VRA Investment Letter: Parabolic Move Higher; Next Up. The "Stunning" Reality of US Economic Health. Angry Permabears at Remarkable Economic Strength.
/Good Thursday morning. Following the parabolic move higher in each major US equity index from the 10/27 lows…just as seasonality was turning bullish…on the VRA System we now have each index hitting extreme overbought levels, but importantly this is only on our shortest term momentum oscillators. Combined with the shockingly bullish technical signals that we’ve seen over the last 8 trading days it remains our view that important lows are in place and that pullbacks from here should continue to be bought (if we have pullbacks, that is).
Frankly, this has the feel of a market that could just keep going higher into year end, but I’ve also seen…on more occasions than I can count…where we’ve seen one last shake-out that gives the BIG money another chance to get in, in advance of a move to new highs.
Most importantly, we are in a new bull market that is only entering year two. “Year 2’s” of new bull markets have been higher 100% of the time since 1952, with sharp gains. Longer term, we are in the Roaring 2020’s. There’s never been a better time to fade the permabears.
Over the last year we’ve been broadly mocked for our bullish economic views, but folks, when home prices, net equity in homes, credit scores and consumer net wealth are at all-time highs…with mortgage defaults at record lows…and with 68% of Americans owning at least one home, there’s rarely been a time in American history where the consumer has been in better shape (yes, even as we expect the economy to slow a bit as the Fed’s lag effects kick in).
Take a look at our full list of our significant inflection points and the strength of the US economy. Seismic Shifts Are Developing.
- Inflation has peaked
- The Fed’s hiking cycle is over
- Rates have peaked
- Corporate earnings will continue to grow above trend
- The consumer should remain strong
- Seasonality is highly bullish
- Permabears are out in force (clickbait list-builders)
Core strength of the US economy (all data from 2023):
- home prices at ATH
- net equity in homes at ATH
- 68% of Americans own at least one home
- consumer net worth at ATH
- credit scores at ATH
- Mortgage defaults at all time low
- Over the last 15 yrs consumers & corporations have cut debt by 25% (to disposable income & mkt value)
- corporate debt/market value sits at 50 yr lows.
The balance sheet fundamentals (above) are of the type we normally see during the birth of significant economic expansions, rather than the end.
Still, with the “Great American deleveraging story” in place, where both consumers and co’s have cut their debt to disposable income/market value by 25% over the last 15 years…and with corporate debt to market value sitting at 50 year lows…the pessimists continue to have this economic story exactly wrong.
We’re seeing others picking up on our positivity. Household debt service ratios sit below 10%, one of the lowest levels on record since 1980.
Angry Permabears at Remarkable Economic Strength.
One of these days I’ll have to start including some of the direct messages from social media that I get from some of the biggest permabears in the country. You would recognize their names…they’re regular TV personalities.
These long term bears get very upset at me when I include the facts that we share here with you daily, in our VRA Letters and VRA Investing Podcasts. I’m talking name-calling and 4-letter words. “Bizarre” is the word that best describes it.
Unless and until we start to see the “majority” of TV talking heads start to focus on the facts of the US consumer and co’s, we will continue to highlight the remarkable strength of the US economy…because not nearly enough are focusing on them. As my mentors taught me more than 30 years ago, when it comes to investing, politics and the news of the day do not really matter. Instead, price action and the strength of the consumer and companies is “everything”.
VRA Market Keys
Until the relative strength charts below, of the semis to S&P 500 and Housing to S&P 500, begin to break down, we see this market headed “much” higher.
As leading indicators, their price action is just that important.
Semis to S&P 500
Housing to S&P 500
If we have one big concern, its the action in the transports, another important VRA leading indicator.
We think the poor action in the transports reflects the fact that the US economy is almost certainly slowing.
“Slowing” is the operative word here. I look for the action in the trannies to pick up as rates keep falling and as our
“innovation revolution” picks up speed. We’re only in the first inning.
Tranports to S&P 500
Poor Action in Mining Stocks
Below we see that the miners continue to lag the bullish action in gold markets. For precious metals to really take off, the miners must first start to lead.
We think that day is nearing and highly recommend this group. The combination of lower rates and USD should provide that impetus.
And, if the markets start to think that Dems will win next year, this group will explode higher. I put the odds of a Dem clean sweep next year in the 60–70% range, as of today.
Higher still if Trump is the nominee.
Miners to Gold
Bitcoin Breakout Picks Up Speed
A move to $100,000 is likely by the end of 2024. No doubt, the buying in BTC is taking some of the excitement away from precious metals.
Last trade: $37,524, up $2115 on the day. We now have gains of 30% from our recent addition of BTC to the VRA Portfolio.
Until next time, thanks again for reading…
Kip
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