VRA Investment Letter: More Friendly Inflation Data with Incomes Soaring. Must Own Small Caps. Textbook Bull Market Action. Bitcoins Ramp Higher Continues.
/Good Thursday morning. These short term mini-pauses have done wonders for the overbought readings on our VRA Investing System. Today, even as our markets are just off of all-time highs, those overbought readings are gone. This market still has room to run.
This mornings inflation data (core PCE deflator) is known to be the Fed’s preferred inflation gauge and we have more good news, meaning broad disinflation continues to build. The year/year core price index rose 2.8%, which met economist estimates, allaying the fears of many that inflation was making a dangerous comeback. It is not. The really good news came from personal income, which rose a massive 1% on the month, crushing estimates of just .5%.
Our view over the last 2 years has been that the economy is in excellent shape, with personal incomes and productivity rising sharply. The economy is picking up steam, which means corporate earnings will continue to rise, “forcing” stock prices higher. For those that have wondered exactly how it is that the markets can continue to rise at such a fast pace, know this; the markets are a discounting mechanism and as such, they’ve been telegraphing this broad economic strength. The markets…somehow…always know what lies directly ahead, discounting the future by 6–12 months. The markets are always smarter than us, which is why price action is key and why the VRA Investing System is based in trend following. Rule #1 in making money in the markets is getting the trend right…then the sector action…followed by individual stock and ETF selection.
Futures were lower prior to the news but have since turned positive across the board.
Below we see that IWM has actually led the S&P 500 higher, from last Novembers lows, and is putting in a series of higher bottoms (relative strength). We see small caps going on a tear here…remember, they remain 16% below ATH’s, meaning the markets are giving us a gift.
VRA Market Update
The market continues to broaden out with fundamentals, technicals and analytics still flashing powerful buy signals. Textbook (early) bull market action with rotational action among sectors and indexes working to relieve extreme overbought technical readings, without large drawdowns. Absolutely textbook. Of note, we are beginning to hit “extreme greed” levels on some investor sentiment data, but we’re not at the point where we would be overly concerned.
We’re just 1 trading day away (today, Happy Leap Day) from putting in 4 straight months of gains, as the S&P 500 will soon be up in November, December, January and February. The analytics on this are spectacularly bullish. 4 straight months of gains has taken place 14 times since 1950 and the S&P 500 has been higher 100% of the time over the next year, with average gains of 17.4% (h/t Carson Research).
Reminder: We’re in The Roaring 2020’s
-Bitcoin/cryptos/blockchain/tokenization
-All time highs, stocks.
-All time highs, home prices
-All time highs, net equity in homes
-All time highs, consumer net worth
-1/3 homeowners have no mortgage (ATH)
-Over the last 15 years both consumers & American companies have cut debt by 25% (to disposable income & mkt cap)
-Corporate debt to mkt cap sits at 50 year lows.
-The ability to lever up is significant; powerful tailwinds for the US economy
With the “innovation revolution” in just the early innings we continue to see this as the best opportunity for significant wealth creation since the 1995–2000 melt-up. Stay locked in.
Bitcoins Parabolic Move Higher Continues
BTC just broke $63,000 with its sites set on the 2021 ATH’s of $69,000. I continue to believe that its likely that BTC breaks $100k into the April halving. What’s happening on the demand is simply stunning. Yesterday, the 9 new SEC approved BTC ETF’s purchased 10,050 bitcoin, while BTC miners mined just 900 bitcoin. When we talk about BTC being the best supply/demand story on the planet, this is what we’re talking about.
But its the story of what’s coming that we believe investors should focus on, as the really big money has yet to show up. Approx 80% of brokers/advisors are still unable to purchase BTC, as compliance restrictions have yet to be lifted. This gives us, the little guys, an enormous advantage, as we’re essentially able to front-run the big guys. Store this fact away…it will come back to you in spades.
BTC’s market cap is just $1.2 trillion (which just surpassed Russia’s ruble), placing it 14th on the worlds currency stage. Keep buying BTC. If you’d rather buy an ETF we continue to recommend ARKB.
Until next time, thanks again for reading…
Kip
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