VRA Update – A Sea Change is Taking Place
/At the VRA, we went long the stock market last October (through the purchase of UPRO, the 3 x leveraged ETF – S&P 500), but admittedly, did so grudgingly.
The bottom line on the decision to become bullish was really two-fold. The FED’s ongoing policy of printing fiat currency…quantitative easing…was continuing to pump ridiculous amounts of money into the economy/stock market, and every major indicator that I followed indicated that the market would move sharply higher. In addition, we were beginning the most seasonally bullish period for the markets, as the October – May time frame typically gives investors their very best investment returns. In short, the VRA Trading/Investing System was very bullish.
On Friday, I recommended taking profits in UPRO, and while booking a gain of 43% is always welcomed, it was not an easy decision. As you have been reading, I have battled this decision for weeks, but the combination of events taking place now saw the VRA System flash its first “market reversal” since last October. The negatives now far outweigh the positives, and while this doesn’t guarantee that the stock market will go into collapse mode, it does tell us that being long stocks is now a much more risky proposition.
A SEA CHANGE HAS OCCURRED
Much like the ominous events of early to mid 2008, we are seeing a major confluence of negatives, and these negatives simply make it impossible for me to be bullish on stocks. The negatives include a sea change in both the fundamentals as well as the technicals. Let’s review these now.
Fundamentally, the macro environment has swung from positive to negative, and the negatives now appear to be coming to a major head. Geopolitically, we have the Russia-Ukraine situation that is quickly devolving into a major international conflict….one that could even lead to the next World War. In fact, leading voices throughout Europe are now voicing this exact possibility….warnings not tossed around willy nilly. Folks, anyone selling this conflict short is either not paying attention or has a very short memory. And, unlike recent global military actions/uprisings, this one has the potential to affect economic growth and development around the globe… FAR more than anything else we have seen recently…..which is why investors of the world must be on high alert.
On a somewhat different, but I believe incredibly important note, consider for a moment the following:
· When it comes to geopolitical realities, anyone born post 1990 or so has only known one thing….global military conflict…war… as being the norm, instead of the outlier. Prior to 9/11 and following the invasion of Kuwait, we had the first Iraq War….then, following 9/11, we saw not only Iraq War 2 (and occupation), but the war/occupation in Afghanistan as well. For the purposes of this VRA Update, we are not even including global conflicts such as the Arab Spring, the takeover of Libya, the continuing and disastrous civil war in Syria, or US/Allied involvement in countries like Pakistan (a major nuclear power), Yemen and Somalia where (combined) the US and its allies have already used more than 1000 drone strikes to attack the enemy. And folks, this doesn’t include the countless number of drone strikes that continue to occur in Iraq and Afghanistan. Just to be clear, I am extremely pro-military…as it concerns our men and women that are in harms way and that very bravely serve their country. They continue to represent the very best of us, albeit at the direction of those political/governmental, and yes…corporate interests…that would almost certainly never have the courage to do the same. This is why I have been a major supporter of bringing back the draft. On the surface, this would seem like a bizarre statement, however, when you then realize that the decision makers sending our young men and women off to war would then be forced to include their own children to such an uncertain and high risk fate, the idea behind bringing the draft back begins to make quite a bit more sense. Question; how many wars would our decision makers actually support and be involved in, with the knowledge that their own children might be on the front lines? Something to ponder…especially when you consider my next points.
Combined, in Iraq and Afghanistan, US military losses total more than 6700 lives lost. In addition, the US has seen more than 50,800 service men and women wounded in action. As incredibly sad and startling as these statistics are, the losses do not stop there. According to the Department of Veteran Affairs, following 9/11, more than 100,000 suicides have taken place, among active and retired military. The costs of war are truly great, which is why they should be entered into with a great deal of thought and an even larger degree of trepidation.
Following the last 25 years of global war, is the US more or less respected globally, and are we safer now than we were before? I think we all know the answer to both.
These are such important questions, and unfortunately, very few real conversations are taking place around them. But there’s another issue that may be even more important, and it may be the one that turns Russia-Ukraine into WWIII.
THE NEW NORMAL – IMMUNITY AS A WEAPON FOR WORLD WAR
The global conflicts that I’ve written about here, along with the untold casualties and costs that have come with them, may well be leading us down the path of the next great global conflict….the next world war. The issue I’m referring to is human immunity. Over the last 25 years, the world has come to see these global conflicts, civil wars and actual wars as normal…they are essentially nothing more than the cost of doing business to most. Little actually surprises us these days, and in fact, we would be more surprised were we to be told that peace had broken out globally and that wars were a thing of the past.
It’s the conditioned mindset that we not only expect war, but that we now accept war, that should have us most concerned for what might be coming. And, if this is the state of mind for the non-military, non-government segment of the population, you can only imagine the mindset that exists for those that reside inside the military industrial complex. If we, as regular folks on the planet, are now immune to the dangers and risks of war, exactly how immune must those inside the war machine be? Beyond immunity, they must certainly smell opportunity.
It’s this complacency…this view of war as the norm… that I believe should have us extremely concerned about what Russia-Ukraine (or a future conflict) might quickly evolve into. Ask yourself this question; On a scale from 1-10, how concerned would you be if you heard that Russia and Ukraine were officially at war, and that China, Iran and North Korea announced they were allies of Russia, and joining the war in support? I’m sure that many reading this would say you were a “10” and that these events would concern you a great deal. But the average person on the street? Not only would the average person care little, 90% would be unable to show you where Russia is on a map. They could surely tell you about the next big album to drop, or who is sleeping with whom in Hollywood, but global military conflict is not exactly high on most people’s lists these days.
Sure, much of this blame lies with our changes in society and our bottom of the rung educational system…but candidly, shouldn’t we come to expect this culture of immunity following the shock-to-the-systemevents from the last 25 years? Sadly, I believe the answer is yes. Now, more than ever, we are only awakened when something truly outrageous happens. My concern is that this is the exact mindset developing for the next world war, and whether it happens as a result of today’s Russia-Ukraine conflict, or something yet to come, the planet is perfectly ripe for the next great military conflict.
Final note on this extended point. History tells us that the best cure for global economic recession/depression is WAR….and with the military industrial complex at maximum strength and control, all it might take is the next big false flag event…and folks…WWIII could soon become our new reality. How shocked/concerned will we really be??
In addition to the military/war risks, we now have a number of fundamental/macro risks that we must consider….risks that were not present until recently. As I’ve been writing, China’s economy has slowed considerably, and as a primary engine for global economic growth, this slowdown is already being felt in the US and elsewhere. Since Russia-Ukraine reached the level of economic sanctions, Russia’s stock market has dropped a stunning 22%, with even larger losses of more than 30% in 2014. These events make China’s growth all the more important. In the US, housing has hit a brick wall, with housing starts and mortgage applications flashing recessionary warnings. Just this week we saw many of the major housing stocks break their 200-day moving averages, and as leading indicators, this is a worrying economic sign.
The stock markets technical indicators have me very concerned as well…another major reason the VRA Trading System is bearish.
Overall, earnings reports for US companies have been fairly solid….but it’s the markets negative reaction to these earnings reports that has me concerned. Of course, the collapse in price for the techs and biotechs has had me concerned for some time…and their attempt at recovery this week came on very light volume and then were slam dunked again on Friday as the Nasdaq and Russell 2000 dropped by close to 2%. I encourage students of technical analysis to pull up the charts on the stock markets leaders for this past year, and study their chart patterns from the past 90- days or so. You will see a common pattern among them, and one that is referred to as a “head and shoulders”, universally recognized as among the most bearish of chart patterns. Folks….I see H&S patterns everywhere I look….these rounding patterns tell us that the markets leaders are very likely in the process of breaking down, and that the sellers far outweigh the buyers. We should also heed the warnings from VRA source “top secret”…one of the best market experts I’ve ever known…and his bear market warnings as a result of decreasing money flows.
The one saving grace has been the way blue chips have supported the market. For example, while the Nasdaq witnessed a near 10% correction, and is still lower by 7% on the year, the S&P 500 is lower by just 2%. This fact is the ONLY fact that is keeping the majority of bulls bullish. Should the big caps start to play catch up on the downside, we will see most everyone desert the stock market…and this is when the really big losses will begin. And yes, this is now what I expect to take place and another reason the VRA went from bullish to bearish.
The final saving grace for the stock market is of course the FED….continued Central Bank financial manipulation. Here’s my prediction for the FED. For as long as possible, Yellen’s FED will continue to saypubliclythat the FED will move forward with their tapering program on QE. Yellen and her fellow FED bankers will tell us that “economic growth continues to take place” and that “the FED is committed to the continued reduction in QE”. However, as global conflict, reductions in economic growth, and 20-30% stock market losses take place, the FED will do the only thing the FED knows how to do….print more money…which in this case will also mean a “temporary suspension of the taper in QE”, and in fact, another INCREASE in QE.
Folks….if I am correct (and with as little ego as possible, I will put my track record up against anyone…especially the 1000 economists that work for the FED), we will see an incredible amount of stock market volatility going forward…along with large market declines. IMPORTANTLY, this decline will not happen in a straight line, and while we must be prepared to go short….we must also be prepared to then cover our short positions and in some cases, go long for a counter-trend bear market rally. For example, when the market starts to get wind of the FED’s increase in QE, the rally higher will be stunning….and anyone short the market will be hurt badly. This is why I continue to recommend that VRA Subscribers use options as an investment strategy. Options give us the ability to easily go long or short and to also use a great deal of leverage without the risk of large/unknown losses (which are very real with short selling and futures trading).
With the 43% gain on UPRO, we have locked in profits of 218% so far in 2014. The market is setting us up perfectly for what should be a record year for the VRA.
Until next time, thanks for reading….make it a great week
Kip
