VRA Weekly Update: VRA Stock Market Melt-Up Forecast; Joe Biden as Bill Clinton.

Good Thursday morning all. Yesterday may have been a quiet day on the surface, but like ducks on the water it was a much different story below the water line. We’ve just had back to back days with fresh ATH’s in Nasdaq and Q’s (Nasdaq 100), the semis led the way higher (they’ll hit ATH’s soon), and we just had our best readings of VRA Investing System internals in 7 trading days. And this morning, S&P 500 futures have joined the party, hitting ATH’s in premarket trading. 

Can you hear that sound in the near distance? It’s the drumbeat of a coming melt-up move higher in US and global stock markets.

After you’ve done something for 36 years, not much surprises you. Not really. But folks, what we’re seeing take place with equity inflows, share buybacks, corporate earnings and unprecedented global liquidity…not to mention the fact that we’re at ATH’s and investors are still skittish…shocks even me (Tyler too. And he’s been doing this with me from about 3 years old, studying charts nightly). 

First, check out this chart of equity inflows, from 2016 to present (the US is in baby blue). Parabolic move higher doesn’t come close to describing what's really taking place here. This is how a melt-up move higher starts.

And here’s the chart of share buybacks from corporations, going back to 2000. With 6 months to go in 2021, total YTD authorizations have already blown past the 2018 peak.

It’s increasingly likely that share buybacks could break $1 trillion this year, a record X two.

Yet, somehow…with all of this bullishness, ATH’s, buybacks, liquidity and equity inflows, the Fear & Greed Index sits at 35. Investor Sentiment is “fearful”. What??

As you’ve heard us say often, if we had to pick just one reason to be over-the-top, out of our minds bullish, seeing lots and lots of bearish investors at ATH’s is that reason. 

This is not how bull markets end…it’s how bull markets pick up speed.

This remains a textbook set-up for a major move higher in stocks.

The VRA has remained aggressively long…its actually time to become even more aggressive (if that’s possible for us).

When it comes to corporate earnings, analysts have been raising their estimates, but not by nearly enough. Companies start reporting Q2 earnings mid-July, and analysts are looking for S&P 500 EPS to increase by 64% vs a year earlier, according to Refinitiv, which compares with a forecast of 54% at the beginning of the quarter. The comparison is with the worst period of the crisis last year, of course, but earnings are also expected to be about 8% above their second-quarter 2019 level.

Analysts’ earnings estimates at the end of any given quarter are usually short of how earnings actually come in, but given how on-fire the economy has been, we fully expect these estimates to be “crazy low”.

What happened in Q1 might be instructive; analysts thought S&P 500 earnings would grow by 16%, but actual growth came in at 58%. I fully expect Q2 earnings results to blow Q1 out of the water.

Again, this is a melt-up environment…lets see how it actually plays out. We remain long and strong.

Adding to our VRA Melt-up Forecast; “Joe Biden as Bill Clinton” 

We know from tons of your feedback (and I really hear it on Twitter) that it’s really, really, really hard for many to be bullish with the “pretender” Joe Biden sitting in the White House. Trust me, it’s not been easy for us either. But our job is to look through the noise and find the next mega-trends. That’s what we’ve worked on of late with the melt-up effects from the millennial generation (the smartest, most intuitive and soon to be wealthiest generation ever), and as you’ve heard us get into of late we think we have another melt-up mega trend with Biden as president. Yes, we think Biden could eventually be known as the stock market melt-up president. I covered this over much of my 25 minute VRA Podcast yesterday…here it is in writing for the first time

The comparisons are “really” interesting. In 1992, Bill Clinton ran and won as a liberal, beating daddy Bush (thanks again H Ross Perot) and at the same time Dems picked up both the house & senate. This is the exact set-up for Biden. But Clinton never really governed as a liberal. He was a tough on crime moderate, he aggressively cut spending & he worked well with R’s. 

He had no choice but to work well with R’s. In the 1994 midterms, Dems lost both the house and senate. If you’ve been reading the tea leaves, it looks HIGHLY LIKELY that Biden will lose both the House and Senate next year. Again, a parallel to Clinton is building. 

For Clinton’s last 6 yrs he had no real power…or so people thought,..but he employed something he coded as “triangulation” to pit both sides against each other. 

Not that Biden has Clinton's brain power or instincts…he certainly does not…but folks, this show in DC is being run by our “planners”; call them the deep state or shadow government but whatever you call them, they put him in office and they’re running the show. Biden as puppet president…and it might just mean a booming stock market and economy. 

Clinton even ran a budget surplus (no ones done that since) he had a 5% GDP and his presidency still marks the best stock market returns of ALL presidents, with the S&P 500 averaging 26.2% per year over his 8 years. We also had the dot-com melt-up under slick Willy, as the nasdaq soared 575% from 1995–2000. Boom!

Who wouldn’t take that with Biden??

** And here come the additional parallels to Clinton that we’re finding VERY interesting. It’s remarkable what’s just happened under Biden** 

Both the voting rights act & the removal of the filibuster have just failed in the Senate. If you’ve been paying attention you noticed that Biden didn’t go to bat for either (that’s because he’s never really been a far left liberal…he’s an old white guy that loves real estate, low taxes and capitalism…and yes, lots and lots of police). 

These latest events mean that elections will not be federalized (aka rigged) and that nothing will pass in the senate without at least 60 votes (aka no far left laws will get passed)

We find these comps to Clinton striking…this may become one of our new base cases supporting a melt-up move higher. 

It also has the potential to be great for the economy and maybe even for America as a whole. We’re certainly seeing an entire country getting red-pilled. 

Another VRA contrarian call that we’re developing…and BTW, if Biden and Dems want to have any hopes of winning the midterms or again in 2024, they had better melt-up the markets and the economy…because their popularity is essentially nonexistent. Fake news polls not withstanding….

Until next time, thanks again for reading…

Kip

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