Clay Finck (02:51):

Now, a lot of the podcasts you’ve been on, I tune into naturally. You’re just a wealth of knowledge. A lot of people ask you about Bitcoin and a lot about macro in particular, but I like to take this conversation a little bit of a different direction initially, because I just really admire and respect what you do because you were a medical doctor, now you manage money for others at your own company called Vailshire Capital. Talk to us about what exactly you do at Vailshire and what your investment approach looks like.

Jeff Ross (03:21):

Sure. Thanks. Well, again, thanks for having me. I’m really happy to be here. So Vailshire, it started in my head probably in 2011 or 2012, where working as a full-time doctor, I was a partner in this group here in Colorado Springs where I was a radiologist and an interventional radiologist. And I started thinking like, “I had really liked being a doctor, but I would love to actually manage money for a living.” And so that’s where the idea got in my head. And so I spent a lot of time thinking about if I were to manage money professionally, what would I like to do? And so I came down to the thought that what I would like to do most of all would to be a hedge fund manager.

Jeff Ross (03:55):

Why a hedge fund manager? That’s basically fits with my personality. I kind of like doing my own thing. I’ve always kind of considered myself a Maverick even before the movie came out. I kind of marched to the beat of my own drum, if that makes sense. And so what I like about that is just not working for another firm, making my own investment decisions, being fully responsible for them. Similar to being a doctor honestly, it’s kind of the buck stops with me. Either I can help you or I can’t, and I’m going to try to do my best. I’m going to use all my intellect and all my diligence and just my desire to help people be better versions of themselves. So I want people to be as healthy as possible. I want them to be as financially wealthy and as financially literate as possible. And if I could do that through Vailshire, then that would be awesome.

Jeff Ross (04:39):

So that’s how it started. It started as just this idea. And then back in 2011, 2012, I started fishing around. And what I first did is found an attorney out in San Francisco who helps emerging fund managers basically get set up and get going. So that’s how Vailshire started conceptually. He helped me put together everything that is required to start up a hedge fund, let me know what I needed to do, sort of walk me through that process. I literally knew nothing, right? I was just doing this kind of on the side while I was working full time as a doctor. I was on call every fourth night so life was really busy. I did a lot. I worked night shifts as well here and there. So I would do a lot of this stuff on night shifts in between cases. And that’s kind of how it started.

Jeff Ross (05:16):

And what I do now, so it evolved from at first I had just a hedge fund and it opened fast forward to 2014. I founded Vailshire in 2013, the hedge fund started in the beginning of 2014. And then it was about eight months later that I also opened up the RIA side. So our registered investment advisory side of it where I separately managed accounts for people.

Jeff Ross (05:35):

The reason why I did that, I didn’t plan on doing that initially, but with my hedge fund, the way hedge fund fee structures work is when you take something called an incentive fee or incentive allocation, your fund participants, the limited partners, need to be accredited. They need to be accredited investors. That’s just an SEC rule. So I didn’t really think about that at first, but that basically excluded 99% of everybody I knew from joining me in Vailshire. And so I started doing to separately managed accounts so that people with smaller amounts of money to invest could actually join me and benefit from the way I do things. And so then by that point, they didn’t have to be an accredited investor. The minimums were much lower and then I could manage people’s IRAs and their taxable brokerage accounts and things like that.

Clay Finck (06:16):

I’m interested in your development as you make the switch from being a doctor to a hedge fund manager. What were some of the key pieces, figures, books in your development to make that switch?

Jeff Ross (06:31):

So, first of all, I’ve always been interested in investing. So even though I was a doctor, I think I told this story with Preston a while back, but I had to make the decision in college. Do I want to go down the investment pathway or do I want to become a doctor? Because you really can’t do both. I decided to go pre-med. And when I went pre-med, that was way back in 1994 where I made that decision. And then that pushes you on this whole track, right? Like, you can’t really do anything else other than just try to breathe, get up for air every once in a while because you’re so busy through pre-med and then medical school and then my residency and then my fellowship training.

Jeff Ross (07:00):

So by the time I got out in 2008, even though I had always loved investing, I was just dirt-poor med student and dirt-poor resident so I didn’t have a lot of money to invest, but I still did invest kind of on the side while I was going through this training. When I got out in 2008, I finally had a little more free time. I wasn’t working these 80 to a 100 hour work weeks anymore. It backed down to more like 60. 50, 60, somewhere in there. So I just had a lot more free time. So what I did right away, I think the best way to learn, and this is my personality, but I’m a big believer in just getting out there and doing it. If you want to learn how to do something, be ambitious, take a chance, get out there. And there’s no way, there’s no better way to learn than just getting out there and doing it. So that’s what I did.

Jeff Ross (07:40):

The first thing I did is I started a blog, I think in 2009, just teaching people how to invest on their own. I started writing articles and then, I don’t know, within a year, I got picked up by The Motley Fool and seeking alpha as well. I started writing investment advisory articles for them. That is a fantastic way to learn because if you say something stupid or foolish or whatever, people will let you know. They’re like, “This is ridiculous. You didn’t even talk about, whatever, price to earnings. You didn’t even talk about this” or something like that, you know? And so you learn very quickly what is right and what is wrong. And then over time, you start to develop your style. You start to figure out how you like to invest.

Jeff Ross (08:14):

And so this is a long runaround to your question. So what helped me? So along the way, back then it was tougher. I did the traditional route, so I kind of followed the Warren Buffet approach. Initially, I was basically a value investor. It’s actually how I found Preston and Stig early on, is I used to listen to their podcast quite a bit. And then ironically, it was Preston who introduced me most seriously to Bitcoin. I went down the rabbit hole kind of the same time he did as well. So we followed kind of a similar path.

Jeff Ross (08:38):

So yes, basically anything value related, I love to read. Those kind of how to evaluate stocks, the traditional, the Peter Lynch books, those kind of things, and just figuring out different types of investment strategies was how I did things earlier on. I also subscribe to lots of different investment advisory firms as well, subscription newsletters, those kind of things. And then I would just sort of pick and choose. You learn quickly who provides consistently valuable information, who’s more of just kind of a marketer. And there are mostly marketers in this industry, but some of them actually provide really good content. They provide great signal and little noise. So I learned to figure out who those guys were.

Jeff Ross (09:13):

So I would say that’s the way I learned the most initially. Along the line a little bit later, I actually went back and got my MBA in finance as well just to kind of say I did it and had it kind of… I was able to notch that up on my belt. Not really for pride, but more because a lot of people didn’t take me super seriously being a doctor switching to finance, because there’s the common stereotype, doctors are terrible investors, so I’m like, “Well, I mean, many are, right? And there may be reasons for that, but not all obviously. And that’s just a stereotype, it’s not a rule.” So I just went back to get that to solidify to make sure I kind of knew what I was talking about.

Jeff Ross (09:44):

From an academic standpoint, I will tell people just right off the bat that getting an MBA is possibly not the best decision. It could be fun and enjoyable, which it was for me. How much you really learn about running a business or especially what you learn about investing, I would say it’s actually contrary to what you do in practice. The academic models you learn, getting a finance degree, may actually harm you more than help you, which is pretty interesting.

Clay Finck (10:09):

You really hit on Buffet and Peter Lynch there. And I think about their strategies. It’s a lot of times just like a buy and hold approach, but with the podcast you’re on, everyone wants to ask about your macro opinion. So how’d you develop that macro framework? I know you’ve mentioned Druckenmiller in the past.

Jeff Ross (10:24):

Yeah.

Clay Finck (10:25):

I’m not super familiar with his work, but maybe you could talk more about how you developed that skillset.

Jeff Ross (10:30):

Sure. So like I said, I started as a stock picking value investor. What I realized at last decade is that value investing sometimes just doesn’t work very well. And so I actually started out and the fund was underperforming for several years of the S&P 500, drove me nuts. I was like, “What am I doing wrong? I feel like I’m doing everything right from a value investing perspective.” So what I started to learn is that I’m more inclined towards being a top down macro guy and that my whole system has completely morphed from being this bottom up kind of guy to this top down, “What is my view of the world? Where do I think things are moving? What asset classes are in secular bull markets? Which are in a secular down trend?” Those kind of things. That’s how my brain works. Once I finally adapted Vailshire’s trading system to that, it has made a pretty significant difference. It’s really improved our results.

Jeff Ross (11:20):

I’ve taken from… You mentioned Stan Druckenmiller. He’s kind of my hero in the hedge fund world. I think he went 30 years without a losing year or something like that. I mean, just incredible. He views things from a top down approach and he looks at things and talks about things differently than a lot of other fund managers. You hear other guys like Bill Ackman and their kind of people, they’ll talk about a specific company. They’ll say, “I think it’s going to the moon,” or “I think it’s a fraud,” the whole Herbalife deal and Carl Icahn got in it. That kind of stuff just doesn’t interest me and I don’t want to go do some proxy battle for some company or try to drive it down into the ground if I think they’re fraudulent. That stuff is cool and I’m glad there are people like that, but that’s not how my brain works. I think of more of what is the economy doing as a whole? What is inflation doing? How is the fed responding?

Jeff Ross (12:04):

You can actually somewhat predict based on historical precedent what different asset classes will do based on those kind of metrics. That’s how Stan Druckenmiller invested. That’s how Ray Dalio has invested as well. And so I thought, “These guys know something that I don’t know.” So I spent literally like the last eight years trying to figure out how they did it and what their secrets were. I’m to the point now where I feel like I get what they’re talking about finally and I feel like my system is finally in line with that. So I’m excited about that.

Jeff Ross (12:32):

And just for your listeners, what does that mean? So basically, when the economy is decelerating like we have, and you see inflation acting in a certain way, you can predict what currencies are going to do. Primarily, you can predict what the US dollar is going to do, the king dollar. You can predict what treasury rates are going to do, both on the short term and the long run. And predict means you aren’t 100% accurate, but you raise your probability level of what something is going to do. And if you can invest with that and you can do that consistently over time, you’ll consistently do well and you’ll consistently generate alpha. Different equities then, different sectors perform the same way. So if interest rates are rising or falling, financials tend to rise or fall. Tech stocks tend to do great in lots of different environments and really poorly in other environments.

Jeff Ross (13:15):

So anyways, all of that stuff is how my brain works. I think about all these things all at the same time. And then I finally have a system that sort of incorporates all that into an investment strategy that we can deploy across our portfolios. And so that fits me. It fits my personality. I feel like I’ve kind of come into being this last year. Literally, I just retired from medicine back in October of 2021. I feel like I’ve just kind of taken off of, this is who I am, this is who Vailshire is. It’s been really fun to get to talk about macro regularly on interviews and things like that and on stage and talk about Bitcoin, those kind of things. Things that I really believe in these huge secular up trends get me very excited. I love investing and I love investing in the future. And then helping as many people come alongside of me and profit as well, it makes my day.

Clay Finck (14:01):

Yeah, I really love all of that. And so many times in my interviews, I think back to one of my favorite interviews is with this manager, his name’s Adam Seessel. He wrote a book called Where The Money Is, and he combines these kind of top down, bottom up approaches where the bottom up is you find these companies with strong moats. And the top down approaches, they’re in the technology sector. Tech’s the future, and then you find these companies that have that moat that is essentially impenetrable and he combines these two ideas in his book. It’s just such a great interview. People probably think I’m getting some sort of affiliate off of his stuff because I keep referencing it, because I just love the book so much.

Clay Finck (14:40):

But I wanted to ask more about your credentials. On your website, it shows that you’re a registered investment advisor. Is that tie into the hedge fund piece at all or is that just for the separately managed accounts? And what did the process look like to receive this sort of certification?

Jeff Ross (14:58):

Yeah, so the process to receive it is actually not that complex. And that’s basically because of what I wanted. It all goes way back to 2012 when I was talking with the attorney about what do I really want to do. What I really want to do is just invest on behalf of other people and generate alpha whether it’s in a hedge fund or in a separately managed account. And so you can do lots of other things in the finance world. As you know, you can be financial planner, you can sell insurance, you can do annuities, blah, blah, blah. Lots of things. I wasn’t interested in any of that. I want to be, what do I need to do to just be a professional investor and to allow other people to come alongside of me.

Jeff Ross (15:34):

So what I did is took something called the Series 65 examination. Again, this is I think 2012. I don’t remember it very well. I remember the investment stuff was really easy. I remember that they talked about hedge funds being really bad and scary and stay away from hedge funds, which was ironic, because I was going to do this to be a hedge fund manager. Very risky. They kept talking about they’re very risky, which is ironic because they’re hedging. That’s literally what they do, is they hedge against risk. And a lot about compliance. For me, that was the tough part. My eyes tend to glaze over and I get really, really bored talking about compliance, but that was a big part of the examination as well. So all I did is pass that. Once I passed that, I became… Technically, I could qualify to be an RIA and to be a fund manager as well. And that’s it.

Jeff Ross (16:11):

So if people want to do something like that, and if you’re not interested in all of the other stuff, the financial planning side… Now, just to be clear, I’ve taken all of those courses as well. I’m able to do financial planning. I just don’t enjoy that honestly. I don’t like that side of finance as much. I’m glad there are people who do that and it’s a valuable service. But I just want to be a good investor, a professional investor and take as many people along with me as who want to join.

Clay Finck (16:33):

So the RIAP supplies to both the hedge fund and the separately managed accounts, is that right?

Jeff Ross (16:38):

Yes.

Clay Finck (16:39):

Now, you do this all on your own, whereas many people go and work for some company that has kind of all of the business side of things set up for them and kind of the framework for how things work. Edward Jones is one example of that. Why’d you go and do it on your own? And what are some of the pros and cons of each path?

Jeff Ross (16:59):

Yeah. Again, that’s more of a personality issue, right? So I’m willing to take chances. I’ve always been the kind of guy that I will passionately follow what I’m excited about. I’m willing to take chances. Lots of people just aren’t wired that way. So I get that. If you want to be safe, if you want a paycheck, if you want people to hold your hand and train you along the way and make sure you can support yourself and maybe your family, then go work for Edward Jones or go work for Fidelity or something like that. That’s great.

Jeff Ross (17:22):

My personality is, I have my own styles. I want to make mistakes and learn from my mistakes and get better and I want to do my own thing and make my own investment decisions. I don’t want to be told from some top down person like, “Hey, here’s what you can and can’t invest in.” This is not how my brain works. I would be like, “Well, why would I invest in that just because somebody else says that’s what we’re supposed to do? Or why would I invest in bonds just because you’re supposed to have a 60/40 portfolio? To me, that’s ridiculous. If I think bonds are going to perform poorly, I don’t want to invest in bonds and I don’t want my clients to invest in bonds.”

Jeff Ross (17:50):

So that’s just my personality. I’ve just always been that way. I’ve always said, “Well, why?” I’ve kind of always questioned authority. Not to be disrespectful, but just to be like, Is this really the best way to do things? What if there’s a better way to do things?” I was like that as a doctor as well. And so I guess I would tell people if you’re thinking about doing something like this, you just need to know yourself. You need to know like, are you kind of nervous? Do you think you might fail? Are you really concerned about that? Then maybe you should go down the route where you join a big firm that’s well established that you’ll get your benefits from.

Jeff Ross (18:17):

To be very clear with people, I thought Vailshire would take off very quickly and it would be successful within two or three years, mainly because when I talked to people about doing it, I had tons of colleagues who said, “Oh yeah, I’ll jump on board with you. This will be great” right when I started. But then after I started, they said, “Well, let’s wait a little bit. Let’s see how you do. I just want to make sure you know what you’re doing.” And I’m like, “I get that. I probably wouldn’t go with me either.” Because who am I? I’m just some random dude, right? Some doctor that has no connections to Wall Street. I don’t have a rich uncle supplying my hedge fund. In fact, when I started my fund, not only did I not have a rich uncle or a Goldman Sachs backing me, I had $120,000 of my own savings and I just threw that into the fund and I started managing it. I literally had no clients for eight months. That’s how it started.

Jeff Ross (19:01):

So that was a pretty humble beginning. It took three years for Vailshire to actually even just pay its own bills. It took three years to pay for itself. It wasn’t until year four where I actually started to draw a salary from it. So you have to be able to do that, right? If you just jump into this business and you don’t have another job, I would really recommend making sure this is just a side gig and not… Don’t just jump into it and think, “Oh, I’m going to have 100 clients from day one and I’m going to be living the life,” because you will not. That’s just not how it works, unless somebody is going to give you some huge amount of seed money.

Jeff Ross (19:32):

I was very cautious about it. I’m married and I have three kids and they’re now college age so we have big bills to pay. And so I did it as a side gig for a very long time until I was very sure that Vailshire could actually support my family today and into the future as well. So that’s what I would recommend. Be cautious. There’s no reason to just go into it head first if you’re going to start, if you’re going to… And this is true for any entrepreneurial type endeavor. Don’t just leave your day job. Keep your day job. Do it on the side. Build it up over time, it will alleviate tons of stress. You’ll be in a way better spot and you have a much higher chance of success if you do it that way.

Clay Finck (20:08):

Man, there’s such good information just in that little bit there. In my early 20s, I thought it’d be really cool to manage money for others. But I looked at the people that I knew that managed money, for example, someone that works for a company that puts people in a 60/40 portfolio, and it’s like a one-size-fits-all approach. So many of their clients are getting put in this portfolio and I’m thinking, “I don’t want to tell people they should invest 40% of their money in bonds.”

Jeff Ross (20:33):

Correct.

Clay Finck (20:33):

Everyone has their own opinion, but I have very much, many of the same opinions as you. And it’s like putting 40% of your life savings into bonds just does not make any sense to me. I just felt like I never discovered someone like yourself that just did it on their own. It’s like a one man shop essentially.

Jeff Ross (20:50):

Yeah. I mean, I outsource a lot, right? So I have an outsourced attorney. I outsource my fund administration services and compliance type issues. I outsource that sort of thing. So I do have help. It is just me and it is just me making decisions. But at the same time, I do have kind of help from the outside. I could bring all those people and pay them internally, but it’s actually easier and cheaper just to outsource all that. It also keeps me mobile. That’s a big thing for me. I want to be able to move around the country and the world with my business and just take my laptop with me and be able to manage money and help people from wherever I am in the world. So that was kind of a big decision.

Jeff Ross (21:22):

I don’t have an office. This is my home office. I have my dog in the background. I just kind of hang out here and do my thing. So it’s a good life for me. I enjoy it. I think other people would probably prefer to have the camaraderie of being around a team of people, again, and maybe sit in board meetings and discuss what they think the best investment strategies are. I tend to do that all online. I spend a lot of time just reading and thinking.

Jeff Ross (21:44):

Literally, I’ll spend some nights up. I have one night a month, I call it my manic nights, where I just cannot sleep and my mind is racing. I’ll sit there all night and just think about investment strategies. I’ll get up at 2:00 in the morning and I’ll write stuff down that I’ve been thinking about. “I want to put 8% into this and I think we should move this up to 10%.” That’s just how my brain works. I’m super happy being like that. I don’t mind losing sleep. Again, as a doctor, I used to stay up every fourth night for a large part of my life. So I don’t mind losing sleep if it’s for a good cause, and I feel like whale Vailshire is a great cause.

Clay Finck (22:15):

Another thing I really like is how you did a lot of your learning on your own. You’re going out and reading books, you’re doing podcasts, but you did go and get your MBA still. And it sounds like in getting your MBA was more so the credibility side, not so much the educational side of it. Well, do you agree with that?

Jeff Ross (22:34):

Yes and no. Yes, for the credibility, that’s kind of what drove me to it at first. I also kind of thought I needed it. I thought, “Well, maybe I should do it because maybe there’s something I’m missing.” I will say though on the pro side, the plus side of it, I just really enjoyed it, especially after going through med school and residency, which was really, really rigorous, like intense. I mean, all you do is study. You eat, sleep, breathe medicine. Learnings and radiology is a very like cerebral specialty anyway. So it was a pretty intense educational experience. Going back for my MBA, it was just kind of fun. I just enjoyed it. Like I just, “Oh, this is kind of cool.” I learned about marketing and I learned about operations at a deeper level, gained a much deeper respect, by the way, for what these other people do. So marketing just seems like, “Oh yeah, you just go out and promote it on Twitter” or something like that. There’s way more to marketing than just that.

Jeff Ross (23:20):

In operations, I thought, “Oh yeah, you tweak the system a little bit and make it better.” Way more to operations than just that. So I have a much deeper appreciation for people who choose those kinds of specialties. My daughter is interested in HR. I can’t stand HR. I don’t want to have anything to do with HR. So I’m glad there are people like her to do that. And I kind of learned all of that with a good broad MBA educational experience. So I don’t think it’s worthless, but I don’t think it’s necessary for people who want to become a businessman or businesswoman. I just think get out there and do it. I really encourage people, lik take the chance. Get out there, just start your business. If you have an idea, the worst thing that can happen is you fail. And if you fail, you learn a ton and then you can try again and you’ll be better the next time you do it. So learn to be [inaudible 00:24:04], follow your ambitions, follow your heart, take a chance.

Clay Finck (24:07):

I’m similar to you in that I’m very passionate about finance and investing and follow just a wide range of people, interview a wide range of people. I have one side where people are saying, it’s impossible to beat the market. You can’t produce alpha, timing the markets, getting in and out of all these assets similar to what you’re doing. And then I’ll talk to someone like you that takes this approach and attempts to beat the market and believes it’s very possible to do so studying people like Dalio and Druckenmiller and all these macro type thinkers. You have all these large institutions that I look at their performance, it doesn’t beat the S&P 500 over the last five, 10 years. They have hundreds, if not, thousands of employees, they have all this computing power to have just all these resources to do it, but they still can’t. So I’d like to ask you why a one-person shop is/or could potentially do this.

Jeff Ross (25:05):

Sure. Well, I think that’s the answer actually, is you have to be unique and you have to be willing to take chances and do things differently in order to succeed. Now, more likely, you’re going to fail, right? If you take chances and you do things, you’re just as likely, and I would say more likely, to fail and to actually underperform the S&P 500 over time. These huge institutions, the Vanguards and the Fidelitys and the Schwabs and the whoever else, pick any huge financial firm, their goal isn’t to beat the market. Their goal is to collect assets under management and to collect fees from those assets under management. You can decide if you think that’s a good thing or not and if you should put your money with somebody like that.

Jeff Ross (25:43):

Instead of just doing it yourself and putting your money in a low fee index fund, I would suggest the Vanguard way is probably the best way to go because I don’t think… And I don’t even mean I’m not trying to pick fights with these people at all because they do commendable work and they’re good people, lots of them are. But what are you really getting from that? You’re paying kind of higher fees to basically be in a traditional 60/40 portfolio that’s very safe. Nobody’s going to get fired if they put you in that 60/40 portfolio. You can say, “Well, this is what everybody does. This is what tradition says you should do.” So you have a ton of job security.

Jeff Ross (26:14):

And for people who do that, they spend a lot of time kind of doing relationship managing. They hold your hand. They give you pamphlets saying, “Hey, if you put this much amount and you dollar cost average and you get 8% overtime, then you’ll be here at this age.” All of that is hogwash by the way because it’s all guessing on what’s going to happen in the future and it’s all saying that we’re going to have the same types of results that we had for the last decade, that that’s the way to go for this next decade. And I say hogwash malarkey. That’s not true. In fact, I think stocks and bonds are both going to perform very poorly for the next 10 years. I think we’re already seeing some of that happen. They were at traditionally high valuation levels. Price of sales ratios were off the charts, PE ratios, any ratio you look at was like off the charts. That takes time. There is such a thing as reversion to the mean. At some point, that comes down.

Jeff Ross (27:00):

And even if you do have good returns over that long period of time, you have to factor in the effects of inflation. So you get your nominal returns, what you see on your statements, but what are those returns when you factor in inflation? So you subtract that out from the balance. People are, I think, going to be poorer 10 years from now if they have a 60/40 portfolio for the next 10 years in real spending terms, in real purchasing power terms.

Jeff Ross (27:22):

So again, getting back to why I’m independent and why I do what I do, I think if you think something is malarkey and you think stocks are way overvalued and bonds are way overvalued and it’s insane, and there’s this thing called Bitcoin which I think has changed the world technology, it’s just simply better money and it should appreciate probably 10X or a 100X what stocks do even over the next decade, why wouldn’t I invest in that and why would I stay in this goofy portfolio just because some huge trillion dollar institution says that’s what we should do?

Jeff Ross (27:48):

So I think you got to look for the motives. Like, why do people recommend what they recommend? What is the underlying motive? How do they benefit from that? And are you sure you are their main focus? Are they really looking after you by putting you in this? Or do they just maybe want your money so they can collect fees from it? Not to be skeptical, not to be a jerk, but that’s kind of what I think is going on and that’s how I think the whole financial system operates. It’s all about assets under management and collecting fees.

Clay Finck (28:12):

Let’s talk more about your specific strategies starting with how momentum plays into your strategy. Momentum is something that Preston has actually taught me a little bit about. He actually introduced a momentum tool or a momentum indicator into our TIP Finance tool on our site. I just think it’s such an interesting topic because it’s not the Warren Buffet way at all when it comes to timing the markets. Why is momentum so important and why does it work for you?

Jeff Ross (28:43):

Great question. I would go so far as to say adding a momentum strategy is critical unless you are just simply a long term buy and hold Warren Buffet type investor. So if you want to own a company and you do not care about returns in the short run, and by do not care I mean you don’t care if you underperform for five or 10 years, you just want to own this company, you believe in it, then momentum shouldn’t affect you at all. But for the rest of us, and I’m in the rest of us category, I would say that momentum is actually a critical component to investing and its trading.

Jeff Ross (29:11):

So I didn’t do this, I want to be very clear, until this year. So I’ve been thinking about this and dabbling with having a trading model for Vailshire, and I call it long term trading. I don’t think of myself as a short term trader, but I’m also not just a long term and buy and hold investor. I want to be in things that are indefinite up trends and I want to be out of them or shorting them if they’re indefinite down trends. That’s what momentum indicators do for you.

Jeff Ross (29:35):

So again, starting from the beginning, I used to be a stock picking value investor. And I realize that I’m actually only okay at that. I’m not that good. We were underperforming and then we did about the same as the market for a few years. Once I added momentum to our strategy, we started outperforming. And then this year, I’ve tweaked it even more. And it should make logical sense to people, again, unless you’re just going to simply hold something forever. You might be right on a stock for all the right reasons. You should be like, “We should own this because it has a low PE. It has a low price of sales.” And you can look back and say, “Whenever it’s been at this level and this far down based on this z-score, then it should revert to the mean and it should outperform” all these kind of things. There are tons of things out there like that. You can subscribe to tons of services that tell you, “Here are the most undervalued stocks and they should outperform.”

Jeff Ross (30:21):

Here’s what my problem with that, is I hated investing in these stocks. They were usually like the junkiest companies, they’re usually like cigarette companies or something, or just some garbage company that’s like in this dying industry. It was kind of this cigar approach, the old Buffett and Munger story of where he used to look around looking for a cigar, but with a couple puffs left in it and they would basically suck out the gains of it before the company died. I’m like, “I don’t want to invest in dying companies.” That’s just not how my brain works. I want to think like, “What is going on in the future? What companies are changing the world for the better?” I just want to support those types of companies. They’re creating the world that I want to see.

Jeff Ross (30:57):

So that’s how I sort of morph from this kind of value, this individual stock picking guy into this more quantitative systematic approach guy, basically also where it removed my emotions from it. That’s the huge thing that momentum trading does for you. You have your marks and you need to decide on momentum strategies based on, are you a longer term investor or are you looking for kind of short term skim trades? Those kind of things. If you are a short-termer, then you use moving averages that are very short. Again, and then if you’re long term, you use kind of longer dated moving averages like 100 day, 200 day moving averages, those kind of things. Those can help you just to know it’s easy enough just to tell when you should buy, when you should sell a certain asset.

Jeff Ross (31:34):

So I recommend that for people. I think it’s kind of one of the golden goose of investing. It’s hard to go wrong doing it that way. You may miss out on some gains doing that because you may stop out at kind of an inopportune time or get back in at an inopportune time and then take little losses in the short term. But over the long run, that tends to help you catch trends. And if you find a stock that you’re excited about based on whatever valuation or growth metrics and you can back it up with momentum as well, that’s sort of just a double whammy to confirm or disconfirm your thesis.

Jeff Ross (32:05):

It helps me especially from being a top down macro guy. I can be very bearish on where I think the markets are going to go. I think we’re definitely headed into a deeper recession based on yield curve and all other dynamics and things like that, but I think this current rally that we’re in has legs, it has very significant positive momentum. So I’m going to stay long in the markets and the equity markets and risk markets for now as long as I have momentum on my side. And then when the market tells me I’m wrong and momentum shifts again and shifts bearish again, I just shift with it and I’ll shift right over and start shorting the markets again.

Jeff Ross (32:36):

So it doesn’t really matter what my macro views are, but it’s a great way to correlate what I think should happen and does the market agree with me, because, and this is my last point, the marketer is the final arbiter of truth. You can think you’re right, you can even be right. You can prove to… And I used to speak at value investing conferences back in five years, six years ago, which were fantastic. Great friends in there. I love value investors, they’re awesome, but I’ve definitely changed since then. Many of the best presentations and the most convincing presenters had the worst results. Everyone was like, “Oh, that was such a great… Oh.” I mean, I remember I’d listened to some of these guys speaking like, “I’m going to go buy that stock right now. That’s an incredible presentation. This is so cheap. This just has to perform well.” And then it would just be in the doghouse for another two years and just be a terrible thing to own.

Jeff Ross (33:19):

And so again, what you need to do is you need to confirm you might be right for all the right reasons, but if the market tells you are wrong and you’re losing money, you are wrong. And you can either be prideful and say, “Well, the market’s wrong. I’m right.” Or you can make money for yourself and for your clients and follow what the market tells you. So if the market says you’re right, you’re right. If the market says you’re wrong, you’re just wrong.

Clay Finck (33:43):

One thing you’ve been right about was probably January this year, somewhere around there, you were very bearish on risk on assets as the Fed showed that they were serious and that they were going to try and fight inflation with raising rates. And just looking at Bitcoin, for example, you were bearish on this and it was trading at above $40,000. Since then it’s pulled back to the 17K range. And today at the time of this recording, it’s around 24.K and that’s just something that’s seen as a risk on asset now. And obviously, you weren’t piling into something like that in January 2022, because you’re bearish risk on assets. I’m curious how your overall hedge fund portfolio has performed in 2022 given you were right about where things are sort of moving.

Jeff Ross (34:31):

That’s funny, and this is the humbling part about this. I’ve been very publicly right about what’s been going to happen, from we’re going to see economic contraction, risk assets are going to do poorly, I don’t think Bitcoin is going to do very well. I’m a fanatic about Bitcoin, right? I love Bitcoin and I think I have very huge aspirations for where it’s going to go over the long run. But in the short term, I just think it’s going to be pretty ugly. Now, ironically, the system I’m talking about about using momentum and these kind of things, I started incorporating it in January, but I fought it the whole way down. So I kept fighting it. What I mean by fighting it, I had this collection of hold forever assets. So stocks, again the Warren Buffet style approach where, “I’m just going to hold them regardless even if it means we take losses on them.”

Jeff Ross (35:12):

So I had these guys in my portfolio and some Bitcoin still that I didn’t want to sell. Over here, my system is like saying, “Sell. Sell. Sell. Sell it. Sell it. Sell it. Sell it.” And I would lay awake at night, I’m like, “Ugh, what do I do?” Because I literally just wrote a letter saying, “We’re going to hold these forever” to my clients. And then over here, my system that I just created and I’ve been working on for years and years is saying, “Sell. Sell. Sell.” So I fought it for months and months. And because of that, we had very long positions. And the shorts, I was hedging that whole time. But the shorts we had were so relatively small that they didn’t help much. So we basically had been tracking the performance of the S&P 500 into deeply negative levels, which was very frustrating for me because, again, I got my public calls, right? I had my macro view correct. It was confirmed with market action, but our portfolios were not performing well.

Jeff Ross (35:57):

And so it wasn’t until June where I just finally said, pardon my French, but just, “Screw it. We’re out. I’m following my system. I’m going to quit doing my emotional stuff. I’m going to just eat crow with my investors. I’m going to say, ‘You know what? I know I said we’re going to hold these forever, but we’re not.’ There are times to hold these things and there are times to hold them.” And then the other ironic thing is lots of the things… Like I said, I like to invest in growth, innovation, tech, secular uptrend kind of things. A lot of the things that I was long, I was over here on the same side shorting them. I’m shorting the NASDAQ. Basically, all the stocks that I like to own over here are sitting in the NASDAQ right here. So I’m like, “Well, what’s the point of doing this? I’m long right here and I’m short here in the same portfolio.” And so it was just kind of a stupid hedging strategy personally.

Jeff Ross (36:38):

So I basically humbled myself, submitted to the system I created, and have started then just going to a completely quantitative systematic system. The one other thing by the way that my system has done, which I’m pretty excited about, and I don’t want to get too much in the details because it’s kind of proprietary, but it’s helped me to… So I love thinking about all different asset classes and how they move based on what the huge macroeconomic picture is doing. But even though they’re predictable, some asset classes will perform very… You’ll generate different amounts of alpha with different asset classes.

Jeff Ross (37:09):

So for instance, if I think that long dated treasuries are going to move in a certain direction and I’m right, and I think that NASDAQ stocks are going to move in a certain direction and they’re both going to go up, the treasuries, if I’m really right, they’ll go up 10%. If I’m really right about the NASDAQ, they’ll go up 40%, right? And so what my system was telling me is like, “Basically, I know you like to invest and you can invest in all these other things, but why wouldn’t you just invest into things that generate the most alpha?” And so my portfolios have greatly been simplified and shrunken down. I used to invest in 40 or 50 different things. Now I’m only in a handful of things. So probably 10 or less assets, which should help to create significantly more alpha going forward. So I’m very excited about that and very excited to be incorporating momentum, get my emotions out of it. Again, it’s the system I created so I’m very confident about it, but again, it’s without my kind of emotional input attached to it.

Clay Finck (38:01):

I’m always interested in finding out maybe some particular companies that other people like. So I’m super curious if you could share some of the hold forever stocks that you had in that portion of your portfolio.

Jeff Ross (38:15):

Yeah. I had a couple criteria that I used that worked well. So what worked really well for the last decade, with the decade of growth, was I had this called FILMS criteria. So founder-led, innovative, long term value creator, master capital allocators, and stakeholder friendly. Those were my five criteria. Notice that none of them are things you find on a balance sheet or looking through the numbers, which is ironic. It sort of is telling about how the last decade was. The last decade was just all about growth and what you could do when the Fed and the central banks are basically expanding the world’s monetary supply substantially. That liquidity has to go somewhere, and where it really likes to go is into high beta risk growth assets. So those perform really well.

Jeff Ross (38:56):

The hold forever, I had a couple holdovers from there, but it was basically… So Berkshire was in there. Amazon, Alphabet or Google was one of the companies. I had a lot of them. In fact, I had them written out. It’s funny, because I don’t actually own those anymore, but AutoZone, Apple, Texas Pacific Land, I like that a lot, Visa, Waste Management, those kind of things. Just great companies that are going to do very well kind of regardless. They were also sort of geared for… They will do just fine in a steak inflationary decade, which I think we’re going to have, is basically a decade of low economic growth and high inflation. These companies have pricing power. Starbucks is another good example of that. The price of coffee may go up. They just raise the prices and people keep coming and paying. Now, they pay six bucks for a cup of coffee. Now they pay seven bucks for a cup of coffee. They don’t care.

Jeff Ross (39:38):

And so those kind of companies with pricing power, I think, do very well. The irony of all of that is my system said, “Basically, get out of all of those. Simplify and we’re going to find a better way.” And again, it’s basically based on what is the momentum doing and how can we generate the most alpha when we have momentum working in our favor.

Clay Finck (39:57):

In addition to those companies, obviously a big fan of Bitcoin, so how does that fit into a client’s portfolio and what’s the typical allocation look like?

Jeff Ross (40:08):

So again, it depends on what Bitcoin is doing. Right now, ironically, even though Bitcoin has had a nice run, it’s actually still in bearish mode based on my momentum indicators. So we don’t eat… We’re not even long. Bitcoin itself, in the separately managed accounts, I still hold a core allocation in my hedge fund, but I’ve been hedging against that. So I’ve been shorting Bitcoin futures against my long position. And my short position of the futures contracts are actually larger than my core allocation. That’ll flip. And it’ll flip soon. We’re actually very close to it, flipping over into bullish territory and I’m very excited for that, because I hate being super into something for the long run, but being short in the short run. But such is life.

Jeff Ross (40:45):

So in our portfolios, we have a collection of Bitcoin and then Bitcoin proxies. And so the proxies that I use, I think MicroStrategy is a fantastic Bitcoin proxy. Currently, there is some risk, right? There’s something that happened to Michael Saylor. Who knows? There could be some big scandal or something. So you don’t want to put everything into that. It’s best to own just Bitcoin and keep it in cold storage for anybody listening to this. But if you’re looking for things to put in a brokerage account portfolio, MicroStrategy is a great proxy.

Jeff Ross (41:10):

Also, I’m a huge fan of miners. What’s fun about Bitcoin miners is that they have very high beta relative to even Bitcoin itself, which itself has extremely high beta, right? So if Bitcoin is going to move higher, miners move much higher in tandem. If Bitcoin crashes, miners crash much more. A case in point what just happened, Bitcoin fell down about 70% or so from its highs of around 69,000. Some of these miners fell 80, some of them fell 90% from their highs. So when Bitcoin recovers, they rebound pretty hard. Some of those will go up 2X, 3X, 4X in a couple of months. And so those are the kind of things you want to own in an uptrend. So we have those in our portfolio as well.

Clay Finck (41:49):

I’ve mentioned that Bitcoin’s had a substantial drop this year. It was down nearly 75% in just a short time period, which is insane volatility. And like I said, it dropped all the way down to 17,000, today around 24,000. I’m curious what you’re seeing or looking at that allows you to have the long term conviction in Bitcoin despite the enormous price drop in such a short amount of time.

Jeff Ross (42:18):

Sure. Well, what gives me conviction is first of all, I’ve probably put 10,000 hours of study into it by now, reading books and talking to people and watching YouTube interviews and all this kind of stuff. I learn everything I can about. So I feel very comfortable with what it is. I’ve never known an asset like I’ve known Bitcoin. So I have just supreme confidence in what it is. It’s unchanging monetary policy. And basically, it takes what government Fiat currency is. And it’s the antithesis of that. It flips it on its head and it’s everything that it’s not. And so that’s what I love about Bitcoin. Its monetary policy is just basically etched in stone. It’s not going to change. We’re going to see a new block approximately every 10 minutes for the rest of our lives and beyond that. It’s decentralized, it’s apolitical, it’s totally secure. There’s not a committee of people that can sit around and say, “Hey, we want to print more of it.” It’s perfectly inelastic at 21 million.

Jeff Ross (43:06):

So all the policies about Bitcoin, I feel like, I feel very comfortable even though it’s volatile, that that’s the beauty of investing. If you understand an asset, you can actually not fear volatility. You can take advantage of volatility. So Warren Buffet again is a master of that, right? He knows the companies he likes, but he also knows the price that he wants those companies at. He sits around with a cash hoard of over $100 billion and waits for everyone else to panic. And then he says, “Yeah, I’ll take that. Yeah, I’ll take more shares. I’ll go up to 20%. Now, Occidental Petroleum? Sure. I’ll get a 20% stake in that.” And he just does that. He’s a master.

Jeff Ross (43:38):

And that’s how I try to counsel people to be with Bitcoin. Yes, it’s very volatile, but that’s the only thing we don’t know about Bitcoin is what the price action is going to be in the short term. We know everything else about it. It’s literally open source code for the whole world to see. You can verify everything about it. Nobody can manipulate that. And so, because of that, no ability of where it is today of like how many Bitcoin there are going to be one year from now, 10 years from now, 100 years from now. You can figure all of that stuff out almost down to a T, you know? You’ll be off maybe by a tiny little bit, but you’re basically right.

Jeff Ross (44:08):

So then you can take advantage of the price volatility. And when you see these massive declines, you can know that it’s cheap. You can know when it’s cheap, you can know when it’s expensive. I like to use demand based models, models that follow kind of the adoption of other major technologies. That’s kind of caught on recently too. I think Jurrien Timmer at Fidelity uses that now. A couple other guys put out some pretty nice charts. Cathie Wood, I think, at ARK and their team uses that as well.

Jeff Ross (44:31):

You can basically plant Bitcoin on the S-shaped adoption curve and say, “Okay, right now we’re here. We’re still way at the bottom.” There’s only somewhere between 1 and 5% of people in the world that even use Bitcoin at all. I think actually 1% is about what I have it pegged at. Some people have said higher numbers. But we know we’re at the bottom of that curve and you can plant a price tag and look at, “Okay, what about cellphone adoption when it followed that? What about the internet when it did that? What about personal computers?” and things like that. And then you can put a price tag and see, “Okay. Based on that, here’s about approximately what the price of Bitcoin should be.”

Jeff Ross (45:03):

When I look at those kind of models, I think Bitcoin is actually very cheap right now. I think conservatively, based on the lowest prices of that models, we should be kind of in the mid 30,000 right now. And then you can look at on chain analytics as well and look at different ratios about telling, “Okay, here’s when it’s getting overheated. It’s over bought. Here’s when it’s getting too cool. It’s oversold.” Almost all across the board, all of these metrics talk about a show that Bitcoin is just very, very cheap, whether you’re looking at a demand-based model, whether you’re looking at on-chain analytics or whether you’re looking at kind of TA momentum based models, every model across the board says it’s cheap. So that kind of volatility you want to take advantage of. When everybody’s talking about the death of Bitcoin, it’s going to fail, it’s failed again, you say, “No, it hasn’t failed. There’s nothing different. It’s still being adopted across the world. The number of users is increasing. The number of use cases is increasing.” It’s a time to buy. That’s how I look at it.

Clay Finck (45:53):

I think a skeptic might say, “Hey, but Bitcoin hasn’t seen an environment like this.” And to your point about the users right now, I’m curious how… We can see the blockchain and the addresses, but how do you know it’s actual users that are being added to the blockchain? How do you know some whale just isn’t almost manipulating the blockchain and making it look like there are more users than it is? So how do you have that confidence that the user adoption is actually going up despite the price going down?

Jeff Ross (46:22):

You can’t really know that. You can see trends when you look on chain with on-chain analytics. And by the way, I use Glassnode as a service. I think that’s a good one. It does have limitations. It doesn’t have everything in its universe, but it does have lots of important metrics that it follows and it kind of coalesces all the information together. What I think is important is following just accounts with a non-zero Bitcoin balance. So yes, you could have one whale that’s creating 1,000 or 10,000 accounts, for sure. But at some point, even that whale runs out of assets, right? And at some point, you’re just seeing the growth.

Jeff Ross (46:52):

So whether or not it’s a whale doing something like that to kind of spread out his or her wealth and make it harder to figure out who he or she is, or whether it’s just tons and tons and tons of people from maybe small countries, maybe in El Salvador where they’ve adopted Bitcoin, maybe they opened accounts and they have $5 worth of Bitcoin on there or a dollar worth of Bitcoin. Or who knows? But just some amount of Bitcoin, some amount of sats on there, I want to see. And I think of all the metrics, I think that’s the most important.

Jeff Ross (47:18):

The other really important metric is the hash power basically. So as the hash rate moving higher over time, that means that more and more miners are getting involved. That means Bitcoin itself, the network, is more and more secure. So if you see both of those things moving up into the right on your charts, you can be fairly confident that Bitcoin, the network, is still growing, it’s still strong, it’s still moving in the right direction. And eventually, the price will follow. You know that old Munger quote I believe? The markets are in the short term, they’re a…

Clay Finck (47:47):

Voting machine.

Jeff Ross (47:48):

Voting machine, thank you. In the long term, a weighing machine. And that’s the same for Bitcoin. Right now, it’s kind of unpopular. People are scared. We’re in a recession or near a recession so people are panicking. Liquidity is low. That’s going to drop the price down. But when we get back into the voting machine over the long term, I think we’re going to see just really impressive, substantial long term price appreciation.

Clay Finck (48:07):

One more Bitcoin related question I had for you was just something I keep seeing from people that just don’t like it, and that’s the inflation hedge argument. In theory, Bitcoin’s a fixed supply asset. If inflation’s through the roof, then in theory, you think Bitcoin would be going up, but we’ve actually been seeing the opposite this year. So lay the case for why Bitcoin is actually an inflation hedge.

Jeff Ross (48:32):

I actually love it when people say that and they use that as a counter argument, because here’s why. In the financial media and even now in the regular papers, because inflation is such a big issue this year, what never gets discussed but what should get discussed is that there are actually two kinds of inflation. There is price inflation, and that’s what most people are talking about. And there’s monetary inflation.

Jeff Ross (48:50):

So what are those things? Monetary inflation means you are adding more money to the system. The money supply is being increased. And when you see monetary inflation, that means it’s being increased at a rate faster than the underlying economic growth of that country. So that’s monetary inflation. Is the money supply being expanded or deflated, basically? Price inflation is different. Price inflation means, is the price of your groceries going up? Is gas going up? These kind of things.

Jeff Ross (49:14):

Those two things are related over the long run. Kind of like the price of Bitcoin and the user, what we were just talking about. They’re related in the long term, it’s a weighing machine. But in the short term, it’s sort of that voting machine thing. So you can have episodes where the prices spike and it seems like it’s uncorrelated with monetary expansion and vice versa. Prices can stay down. We’ve had really low price inflation for a very long time even though the monetary supply has been increased. This stuff gets pretty esoteric by the way.

Jeff Ross (49:40):

So first of all, why do I bring those two things up? Bitcoin is absolutely a hedge against monetary inflation. That’s the type of inflation it’s a hedge against. It’s indisputable when you look over time. When the amount of money, the M2 money supply expands, so too does the price of Bitcoin. It’s almost like a perfect hedge against that over time.

Jeff Ross (49:59):

Price inflation is a different beast altogether. I would suggest that the current price inflation we’re seeing is related to two things. It’s related to the COVID lockdowns, which cause just terrible supply chain issues. And they still haven’t been completely resolved yet, although some things have been. And again, we don’t need to talk about that. But we’re still seeing some of those supply side constraints. And then also what happened since COVID over the subsequent year, is the government was doing direct transfer payments into people’s bank accounts. So they were actually taking actual US dollars, putting them into people’s bank accounts and said, “Go spend it.” When you do that, you’re basically just flat out expanding the monetary supply. Now, there’s more money chasing after fewer goods that causes prices to spike. It’s just super basic economics, one on one supply-demand curves. That’s what happened.

Jeff Ross (50:44):

What people do get confused by a lot by the way is that the central banks don’t actually print money. We hear that all the time that they’re printing money. They don’t actually do that, right? They create reserve assets that go into commercial banks and then they take their treasuries out of commercial banks. The monetary supply doesn’t expand unless banks are lending money.

Jeff Ross (51:03):

When we’re in a recessionary type condition and like we are right now and we’re heading into a deeper recession and I think that’s going to become more and more clear over the coming year, what banks do is they hunker down and they decide they don’t want to expand. They don’t want to give out loans anymore to people because they’re just trying to preserve themselves. So we’re going to see the monetary supply contract over this time period. And that’s going to suck money out of… Especially a risk asset, suck money out of kind of the Bitcoin network as well. And so you just have to pay attention to those different things.

Jeff Ross (51:31):

So full circle, two types of inflation. Bitcoin absolutely is a perfect hedge against monetary inflation, but it is not necessarily hedge against price inflation. So make sure when people are asking about that, you’re distinguishing the two kinds of inflation.

Clay Finck (51:45):

I mentioned earlier that you were very bearish on risk on assets at the beginning of the year. I was quite surprised when I read your Twitter feed that you were long risk assets, and I’m assuming that’s due to your momentum indicators. I was just surprised by that because of the macro backdrop situation. And given that backdrop, I would expect you to be short. Maybe you could paint some color around why that is? And is this sustained rally, as of late, hasn’t surprised you?

Jeff Ross (52:21):

So actually, no, it hasn’t surprised me. I’ve been putting examples for the last couple months about how similar this recession is to other major recessions we’ve had, even looking back at the most recent major one, which was the global financial crisis back from 2007 to 2009. Recessions follow a very interesting pattern and they almost always are the same. And it’s so interesting. So back what happened in late 2007 to through about the first quarter of 2008, what we saw is commodities rip higher, and especially oil ripped higher. People remember oil went up to, I think it was about $140 a barrel or so. When that was happening, people were freaking about inflation. Inflation is running away from us. Markets didn’t like that. Equity markets were crashing. They took a big spill downward, especially risk assets. So kind of the growth side of stocks, they just didn’t do well. NASDAQ stocks didn’t do well.

Jeff Ross (53:07):

What happened? I call it… So that’s phase one of the recession. Phase two is when the price of oil finally peaks and comes down. Commodities come down, oil across the board, all commodities come down. The markets then celebrate and they’re like, “Sweet. Inflation isn’t a problem. We’re in disinflation now. We can finally stop holding our breath.” Markets do this relief rally, so I call it the disinflation relief rally. They’re excited. The back of inflation has been broken. Oil is spiraling out of control now. And it’s what happened here, right? So we saw it spike up. And now, when we were at the 115, 120 level, I said, “What I’m watching most importantly is I expect oil to break here. And I think it’s going to be below a $100 a barrel pretty soon.” And then that’s what it did. Now we’re sitting right around $90 a barrel or so. That’s phase two of the recession. We have these relief rallies.

Jeff Ross (53:51):

The relief rallies, by the way, can last for many months. They can go from kind of four to six months or so, basically where even though everything still looks pretty bad and if you look at all the economic indicators and you’re like, “It still is pretty bad out there. Why are the markets rallying?” and people don’t believe it. So it’s like a disbelief relief rally. That’s what we’re in right now. I think this could actually go on for several months longer, which again is surprising to people, especially given my bearish outlook on things. Because what happens is then we get to phase three.

Jeff Ross (54:17):

So oil’s coming down, stocks are rising. We’re heading up to sort of this point where they’re kind of meeting. And then what happens is people say… It’s the “Oh crap” moment, I call it, where we say, “Oh, crap. We’re actually headed into a worldwide recession.” Businesses are slowing. Unemployment is ripping higher finally. That’s what the Fed keeps talking about. Unemployment is too low. It will start to rip higher soon. And that’s when it gets bad. And that’s when people say, “You over corrected. You were tight for too long. Things are going to get ugly now.” And then things do get ugly. And what happens then, stage three is the floor drops out. So the floor drops out for risk assets. So oil crashes even further. We’re about 90 right now. I think we drop down to 60 maybe, 70, 50, somewhere in that range, 60 plus or minus $10 a barrel. And it drags equities down with them, because basically the economy has ground to a halt. People aren’t hiring at all. Businesses just aren’t operating very well. You start having massive issues.

Jeff Ross (55:04):

The credit markets can start to freeze up. That’s when things go no bid, like people don’t want to buy. You thought you had good assets. You had good liquidity before. People don’t like… They don’t want your collateral. It doesn’t count. So that’s what happened back in 2008, as well 2009, the subprime mortgage crisis. People are like, “Yeah, I know you have these mortgage back securities, these kind of things. We don’t want this stuff. They’re not worth anything. We want legit collateral.” And basically, the only collateral that is accepted when people start panicking is the US dollar. So people start selling everything across the board, fighting for the US dollar, the dollar jack’s higher. So I expect we’re going to have this reprieve in the dollar.

Jeff Ross (55:36):

Currently, the Dixie is down. I haven’t checked it recently. I think it’s 104, 105 right now. I think it’s going to spike up much higher to maybe 115, 120 or so, when phase three happens. And that’s when basically everybody sells everything in clamorous for the dollar. So that’s coming up next. I don’t mean to sound so bleak, but basically the way I’m trading that is again based on what my momentum indicators are saying.

Jeff Ross (55:55):

This current rally has legs. I think it’s going to continue to go higher for a while. This is a good time to be invested if you’re more of a short term traderie type person, but then I do expect the floor to drop out and things to get really ugly. Probably late Q4 of this year or Q1 of next year I think that’s when things get kind of ugly and the floor drops out.

Clay Finck (56:16):

Jeff, I really want to be mindful of your time. I really appreciate you joining me on the show today. Before we close out the episode, I just want to give you a hand off to Vailshire. And anything else you’d like to share?

Jeff Ross (56:27):

Well, thanks. So, first of all, Clay, it was super fun being here. Thanks for having me. So yeah, if you guys want to find me, I’m on Twitter all the time. My handle is @VailshireCap. I do Twitter spaces a lot and post my macro thoughts a lot and investing ideas just kind of for fun. So connect with me there. And then if you want to learn more about Vailshire, I obviously do things really differently than most investment advisors and financial planners. Some people like that, lots of people don’t like that. They think it’s too crazy. But if you think maybe what I’m saying makes sense and you want to learn more about it on investing with me, you can just send me an email directly at info@vailshire.com, and I’ll get back to you personally.

Clay Finck (57:00):

Awesome. Thank you so much, Jeff.

Jeff Ross (57:02):

Thanks, Clay.

Clay Finck (57:03):

All right. I hope you enjoyed today’s episode. Please go ahead and follow us on your favorite podcast app so you can get these episodes delivered automatically. If you’ve been enjoying the podcast, we would really appreciate it if you left us a rating or review on the podcast app you’re on. This will really help us in the search algorithm so others can discover the show as well. And if you haven’t already done so, be sure to check out our website, theinvestorspodcast.com. There you’ll find all of our episodes, some educational resources, as well as our TIP Finance tool that Robert and I use to manage our own stock portfolios. And with that, we’ll see you again next time.

Outro (57:39):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.