VRA Investment Update: Disinflation is Here. Get Ready for 2% Inflation Next Year PLUS Fed Rate Cuts. How We Want to Play It.
/Good Thursday morning. July CPI (consumer prices) gained 3.2% on an annual basis, less than the 3.3% consensus from economists estimates. On a month-to-month basis, inflation increased just 0.2%, which was in-line with estimates while year/year CPI came in at 4.7%, matching estimates. The report also said real average weekly earnings were unchanged last month, in another positive sign that the Fed can be less concerned about a wage price spiral.
We really see the collapse in inflation in this yearly chart, as inflation peaked in mid-2022 at 9% and has been in free fall ever since. 2% inflation is in our future.
China is also now Exporting Deflation — Bodes Well for our Deflationary Call, with lower rates and USD
VRA Bottom Line: as Tyler covered in detail on his VRA Investing Podcast, our view has been that the Fed’s unrelenting 11 straight rate hikes from last March are beginning to fully kick in. The power of “lag effects” and the “innovation revolution” will result in “deflation” going forward which will take inflation down to the Fed’s 2% target in 2024. This will be followed by Fed “rate cuts” in 2024.
How We Want to Play It: we are witnessing a “great reset” of a different kind, as the next several years will bring deflation and MUCH lower rates.
- Bonds are a fabulous buy here, certainly in the 4% + levels of 2 to 10 year bonds. We see rates “plummeting” lower.
- Adjustable rate mortgages are the way to go on home purchases. They’ll be adjusting lower for many years to come.
- Tech stocks and semis will also be a primary beneficiary of deflation and lower rates. They will continue to lead..and lead hard.
- Precious metals and miners will have a remarkable move higher in this future of lower rates, deflation and continued move lower in the US dollar, which has entered a long term bear market.
As spelled out in “The Big Bribe” last year, this new bull market will be driven by financial engineering, ungodly amounts of global liquidity along with our other VRA Megatrends and bullish tenets; innovation revolution, millennials (inheriting $70 trillion), a decade-long housing boom, deflation, lower rates and one of my personal favorites, the red-pilling of America.
Most are overlooking this unique time in American history, where the insanity of the left (Deep state actually) is waking people up. Especially women (don’t mess with momma bears). And, if we get a red-pilled president next year, look out above. Remember what the stock market did after Trump was elected?? Gains of more than 40% in just over a year.
Importantly, from Q4 2018 we’ve had 3 bear markets in 5 years, where the average stock lost more than 50% of its value. Unprecedented. It also helps to explain why retail investors are so skittish and why institutional investors remain so underinvested. And we’re still light years away from a red-hot IPO market and/or mergers and acquisitions boom, which have been hallmarks of market tops. Combined with a record $30 trillion in money market accounts and near $4 trillion left in uninvested govt stimulus (from both Trump and Biden Admin, scheduled to be released into the economy over the next 3–4 years) this massive liquidity…plus what will be another record amount of share repurchase programs for 2023…will continue to drive stocks higher.
Final Thoughts: My Problem With the Bearish Case
The biggest thing bears keep getting wrong is the liquidity & supply/demand story for equites, real estate & essentially all investable asset classes which I mentioned above. We’re in a new era.
The blow-off phase of easy money & lots of it is here. It’s global & has years & years to run. The Roaring 20’s
The sporting world is a good microcosm of what I’m talking about.The value of teams globally are soaring…for most every sport…with player salaries skyrocketing.
Look at what the Saudi’s are doing with soccer & LIV golf. Now multiply that x 1000 globally.
Throughout society, these asset bubbles are only now inflating.
The stock market has yet to even hit new all time highs.
Nasdaq is 15% below ATH.
Russell 2000 is 25% below ATH.
The equity markets are giving us gifts. As we’ve said for some time, magnets are at work here.
Most that hear me say these things think I’m crazy. Give it time.
And I get it. We’ve had 3 bear markets in 5 years. In each one the average stock lost 50% of their value. Brutal and unprecedented.
People are scared to death. Look at who’s president! Fear is rampant.
A massive wall of worry exists…contrarians (me) are salivating.
Keep. Buying. Dips.
If you think our extreme optimism is unwarranted, give it time. We think you’ll come around. The ‘innovation revolution’ is here. Keep buying dips.
Until next time, thanks again for reading…
Kip
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