VRA Investment Letter: Facts vs Feelings and the PSYOP of Negativity. The Fed Pivots - VRA Inflection Points Have Arrived.
/Good Thursday morning. I’m scheduled to be on Fox Business with Charles Payne this coming Monday. I think that makes 8 appearances this year. Always an honor as Charles is one of the really good guys, with a remarkable background to boot.
Cindy and I have a routine that goes back to our investment seminar days with WMI/VRA. Whenever I’m going on stage or doing an interview I run my ideas by her first. She’s a good listener, a great sounding board and she never holds back with her views. Love that.
Last night I told her that I think I’ll do a deep dive with Charles on the remarkable strength of the US consumer. The facts that we cover here often.
Her immediate reaction? “Be careful how you do this. When you say these things it feels like you’re out of touch with what people are feeling.”
Of course she’s right. And it’s not that I don’t get it. People aren’t exactly feeling positive about their economic situation.
But those are “feelings” and I prefer to deal in “facts”.
I know well that there are two Americas. I come from that second America. The one that’s typically an afterthought.
But I also know that the markets don’t care about that second America. Not really. The markets care about the America that is prospering. And the data tells us “clearly” that “that” America is doing extraordinarily well.
The last time I was on with Charles when I mentioned that consumer net worth was at an all-time highs, he stopped me in my tracks; ‘Kip, maybe its time you left the yacht club and went grocery shopping, my man.”
The snark in his voice was clear.
Pretty sure that Charles doesn’t know that I grew up poor and that I’ve never been to a yacht club…but I got his point.
Still, when things don’t make sense to me they tend to drive me crazy. It’s the lifelong contrarian in me. And what I believe I know…as we cover here often…is that there has been a long term “PSYOP of negativity” that is pervasive in America.
I made this point on Twitter/X this morning.
Maybe I’ve got it all wrong. But I don’t think so. As Tyler and I covered in detail in “The Big Bribe”, the data supports evidence that we are almost certainly in “The Roaring 2020’s”.
I gave up trying to be popular long ago. This subject matter almost certainly confirms that. When the data changes, my views will change with it. If Charles lets me get into this on Monday I’ll be prepared to get beaten up…again.
The Fed Pivots — Another Key VRA Inflection Point Has Arrived
This week Fed Governor Christopher Waller gave an address to a think tank and stated that Fed monetary policy is “well-positioned to cool inflation” and that “should inflation continue to ease back down to the Fed’s 2% target for several more months there is a chance that we could start lowering interest rates. If disinflationary forces continue to build there is no reason to say we will keep the policy rate really high.”
Known as one of the most hawkish voices at the Fed, Wallers statements turned heads on Wall Street, sending bond yields sharply lower. His comments sent powerful signals that the Fed will kick off rate cuts next year, with traders moving to price in cuts as soon as May.
Here at the VRA, beginning in late summer, we began forecasting that our 3 major inflection points would begin to kick in late in the 4th quarter. We’re there.
Our 3 inflection points have been:
1) Disinflation (clearly in place)
2) Lower rates (clearly in place)
3) Lower dollar (clearly in place)
Below, in this chart of 10-year treasury yields, we see the big “outside day” from October 23, from whence rates have plummeted lower. Bonds have now recorded their best monthly performance in nearly four decades. While at a level that may provide some short term support, we continue to look for much lower rates into year end and throughout 2024. The “Great Reset” that we’ve been writing about has arrived.
Below we see that the USD has resumed its long term bear market, falling off of a cliff over the last 3 weeks (also featuring a big outside day). The move lower in USD has only just begun.
Next Up: “Fed Front Running”
In the weeks and months to come, prepare to hear these words often (Fed Front Running) throughout the financial media, as global bond traders flip back to shorting bonds and front-running Fed rate cuts in 2024.
The primary trend of lower rates over the last 40+ years has resumed (as laid out in “The Big Bribe”).
VRA Bottom Line: the combination of our “3 VRA Inflection Points” kicking in will provide significant fuel for stocks and bonds. In addition, the move lower in the US dollar will propel precious metals and miners sharply higher.
We have entered what I believe will be the bull market of bull markets for PM’s and miners.
Until next time, thanks again for reading…
Kip
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