VRA Weekly Update: Bank of England Warns of Negative Rates. What About in the US? VRA Market Update, 1995–2000 Clone?

Good Thursday morning all. Breaking news this morning from the Bank of England, which stated flat-out “Banks should start preparations for negative rates, if needed”. My spidey senses tell me the BOE wouldn’t have made this statement…out of the blue…unless the odds of negative rates were not high.

60% of all govt debt in Europe carries negative rates…something like $16 trillion in total. Of late, it’s become popular to warn of spiking interest rates…lets see how that’s worked over the last 30 years.

Here we see a 30 year chart of rates on 30-year US Treasuries. From 30 yields of more than 9% in 1990 to just under 2% today, rates have been a one way trip. As a betting man, I put the odds of the US headed into negative rates at 50–50. And the odds of rates spiking at 30–70 (against). Central banks could hardly send a stronger message than the one they’ve been sending since the onset of QE (2009).

And if the markets were going to take a breather, yesterdays trading gave them the opportunity with early weakness in the Dow (-150 pts at the low) took the Nasdaq into negative territory with it.

And the semis didn’t help either with SMH losing 1.8% (semis lead tech/nasdaq, tech leads the market).

But this market remains garlic strong. And there’s no rocket science required to figure it out;

1) Don’t fight the Fed. Don’t fight easy money govt policies; Approx $20 trillion in global liquidity in just the last 10 months…with more on the way. We are hearing this morning that Dems will likely force through their $1.9 trillion stimulus package (or close to it), which would take total fiscal stimulus from the onset of coronavirus insanity to $5 trillion.

2) Don’t fight the tape. New all-time highs in US and global markets mean just one thing; there is no resistance above…meaning the path of least resistance remains higher. And as Tyler likes to say; new all time highs beget new all time highs. It’s not just a saying either. As its been proven historically, the best time to invest is actually when markets/stocks are hitting new highs

3) VRA market internals continue to impress (below). Advance/decline solidly positive but check out volume; Better than 3.5:1 Nasdaq and 2.5:1 NYSE. Garlic.

The cherry on top; 399 stocks hitting new 52 week highs to just 4 hitting new 52 week lows.

VRA Bottom Line: This market had its chance to get hit coming out of a weak close in January. Hasn’t happened and likely won’t.

We see this market as similar to 1995–2000, when Nasdaq soared from 740 to 5000, a gain of 575%.

An average gain over 5 years of 115%/year (chart below).

I remember that 5 year period well. Helped take 3 co’s public (raising approx $400 million) and my biggest regret was not being more aggressive and not focusing more on market leaders (tech).

We remain bullish

As the markets limped into the close of January trading, market timers and permabears began warning about the dangers of February and the rest of ’21. Time to get out and go short they said.

But in a repeating pattern that’s been in place from the 3/20/21 lows, sell-offs continue to be short-lived and shallow as the Dow has gained 1000 points (+2.8%) in the first 4 days of February while Nasdaq has posted an even more impressive 4.8% in 4-day gains.

Broken record time; $20 trillion in global liquidity inside of 10 months tends to have that effect. And there’s more on the way. QE is the shark that must continue swimming to survive.

The research team over at Evercore (Ed Hyman, Rich Ross) , we speak of them often here as they’ve been the most consistently spot-on on both economics and the market, continues to see booming growth. Year over year increases in residential construction spending just hit 21% and if you’ve seen Biden’s economic agenda for the housing market and you’re like me, you wish you were once again a first time home buyer. Biden is proposing a one time tax credit of $15,000 for first time home buyers, which will be paid up-front to the buyer so they may use it as their down payment. We’re already in the middle of a housing boom…should Biden’s plan pass, exactly where are these new homes going to come from? We expect housing will continue to lead the US economic recovery.

Evercore is also looking for year end earnings for S&P 500 to hit $200/share. If they’re anywhere close to accurate, they see the S&P 500 finishing the year some 20% higher from here.

And we remain bullish on silver. Check this out; the last time we had a Dem sweep in DC (2009) silver soared 327% in price. Now that silver has broken $30, Ross sees next move to $43/oz, followed by a trip back to $50 (all-time highs).

Until next time, thanks again for reading…

Kip

Join us for two free weeks at VRAInsider.com

Sign up to join us for our daily VRA Investing System podcast

Also, Find us on Twitter