Family Wealth Report
April 27, 2011

Standing Apart From The Investment Crowd: The Charles Nenner Way

It takes a lot of effort to stand out from the investment guru pack these days, especially in the age of talk shows, cable news, blogs, Twitter, newspaper Op-Eds, and all the rest.

One international research firm that certainly has a very distinct, even joyously unconventional image, is Charles Nenner Research, the business created by Charles Nenner and run with a close friend, David Gurwitz.

What makes them unique? Well, The Wall Street Journal says that their system enables them to “help you look around corners” and see the future. That system, which has attracted clients all over the globe, is based on the study and analysis of cycles.

CNR forecasts future trends in all liquid markets using cycles. The firm works with family offices, hedge funds, wealth managers, insurance and public companies, and private investors throughout the world to manage risk and hopefully help them put strong investment numbers on the board.

Here’s another twist: both men are former athletes, as well as entertainers and talented musicians with a solid back-catalogue of artistic achievement and financial experience. Family Wealth Report recently checked in with the firm to find out more about the unique system and about the individuals behind the company.

“The system combines Charles’ unique algorithms in cycles, price targets, waves, and overall economic indicators to forecast markets and help investors be patient, especially in some very confusing times,” explains Gurwitz. “It all started when Charles was in medical school, and he became fascinated with patterns and cycles in nature. He discovered that these cycles could also be used to predict movements in the market. This became a major part of Charles’ life work, to show that nothing moves at random.”

Gurwitz continues explaining the system: “The methodology is primarily based on cycle analysis. The word cycle comes from the Greek word meaning circle. The system tracks cycles of various lengths – utilizing ending daily, weekly, monthly, and yearly data. The data goes back centuries in some cases, and uses “vector combining” to smooth and simplify the picture. It looks for situations where longer and shorter cycle tops or bottoms match up, giving clear and strong signals.  It does not consider economic or political events, which we see rather as the effect and not cause of market movements.”

“The algorithms can be applied to any set of data. While their obvious use is in the financial world, they also can be used to predict any kind of patterns: unemployment, economic activity, sun spots activity, wars, etc. What is striking is that even though the analysis is purely technical, its basic assumption - that data patterns run in predictable and recurrent cycles, just like other things in nature - is deeply fundamental. Charles trained heavily in psychiatry while at medical school, and sees it as sometimes challenging from an emotional standpoint for people to learn to see that the world seems to work this way, and not based on news events or central bank moves,” said Gurwitz.

While the biggest chunk of CNR’s clients come from the US, Europe and Canada, CNR has a rapidly growing number of clients in India and the Far East: Singapore, Hong Kong and Japan. “We also have clients from Africa, Australia, South America, basically all over,” Gurwitz continued. " Given all the time zones, I don’t sleep that much!”

Do it yourself

A driver for the business, Gurwitz said, is a growing desire by clients to take research advice and then add a component of managing money themselves, in addition to giving funds to discretionary managers or bank trust departments.

“The volatility since 2008 has led to more and more investors becoming increasingly active in managing their own money” he said. “Whether it be private wealth or the growing family office business, individuals are not willing to simply give their money over so easily. They want it managed by someone with whom they talk to regularly and with whom they have some input.  With online brokerage so much easier and less expensive now, many individuals and family offices, in addition to allocating money with the outside managers, have also moved some of their money away from brokers and hedge funds and are doing part of the management themselves.

“We saw this trend start many years ago, but it has accelerated recently. This has benefitted us. Why? For years, we have been offering our research services to the hedge funds and institutions and professionals. We added the segment of also providing our research service to individuals, where they can interact and ask questions and seek custom research and learn how we utilize cycles, targets, waves, and other technicals. They can then make allocation decisions and investment decisions with the overview that we provide to both segments – the outside fund and trust side, and their internally managed side,” he continued.

“However, since we are neither brokers nor money managers ourselves, our job is exclusively forecasting the “weather” in stocks, bonds, commodities and currencies – often advising to either go in on the “sunny days” of an asset class or sit on the sidelines in a particular asset class and be patient - without focusing on transaction or management fees,” Gurwitz said.

And Charles Nenner is unafraid to stick his neck out in making short-run predictions. Here are only a sample of some past and present calls:

Stocks: Past: In early 2007, he predicted the run-up in the equity markets.  Nenner called for the Dow, when at 10,800, to go to 14,500 - it hit 14,200.  In the spring of 2008, Nenner pulled his clients out of the market, and called for a crazy year – 2008 - ahead, with several wild swings and, with crude near its peak of over $140 a barrel, called for deflation and a top in real estate prices. He called for Lehman Bros from 35 to near 0, and for the equity up move from Feb 2009 until recently. Present : Short term sideways in US markets, slight upside potential to the end of April, looking for a turn down. Weakness into second half of the year, followed by a rally before year end. Looking for a much bigger decline over a 24-30 month period in the major indices.”

Bonds: Past : Nenner called the peak rate in 2010 at 4 per cent on the US 10 Year, months before. He called for the Fed Funds rate to go from 6 per cent to under 1 per cent. Present: bond Futures rallying into Q3. Longer term rise in rates and lowering of bond prices until 2040, based on the 60 year Kondratieff cycle which showed bond prices bottom in 2010, top in 1980, bottom around 1950, top around 1920, and bottom around 1890 and top around 1860.”

Currencies: Past: Nenner called the low in the Aussie and Canadian years before they went to par. He called the high in the euro at 151, months before the Greek crisis, after which he called the drop to around 118, and then the bounce. He called for the dollar low in December, and the 2009 DXY low was to the day. Present: big bottom in the dollar coming, could hold for several years, after dollar weakness short term. He is calling for Yen weakness longer term.”

Commodities: Past: Nenner bought long dated calls on Gold stocks in Oct 2009, and exited them when Gold hit around 1225. He went long again and held until around 1440 months ago. Nenner caught Crude both ways...up into the 148 high, and then called the downside with a 34 target, then back up over 100. Nenner gave a natural gas target of 2.40 when Nat Gas was trading around $7. Present : gold/silver, shorter term correction, longer term up substantially. Natural gas longer term still down to $1.70. Grains are set for a multi-year up move in a few months.”

Economic Indicators: Past : Nenner called, in the difficult fall of 2008, for economic strength to pick up beginning in March 2009, and called for deflation when crude oil hit over 140. He called for a strong economy in the fall of 2010. Present: Now, when everyone seems to say that the economy has recovered, he sees the opposite. The cycles in Industrial production, GDP, and PPI are turning down.

Music and money

One intriguing thing about Nenner and Gurwitz is that they not only have the financial backgrounds – they have a shared love of music. Gurwitz is a self-taught pianist and composer. He has his own website from which readers can download some of his compositions: www.davidgurwitz.com. Nenner is a former violinist and singer, who sang “Young at Heart” at a Special Olympics Concert given by Gurwitz. He recently recorded several show tunes which will be on the www.charlesnenner.com site shortly. The disciplines of mastering music have their counterparts, it seems, with understanding the patterns of finance.

Originally trained in medicine – he holds a medical degree – Nenner spent much of his working life in investments. In 2001, Nenner founded the current business, of which he is president. His track record is impressive: Nenner worked for Goldman Sachs in New York from 2001 to 2008, living through the end of the dotcom boom, the recovery and the subsequent sub-prime mortgage train wreck, all of which he predicted. Prior to that, Nenner worked for Goldman Sachs in London, where he served as a technical analyst for Goldman's fixed income trading group from 1998 to 2001. From 1997 to 1998, he was the head of trading research at Rabobank International, and from 1992 to 1994, he was head of Market Timing at Ofek Securities in Tel Aviv.

Nenner frequently appears on major broadcast outlets and media groups: The Wall Street Journal, Bloomberg, Financial Times, CNBC, Yahoo, and Fox News, are just some of the organizations he deals with (and of course, Family Wealth Report!).

As for Gurwitz, his own background, he said, gave him the experience to help run Nenner’s business.

“We met well over a decade ago, and I knew he was a genius and unique thinker. I had been trained by some rather well known American sports pioneers and financial innovators, so I had an ability to both recognize talent and engineer how it might be developed. I felt that it was important to get Charles’ wisdom out to the world. Having been an athlete, and musician, as well as having earned J.D, M.B.A, and C.P.A degrees, my background prepared me to develop the business and run it, which I do.”

Gurwitz added: “Charles does the research. We enjoy what we do immensely, and we try to provide clients with a totally different way of seeing the world. We encourage prospective clients to do two things: first, to visit the site – www.charlesnenner.com – and spend some time reviewing Charles’ calls and speaking appearances from the past, and, second, to request to be added to the distribution list to sample our current global macro research.”