"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. Kip Herriage's newsletter is my financial Bible."

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

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Journal Archive
Twitter: @kherriage

Friday
Aug172018

VRA Update: A Strong US is a Strong Global Economy. US — China Trade Talks Back On. Lowest Youth Unemployment in 52 years!

Good Friday morning all. Following a big (bullish) day higher yesterday…with solid market internals… here are my thoughts this morning.

Buy the dip is evolving into “aggressively buy the dip” for US stocks. This bodes well for our markets as we finish the year out. Again, with just 36% bulls on AAII Sentiment Survey, we never came close to “investor euphoria”. Investors falling in love with stocks is a near requirement before we have a final bull market top. That has been exactly my experience for 33 years.

Housing Technicals v. Fundamentals

In our conversations around housing, I came across this yesterday. Housing starts have slowed, yes, but in May they hit their highest levels in 11 years. As you can see below, housing tends to top a full year before the next recession hits. Simply nowhere near this today.

The housing market/real estate slowdown is much more structural in nature, mostly due to SALT revisions inside of Trumps tax reform. Trump was right to insist on these, even as he knew that it would mean a short term hit to the housing market. High tax states have their own issues to worry about…and that does not mean they should be the rest of the counties financial burden to bear. So, while technically, housing looks horrible, fundamentally, I see very much to like about the US real estate market.

Global Markets

45 global stock markets are lower on the year. This, along with the action in housing stocks, commodities and VRA market internals, is why the VRA System has dropped to 8.5/12 screens bullish. Still bullish, yes, but this action cannot be ignored. But my dominant macro theme remains unchanged; a strong US equates to a strong global economy. And folks, this is when the tide needs to turn. Further aggressive downside action in global equity/currency markets is NOT what we want to see. I believe a turn higher is next.

This is also when I’d like to make a major macro point…one that applies to pretty much all commodities as well as global/emerging market economies/US markets. As you know, I didn’t buy into the fear based MSM that said the Turkish currency crisis would take the rest of the financial world down with it. And it was the action in gold that told us this (gold always spikes higher in times of global currency crisis…but gold has gone the other way).

Turkey is taking action to prop up its currency by banning short selling and news that Chinese regulators are freezing approvals of news game licenses coupled with a poor earnings report from Tencent Holdings (TCEHY) is causing breakdowns in some of the best performing China stocks during the past year. Trade issues also continue to weigh heavily on China….pushing the indices into bear market territory.

As we discussed in our VRA updates to members, emerging markets/China are approaching their most oversold levels (to US markets) in 2.5 years. Does not mean they cannot continue lower, but when markets reach extreme levels of oversold conditions, we know that the weak hands have likely sold their positions…this is how significant, major market bottoms take place. August is commonly that month in emerging markets.

Also, know that China has had their clock fully cleaned by Trump. Yesterday we learned that trade talks are soon to be back on. Global markets are rallying on the news. It’s my continued belief that August will prove to be the best buying opp of the rest of ‘18.

Lastly on this topic, the AP had an interesting read this week on the developments in emerging markets….those same economies that were allowed to steal US jobs, wage growth, and GDP over the last 3 decades. But there’s a new sheriff in town. Those days are over. Now, with US interest rate normalization, a strong dollar and a booming US economy, foreigners are piling into US investments (of all kinds). Hugely bullish for US markets.

And the US earnings bonanza rolls on. With 459 S&P 500 co’s reporting to date, 80% have beaten estimates on 26% earnings growth. For those that bought into the lefts argument that “supply side economics does not work”, you may want to take a second look at whats happening in just 1.5 years under Trump.

Here’s what does not work. Open borders, big business globalism. We allowed our masters of the universe to import cheap labor while exporting US jobs, manufacturing and GDP at the same time. A recipe for economic destruction. Slowly but surely, we’re seeing a global wake up call to the abject failures of globalism. The answer to economic prosperity lies in true competition…not in manipulated economic policy that picks winners and losers. True capitalism is the source of economic prosperity. History has proved this point, without question.

Again, the biggest issue facing the markets right now is seasonality. We are in one of the slowest and most negative times of the year…there isn’t much of an appetite, or investors around, to aggressively buy weakness.

Lowest Youth Unemployment Rate in 52 years!

Kids are headed back to school and Wall Street will soon head back into the office. As we’ve discussed, August is the most common month for emerging market currency panics, just like the one we have seen develop with Turkey this month. Not only do I see no signs that the US economy is slowing, instead, I see continued signs that our economic ship is being righted. We cover these facts here regularly, but here’s a new one…from late yesterday; the youth unemployment rate just hit a 52 year low. What a good sign for our future!

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

Kip

Friday
Aug032018

VRA Update: Lowest unemployment in 50 years, Trade War continues, market sentiment, and the 1st of many Trillion Dollar Valuations

Good Friday morning all,

A heads up on the broad market and VRA System readings. Weakening internals could be pointing to short term market weakness. In mid-term years, August can be a shaky month, seasonally speaking. I am not sounding a fire alarm here by any stretch, but do not be surprised to see a bit more market weakness in the near term. But know this as well; over the last 18 mid-term election years the S&P 500 has been sharply higher (post August) in all 18 years. We also know that markets that rise each month from April to July have a 100% probability of moving higher over the next 6–9–12 months going back to 1954 (10 instances).

If you noticed Las Vegas casino stocks this week…well, they got shelled. No love lost there for me…I won’t be returning to Las Vegas (for fun) until we learn the truth about the 10/1 Las Vegas massacre (which could well mean that I’ll never play blackjack on the strip again). The bigger point is that casino stocks “could” be a harbinger of a weaker US economy (tourism, discretional spending). Personally, I know “many” people that feel like I do…no reason to go back to sin city after co’s like MGM enable an attack like this to take place and then SUE the victims of the attack.

 

Jobs Update

Sifting through this info as jobs reports came in this morning, after two very strong months of non-farm payrolls increasing, jobs came in lower than the expected 190,000 at 157,000. However, an important point here, June jobs numbers were just revised higher by 35,000 with 248,000 jobs created in June vs the previous number of 213,000. May jobs numbers were revised higher as well, we could see this July number revised much higher in the near future, AND the overall unemployment rate just dropped to it’s lowest number in 50 years at 3.9%. Another positive point here to look at is that wage growth grew by .3%, as there is greater competition in the work force. This is a number we have been waiting to see in these wage increases on the back of Trump’s tax cuts.

Futures update

Futures were pointing to a higher open today before the jobs report was released, now looking roughly flat to negative here before the open. Another item weighing on the market, believe it or not, more talk of trade war as China is said to be imposing tariffs on $60B of U.S. goods. Again we see this as a non-issue in the long-term. China is doing everything it can to hold it’s ground as it is losing this trade war and we see more evidence this week of that as China’s stock market has just given up their ranking as the second-largest stock market in the world to Japan. This is the first time since 2014 that China has ceded it’s position as the second largest stock market in the world.

Sentiment

AAII and the CNN Money poll came in at different ends of the spectrum this week, something that we found interesting, first below is the AAII survey and Kip’s tweet on the results

The CNN Money Poll looks a little different now at a 69 level of greed, however, this is down 3 points from last weeks reading

Now we do have to say, this poll makes a little more sense as we simply do not see how one can be bearish right now. With both fundamental and technical factors screaming positive signals, as of right now 10/12 VRA Screens still remain very bullish.

And no we do not see any reason to be concerned by the slight greed level from the CNN poll, as we reference here often, until we get to the point where AAII is showing us that 50–60% of investors are turning bullish for an extended period, we will see no reason to be concerned. The market loves to fool as many people as possible and we simply aren’t at those levels yet, this is just not how market tops happen.

Another reason to be bullish, share buybacks

Now that we are almost out of the earnings blackout period, that we have referenced here often, we should see share buybacks coming in higher than ever to close out the rest of this quarter. Before the year began estimates were that with tax cuts there would be roughly 800 billion in share buybacks, and as we approach the end of the year, it looks like it could be even greater than that.

Check out this tweet below from a great follow, bull markets co

As you can see, share buybacks are already well ahead of the last 9 years, what you can’t see is that this is actually the highest level of share buybacks in history. With a record level of share buybacks by far, pair this with the record breaking lows we continue to see in many sectors of unemployment, it is a very hard time to be bearish on the direction this market is heading, at least in the short term.

What the 1st Trillion Dollar company means for the market

As we just had the first company in human history reach a $1 Trillion Dollar Valuation, Apple, some are worried that this could signal a similar market top to the 2000 Dotcom bubble top when Cisco hit the highest market cap at the time, valued at $550 Billion before losing three-quarters of it’s value in the next year.

What people forget is that breaching the $500 billion market really opened the door for other companies to reach $500 billion and head higher than this never-before-seen $500 billion mark. We see this as a domino effect, over the next few years we will see companies like Amazon, Google (alphabet), Microsoft, and more begin knocking down the door of a $1 trillion dollar valuation. Just like the $500 billion mark, $1 Trillion dollar valuations will become the new norm for the world’s largest companies.

Until next time, thanks for reading and have a great weekend.

Kip

Friday
Jul272018

4.1% Second Quarter GDP, Strongest Since 2014. Q2 Earnings Growth Hitting a Massive 27%. Trump Strikes a deal. VRA System Approach

GDP came in at 4.1%, just a hair below consensus estimates but still the best quarterly GDP growth since 2014. Two things stand out as I read the report quickly; 1) exports added 1.06% to GDP, the highest amount since 2013 and nonresidential business investment grew by a big 7.3%, which should bode well for Q3 GDP.

We’ll take it. I wanted 5%…but the last thing we want to see is Q3 GDP come in weak. If my read on this report is correct, the current 3.1% GDP estimate for Q3 will prove to be too low.

If you were not able to join (the great) Wayne Root and I last night, here’s that interview. Thanks again for having me on Wayne. One of the finest people I’ve ever had the privilege of knowing…absolute salt of the earth guy!

https://soundcloud.com/user-640389393/kip-herriage-with-wayne-allyn-root-on-war-now-july-26-2018

Q2 Earnings Scorecard. What Happened to “Peak Earnings”??

As of last night, 246 of 500 S&P co’s have reported earnings with what can only be called “stunning” results. 86% of co’s reporting have beaten estimates with avg EPS growth of 27.1%. Folks, if you remember all of the perma bears saying “sure, Q1’s earnings were great, but this will represent PEAK earnings”! Well, the perma bears have been proven wrong again. Not only is Q2 shaping up to be fantastic but to date they’re even a full 2% better than even Q1’s results!

Remember, the current P/E multiple on the S&P 500 is 16. If earnings continue to grow at a 20% rate, by the end of Trumps first term some simple math tells us that by the end of Trumps first term (at minimum) we can expect both the S&P 500 and Dow Jones to rise by (at least) 50%, putting the Dow Jones at 38,000 (assuming this low 16 P/E multiple stays in place).

And take a look at yesterdays internals. It’s hard to overstate exactly how positive readings like this are, especially in the Nasdaq. Consider that the Nasdaq closed down a big 80 points (1%), on the back of Facebooks faceplant, but Nasdaq advance/decline was still positive by nearly 300 stocks. I’ve studied the markets internals for 3 decades and there is simply no other way to interpret this action but “bullish”.



Trump Strikes Deal with the EU

If you’ve been with us for any length of time at all, you’ve heard us call “bullish*t” on each and every frenzied attempt by the MSM to scare the hell out of investors over “Trumps Trade Wars”. Yesterday we learned that Trump and the EU have reached an agreement that could ultimately lead to “true free trade” without tariffs or trade barriers of any kind. If you’ve been listening to Trump, this did not surprise you. On MANY occasions he’s said just this; his goal is to be “the ultimate free trade President”.



If you’re confused by any of this, I’ll encourage you again to read “The Art of the Deal”. His negotiating strategy is spelled out in this (remarkable) book, completely. If you watch much MSM, you know that few (if any) have bothered to read it. But we have…it’s been our play book on how Trump would govern and strike deals. I also remember how the economy/markets performed after Reagans tax reform…it’s why we’ve consistently said “dips must be bought” and that “the Dow Jones is headed to 40,000 by the end of Trumps first term”.



VRA System Approach

We used the VRA System to book more than 150% in net profits from last September to January/February of this year, and when the 1/29 top was firmly in place we had already taken profits and were sitting in cash (on our leveraged ETF positions). Once the lows were clearly in place, and the VRA System said “buy”, we began to jump back in. We’ve been long the markets since then.

The VRA System was built to remove emotion from my investing. It was built to have us out of the markets in times of turmoil (or short) and in the market when the bull wants to run. Again, we used the VRA system to book 150%+ in net gains from last September through January/February of this year, when we were stopped out. We avoided much of the pain from the 12–13% correction, as we went to cash on our broad market positions.

But all of that changed at the end of March. The VRA system compelled us to go long, once again.



The VRA system combines fundamentals, technicals and investor sentiment…the 3 most important elements of investing (in any/all asset classes). We use broad market positions with leveraged ETF’s combined with vra system recommended positions and of course, our small to mid-cap “story stocks” for the opportunity of several hundred percent in gains to more than 1000% profits.

The VRA system employs “trend following” methodology. The game plan with trend following is to capture 80% of the move, in our investments of choice. It’s not about calling market tops and bottoms (although the VRA has caught significant market turning points over the years). Instead, we want to capture that middle 80% of the move…thats our sweet spot…thats where the most reliable and predictable profits reside. This makes the 200 day moving average most important…its the major predictor as to whether a stock/sector/market is in a bull or bear market. It’s been my primary trend go-to for 30+ years.

Until Next time, thanks for reading…

Kip

To receive access to our full VRA Membership and daily updates(including our VRA Portfolio with buy and sell recommendations, featuring 2400% net gains since 2014), sign up to receive two free weeks from the VRA atwww.vrainsider.com/14day

Also, find us on Twitter and Facebook

Friday
Jul202018

Q2 Earnings Not Disappointing. Investor Sentiment Buy Signals. Oil and Energy Stocks Getting Cheap. November Mid-Terms, The Bears Greatest Hope.

Second quarter earnings are beating estimates, across the board. Roughly 9% of S&P 500 co’s have reported and something like 80% have topped analyst estimates. While this is not unusual, the following is; fewer than 5% of co’s that have reported have tamped down Q3 earnings estimates.

So far, so good. Banks are beating and their share prices are rising (a good tell). We see the same action, most everywhere we look. Remember, should S&P 500 earnings growth come in at 20% (or better, as expected), it will mark the first back to back 20% earnings growth quarters since 2003 (the same year the VRA was founded). With a forward P/E multiple of just 16, you don’t have to love this market but you can no longer say that “it’s expensive”.

What does this tell us? I believe it tells us that Q2 will be another 20% growth quarter. I also believe its telling us that GDP for Q2 will top 4% “easily”…the whisper numbers are now above 5% GDP.

Think about this for a second; if the bears cannot knock the market lower during “sell in May and go away”…or “during the worst 6 month seasonal period of the year (May-October)…or while the MSM is obsessing about “Trump crashing the global economy with his trade war”, then how will the bears knock the market lower during Q3 and Q4, as the US economy finishes the year with full year GDP of 3.5%+ and full year corporate earnings growth of 20%+?

Yes….we are seeing some bears throw in the towel…but we’re still not seeing it in investor sentiment surveys. Below are this weeks AAII Sentiment Survey and CNN/Money Fear and Greed Index.

AAII shows bulls at just 34%, bears at 24% and neutral investors still at an enormous 40%. Once again, this is not how bull markets end. Bull markets end in wild euphoria. Not to worry…..we’ll get there…when the DJ is topping 40,000 and bulls are hitting 70%, we’ll know that things have gotten frothy.

 

Same with CNN/money Fear and Greed Index, which has just a “neutral” sentiment reading. How remarkable that we’re getting near weekly all time highs in nasdaq and Russell 2000 but investors remain hyper skittish? As a contrarian, we know what this means….pullbacks must be bought.

 

 

Heads up on VRA System Readings. Still at 10/12 screens bullish but note that the S&P 500, DJ and Nasdaq are trading at “extreme overbought” levels. Russell 2000 still has room to run. Not a reason to sell anything…but extreme overbought readings can lead to quick, albeit short term sell-offs.

Energy, Oil Update

In running VRA System Screens this week, one primary sector popped up as interesting…oil and energy stocks, most notably, West Tx Intermediate and oil service stocks (OIH).

Long time VRA Members will remember that we were bearish on oil from +$100 back in 2014…we stayed bearish all the way down to the $27 range…then we became bullish at $32/barrel. We’ve remained bullish since and most certainly so today.

Take a look at this 3 year chart of WTI. From our buy signal at $32, oil is up more than 100%. But its the current rising wedge pattern that has my attention today. The move higher over the last 12 months has fit neatly into this rising wedge, meaning that each time the lower line is hit, oil must be bought and that each time the upper line is hit, oil should be sold. Today, oil is right back to its lower line…its hitting heavily oversold levels on our momentum oscillators…and its next move higher should take oil to the (higher high) of $78–80, with $100/barrel possible in 2019.

 

Of the broad energy market sectors that look the most interesting, take a look at the following 1 year chart of OIH, or the Oil Services ETF. OIH meets the very definition of a VRA System Buy Signal. A series of higher highs and higher lows (as seen in circles below), combined with rising technical trend lines across the board (hyper bullish) along with a current test of the 200 dma. Should stochsastics reach extreme oversold levels, OIH would hit a “perfect” buy signal. I’ll have potential targets soon. We will only act if we have the potential for 30–50% gains in a leveraged ETF or 100%+ profit potential in an individual company. Watching this group closely.

 

 

Economics Concerns

Finally for this morning, and we get this question often, what’s the biggest short term negative event (domestic) that could take place that would derail our US bull market. There’s not a close second in my mind…it’s the November mid-terms, in less than 4 months. Should Dems win back the house and/or senate, we almost certainly know what their first steps would be. In addition to trying to impeach Trump (not sure what exactly the charge would be, but it wouldn’t stop them from trying) along with an attempt to eliminate/reverse Trumps tax cuts.

While it’s highly unlikely that they could muster the votes for either, trust me when I tell you that the markets dislike uncertainty more than anything. An impeachment trial and tax hikes would be enough to send our markets 20% lower. I have little doubt about this. It’s our biggest short term risk…not a close second.

Dems appear dead set on dying on the hills of Russia and illegal immigration. It’s my continued view that they stand little/no chance of winning back either the house or the senate. I look for R’s to increase their advantage in each chamber, and with this, US equity markets to rock and roll into year end. Our biggest short term worry really is not much of a worry.

Until next time, thanks again for reading…

Kip

To receive access to our full VRA Membership and daily updates(including our VRA Portfolio with buy and sell recommendations, featuring 2400% net gains since 2014), sign up to receive two free weeks from the VRA atwww.vrainsider.com/14day

Also, find us on Twitter and Facebook

Friday
Jul132018

We have Seen This Movie Before. Hedge Funds are the Worst. Trade War Hysteria, Investor Sentiment at “Extreme Fear”. Buy Buy Buy!

Good Friday morning all. Over the years, we’ve seen this movie before. We’ve seen it many times.

Remember the global market hysteria surrounding Greece potentially leaving the EU, where the Euro and European banks would crash, taking the worlds economies with it. Or the untold fears surrounding Brexit (Greece part 2). Or Trump winning the election, which would pretty much be the end of the world as we knew it, according to the superior breeding/intellects of our East Coast/West Coast liberal elites.

In just the last few years, each was a looming catastrophe. The downside was so massive that hedge funds (run here in in states by those same East Coast/West Coast hyper-pompous elites) liquidated their holdings and then went aggressively short stocks, where they would book massive profits as the markets collapsed…while the rest of us saw our investment holdings steamrolled by their vastly superior intelligence and stock market expertise.

But something funny happened along the way…each movie ended just a bit differently than the elites had predicted. Greece remained in the EU and the markets rallied sharply higher. Brexit took UK stocks to record highs, in back to back years. And the Trump victory has, to date, equated to more than $6.5 trillion in US stock market gains and the strongest US economy in decades.

Folks, there’s a reason that hedge funds lose to the equity indexes, year after year. Instead of being the smart money, 90% of hedge funds are routinely beaten by index funds, supported by data going back 3 decades. Here at the VRA, we like to take the flip side of the hedge fund coin. If hedge funds are overwhelmingly bearish (as they have been since the election and as they remain today), then we’re going to be overwhelmingly bullish. If this logic sounds too simple, it’s because it is. The KISS principle absolutely applies to a) the majority of investors (which is why I am a contrarian) and b) to hedge funds.

What’s the movie today?? It’s “trade war hysteria” of course. The “dumb money elites” are positioned for a global economic and stock market collapse. But we know better. At worst, its a trade hiccup (certainly at this point), as evidenced by new all time highs this week in Nasdaq and Russell 2000. Each trade war sell-off is smaller and smaller…meaning that the move higher directly ahead should rock and roll.

We’ll “keep it simple, stupid”, and continue to use their investment mistakes to crush Mr. Market, year after year.

Consider the following, most excellent piece from market pro Joe Fahmy. The VRA is a big believer in following investor sentiment, which we discuss here regularly. Fahmy gets into a number of important sentiment readings, each which continue to point to “extreme fear” in the markets. It’s this exact “wall of worry” that will send US/global stock prices sharply higher.

https://www.marketwatch.com/story/extreme-fear-will-actually-keep-the-us-stock-market-grinding-higher-2018-07-12

Trade War

Wednesday’s trade war related hysteria (its not a war…don’t believe the fake news) resulted in DJ losses of just over 200 points, breaking up a 4 day rally that took the broad markets higher by 3% and sent the Russell 2000 to another fresh all time high. We believed that Wednesday’s decline was a buying opportunity.

The key point above is that (in addition to Q2 earnings reports kicking off) share buybacks will be allowed to resume, following SEC imposed blackout period of 4 weeks. The importance of share buybacks cannot be overstated. While impossible to quantify, I’ve heard it said from numerous sources that I trust that in just the last 8 years (this decade), at least half of all stock market gains have resulted from share repurchase programs. Granted, companies would not be buying back their own shares if they were not also making truck loads of money…but the fact remains; buybacks have absolutely helped to send US equity markets higher. A lot higher.

We’ve discussed the following chart a couple of times this year. With buybacks about to resume in earnest, its a good time to focus on it once again. This year, US share buybacks are projected to top $840 billion, or more than 20% greater that at any point in history (2006).

Remember, as shares are repurchased by the parent company, the number of outstanding shares is reduced, which has a direct affect of increasing earnings per share (while decreasing the price/earning multiple). In addition, the economic laws of supply/demand tell us that when increasing levels of demand (new share purchases) meet a decreased level of supply (outstanding shares reduced via share buybacks and M&A activity), share prices “must” rise. As you can see below, through share buybacks alone, stocks prices are set to soar for at least the remainder of 2018 (and most likely into 2020). Supply and demand, hard at work. How the perma bears continue to miss this most important macro point I have no clue.

 

Weekly AAII Investor Sentiment Survey

Last week, as bears outnumbered bulls by some 11 points (how remarkable was this!), we talked about the move higher that was almost certain to take place. How amazing that the broad markets have created more than $6.5 trillion in new wealth since the election, with US indexes near all time highs, yet just last week bears greatly outnumbered the bulls. Again, as contrarians, we knew exactly what this meant…”if you’re not long, you’re almost certainly very, very wrong”.

This weeks survey is out and we see a BIG reversal in the readings (no surprise there), with bulls now at 43%, bears at 29% and neutral investors at a still large 27%. My thoughts today? As the second half rally picks up speed, look for bullish readings to get back to the 55–60% levels…likely surpassing 60% as the markets finish off the year with a bang.

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

Kip

2400% in net profits since 2014 while beating the S&P 500 14 of 15 years since our formation in 2003

To receive VRA Updates like this daily, which include all VRA Buy/Sell Recommendations, VRA Portfolio, VRA Special Reports and Archived VRA Updates, sign up to receive two free weeks from the VRA at www.vrainsider.com/14day

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