"Kip's VRA financial newsletter is a MUST read for every saavy investor in this country. Disregard it at your own peril. His mantra is my mantra: Buy Gold and China. Sell short on pretty much everything else. Kip Herriage's newsletter is my financial Bible."

--Wayne Allyn Root
2008 Libertarian Vice Presidential candidate
Author, "The Conscience of a Libertarian"

Twitter: @kherriage

Karl Bessey

Mary Dee

Mike Budny 
Twitter: @kherriage

Wednesday
Aug262015

VRA Update: Yellen's Test - Frankenstein is Hungry

Yellen's Test

It's hard for me to be more clear about this then I've been. We will have much MORE QE in our future. Why there's this talk about raising rates is little more than a farce. 

If Yellen and her team of "can't shoot straight monetary gangsta's" moves forward and increases rates by even just .25%...in THIS environment...then all bets will be off for global equities/global economies. And yes, that means that the likelihood of a crash would then become very, very real. 

Bottom line: the world looks to the US for "real" leadership. I was never a fan of QE in the first place...having only written 1000 articles against it over the years...but the FED made their decision to go for it, and in doing so, created a global economic Frankenstein. And, just as in the old horror tale, this Frankenstein will seek to kill its master as well, should the beast fail to be fed.

The FED's the one that decided "this is WAR"...and that "all was fair"...now, they must see their original battle plan through, come hell or high water. Then, they have to hope like crazy that their long term plan to reinflate the economy will actually work. I'm in the camp that says "no way it works"...but I'm also in the camp that says "the worst case scenario is still 1-2 years away".

PREDICTION: we will avoid both an economic and stock market crash...for now...and Yellen will not raise rates until next year at the soonest. 

CHINA, THE MARKETS AND US FUTURES

Like Japan of the 80's, today's China has been shown to be much less of a global economic threat to US dominance than previously thought. As I've said, the US will lead the way out of this mess...and we should expect US stock prices to bottom first...followed by a major recovery move higher in China.

I DO NOT expect China to go through a near 30 year recession...which is what Japan experienced once their 80's "power move" failed. The demographics and economic futures of Japan 1980's v China today are just completely different...as in, VERY few parallels.

Overnight, China failed to move higher for the 6th straight day (losses of roughly 1.5%), but here in the states, US Dow futures show us opening 200 points higher. We saw 450 points disappear quickly yesterday, so anything is possible...but I remain optimistic.

If the world's about to crash, why is gold down another $3/oz this am...and why is oil a bit higher? If the shorts aren't asking themselves these questions...well, maybe they should.

You saw the sentiment indicators yesterday...as negative as ever (which is a reverse indicator of course, and a positive for markets). Assuming that the markets can stabilize, the short covering move higher could be pretty stunning.

Then, with an overnight ramp higher in China (which I fully expect!), we could see US markets rally big time once again...and guess what that might do? All of a sudden, the "TV guru's" will be saying that this looks like yet ANOTHER V BOTTOM in US stocks...and man, would the shorts ever be in trouble then (just as we're taking profits "again" and looking to reverse course).

Finally, the VRA now has net gains on closed out positions for the past 2 years of more than 1900%...and yes, this makes us #1...by far....again.

Kip

VRAletter.com

 

Wednesday
Aug192015

VRA UPDATE: BULLS PLAYING WITH FIRE 

 

VRA Update (Aug 18, 2015)

At the risk of sounding “emotional” (because emotions and money have no business even being in the same room together), this continues to feel like a market that wants to go lower. It also feels like volatility is about to begin a slow boil…

As I said in yesterday’s communiqué, a brewing storm looks to be on the horizon. At this point, the VRA Trading & Investing System is indicating that the coming pullback and volatility will be just that…a pullback…but once these things get underway, the downside pressure could “absolutely” take over.

Before I get into more specifics, please take a few minutes to read the following from Market Watch news and Mark Hulbert Research, which is the most accurate “sentiment” research on the planet…as you can see, it has become decidedly bearish. As you read this, you’ll recognize many of the points being made, as Hulbert’s research makes clear exactly what I have been reporting over the last week or so…namely, that the stock markets internal readings and its “new highs/new lows” are anything but healthy.

 

STOCK MARKET BULLS PLAYING WITH FIRE

(MarketWatch) -- Investors who are giving the bull market in stocks the benefit of the doubt are playing with fire. That's because the bear market's warning signals have created a situation as vulnerable to the slightest spark as a parched desert.

The latest warning comes from the so-called High-Low Logic Index. That well-regarded indicator was created by Norman Fosback in 1979, then the president of the Institute for Econometric Research, and currently editor of Fosback's Fund Forecaster. The index represents the lesser of two numbers from the New York Stock Exchange: new 52-week highs and new 52-week lows (both expressed as a percentage of total issues traded).

The indicator, therefore, is a measure of internal market divergences. In his investment textbook "Stock Market Logic," Fosback reasoned: "Under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows -- but not both. ... A healthy market requires some semblance of internal uniformity." 

By this measure, the current stock market is anything but healthy. The 10-week moving average of weekly readings recently rose to 5.7%, well above the level that many researchers use as the threshold for a "sell" signal. (Fosback, for example, set this threshold at 5%, considering readings above that level as evidence of "extreme market divergence and ... bearish." The threshold employed by Ned Davis Research, the Venice, Florida-based research firm, is 4.4%.)

Why hasn't this dangerously lofty level of the High Low Logic Index received more attention? There are at least two reasons.

The first: The index has a better track record over longer, rather than shorter, spans, and its signals can be premature. Prior to the 2007-2009 bear market, for example, which began in October, the High Low Logic Index breached the 5 threshold in late July. So it's possible that some of the bulls are worried about the High Low Logic Index but are waiting for confirmation from other indicators before pulling some of their chips off the table.

The other reason that some are ignoring these latest warnings is that the index gave a number of false signals in 2013. As you can see from the accompanying chart, in fact, it rose to near 6 in the summer of 2013. (I wrote a column reporting its dangerously high level in August of that year (http://www.marketwatch.com/story/dangerous-divergences-unseen-since-2007-2013-08-21).) Needless to say, the bull market didn't soon come to an end. 

You'll also notice from the chart that the High Low Logic Index rose to an even higher level at the end of last year -- hitting 6.9 in late December. It's too early to know whether that, too, will prove to be a false signal, though I would note that the Dow Jones Industrial Average is lower today than it was then. 

One adviser who is particularly worried about the message of the High Low Logic Index is Doug Ramsey, CEO of The Leuthold Group. He points out that, unlike the situation that prevailed on the occasion of those false signals a couple of years ago, this time around there also is extreme divergence in the Nasdaq market, in particular.

In fact, Ramsey reports that a Nasdaq-only version of the High Low Logic Index just rose above its "sell" threshold for the first time since 2007. I need not remind you what happened at that time.

---- 

China – Still a Worry and WALMART Disappoints

As you can see, this indicator is incredibly respected, although it’s timing may not always be spot on. In this case, the news from overnight and this morning might help to speed up the selling pressure. 

China’s markets were hit hard overnight once again, with losses on both the Shanghai and Shenzen over 6-7%. It’s clear that the downside pressure in China is not over…this is bad news for global markets and for the rest of the world’s economic growth.

 

Then, just minutes ago, Walmart reported earnings and they were less than comforting, with revenues missing by more than $1 billion and EPS off by 2-3% from expectations. Folks, Walmart RARELY misses their estimates…that’s because they know how to play the “sell-side analysts quarterly earnings game” and they spoon feed pretty much the exact forecasts that they want the analysts to report.

Here’s why this is a bigger deal than is being reported; for Wally World to miss, this tells me that the final 2-4 weeks of the quarter was VERY weak…doesn’t bode well for the coming 3rd quarter, and quite possibly, even the 4th. Walmart’s down 3% as I type... 

However, at the same time, we just got earnings from Home Depot and they were VERY positive…HD’s shares are up 1.7% as I type. And housing starts are coming back for certain. However, is this just an end of cycle move higher??

It’s exactly this kind of domestic economic uncertainty that has investors spooked.

 

GOLD, THE MINERS AND NUGT

 

You know my thinking here…the miners have hit bottom and should be bought…of course, I feel the same way about gold/silver as well.

In fact, we have some pretty good company in the gold bull camp. Investing heavyweight Stanley Druckenmiller just bought more than $300 million worth of our favorite yellow metal and it now makes up more than 20% of his entire portfolio. He joins a list of smart money investors plowing into gold that is growing faster than we can keep track. 

 

THIS FED RUMOR MAY BE THE ONE THING TO WATCH

I’ll have more on this later….I’m running down all of my top experts on this now…but the latest rumor to hit is that the FED will NOT raise rates in September, and that it will be December at the soonest. Should the FED announce this, we can expect a rather decent “relief rally”.

Finally (for now), the longer the Dow, Russell 2000 and Transports stays under their 200 day moving average, the more negative we should become on the overall market. We’re at close to 3 weeks on the Dow, and along with the other concerns I have laid out here, this ones a biggie. This is not how bull markets act…

 

I fully expect volatility to return as we move forward…especially in the always interesting September/October “crash friendly” months.

 

Until next time, thanks again for reading….

 

Kip

Vraletter.com

Friday
Aug142015

VRA Update: The Perma Bears Are Out AGAIN! 

Beginning this week, I have started to see all of those same perma-bears calling for ’The Big One”…the global stock market crash that they have been predicting for years. 

Once again, they will be proven wrong. Here’s how I know this to be the case; VERY FEW experts ever see a "big one" coming…in fact, in my entire career, I have yet to see more than 1-2 people get this kind of prediction right. Let that sink in….because right now, all of those same “little boys that cry wolf” are calling for THE BIG ONE.
 
Folks, crashes are called a crash because they tend to catch almost everyone off-guard. That just ain’t the case right now….
 
As to China, I have just finished reading some incredibly interesting analysis by the IMF (intl. monetary fund) on the recent moves out of China, and the devaluing of their currency. Turns out…and this is pretty big guys and girls…that this is EXACTLY what the IMF and World Bank had been recommending China to actually do.
 
Why? Well, in order for China’s Yuan to be included as a so-called "world's reserve currency", they have been advised that they MUST join in with the rest of the planet, and they must weaken their currency.
 
Having said that, I STILL want to see a selling climax before taking aggressive action on the long side. Ideally, that would mean a Monday morning major sell-off….on big volume. THAT would be “seeing the whites of their eyes”. Also, we just haven’t reached big time oversold levels yet…as crazy as that may seem.
 
Finally, and this is pretty compelling….as of this week, 56% of all S&P 500 stocks are already in correction territory, with more than half of these down over 20% from their recent highs. The current sell-off isn’t actually new….and it may well be entering its final phase soon.
 
I want to act…I see 2-3 really interesting opportunities, but not quite ready to catch a falling knife. This does feel like lower prices need to occur first…the question is, how much lower?
 
Kip
vraletter.com
 
Friday
Jul242015

This Market Feels Different - Not in a Good Way. Plus, One Last Email 

(From Thursday's VRA Update). Good Thursday afternoon all. As I type, the markets have taken another turn for the worse, with the Dow off close to 100 points,  joining the S&P 500 in the .50% loss range for the day. Most of this week it's been the tech heavy NASDAQ that's been hit hard....following disappointing earnings numbers from the biggies, like Microsoft, Apple and United Technologies. Now, the rest of the market looks like it wants to play catch-up on the downside...but so far, the losses are moderate and contained. 

It's a very good thing that we took profits this week...while we may not be making money on the decline right now, we were able to get out of several positions at the top...now, we have fresh powder and can act at the perfect time, either way (notice I didn't say that we can take action at a "good" time...we'll wait until it is the "perfect" time, before we act next).

While the overall economic picture continues to be muddled, the recovery is still happening...but boy, is it ever happening at a slow pace. How Janet Yellen and her FED still plan on raising rates is a mystery to many...including me. The biggest and most costly mistake that the FED could make would be raising rates this fall/winter...if even by just .25%...and then having to turn right around and do a 180 by dropping rates again as the economy heads back into recession. In fact, it's exactly this kind of mistake that would cause people to lose complete faith in the FED's ability to micromanage the economy...which of course is exactly what they have been doing since the 2008 crisis kicked off.

YOUR EMAILS

Again, thanks for your continued emails and phone calls....I love sharing in your successes. This will probably be the last that I include for the week, but like our "vacation" email from earlier, I had to share this one as well...we'll call it the "We fired our broker" email (edited for size).

"Kip, I'm not sure where to start, so I'll just say this; our broker did not like your challenge. You told us earlier that if our broker did not believe in active portfolio management, that we should show them VRA results and compare to theirs. Since my wife and I had losses of close to 5% at ---- (firm's name removed), while just this year your total profits are over 500%...well, you can probably imagine how he handled it. After telling us all of the reasons we needed to use a professional, he told us some pretty lame story about his long term track record and making sure people "did not lose money". Kip, we are too young to be that conservative. We really need to make money, so that we can retire in style! We let him down easily, but we also moved all that money to our ---- account (firm's name removed). We love your work and look forward to everything you write. PLEASE keep up the great work! T&E F, Oregon."

T&E, thanks very much for your email. I feel for today's financial advisors...their hands are tied to a large degree and I know from talking to enough of them that their incomes have been slashed over the years. Most are good people and well-inentioned...but they simply aren't able to really help their clients...not like we used to...and certainly not if their clients want to beat the markets by a wide margin. Their firms view this as "too aggressive, and a risk to the firm"...which is just sad. I'm here for one reason....I have it out for Mr. Market, and I want to bash his head in on a daily basis! By doing this, VRA Subscribers have a shot at some pretty amazing returns...as we've seen for a while now.

Consider the following 8 trades...these are all of our buys/sells, since June 29th:

SPXU: +4%

UPRO: +10%

SPY Puts: +100%

ASHR Calls: +94%

SPY Puts: +62%

ASHR Calls: +48%

SPY Calls: +55%

ASHR: +15%

8 Trades since 6/29, with a total gain of 388% (average return of 48.5% per trade)

Knock on wood...I know...trust me, the last thing we want to do is piss off the "investment gods". But all ego aside, this is called "bashing Mr. Markets head in"...and it's the only game plan that I have an interest in. 

VRA - MARKET ANALYSIS

CHINA

The one position that has moved higher since selling it has been our Chinese ETF, and while I know better than to look in the rear view mirror, it's never fun leaving money on the table. ASHR (Chinese "300 A Share" ETF) is trading at $44.25, or roughly $1.50/share higher than where we took profits (don't ask about ASHR calls...they're a full 24% higher). But, that's ok...just know that I'm watching it closely...we absolutely want to be involved for the vast majority of the big move higher thats coming in China.

I've just learned that two of the best macro money managers of our time (Ray Dalio and Bill Ackman) have turned bearish on Chinese stocks. This is significant because they had been two of the biggest China bulls around...making big money from Chinese equities on the way up. In their view, the recent actions out of China could signal an economic top as well as an investment top...and that the move lower going forward could be significant. 

While I remain long term bullish on China, it's difficult for me to argue with these two guys. They aren't like 99% of the talking heads that you'll see on CNBC. These two manage LOTS of smart money, and when they are of the same mind on a single investment story, we would be fools not to pay attention to what they are saying...and we're not fools...so we will be paying attention.

COMMODITIES - OIL COULD BE HEADED SHARPLY LOWER

Of course, this past week has been hard on all commodities, not just gold and silver (which continue to look like they want to go lower still, at least for the very short term). Quietly, oil has now dropped to a fresh two month low, and for the first time in a long time is trading below $49/barrel...with a last trade of $48.70.

Below is the 1 year chart for USO, the Oil ETF that investors use to trade the commodity itself, and the same one that we have used in the past (along with UWTI, which is the 3 x Bullish ETF for Oil)

I've made notes in the chart, and have drawn a blue line at that most important support level from this past March, which we are just 4% above today. There's nothing at all to like about this chart folks...oil looks very much to me like it wants to trade lower, however, like every other major commodity, it's very oversold right now...which you can see from the stochastics area in this chart as well. IF we get a bounce, it could be a very short term one...

I don't have a recommendation either way here...at least not right now...just know that it's one of about 25 key charts that I am following right now. 

Final Point: With the collapse in commodities...the recent mini-crash in China...and now, the NASDAQ and broader markets getting hit pretty hard, in combination they just may be telling us that something "different" is going on here. I don't know exactly what that "different" may be at this point, but whether its another global recession, or just the summer blues, there's not a lot to be optimistic about.

And certainly, the reasons for the FED to raise rates appear to be dropping like flies. Let's hope they are paying attention. Until next time, thanks again for reading...Stay Vertical!

Kip 

 

Tuesday
Jul212015

Profits Booked: Important Portfolio Comments & Your Emails

Since June 29th, or just over 3 weeks, the VRA has booked fresh profits of 236%...not a bad 3 weeks, but now, it's time to look forward. Where is the market headed next, and where will our future profits come from?

To answer a couple of emails that have already come in, NO....I am not quiet ready to go short the market. We could be missing out on an opportunity to make money as the overall stock market drops, but I'm not ready to pull the trigger...but yes...the time could be fast approaching.

Ideally, here's what I would like to see; Apple reported earnings after the market closed today. Should Apple have reported a good number (which they did not) and the stock fail to move higher, this would be considered a "breakdown", and would also mark a triple top in the stock since February. With the narrowing action that I'm seeing in the market already, combined with poor market internals all around (new highs/new lows, up/down volume, plus very poor money flows and a plummeting money supply figure), the VRA Trading & Investing System would consider a major Apple breakdown as "soft" confirmation that a short term top (at minimum) is in place for the market. These are the kinds of "tells" that long term market pro's look for...we are as well.

WHEN we take action, we will once again use leveraged ETF's and put options to profit from the downside action. 

PORTFOLIO COMMENTS:

1) PRECIOUS METALS: The breakdown in PM's and miners is as ugly as it gets. And, because it coincides with the breakdown in oil and every other major commodity that I track, I don't know that we have enough reasons to believe that a final bottom is in place (although yesterdays selling sure did resemble a selling climax...wow...huge volumes, in fact, the LARGEST one day volume on record in GDX. We may well look back and see that yesterdays lows were THE lows). I am not removing our buy recommended PM stocks from the VRA...I have far too much confidence in their long term potential to do so. Remember, nothing has changed with our global debt scenario. The collapse that we've just seen take place in Greece will be repeated time and again in the years going forward. Ultimately, the coming calamity in fiat currency and sovereign debt defaults will cause precious metals to soar to prices that most cannot fathom today. But no one said that it would be easy...and making money in PM's and miners certainly has not been. 

 2) MONEY MANAGEMENT: Folks, please listen to me on this point...and it's one that we will address further on our conference call next Tuesday, which literally everyone should make an effort to attend (and no, it will not be recorded); the days of buy and hold investing are over...I don't see them returning...at least not in the next few years. Unless you are ok with making a few percentage points with index funds or mutual funds (if that...most are losing money), you must become at least somewhat active in your approach to money management. It's your money after all...and no one cares more about it than you. Letting it just sit there makes little to no sense...not in today's world. If your investment professional is telling you otherwise, show him the VRA results...then compare results with his/her advice.

Over the last couple of years, I know from working with many of you that have adopted the VRA approach to investing, which can be summed up like this: "we aren't day traders...but with the help of the VRA Trading & Investing System, we have a time-tested formula for consistently beating the stock market like a red-headed step-child." I've been at it with the VRA for over 12 years now, and I fully intend to be here doing this for another 12 (God willing). Should you desire to take full advantage of our approach at the VRA, I have one major mindset point to share with you: with the start of each new day, view your portfolio "from this point moving forward"....instead of, "the things that happened in the past are overtly influencing my investment decisions of today". If this point is not clear to you, I will get into more detail on it on the call next week. This point is MOST important...and it's the exact mindset of every smart money investor that I know.

YOUR EMAILS:

"Hi Kip, just want to let you know how much I have appreciated everything that goes into your VRA letter. I have subscribed to a lot of investment newsletters over the years but none that come close to your combination of insight and results. My heartfelt thanks for everything you put into it as well as your salt of the earth style. You've got a subscriber for life! FK, Vancouver"
 
Thanks very much FK. You and I go back a long ways, and I've enjoyed your feedback and alternative views on any number of subjects over the years. In a recent email you mentioned that you admired my candor with the mistakes at the VRA, as well as the victories...and I'd like to address this more fully here. One of my investment hero's is Peter Lynch, who said that he made money on just 6 out of 10 investments...all while averaging close to 28%/year in his illustrious mutual fund career with Fidelity.
He also told us that the 40% that he lost money on drove him crazy...a point that I connect with a million %. This was one of the issues that troubled me most on Wall Street (losing money for clients), and while I no longer have clients in the same sense (as a newsletter guy), I still feel that same sense of pain when positions like PM's fail to perform as expected....or worse, that result in actual losses.  At the same time, I know that "taking losses" is every bit as important as "taking gains", and that you cannot be a successful investor without recognizing the importance of both sides of the investment coin.
 
Will we be able to duplicate the 1900% net returns from the last 19 months going forward? Candidly, those odds are likely not very high...it's been a magical point in time...and all of this has happened with key stocks yet to participate and precious metals trading like death warmed over. 
But here's what I can say with absolute confidence; as long as we continue to apply ourselves 100%...and as long as we stay true to the VRA Trading & Investing System, I like our chances to continue dominating the stock market a great deal. And, my personal goal is to BEAT that 1900% over the next 19 months...
 
"Kip, I've been here close to 2 years and I read every update closely. Your work is unlike anything I have read. While my portfolio has grown nicely, I am disappointed that my returns have not matched the VRA's (the fear and greed that you write about often). I can tell from analyzing your Core Portfolio this is because I have not followed all of your options buys and more short term trading. I am 74 years "young", and in your opinion, should I be more active and follow all of your VRA buys? Thanks so much. My wife and I love your work. GR, New Mexico"
 
Thanks GR...and to your wife as well. Your question is really about your "Personal Risk/Return Mindset/Equation". Are you willing to take on greater degrees of risk in search of higher returns? And, only you (and your wife) can answer that. Your age of 74 yrs (young) is not even applicable in my mind. In today's world, 74 is still young in my mind as well...and as long as you are clear thinking, then taking advantage of all VRA buy rec's should absolutely be the case. GR, just being honest, the VRA could go through a dry period and have a number of large losses in a row. While that hasn't been the case, it doesn't not mean that it cannot happen...so as long as you manage the size of your positions, and continue to diversify, you should be fine.   
 
"Kip, I am sure that you hear this all the time, however, I feel that you can never hear gratitude too often. All of us following and hopefully engaging in your VRA advise are feeling on top of the world.  And, yes, I do believe you are the only one that has predicted both China and Greece correctly. I don't want to speak on everyone's behave, but I am sure all will agree...
We are blessed to have someone with your passion and expertise in the financial field guiding us to great rewards. It does not matter if someone is investing $100, or $1,000,000; the returns we are reaping are making great changes positively in our bank accounts.
Again, I thank you for your special knowledge. MW, Lansing Michigan"
 
Thanks very much MW. You've followed our buy/sell rec's closely, and I'm very happy for your results. While I may have been right about Greece, we still have work to do, but yes...we'll take our combined 86% returns in China over the last two weeks! Again, thanks for the kind words....this is my passion...and I am equally blessed to have you and the VRA community in my life. 
 
Stay tuned...in this kind of market, we could be taking fresh action at any time. I am literally running VRA System screens every 1-2 hours.
 
Until next time, thanks again for reading...Stay Vertical!
 
Kip
vraletter.com