The Rise and Fall of Japan, Echoes of China Today. VRA Market and System Update.

Good Thursday morning all. All eyes are on US-China trade talks in DC, where Trump has announced that beginning Friday, tariffs on $200 billion in Chinese imports will rise from 10% to 25%.

Frankly, this amount is not a big concern. Think about it. Should the tariffs increase, the total amount raised annually would equal just $30 billion. Sound like a lot? It’s not. China’s total annual GDP is $13 trillion.

Of course, the bigger issue is what happens next. Would Trump actually move forward in introducing additional tariffs of 25% on an additional $300 billion in Chinese imports? If so, then we’re getting into the ballpark of an actual trade war. But as we’ve said…consistently…since early 2018, thus far we’ve had something more like a trade tickle with China. At least that’s how the US has been impacted.

But in China, the pain has been much, much more real. Consider that (according to AP this morning), in coastal cities that ship electronics parts to the US, revenues are down some 40% in just the past year. Now that is REAL pain. There’s no way that these kinds of income losses don’t scare the sh*t out of Chinese leadership.

VRA Bottom Line: Trump is a hard-nosed negotiator but he’s also a pragmatist that wants the US economy and US stock markets to continue to lift off. It’s our continued view that a full-blown crisis will be averted this week. China acted almost exactly as the same rogue country when they were being admitted into the WTO in 2001. They backed out of previous commitments going into the final week of negotiations…just as they’re doing here. But at the end of the day, they capitulated and became a full fledged member of the WTO…and their economy soared.

For those that want to understand what happened to Japan in the early 90’s, just as they were thought to be the next global superpower, I think you’ll find this 1998 article from the Cato Institute most interesting. There is zero chance that China has forgotten Japan’s meltdown. The question is, will they egos allow them to change course in time to avert a similar fate?

https://www.cato.org/publications/trade-policy-analysis/revisiting-revisionists-rise-fall-japanese-economic-model

“The revisionists claimed to have discovered a new and superior form of capitalism: the Japanese capitalist developmental state. Today, however, the Japanese model is better known as “crony capitalism,” and its manifest failures are causing economic pain and political turmoil up and down the Pacific Rim. The revisionists argued that the United States was doomed as a leading economic power unless it adopted Japanese-style practices. It didn’t and is now enjoying spectacular and unrivaled prosperity.

In short, the revisionists’ doom-and-gloom prophecies could not have been more wrong. All their errors trace back to a common source: an inability to understand and appreciate the power of free markets. Suffering from what Nobel Prize-winning economist F. A. Hayek termed the “fatal conceit,”87 they believed that a handful of government planners could outthink millions of private decisionmakers — could pick “strategic” industries, allocate capital in defiance of market signals, and prop up the stock market and real estate values. Like so many others before them, they prided themselves as sophisticated realists, yet in fact their faith in bureaucratic miracles was hopelessly naive. Only a few short years were needed to burst their bubble.”

Know a Couple of Things

1) In my opinion, if you’re considering selling, you are clueless about the underlying strength of the US economy and US bull market in stocks. Again, in all candor, if you are selling into this then you should probably do anything other than invest in equities (unless you are a short term trader).

The smart money move here is to do one thing and one thing only….BUY.

2) The US does not need China. We just don’t. Frankly, not for much of anything. In fact, I can make a strong case that US GDP would skyrocket to 5%+ inside of 12–18 months, without China’s theft and cheap manufacturing that robs US jobs and US GDP. The US would suddenly self produce everything that we import from China. Yes, these items would be more expensive…for at least a short while…but the US economy and US stock markets would explode higher, on the backs of economic production.

But man oh man, the coin flip of that argument looks quite a bit different. Without the US, China would fall into a decade + long depression. Civil war would quickly ensue. It would be game over for the current regime in power. The Chinese economy relies on US buying power to such a degree that it “mandates” that China get a trade deal done with Trump.

So yes…I look for a deal. Again, I look for it to be phased in. But it will also require immediate changes to China’s criminality. Trump owns China. Not debatable.

If you’re not following me on Twitter, why not? You wouldn’t have to wait to see some of my tweets here. Come join me @kherriage!

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VRA MARKET & SYSTEM UPDATE

The VRA System continues to read 10/12 screens bullish. No change since late January. This means that we continue to use monthly dollar cost averaging to add to positions. With the best US economy in 50 years and with our targets pointing to a doubling in the stock market over the next 4–5 years, pullbacks must be bought.

We also saw something interesting in the internals yesterday. With the inherent risks and fear that we’re seeing, our VRA Market Internals were positive across the board. Advance/decline, up/down volume and new 52 week highs/lows were all green. A trifecta of positivity, even as the public sent the put/call ratio to 120% (highest since January).

In addition, each broad market US index has worked off its overbought readings. No, we have not reached heavily or extreme oversold, but I’ll frankly be surprised if that should happen.

Bitcoin: THE Market Tell

As we’ve discussed here for some time, Bitcoin has been THE “risk on, risk off” market tell for well over two years, leading equities sharply higher (into the ’18 top), then lower, and finally, bottoming in mid-December of last year. Bitcoin continues to rise, hitting $6000 again yesterday. This repeating pattern bares watching. Should Bitcoin reverse lower, it will send us a warning sign that “risk off” could be returning. So far, so good.

And I find it most interesting that gold is only fractionally higher for the week. If this was the start of a serious global trade war, we would see the fear showing up in gold. Just not happening.

Until next time, thanks again for reading…have a great week.

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

Sign up to Join us daily for our VRA Investing System podcast

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Jobs Growth Blowout, Global Bull Market Will Continue to Impress

Good Friday Morning all,

Tyler Herriage here with you for today’s update.

After a slow last 2–3 sessions, the markets are positive as we received the closely watched Labor Department’s monthly employment report this morning, which came in with a blowout number.

April non-farm payrolls crushed estimates of 190,000 new jobs by over 70,000, coming in at 263,000 new jobs created in April. Even more good news came from revisions of February’s weak number which was raised from 33K to 56K. Unemployment also continued to drop from 3.8% to 3.6% and remains at a 50 year low compared to 3.5% in 1969. That is right the best jobs market in 50 years. While we have to sift through all of the numbers still, it looks that the minority unemployment rate just dropped to all time record lows, a point President Trump will certainly be making shortly, as he should as this is hugely bullish for our overall economy and prosperity as a nation.

If you’re still concerned about a recession…or maybe slower corporate earnings…we recommend that you listen to experts that know what they’re talking about. They’re the ones that get it right, much more often than they get it wrong. If you’re not sure who the real pros are (outside of the VRA, of course) a good place to start is with my Twitter feed (@kherriage). Each day I retweet some of my most trusted sources. Begin following some of them…you’ll find that you no longer need those wrong-way gurus.

$2 Trillion Infrastructure Deal?

We also learned Wednesday that, and this was a shocker to yours truly, that Trump and leading Dems look to have reached a basic agreement on a $2 trillion infrastructure deal. Thought I was reading The Onion at first. They claim to need 3 weeks to put together the funding side, which means that anything can happen between now and then, let’s hope that our Washington leadership can prove that they actually care about the people of this country.

A bipartisan deal on infrastructure would be hugely bullish for the economy and equity markets. Structured correctly, with public-private partnerships, targeted directly at our most pressing infrastructure needs (roads, bridges)…instead of Obama era fundings like now bankrupt and out of business solar fraud Solyndra.

Earnings Numbers

We continue to see the best quarter of earnings in nearly 10 years. 67% of the S&P 500 (333 co’s) have reported 1Q19. 77% beat EPS ests on +7.2% growth. 61% beat sales estimates on +4.4% growth. Don’t listen to the market bears who have told you there was a coming recession. When they were wrong they said there would be an “earnings recession”. Well it appears that they were wrong again and I’m sure they will have a new story to tell us here soon.

Not only is the economy not slowing, its continuing to pick up speed. We’ll repeat our long held beliefs, once more. Trumps tax reform and deregulation efforts will drive the US economy past 4% GDP growth…possibly even past 5%…before he leaves office. 50,000 + DJ.

This is just the 4th year in S&P 500 history that the first 4 months of the year each had positive returns of at least 1.75%. Bodes very well, for at least May and June.

WSJ Loves Small Caps…Welcome to the Club.

This Tuesday’s Wall Street Journal reads like a VRA Update from the last couple of weeks. Small caps are ready to run. Their primary thesis? A rising tide lifts all boats. With S&P 500 and Nasdaq at all time highs, and with the Dow Jones knocking on the door, its time for a serious catch up move higher.

WSJ also makes the very good point that the strong US dollar has little of the same impact on small caps that it does on large cap, US multinationals, where a strong dollar acts as a headwind to earnings.

With the Russell 2000 still 8% below its all time highs, as we’ve been writing, this is the index we want to pay serious attention to.

We featured the chart of small cap ETF (IWM, Russell 2000) last week in our blog, along with our forecast that a breakout was nearing. We have that breakout, as can be seen on the trend line below. In addition, IWM just experienced a Golden Cross (50 dma crossing over 200 dma), another bullish technical event.

This chart checks all the boxes for the VRA Investing System. We are aggressively long small caps…the move higher is still in the very early innings.

Importantly, each US broad market index (S&P 500, Dow Jones, Nasdaq) today sit at overbought levels. The Russell 2000 does not. Another reason to like small caps here.

Global Conditions

Finally, for the day, U.S. China trade talks continue in full as the two parties look to get a deal done in the near future. Next Wednesday Chinese Vice Premier Liu He is scheduled to arrive in Washington with the hope of wrapping up a deal. This resolution will be a big win for both countries and we want to be positioned ahead of a deal being announced.

This trade war has been brought about for many necessary reasons, but probably one of the most crucial elements is cracking down on China’s IP theft from U.S. Businesses. China is already known to spy heavily on its own citizens. Check out the article published yesterday by Bloomberg exposing Chinese surveillance methods based on research by the Human Rights Watch.

https://www.bloomberg.com/ news/articles/2019–05–01/ alibaba-backed-face-scans- show-big-tech-ties-to-china-s- xinjiang?cmpid=BBD050219_BIZ& utm_medium=email&utm_source= newsletter&utm_term=190502& utm_campaign=bloombergdaily

If they have this level of research on their own people, which includes foreign citizens who travel to Xinjiang, think about the broader implications of what this would mean if we had more unregulated Chinese communications and technology services in the United States. No privacy would be safe, much less protecting our business IP. Although we would be naive to think the U.S. isn’t already doing the same to many of us here in the U.S.

Asian markets have seen a pullback after their tremendous start to the year, but looking at the charts it is more of a lull than a correction. Now, their indexes are at oversold conditions on VRA screens.

Check out the chart of ASHR, meeting all of our technical parameters, above the 200 day MA, extreme oversold on Stochastics, strong volume of buying since February. No better time than now to be positioned before the train leaves the station.

Until next time, thanks for reading…

Tyler Herriage

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

Learn more at VRAInsider.com

Also, Find us on Twitter and Facebook

First Quarter GDP Blows Away Estimates. What Happened to the Recession Doomsdayers? Move Higher, Just Kicking In.

Good Friday morning all. Permabear after permabear, Trump hater after Trump hater, has been predicting a recession in the US. At minimum, they’ve predicted an “earnings recession”, where corporate earnings decline. Bloomberg even said this morning that their estimate for Q1 GDP was ZERO percent growth…with things getting even worse throughout the year.

Imagine their chagrin when the Q1 GDP report came out this morning, showing US economic growth of 3.2% vs 2.5% estimates, in what is almost always the weakest quarter of the year (Q1). My biggest question this morning? How do mainstream economists and MSM financial experts keep their jobs when their forecasts are this horrible?

You know our thoughts. Full year GDP for ’19 of 3%+. Full year GDP for ’20 of 4% +

And we have to talk about this guy, this morning; Charles Hugh Smith, one of the biggest permabears around, and who has been bearish for at least the last 8 years. Just yesterday he issued another of his dire warnings for economic growth, going so far as to say that this is a market top similar to the dot-com top of 2000. Charles gets it wrong…WAY wrong…once again.

If you wonder why I single out permabears in these pages so regularly, its not that I enjoy dunking on people (although that is fun), there’s a much bigger reason behind it; good people…regular investors that are just trying to save for their kids college and retirement…they see these dire warnings from people like Smith and fellow permabear Jim Rickards, and it scares them out of the markets. That’s why dolts like these guys MUST be called out. As many people as possible need to know who they can and who they cannot trust.

Track records matter.

And it’s also why we see a huge 66% of all investors in the AAII survey as neutral/bearish on the stock market. Please, keep this one thought in mind, the next time you see a supposed permabear guru telling you that black is white and white is black; permabears are almost always paid clickbait propagandist list builders. They have no skin in the game…they’re not short the market and they don’t own puts…they just want you to sign up for their sites and lists so you can be marketed to by their corporate masters. Thats the bottom line.

We’ve been a broken record on this issue for many, many years. Help us spread the word on this highly manipulative, marketing fraud.

Here’s the reality of what’s happening, in addition to this blowout Q1 number. Check out the updated Q1 earnings report. 79% beating EPS estimates on 7.89% growth. Not recessionary!

VRA System and Market Update

While our broad markets (outside of small caps) still sit at extreme overbought in the short term, we continue to see this as the pause that refreshes. We have seen a bit of weakening in our VRA System Market Internals…something we are watching closely…but VRA System readings still sit at 10/12 screens bullish.

SMALL CAPS ARE NEXT

Here’s the chart that we’re focused on now. The chart of the week. Small caps. IWM (Russell 2000 ETF).

As you can see below, IWM is in the process of breaking higher from its overhead resistance trend line. We believe the breakout will be rather massive…good news for VRA small cap buy recs. In addition, IWM is very close to a golden cross (50 dma crossing over 200 dma). Looks likely today. Another bullish event. With small caps still 7.6% away from all time highs, we’re looking for a big catch up move higher. In our work with technical analysis, this is chart perfection.

VRA Portfolio

Folks, if you’ve been here for a while, heres what you already know. We’ve been talking market melt-up pretty much since Trump was elected. Sure, the December mini-crash was brutal, but we held strong. Those that stayed the course, those that averaged down, or those that joined earlier this year, have some rather massive short term gains. How’s the VRA Portfolio performed, exactly? Hey, thanks for asking… the VRA Portfolio is up 38% vs. the S&P 500’s 17% and has thus far outperformed our bogey (S&P 500) by a solid 126% in 2019. And folks, here’s the interesting part; wait until our 10 bagger VRA growth stocks really get going.

We said this at the beginning of the year, so we’ll repeat it here once more; 2019 should be one of our best years ever. It will take some work to top 2009’s +360% returns…but that continues to be our target.

And this is when my mentors Ted Parsons voice (RIP Ted) starts ringing in my ears. I can here him saying:

“Kip, if you’re not already humble, the markets will make you humble”. As a brash 23 year old, I thought he was a bit of an old fool. How young and dumb was I?

And another of Ted’s favorites “in a bull market, everyones a genius”.

#WISDOM

BTW, in 1987, I had been a broker for 2 years. As the Black Monday crash unfolded (the Dow crashed 23% that day), I watched as 20–30 year veterans completely lost their minds. At -15% they were lined up at the tube system (yep, just like your bank drive through) to enter their pink slips (sell orders). Most all entered their orders as “market orders”, desperately trying to get their clients out at any price.

But Ted remained rock solid. He was entering buy orders, beginning an hour or so before the close. I had maybe 50 clients at the time, with most in muni bonds, so I was able to sit back and watch the crazy unfold.

What these veteran brokers did not know…how could they really…was that their market orders would be sold out right at the lows of the day. And it took 3–4 days before they even learned the prices they received. Volume swamped the floor trading systems (as they were). By the time they learned their fate, the markets had already recovered much of their losses. Careers were ended, that fateful day. Offices opened up, as brokers took early retirement…I wound up getting one of them…certainly not the way I wanted to move up the corporate ladder.

By the end of the year, the Dow Jones and S&P 500 actually managed to book positive returns. And Ted? He came out of it with huge gains for himself and his clients. This was my lightbulb moment as a contrarian. When there’s blood in the streets…buy, buy, buy. When everyone is bullish and bragging about how much money their making…when Uber drivers are giving their hit stock tips…and when your co-workers are quitting their jobs the become day traders. Get. The Hell. Out.

And no, we’re nowhere near this level of froth today. Check out the latest AAII Investor Sentiment Survey, my go to survey for more than 30 years. Bulls sit at 33.5%, bears at 20.2% with neutral investors at a massive 46.3%. Combined, this means that 66% of investors are either bearish or neutral on the stock market. Remarkable, with all time highs and the v-bottom, straight up move higher since 12/24.

We’ll start taking (serious) profits when bulls reach 70%. Then, when bulls sit at 70%+ for weeks on end, we’ll take even more. This is also when we’ll put some short positions on.

When will take happen? Who knows…but not before the Dow tops 35,000 is my best guess. Likely just after the ’20 elections. Then, we’ll be patient and wait for the correction to run its course, before re-loading again.

Important point: this does not mean we will hold all of our positions today til DJ 35,000. We’ll take advantage of interim moves to take profits on some positions, as we add new positions. But that day is not today. We are well positioned. Locked and loaded.

Lastly, a very big thank you to everyone thats listening to our daily VRA System Podcasts! On our 189th podcast yesterday we surpassed 25,000 listens (Soundcloud and ITunes). Sign up for email updates at vrainsider.com/podcast

Until next time, thanks again for reading…

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

Learn more at VRAInsider.com

Also, Find us on Twitter and Facebook

Earnings, Share Buybacks and M&A Will Continue to Power Forward. Investor Sentiment, Bulls Returning. Global Bull Market, Fully Intact.

Good Thursday morning all.

A solid reversal higher yesterday, even in light of our extreme overbought conditions. VRA Market Internals moved back into solid territory, though not as solid as the negative readings that we saw on Tuesday.

Still, 10/12 VRA Investing System screens remain bullish. This still looks to be a pause…

We did have 1–2% weakness overnight in Chinese markets, but again, their markets had reached a nearly identical level of overbought as ours. This morning, futures are slightly higher. Tomorrow, we kick off Q1 bank earnings…then the pace picks up next week…followed by the full onslaught of earnings releases the following week. With earnings reports, many/most of the reporting co’s can also resume their share buybacks.

Remember, in 2019, the estimates are for more than $1 trillion in share buybacks along with $5 trillion in M&A activity. Combined, we’re talking about a (continued) massive level of share reduction from US markets. This is ECO 101 folks…”as supply decreases, assuming demand stays the same or rises, prices must also increase as well”.

Our permabear friends seem to struggle mightily with the basic law of supply and demand. But its a powerful, powerful force…one that continues to serve as underlying foundational strength for this bull market to soar, for years to come.

As we’ve discussed the last few days, our markets have reached extreme overbought. This is merely a short term warning sign…has no impact at all on our views otherwise…merely a timing issue.

Here’s the deal; we have restricted share buybacks due to the blackout period just prior to earnings releases. But once these co’s report their Q1 earnings, those buybacks will resume. Banks begin reporting on Friday, but the majority of our major S&P 500 components don’t start report for another 7–10 days. We have a lull…a pause…but I fully expect that will be about all that it is. At most.

INVESTOR SENTIMENT UPDATE

Here are our investor sentiment reports, both updated as of last night. First, we see that in the AAII survey, bulls have increased to 40%, with bears down to 20%. As we’ve been discussing, this is the beginning of euphoria returning to the markets. This is 1997/1998…just as the dotcom boom was finding its footing. Before this bull market tops, bulls will hit 65–75% readings, for months on end. Thats been my forecast for the last 2+ years…its been spot on accurate…take it to the bank. But to be clear…no, the move higher will not be straight up…it never is…trees don’t grow to the skies, overnight.

Take a look at the long term chart of the bullish percent from the AAII Investment Sentiment Survey, my go-to sentiment survey for 30 years. Today, bullish percent sits at just 40%. How remarkable, with the move higher we’ve had, that bulls are at just 40%.

As you can see, major bull markets (like this one) do not top until bulls hit 65–75%, and remain there for an extended period, We will not have a final market top until euphoria returns. I see that as being years away. DJ 35,000 by end of 2020. DJ 50,000+ by end of 2024.

And here's the updated Fear and Greed Index, which now sits at 69. Greed has returned….but we’ve also seen this reading hit 90% + many, many times over the recent years. And who can forget the 12/24 Christmas Eve massacre reading of TWO! All-time low….thats how we knew that big time lows were in place. Our view remains the same; just as the March 2009 lows were THE lows, which we’ll likely never see again, we believe that the 12/24/18 lows will prove the same.

Finally, please join us daily for our VRA Investing System Podcasts! Sign up to receive instant updates once our recording is completed at www.vrainsider.com/podcast.

Until next time, thanks again for reading…

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

Learn more at VRAInsider.com

Also, Find us on Twitter and Facebook

Bull Market of a Lifetime. Are You Ready?

If you’ve been here for any length of time at all you know we have been, and continue to be bullish…on the US economy, global economy, and most certainly US stocks.

I know no other way to say this but to say it as loudly as possible:

EVERY FIBER OF MY DNA IS TELLING ME THAT A MONSTER MOVE HIGHER IS DIRECTLY AHEAD.

Apologies for the screaming…but as Tyler and I discussed at length yesterday, our job is to make you money. We believe you need to know exactly how strongly we feel about this.

I helped pay my way through college betting on sports. Sports betting just always made sense to me. If you’re like me, when you get that “DNA level lock” you know that you go heavy. Stone cold locks don’t come around often…when they do, over time you learn to trust your instincts and go big. It was a surprise to no one that I found my way to Wall Street.

Know this; Today, I am not uncertain. Fortunes are about to be made for the smart money investor. It’s time to be locked and loaded. The VRA is about to get much more active…much more aggressive.

This market feels very much like 1998 to me. I remember it well. The DJ had just dropped 17% to 7500. We then had a yield curve inversion, just like today. Recession fears were high.

But the economists got it wrong…again. Economic growth came roaring back. Growth kicked in. And the IPO market began to get red hot. Investors (the public) came flooding back into stocks.

Over the next two years, the DJ spiked 54%. As dotcom mania kicked in, the Nasdaq would soar 3 x that amount.

In the event that trusting my instincts is not good enough for you (your mistake), let me add the following macro points:

1) When I first became a broker (1985), Reagans tax cuts were just kicking in fully. The DJ would more than double in less than 3 years. Sound familiar? Trump's tax reform, deregulation and pro-business optimism is about to have an even more positive impact.

2) Populism/nationalism is replacing globalism. It’s taking place all over the world. Few seem to understand how wildly bullish this is going to be for the global economy. But I do. 3 decades of the failure that is globalism, dying a slow death. Good riddance.

3) Trump has called China out on their economic criminality for at least 15 years. Google it…there's ample video evidence of Trump saying exactly what he's been saying, a position that played a major role in winning the election. Today, Trump is closing in on “actual” free trade with China and the world. Gone will be bogus trade tariffs. Tariffs that favored the rest of the world over the US. Wildly bullish for the US economy.

4) Investor sentiment. As we cover here often, the public has a great disdain for the stock market. Who could blame them? First the dotbom, then the great financial crisis, then this past December, the worst since the Great Depression.

But folks, bull markets do not end when the public hates stocks. Bull markets end in a euphoric bubble. Bull markets end when everyone and their mother believes that stocks cannot go lower.

We’re nowhere near this level today…but we’ll get there. It's the very psychology of human nature and the markets.

Historic Bull Market

We have entered what will one day be remembered as one of the greatest bull markets in history. We get (maybe) 1–2 bull markets like this in our lifetime. In addition to the many VRA Updates you’ve seen from us, forecasting a “super bull market” (yes, that's a thing) since Trump was elected, I have one primary reason to be bullish that only reinforces my research;

Almost no one is saying what I am saying. No one (that I know) has been predicting Dow Jones 50,000+ by the end of Trump's second term. And yes, Trump must first win. If not, we will NOT see DJ 50k. Maybe never in our lifetimes. Bull markets don’t fare well in socialism.

The VRA has been mega bullish while the overwhelming majority of Wall St gurus and CNBC sages were bearish, with many/most experts predicting that Trump would bring about the end of the world (only a slight exaggeration). But we saw it differently. We continue to see it differently.

As a life long contrarian, I know two things; the majority is almost never right. The minority is almost always right.

And folks, don’t think for a second that’s an accident. The media (print, tv, social) is owned by the elites (duh). The media wants the public (sheeple) believing exactly the wrong thing. Most everything we see and hear is propaganda. Propaganda designed to influence our decision making so that the elites profit from our group thing. Our wrong think.

My mentor Michael Metz (RIP my friend) would literally laugh out loud at news stories. Breaking news was like great comedy for Mike. He taught me to question everything about Wall Street, most especially the analysts and their cozy relationship with investment banking. That Chinese wall that's supposed to separate the two? HAHA, he would say.

Mike knew that the big profits were made by contrarians. By those that didn’t buy into the propaganda. Just a few months before the dot-bomb began (late ‘99), Mike had me re-read “Extraordinary Popular Delusions and the Madness of Crowds” written by Charles McKay in 1841. Like a lightning bolt I knew that dot-com mania would end just like tulip-mania. Shortly thereafter, I got my clients out of the market, saving them $20–30 million in losses they otherwise would have had.

My original copy sits on my desk…a reminder to ignore the herds. Trust your instincts. Question everything. A great read…highly recommended.

My primary point this morning is that the media elites, through their 24/7 “Fear Everything” media and paid permabear scammers, continues to scare investors into believing that the sky is falling. Keep your money in safe investments. Stay in money markets or CD’s. Do anything but trust the stock market.

WRONG.

Look, the move higher won’t be straight up. Our December aberration proved that. But its sell-offs just like that that scare the public that much more. As we’ve covered this week, fund managers have their lowest exposure to stocks in 2.5 years. The supposed smart money (they aren’t) is paralyzed. Now they’re being forced back in. This is when big moves higher occur. Exactly like this.

VRA BOTTOM LINE: stick with us here at the VRA. We are locked in. Locked and loaded. We want all of you here with us for the rocket ship move higher that's dead ahead.

This is the beginning of FOMO. Mutual funds, hedge funds, sovereign wealth funds and institutional money managers are on exactly the wrong side of this market. Their risk exposure sits at 2.5 year lows, meaning they are vastly underinvested in equities.

Now, they are forced to play catch up. The Fear of Missing Out is beginning to consume them. They want to keep their jobs and fat bonuses and they are lagging the broad markets badly.

This is the very nature of funds that run $1 billion+. Decembers like we just had scare the sh*t out of them…so they sell. As the market recovers and moves higher, fund managers remain stuck in their bond and money market positions…paralyzed.

Over my 34 years I’ve seen this movie play out more times than I can tell you. It always ends the same. Just as the markets have screamed higher…over the course of many months…fund managers have finally returned, fully invested and as bullish as ever.

And that’s when the rug gets pulled. Mr. Market loves crushing fund managers, which is why they rarely beat the market. Folks, once fund managers return aggressively on the long side, we will be taking profits. The VRA Investing System will have us prepared to act.

It’s my belief that Q1 earnings will beat their already lowered estimates. Handily. Regardless, its the action that matters, rather than the news. As we’ve seen this year, regardless of what the negative news has been, this market has powered higher. Few market tells are more bullish.

This morning I’ll leave you with a few charts.

 HGX (Housing Index). Housing plays a major role in the VRA Investing System. If you heard the CEO’s of Lennar and KB Homes this past week, talking about the strength that they see moving forward, then you know that the US economy is primed to surprise the naysayers, once again. This chart confirms what those CEO’s are seeing:

Well above the 200 dma. Golden cross just occurred. Housing is a leading indicator. Good times, directly ahead.

IWM (Russell 2000 ETF). Small caps have been the laggard, as each major index has surged higher. IWM remains beneath its 200 dma but appears ready to start playing catch up. Everyone and their brother is watching this chart. A move back above the descending line below should send IWM back up and through its 200 dma.

Everything else about this chart looks excellent. Once IWM breaks through the 200 dma it will be a quick trip back to the August highs.

FXI (China ETF). As we can see below, it’s been on a tear this year, but again, few fund managers own Chinese stocks…believing that a failed trade deal will doom their debt-ridden economy. We believe they are wrong. I like everything about this chart. Yes, there is resistance in the $46–48 range, but RSI, MFI and stochastics are flashing buy signals. Continue to buy.

GDX (mining ETF) continues in its bullish channel. In fact, it's now at the lower end and should move higher from here. It’s also reaching heavily oversold on stochastics. It’s important that volume appears on its next move higher…that's the one element that's been missing.

OIL. WTI is at a 5 month high, and while ST overbought, it looks to be breaking out from its bullish channel. Clear sailing to $70 as the global economy is recovering much quicker than the gurus have yet to discover. 

Until next time, thanks again for reading….

Kip

Since 2014 the VRA Portfolio has net profits of more than 2300% and we have beaten the S&P 500 in 15/16 years.

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