VRA Investment Letter: Semis Surge to Fresh ATH's. The Power of the Roaring 2020's. Investors Are Getting a Second Shot at a "Dot-com-like" Melt-up.
/Good Friday morning. As if right on cue, the semis and megacap tech stocks surged to ATH’s yesterday, in advance of Q4 tech earnings that kick off in earnest next week. When the semis (SMH), tech (XLK) and Nasdaq 100 (QQQ) are hitting new ATH’s together they’re giving us a crystal-ball road-map for the broader markets.
Yesterdays 9% blast higher in Taiwan Semi (TSM) gave investors a snapshot of whats to come, as the “innovation revolution” powers into what is just the first inning of a massive bull market that has years to run, and that we believe, will make fortunes for investors that have the vision to see what’s directly ahead; our second shot at a “dot-com-like” melt-up move higher.
This morning we reiterate our long-established forecast that we are in the “Roaring 2020’s” and that our “5 Megatrends” (from our 10/2022 book “The Big Bribe”) will continue to power the US/global economies and equity markets sharply higher into 2030-ish.
“Buy the dip” will continue to be the smartest of smart money strategies, as the innovation revolution “forces” earnings and stock markets higher, led by semis/tech, growth stocks and special situation opportunities.
I’m scheduled to be on “Making Money” with Charles Payne again next week. The first time I was on his show was just after the October 13th bear market bottom when Charles had me on to talk about our new book “The Big Bribe”. During the interview I laid out our 5 Megatrends that would result in the most electric bull market since the 1995–2000 dotcom melt-up, with the power to take the Dow Jones to 100k and Nasdaq to 40k.
Our Big Bribe Megatrends are Playing Out
1) Financial engineering; its occurring at all levels (powered in part by AI); institutional/govt, corp America and consumers. Included is the “Great Reset” of a different kind (more on this below)
2) Corporate earnings expansion, driven by the “Innovation/AI Revolution”, which should 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 over a year ago, we were among the first to state that we are in the Roaring 2020’s).
More recently (from July on), we’ve been hyper-focused on our macro themes; 3 “VRA Inflection Points” & “Great Reset” of a different kind.
Key Inflection Points:
1) Disinflation; now clearly in place.
2) Lower interest rates; now clearly in place, with Fed front-running 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.
A Great Reset of a Different Kind
Prior to the last 19 months, which saw the Fed Funds Rate (FFR) explode higher from .25% to 5.50%, interest rates fell for 41 years. We believe we’ve just witnessed a different kind of great reset that may well result in falling rates and inflation for a decade (or more) to come. Today, Fed front-running is aggressively underway, which has seen the 10-year yield plummet from better than 5% to 4.1% today. Massively bullish for risk assets (housing, real estate, equities, precious metals and the broader US economy).
The Fed Whisperer Speaks
Nick Timiraos of the WSJ is known as the “Fed Whisperer”. It’s one of the worst kept secrets on Wall St. that Timiraos is the Fed’s go-to reporter. We believe his tweet (below) from yesterday is spot on and that we will continue to see disinflation/deflation result in lower rates and Fed rate cuts, likely beginning in March.
Core PCE inflation should plummet in next months report, meaning that Fed front-running will continue to drive rates lower. Again, the fact that the semis/tech are hitting ATH’s today serve as a powerful, forward looking discounting mechanism, as no major group loves rate cuts and disinflation more than this group.
We remain aggressively long semis/tech but the best bang for investors buck “today” are small caps & mining stocks/gold/silver.
Pounding the Table on Small Caps
As covered above, when our leading groups and top discounting mechanisms (semis/tech) are hitting ATH’s, the rest of the market will follow. We continue to believe that the cheapest major index is the Russell 2000.
As seen below, IWM (R2K ETF) went parabolic from late October through December but has since given back some 20% of those gains. This pullback to the 50 dma is an opportunity that should be acted on, as IWM is also hitting heavily oversold levels on our VRA momentum oscillators. IWM also put in a rare “double golden cross” at the end of the year, as both the 50 dma and 100 dma crossed the 200 dma, on the same day.
Until next time, thanks again for reading…
Kip
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