, they do the most ridiculous changes in their sexual behavior. But obviously, it’s in the new technology that we’re going to see technology taking over again, really, yeah. Yeah. And and that’s the part that going up. I mean, maybe it still doesn’t have the earnings that you’d like to see. But it is a beginning, it is new technology. And it is something that should be incorporated in the energy sector, at which point maybe we begin to see a basic process. But until then we have to look at them as a separate entity. So if I lost track of what you said, No. So at the moment, yeah, I don’t – I don’t see what I’d like to see in terms of when we saw the 30 year base breaking out in the relative strength to consumer goods back in 1981, 82. There’s nothing that dramatic, there’s the potential for healthcare, and then we’ll see what happens with some of these other sectors.


Dave Lundgren  47:28

This is just more suffering for value managers, until the bull market’s over.


Louise Yamada  47:32

Yeah, well, you know, yeah, I would say – I would say yes, and I take, I take exception to the concept of value from a technical analysis perspective, have a value, watch list, and wait until those stocks start to give you some kind of technical evidence that they’re coming to the fore, that there may be transferring into growth, because value is nothing more than the non-growth stocks, basically, that have either suffered bear markets and need to repair or simply don’t have the earnings or the interest yet, but if they start to develop basis and break out, that’s when the value manager should go after them, not sitting on them for the four years while they repair. Right. That’s my thing about value. Value to me is is growth that is no longer.


Dave Lundgren  48:32

Right. That’s it That’s one of the ways where traditional fundamental manager can really leverage technical analysis in the sense that they can, they can find value stocks, just like anybody can find value stocks, but they can lean on trend to help them identify when the market cares about that value, and frankly, identify when the market has estimated that growth is in there to unlock that value opportunity, right? Because that’s what … is all about. It’s just cheap, but it continues to stay cheap, if not cheaper, because there’s just nothing to unlock the value.


Louise Yamada  49:04

The growth hasn’t come to the fore yet. Right. And then those value stocks become growth, and then all leaders can become the value. Yeah. But I think that technology is going to continue to be a leader. We’re in a long term trend here that that unless you don’t have new, you know, discoveries is going to propel what happens going forward. So you need to see new energy in the energy sector and all s&p and all, yeah.


Tyler Wood  49:42

So I was listening to the CMT Association webcast presentation from January 27, with a very smart analyst out of the Philippines, who is explaining some of the names in the technology sector that might not be well understood. Her contemporary was that some of the esports, the gaming, that is really not part of my world, I don’t understand why somebody would pay hard currency for an avatar or some, you know, electronic skin on their character in a game. But our contention was that they’ve diversified from what was just a game, to online dating sites really core to people’s identities, particularly if you start to think about the millennial generation, not just of developed markets, but throughout Southeast Asia and elsewhere. Do you find from you know, the quality of leadership that it really depends a lot on the the diversified application for those industries, and that they are leveraging that technology in new ways?


Louise Yamada  50:45

And that’s a question I don’t really feel qualified to answer. I am not familiar with a lot of gaming stocks. I don’t know to what extensive moving into I’m sorry, I didn’t hear that. I saw it coming up. I don’t I can’t really answer that.


Tyler Wood  51:02

Of course, I’m out of my depth, probably


Louise Yamada  51:03

Right. She’s probably right. What names did she give you?


Tyler Wood  51:09

She was talking about a number of names that I have not actually even heard of before. But within the Chinese tech sector. I think what one of the things that we’re seeing lead the Shanghai Composite are these platforms and online gaming networks. She mentioned a number including Roku, that’s familiar to everybody. But I think as an analogy to sector groups or individual companies that have really led, it seems to be that, you know, Apple’s technology now has application in every aspect of our life. And that, that sort of gets the flywheel moving. Have you thought about


Louise Yamada  51:47

10? Yes. For sure. One of them. Yeah. And probably Baba and JD. And what have you. Interesting. Yeah. Well, one can look at what has done well here and find the equivalent over there and start to invest in them. I think a lot of companies are already doing a lot of investing in China.


Dave Lundgren  52:12

Louise, maybe we can transition a little bit. But we don’t want to keep you too too late here. But your company, Louise Yamada Advisors. If I’m correct. You’ve retired from your regular publishing schedule, and you’ve kind of turned the daily chores over to Jonathan Lin. Is that correct?


Louise Yamada  52:31

Yes. He was interested in trying to keep it going. And I would say 99% of the clients went with him. And that’s very nice for him. And I will – I contributed to the initial piece, I have a piece of stock ideas for him for the coming up piece and publish this week. And it frees me up from the deadlines. But I have the ability to write something as I see something that might be pertinent and included –


Dave Lundgren  53:03

Jonathan’s been with you for 40 years. So he’s


Louise Yamada  53:08

he’s obviously all the way back to Smith Barney, he and Laurie Altenburger. Yep, together all these years.


Dave Lundgren  53:16

Yeah. So he’s obviously got quite a bit of experience himself. But he’s also learned, learned at your side. So I’m sure he’s more than qualified to take the helm. He has a CMT charter as well.


Louise Yamada  53:28

So what do I think, I seem to like to keep my hands in that? I mean, I’m looking at the market every day. It’s kind of fun. I’d like to try and play it myself. I didn’t do a lot of it at Smith Barney because you couldn’t trade and I haven’t done a lot of it while I’ve been writing because I didn’t seem – it seemed like I shouldn’t. And hopefully, now might be fun. Especially especially following what you’re going to be doing.


Tyler Wood  53:59

Dave, would you like to comment on that for our listeners today?


Dave Lundgren  54:02

I don’t know. I I’m, I guess you’d call it a private investor today. I love – Yeah, I’m trying. I’m doing my best, truly doing my best to decompress and just try to relax after. That’s great. Managing other people’s money. And I honestly have to tell you, I’ve never been so busy.


Louise Yamada  54:23

Isn’t that funny? how that happened? The same way? It’s exactly the same way. But something in the blood. About the challenge.


Dave Lundgren  54:35

Yeah, it’s like golf. I hope I can play golf forever. And I’m sure I’ll be interested in the markets forever. And, and as I as I’ve said in the past, I mean, I’ve been doing this for 30 years, and I don’t feel like I’ve worked a day in my life. So it’s a great business. Yeah, so plus, I get to meet people like you, Louise.


Louise Yamada  54:52

Oh, aren’t you sweet and the same Tyler


Dave Lundgren  54:54

In reverse? Definitely. So, Louise, you have this unmatched curiosity. You’ve always had this appetite to learn more. So I’m curious what what are you reading for books these days, anything, anything catches your attention.


Louise Yamada  55:08

I can’t say anything market related. As I mentioned before, I’m trying to learn Market Smith, I’m trying to learn some of these other charting offerings so that when I don’t have Bloomberg anymore, I can move on to something else and keep up the same interest that sort of has occupied me along with transferring the business over to Jonathan, that’s been a big, a big part of what’s been happening this past month. So there hasn’t been a lot of extra time. So I hope to get some pleasure reading done at some point.


Dave Lundgren  55:41

If you’re open to it, maybe we can take either a current or recent one of your notes from Jonathan and we’ll put it in the podcast notes for our listeners.


Louise Yamada  55:49

Oh, sure. Yeah. That would be great.


Dave Lundgren  55:52

Maybe this week. All right. Louise, I, I think I have 30 more questions for you. And we’re out of time.


Louise Yamada  56:00

Okay. Happy to go over them. Again. There’s so much that we can talk about just from a technical perspective, all the adages, you know, all advances aren’t equal, all declines are not equal. All that sort of bottom fishing can be dangerous here. Well, yeah.


Tyler Wood  56:18

Absolutely. If it’s alright, Dave, I would I’d love to conclude with with one last question, please. Yeah. So in 2016, Louise, we had the unique privilege and honor of recognizing you as the CMT Association’s annual award winner, you’ve got accolades throughout the industry, including the II’s top ranked analysts, 2001 through 2004. And, and many others, but for me that the thing that really compels this work and working with Dave and others like us, is just the camaraderie that comes from membership in the CMT Association. And I know in our previous calls, we talked a little bit about the team at Smith Barney. But I was wondering if you could share with folks just, you know, the lifelong relationships that you develop just with colleagues and friends and clients, either within the CMT Association or outside as well?



Well, I think 2016 came as a shock to me. I mean, it was delightful. I mean, Gail Dudack was darling to propose me for a lifetime achievement award. And I was really overcome, I must say, I think a lot of the clients like David and Frank before him have become friends. I mean, we don’t actively do things together, but free to talk. And I think I have had a tendency to be a bit shy and withdrawn. So I may not have done as much active participation, although I did do several years of grading the CMT work with Bernadette Murphy years back. And strict grader, I must say, but it was it’s a cute little anecdote, because John Murphy and I would grade with Bernadette and John was a very easy grader and I was a very strict grader. And Bernadette told me years later, that she always had to go home and bring his grades up and my grades down. To get a proper, a proper perspective on the poor kids, papers.


Tyler Wood  58:26

That is brilliant. Were you close with Bernadette when she brought her niece into the business?


Louise Yamada  58:34

Not that far back? No. It was actually more or less when she got involved with the CMT grading and pulled me into that. So I did that with her for several years with her. But I knew Marianne. Marianne. Yeah, yeah.


Tyler Wood  58:51

Getting started at Merrill Lynch.


Dave Lundgren  58:53

She’s wonderful.


Louise Yamada  58:54

Yeah, yeah.


Tyler Wood  58:56

Well, now we know our next guest for the show, right?


Dave Lundgren  58:59

Yeah, yeah.


Tyler Wood  59:03

Oh, Louise, thank you so much for joining us today.


Louise Yamada  59:07

Whoa, you’re just darling. And I appreciate the appreciate the it’s been fun. I still can’t. I’m bowled over that David re-read the book. Oh, my gosh.


Dave Lundgren  59:20

Reread it again. It’s fantastic.


Tyler Wood  59:23

Thank all of our listeners. Yeah. Thank you, Louise.


Louise Yamada  59:27

All right, my pleasure.


Tyler Wood  59:37

Fill the Gap is brought to you with support from Optuma. In addition to candidates’ study of the official CMT curriculum, Optuma provides a full video course on all of the material that candidates need to know for each level of the CMT exams. Each course is broken up into modules ranging from 15 to 45 minutes depending on the complexity and length of the topics being covered, learn Hey, Dave, can you tell our listeners a little bit about the resources that go along with this podcast?


Dave Lundgren  1:00:16

Absolutely. So when we host a guest, of course many things will come up throughout the conversation; will be charts, a book that they’ve read or a perhaps a book they’ve written, some of their research, what have you. And so just want to make sure that our listeners know that at the end of each podcast, or at the end of each episode, there will be links to the various resources. So for this particular podcast, we’ll have a link to Louise Yamada’s last research note, as well as a link to her book Market Magic, which is just a fantastic book. It’s a central focus to this discussion that we have with Louise, and it’s a must read book, I think for anybody who’s serious about market history and about tying technical analysis together with macro trends.


Tyler Wood  1:00:58

Brilliant. And for those of you with feedback to Fill the Gap podcast, there are speakers that you want to have us interview, suggested topics and themes that we need to be covering. Please send your feedback to you’ll find all those resource links available at under the Fill the Gap Podcasts.

As a participant in the Amazon associate program, the CMT Association may earn a commission from purchases made using some of the links in the Resources section above.


Louise Yamada, CMT

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Tyler Wood, CMT

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David Lundgren, CMT, CFA

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