Introduction: Nicholas Russo, Jr. Russo is a senior financial analyst and market strategist in the states of Arizona and Idaho. He was the winner of three stock-trading contests and is often a guest lecturer at universities and trade groups. Since 1965, Mr. Russo has been a senior officer of four Wall Street firms and the head of two stock trading departments developing power relationships in the institutional community. He now runs a private investment advisory and money management firm and publishes the "Momentum Monitor," a proprietary technical momentum product that has been highly successful in calling major turning points for stocks and the market. He is a prominent entrepreneur and advisor in private business and real estate.
Daily Bell: Thank you for sharing your thoughts with our readers.
Nick Russo: It is my pleasure.
Daily Bell: Can you give us a little information on your wave theories and how they differ from other cycle analysis including the Kondratiev Wave?
Nick Russo: I can answer all your cycle questions this way. There is a plethora of cycle work out there – Astronomic, Fibonacci, Kondratiev as well as others. Here at Russ Trading we take the approach that all cycle work is important, so what we do is screen and filter all forms of cycle analysis in order to garner a high-probability conclusion. This is why our short, intermediate and long-term cycle-trend change alerts are so accurate – holding a long-term success rate of about 85%.
Daily Bell: But perhaps you favor one over another?
Nick Russo: From a macro-trend perspective we found that the cycle work discussed by Strauss in his book, "The Fourth Turning" is an almost perfect overlay throughout history. His work says that in progressive countries like the U.S. financial, social and political factors converge to generate 80 year cycles, 65 years up and 15 years down, so this current time period overlays perfectly with the Great Depression, the Civil War, and the Revolutionary War, etc.
Daily Bell: Timing-wise, that must have been exciting and useful.
Nick Russo: We were alerted back in 2001 that the shift from the up part of the cycle to the down part was close at hand. We did multi-year research to determine what the underlying reasons would be and found a collection of 17 factors. A full reading of what we call the Quantum Super Cycle, Big Rollover thesis can be found at RussTrading.com.
Daily Bell: Can you elaborate on the differences between your theories and the Austrian School?
Nick Russo: We're aligned more towards Austrian economic theory than its cycle work. For mature economies like the US, it is very important to support a sound currency policy, to support wealth creation by investing in infrastructure and areas that maintain an intrinsic value. It is also important to marginalize government involvement in the economic process, to use debt only when it can be supported by dependable cash flow, to empower individuals and companies to deliver value to the marketplace and that real wealth is measured by tangible net worth and not by paper money. All of our portfolios are supported by tangible investments and dependable cash flow vehicles and now in this cycle also hedging vehicles to provide downside protection.
Daily Bell: The Big Rollover is an interesting term. Can you elaborate?
Nick Russo: The dangers of the Big Rollover can be found in the characteristics of all rollover cycles. They produce extreme financial dislocation, major loss of life and a tendency to move towards socialistic principles. Also rollover cycles overpower the progression of innovation and creativity. Japan is a great example. They entered their rollover cycle in 1989 and along the way produced state-of-the-art electronics and cars – yet a few months ago the Japanese stock market was down 80% off the high.
Daily Bell: Free-market economics tells us that the Japanese never allowed their banking mal-investment to deflate. By freezing non-performing assets, the country was unable to progress. We think the same sort of factors will be at work throughout the West.
Nick Russo: This cycle will be far more damaging than the Great Depression because of the degree of extremes that has been allowed to develop in all things financial, social and political. Everything that has been put into place socially, politically and financially is beginning to fracture. This trend will have great consequences for all people of the world in the years ahead no matter where one lives. It is in the earliest stage of development and cannot be stopped by any action of government. It will have to run its course.
Daily Bell: There are always some assets and investments that do better than others, even in times of great difficulty. What are your picks?
Nick Russo: We are supporting four major themes at this time, gold (up), dollar (down), agriculture commodities and interest rates (up). We expect all forms of real estate to decline another 30% in the U.S. over the next three years. The only real estate that we support is the purchase of 10 acres or more in certain rural communities as we expect a massive exodus in the years ahead from the big cities.
Daily Bell: Do you favor one over another?
Nick Russo: The most important investment one can make is in oneself, because in the months and years ahead it will be all about survival. So one must recognize that there has been a paradigm shift of epic proportion and that how we lived our lives and how we invested in the past is over, that decisions can no longer be made based on best case expectations. The answer is to do the opposite of what we have done in the past. Health comes first, no debt, high cash reserves, tangible asset investments and a return to accepting the simple things in life.
Daily Bell: What kind of entrepreneurial opportunities will the Big Rollover offer?
Nick Russo: The first thing that readers should do now is to listen to their own intuition. Intuition is telling me that something is radically wrong when I explore everything that relates to financial, social and political factors. When something is perceived to have changed we must then set a different course. Humans have a hard time accepting change – which is counterintuitive because all things change constantly. The next thing is to embrace a survival strategy that includes several of the points that I made in this interview as well as the base strategies found in the thesis. It is available in 10 hours of programming on 9 CD's. Finally maintain a positive mindset remembering that in the trough of all past rollover cycles future fortunes were made. But that trough is still many painful years away.
Dally Bell: Like Harry Browne, you've apparently developed a defensive strategies portfolio that will allow someone to profit in all cycles. Can you give us a bit of a breakout?
Nick Russo: We clearly favor gold in this cycle as we had turned bullish on the yellow metal back in late 2001. We do not consider ourselves to be the classic gold bull but understand the importance of owning gold in the Big Rollover. Our 2009 target is $1500 and for 2010 $2000. But in our heart of hearts we do not really want to see gold that high as it would mean that the world has embraced the worst-case scenario. We have a proprietary portfolio that we call the Big Rollover portfolio. Like Harry Browne's Permanent Portfolio it has many balancing characteristics. But it also contains the ability to re-balance based on cycle change.
Dally Bell: Interesting. Can you expand?
Nick Russo: We're committed to being ahead of the curve in forecasting important trend changes. For instance, incorporated in our work as one of the 17 negative macro-factor forecasts was the acceleration of the global storm cycle along with rising threats from biological incidents. Both cause loss of life and suppress economic activity. The fact is,17 such factors should be the ultimate wake-up call. Those who have read our thesis and subscribe to our research know that we developed what has proven to be one of the most accurate of strategies.
Dally Bell: If you had to put your strategy in the simplest and most powerful terms, what would you say?
Nick Russo: The post WWII world economy as we know it is over. People trapped in the past will be devastated by what lies ahead. Those who acknowledge the change will be the survivors. Innovators, creators and entrepreneurs who pursue next generation technology will certainly be winners. But the really big winners will be those who have the cash and are still standing to take advantage of the deeply discounted assets that will be there for the picking in the years ahead.
Daily Bell: That's blunt enough. Is this upcoming Rollover an example of the free-market snapping back after so much governmental distortion?
Nick Russo: There are no free markets any more. Governments throughout the world are becoming more intrusive and will do anything they want in reaction to a perceived crisis in the name of national security. The real free markets can be found at the grass roots level. You will see the return of different forms of local currency and bartering. We also expect to see a future conflict between the agendas of the New World Order and the Far East represented by China.
Daily Bell: Wow, we've been writing a lot about China. We agree with you about the tension between China and the West, as represented especially by the Anglo-Saxon axis. And we've written about barter as well!
Nick Russo: People need to be vigilant. Times are changing. I hope that your readers will explore our website and embrace our core research vehicle the Momentum Monitor.
Daily Bell: On behalf of all of our readers we thank you for sharing your views with us. And we encourage all readers to visit your site at RussTrading.com. to learn more about your work and point of view.
Nick Russo: Thank you for your gracious invitation to participate in this interview.
Nick Russo is an experienced trader and a deep thinker. He grapples with very important issues. In this interview he makes a number of interesting points. His endorsement of cyclicality when it comes to human events is certainly one of the most intriguing and controversial elements within the larger trading sphere. There does seem to be cyclicality, though this can also be explained to some degree by the Austrian model that utilizes central banking over-printing of money as the cyclical trigger. Additionally, critics contend, a backwards look at history can always point out cycles, even if it is more difficult to point them out moving forward.
That being said, Russo has the track record and the experience. And he makes a number of points that others in the hard-money community are making, no matter how he or they get there. His positions are ones that we agree with on the whole. He is bullish on precious metals, bearish on the dollar and bearish on real estate unless its farmland – shades of Soros' former partner and global trader Jim Rogers.
The main point that Russo is getting at is that the paper money economy of post World War II is collapsing. This is part of the Big Rollover from his point of view. From our point of view, the collapse of the current regime is also explicable in terms of how money works and how central banks over-print money leading to booms, mal-investments and eventually busts.
We also agree with Russo's timeline. The world as it was is not returning any time soon. The recession/depression will be dragged out because governments are now committed to printing however much money it takes to prop up the huge banks and multinationals intertwined with these mal-investments. This means a good many companies will drag along non-performing investments for quite a long time, whether they admit it or not.
Whether one speaks of mal-investment or the Big Rollover, it is clear by almost any yardstick that this is not your father's recession. People will find that there is less money to go around, less economic activity and less business in general. Right now they are bulldozing homes throughout California, but that is only the beginning. The amount of mal-invested resources is staggering and includes sprawling universities throughout the West that teach little if anything that is useful, public schools that are nothing but vast warehouses and an edifice of business, banking and governmental entities of such wasteful complexity that it is almost futile to try to unravel them. The economic crisis itself will have to sort them out. And it will.
It's too bad. So many resources have been dedicated to useless ventures that the quality of life for Westerners is bound to be affected for the longer-term. The West – perhaps the whole globe, as Russo indicates – is looking at a definite change of lifestyle. Maybe it won't be quite as dramatic as Russo is currently speculating. But at best, in our opinion, the next decade will offer nothing better than a Japanese-style economic recovery, one that progresses in fits and starts but remains sluggish and prone to further downturns, either slight or significant.
Of course, humans are economic animals but are not bound by the economy around them. They can build and rebuild, finding their own way despite the bad times by using what Von Mises called "human action." Of course, it all begins with knowledge, and the courage to sort out wishful thinking from reality. Analysts such as Nick Russo can prove most helpful in this regard.