VRA Investment Letter: Japan's Crash & Fed Weakness. This Shakeout is a Classic Bull Market Buying Opportunity.
/Good Thursday morning. After crashing 13% on Monday, Japan’s Nikkei has gained back 90% of those losses in the last few days. After Monday’s selloff, the Bank of Japan (BOJ) reversed course on hiking rates, saying that “doing so in unstable markets is a mistake we will not make”. And just like that, the Yen carry trade is back on, along with a collapse in Japanese 10 yr bond yields, from 1.1% to .75%.
As I covered in my podcast yesterday, our view remains that were it not for Japan’s melt-down, US markets would have taken only a slight hit on Monday (instead of the 1030 point losses in the Dow Jones).
We repeat; now is not the time to sell. Bottoms can be messy but we are buyers. We fully expect to end the year with US markets at ATH’s (especially with a Trump victory). US markets have flipped from extreme overbought levels of 3 weeks ago to heavily oversold levels of today. This remains especially true in the semis/tech, where we remain strong buyers. Long term thinking trumps short term panic-selling. This is “that” bull market.
Let’s talk some basic investing and common sense this morning, VRA Style.
This shakeout is a buying opportunity. We’re just 22 months into a bull market that will power higher for years. This is a generational bull market that will be more powerful, longer lasting and much broader than the 1995–2000 melt-up. This is the bull market that takes the Dow to 100k and Nasdaq to 40k.
For our newer readers, I took 2 companies public during dot-com while managing close to $100 million for clients. Dotcom was a blur…no one had seen anything like it…and few were ready for the tech explosion that took the Nasdaq up 575%. However, 90% of the co’s that went public from 1995–2000 were out of business inside of 5–10 years. Some were scams but most were simply not ready for prime time. They were ahead of their times. The technology was promising but the infrastructure had to first be built out.
Today, the survivors (and new arrivals) post-Dotcom boast market caps of several hundred billion to more than $2 trillion. The wealth creation taking place is stunning and one of the primary reasons US co’s and consumers are in their strongest financial shape in decades. Likely ever. This innovation revolution will continue to power the markets higher, our base case from Q3 2022 when Tyler and I published “The Big Bribe.”
Our Big Bribe Megatrends are Playing Out
1) Financial engineering; it’s occurring at all levels (powered in part by AI); institutional/govt, corp America and consumers.
2) Powerful corporate earnings expansion, driven by the “Innovation/AI Revolution”, which will eventually surpass the euphoria of the dotcom/tech boom cycle.
3) Long term housing boom, powered by consumers in our best financial shape in decades (regardless of the PSYOP of negativity in place designed to make us think otherwise)
4) The millennial generation. 72 million strong (now the largest segment of the population), in the process of inheriting >$70 trillion. Millennials love housing, stocks, cryptos with an understanding of technology that’s in their DNA…and they are born entrepreneurs.
5) The red-pilling of America and the return of animal spirits. We’re waking up to the dangers of communism and what we want, instead. Hugely bullish for our long term prosperity, even our survival as the last great democracy/republic standing.
VRA Bottom Line: Combined, these 5 Megatrends have the power to take the Dow Jones past 100,000 and Nasdaq past 40,000 (into 2030-ish) with massive wealth creation occurring. When we wrote these words in Q3 2022 we were among the first to state that we are in the “Roaring 2020’s”.
We’ve also been hyper-focused on our macro themes and economic inflection points.
1) Disinflation; now clearly in place.
2) Lower interest rates; now clearly in place, with Fed front-running of rate cuts that will continue to result in lower rates.
3) Lower US dollar; now clearly in place. Powerful tailwinds for US multinationals, US economy and emerging markets.
With all of the above in mind, we have a rare investing opportunity in place today. This current shakeout has produced the strongest buy signals from the VRA Investing System in sectors/stocks we want to own aggressively.
Action Point: The Semis (SMH), Nasdaq, Nasdaq 100 and Russell 2000 are each are each bouncing off of the 200 dma as well as extreme oversold levels on our VRA Momentum oscillators. This is a classic oversold bull market buying opportunity. The semis/tech lead in both directions and this shakeout has produced a strong buying opportunity.
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Bull market shakeouts/corrections are a normal part of every bull market, with the average year seeing at least one decline of more than 10%. What we are seeing is perfectly normal, although it never feels that way when we’re going it. This is a buying opportunity. A near perfect set-up for dollar cost averaging in our VRA Portfolio holdings.
Next Up
The markets will soon shift to front running the Fed’s next move to easy money policies. We find it almost impossible to believe that the Fed will allow an economic decline or stock market implosion as we head into November.
Still, as much as the Fed is rooting for their team to win (90% of Fed Members are Dems), we see it as very unlikely that the team of Harris and Walz will win in November. The markets should soon start discounting a Trump victory, along with the stock market and economic boom time that will come with it.
We are long and strong here. It’s another dip that’s meant to be bought.
Until next time, thanks again for reading…
Kip
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