VRA Investment Letter: Fox Business, Real Americas Voice. Strong Retail Sales. Aggressively Long Tech. What if Harris Wins? The Power of Investor Sentiment.
/Good Thursday morning. Heads up: I’m scheduled to be on Fox Business ‘Making Money’ with Charles Payne in the 2PM EST hour, followed by a 10 PM EST interview on Real Americas Voice ‘The Root Reaction’ with Wayne Allyn Root. Hope you can join us!
Breaking: retail sales for the month of July just came in plus 1% vs estimates of .4%, sending a signal that the US economy remains in solid shape, even as we’ve learned this week via PPI and CPI reports that inflation is in process of falling below the Fed’s 2% target. Without shelter and insurance (lagging indicators) we’ve been below that target for 4-6 months. Good news is good news again.
The markets love the economic data this morning with Dow Jones futures +350 points and Nasdaq +200. We are aggressively long equities.
Know this; plummeting 10 year yields have been screaming “inflation is being replaced by disinflation” over the last year with 10 yr yields collapsing from last Octobers 5% to this mornings yield of just 3.9%. The markets lead…and the Fed follows. Whether the Fed cuts by .25% or .50% next month is the only question remaining.
Next up: with China/Asia (and now Europe) aggressively exporting “deflation” to the US and the rest of the world, we’ll soon learn that the Fed is rather ridiculously behind the curve, as the FFR (Fed Funds Rate) remains at 5.33%. "Overly restrictive" doesn’t begin to explain how far off base the Fed is…J Powells 5th major policy error since taking the job from Trump in 2018.
Importantly, the equity markets should love what comes next…a consistent rate-cutting cycle from the Fed. Will prove great for the housing and precious metals markets as well.
One of our go-to indicators for market timing/positioning is the percentage of S&P 500 stocks above the 50 and 200 dma. Here’s where they sit today:
- Percentage of S&P 500 > 50 dma: 60%
- Percentage of S&P 500 > 200 dma: 69.2%
Until these readings top 90% +, we will stay long and strong stocks.
Investor Sentiment Flashing Big Buy Signals
We see this time and time again, specifically in young bull markets. At the first sign of turmoil (in this case the yen carry trade meltdown in Japan, which took the Nikkei down 13.4%), investors head for the hills. With more than $6 trillion sitting in money markets and the Fear & Greed Index hitting “Extreme Fear”, investors continue to be tepid on stocks.
Key to understanding where we are in a bull market is understanding investor sentiment. When investors that have just gone long stocks, then sell on shakeouts like the one we just saw, it could hardly be a more bullish sign.
This fact, by itself, tells us that we are early in this bull market. There will come a time when a majority of investors start “buying the dip”, thinking that stocks cannot go lower. When that day arrives, it will be a sign that markets are getting long in the tooth. At this rate, I’d put that outcome out "several years". Today, the majority of investors remain skittish, as the PSYOP of negativity continues to run its course.
We see this below in the Fear & Greed Index, which even after this big recovery move higher sits at just 25 (Extreme Fear). Understanding investor sentiment is key to understanding market cycles.
The Semis and Tech Will Lead Higher From Here
Over the last month we saw the semis and tech stocks reverse from ATH’s to their 200 dma. The semis (SMH) fell as much as 28% in 3 weeks (bear market), while the Nasdaq 100 fell as much as 16%. Our view remains that these are shakeouts to be bought, not unlike the 5-6 corrections/bear market that took place during the Dotcom melt-up from 1995-2000.
Over the next month we have several powerful catalysts that should prove to be bullish, namely;
1) J Powells Jackson Hole presser (8/24), where we expect Powell to be full-on dovish, telegraphing the upcoming rate cutting cycle (AKA the return of easy money policies).
2) Nvidia (NVDA) earnings on 8/28. We are in inning 1 of the "innovation revolution", which will continue to be led by the semis and market leader NVDA. As go the semis, so goes the equity markets.
3) The Fed meeting and first rate cut, 9/17-9/18.
We expect that front-running of these events (combined with strong Q2 earnings reports) is already underway. This is another dip to be bought.
Powerful Analytics Point to Explosive Move Higher
This falls under the category of remarkable analytics—some of the best you’ll ever see. On last Mondays “yen carry trade” meltdown, as the Dow Jones plunged 1030 points, the VIX (volatility index) soared from 23 to 65. Peak fear.
Here’s what makes this a remarkable piece of analytics; going back to 1990, when the VIX has spiked fast 50, the S&P 500 has then been higher one year later 98.9% of the time (91 of 92 times) with an average gain of more than 30%. Actionable analytics! H/t to Ryan Detrick (who does excellent work).
What Happens to Our Prediction of a Generational Bull Market if Harris wins?
This is a question that we get often. What if Harris wins? Does our “generational bull market theme” still hold up? The answer is yes, we believe so. Here are the reasons why.
First, history tells us that the markets actually do better under Dem presidents than Republican presidents, with an approximate 3% per year advantage in the S&P 500 (going back 70 years).
Second, should Harris win but Dems fail to take the House and Senate, this is actually the market’s favorite setup. A divided DC comes with a DC that can do the least amount of harm to you and I, which the markets have historically loved.
Third, a Harris presidency would almost certainly be a lame-duck presidency from her first day in office. Republicans would almost certainly refuse to play ball on her far-left policies, meaning that the only damage she could do would come from executive orders (many/most of which would be be unconstitutional and overturned at the Supreme Court).
Fourth, it’s important to remember that the most powerful people in America/globally are also the biggest investors in the stock, real estate and bond markets. They own and control corporate America. The last thing the wealthiest would want to do is support policies that would damage their own self interests. Our “Big Bribe” theme of the last two years will continue to play a major role in this generational bull market.
And finally, what’s driving this bull market is far more powerful than short-term political decision making. We’re witnessing the birth of an historical time for both the economy and markets, driven by an "innovation revolution" that will power corporate earnings, consumer net worth and GDP growth of more than 5% for more than a decade.
This has been our forecast from Q3 2022 when we published “The Big Bribe”. From AI...to space exploration/tourism...to autonomous transportation...to robotics...to quantum computing/mechanics, genetic research/medical advances, and more. These are the drivers, both in the US and globally, that will power the markets and economy higher, creating never-before-seen wealth creation opportunities. It’s for this reason that we’ve pounded the table on "staying locked in”, ignoring the permabears and ever present PSYOP of negativity.
Gold and Gold Miners–Telegraphing Rate Cuts (and eventually more QE).
When I tell people this they always seem surprised. Not only have gold and the miners outperformed the stock market (from the bear market lows of 10/13/22) but they’ve outperformed by a wide margin.
From the bear market lows of October 2022:
- S&P 500 +36%
- Gold +56%
- GDX (Gold Miner ETF) +62%
- NUGT (2 x Miner ETF) +109%
There’s a stealth bull market underway in gold & the gold miners that we expect is about to gain speed. Not only has central bank buying continued at record levels over the last 3 years but our themes of lower rates, lower US dollar and outrageous levels of government spending will continue to be powerful catalysts for a bull market that will take gold past $5000/oz. Gold of course is also a great hedge against geopolitical instability.
This morning gold is trading at $2495/oz, just $20 from another ATH. Our next target for gold on this breakout is $2700/oz with a move through $3000 by early 2025.
Until next time, thanks again for reading…
Kip
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