Crushing Mr. Market in a Rising Interest Rate Environment: What rising rates mean for your Portfolio

As expected, the FED raised rates…we now have a 2% fed funds rate for the first time in a decade…they also signaled there may be 2 additional rate increases this year.

The central bank’s updated “dot-plot”, a chart of the projections for interest rates of Fed members, should offer a clearer outline for how many rate hikes will be on the way. More than anything, the Feds dot plot (and press conference comments) are what the markets will be listening to as it holds significance for how Trumps fed views the Feds role in managing the US economy. Higher rates and a stronger dollar can contribute to how investors value stocks and other assets, but as we’ve covered here often, the facts are clear; stocks love higher rates…to a degree that is…as higher rates confirm an economy that is expanding, and earnings that will continue to grow.

And remember, the fed funds rate was also at 2% as Lehman Brothers announced bankruptcy, back in the dark days of September 2008, as the financial crisis kicked into high gear. The point being, until the fed funds rate surpasses 3%…possibly even 3.5 to 4%…our stock markets will almost certainly continue to rise.

Yes, my view is the contrarian view…but it also has the advantage of being supported by historical investing patterns and returns. We’ll continue to ignore the chicken littles that tell us…seemingly daily…that higher rates will soon lead to the next market crash. We’ll use their bearish positioning/short selling to keep the markets climbing their wall of worry. Much needed fuel for the bull market to keep charging higher.

Unlike most followers of monetary policy, I like to think I have the ability to think using at least a bit of logic. And logic tells me that rate hikes are a very, very good thing, for all of the reasons we’ve covered in these pages since the first Fed rate hike, back in December, 2015. Rate hikes signal everything thats good about an economy…it also allows savers the ability to make a somewhat decent return on their most conservative of money. How novel a concept…retirees may no longer be required to take uncomfortable levels of risk, throwing money into the stock market. At just 2% yields, we’re not there quite yet…but by this time in the next 12–18 months, when the fed funds rate is approaching 3%, savings accounts might start to mean something, again.

J. Powell…keep up the great work.

Again, this will mark the 7th hike since December, 2015. Lets take a look and see what gold, silver and GDX (miner ETF) have thought about rising rates, over the past 2.5 years.

Gold bottomed with exactly the first fed rate hike, 12/16, and is up 23%. Still needs to break $1375-$1400/oz before a confirmed breakout, but everything about this chart tells us that pressure for a big move higher is building. Massive volume expansion…smart money global players (including central banks) buying up all they can (even as the price is manipulated over the short term to fool investors to the spike to come).

 Silver is up 24% from the first fed rate hike…eerily matching golds move almost completely. The action in silver is even more compelling to me than gold. When multi-year coiled springs like the one in silver break out, the moves can be bitcoin like.

But the big winner…as we would expect…comes from GDX (miner ETF), which is up a big 80% from the first rate hike lows. A nearly 4–1 move advantage over gold/silver. When this big triangle breaks higher we’ll have to wait and see but once volume starts to build (it has gone dormant of late) we’ll have our first real clues.

Bottom line; precious metals/miners love a rising rate environment…most certainly the early innings. Our proof of this is the fact that the biggest bull markets have occurred in exactly this environment

ECB Ceasing QE

We also learned this morning that the ECB will be ceasing QE at the end of this year. Again, more great news, although you wouldn’t know it from the many growling bears this morning, who continue to look for reasons…that simply do not exist, according to the VRA Investing System, to predict the coming recession and global stock market crash.

Sanity is finally returning to monetary policy. Combined, from the beginning of QE from the FED and ECB, more than $6.5 trillion in central bank funny money has been printed. Those funds were then used to directly purchase government debt in the US and Europe (among others, including corporate bonds in Europe). Frankly, its a miracle the worlds financial system did not collapse under the weight of it all. Today, the VRA Investing System could hardly be more bullish.

Quick Hitters

1.) This morning, retail sales figures for May came in at +.08%, more than double the estimates. More great news for a very quickly growing US economy. Remember, the Atlanta Fed estimate for Q2 GDP sits at 4.8%. Anything over 4% is a huge win. I continue to look for full year GDP this year of better than 3%, with 4% or better in 2019 (and wait til Trump passes Tax Reform phase 2….this is the phase where our personal rates begin to drop).

2.) Wednesday’s 119 point loss in the Dow Jones (half that % in other indexes), ended the 7/7 run of hugely positive market internals. Still, new highs to new lows were positive nearly 4–1, more confirmation that the broad markets are headed higher.

3.)After an historic meeting with North Korean President Kim Jong Un, President Trump has done but what no American president has done before him, getting NK to agree to complete denuclearization. Long ways to go here, but folks, if you’re betting against #45, I have a question for you:

Why? Trumps pattern of winning, on every level, is crystal clear. The man simply does not lose. Stunning successes, time and again. I covered some of his most important wins in an am tweet.

4.) We also learned this morning that US small business optimism is at its second highest readings of all time. The very definition of animal spirits. Yet the Dow Jones remains some 1300 points below its all time high. This spells opportunity.

Finally, if you’re not listening to our end of day podcasts, please join us! Tyler and I tell you…in roughly 5 minutes…what happened in the markets with specifics on VRA Investing System readings. Sign up at vrainsider.com/podcast

Join us as the VRA continues to crush the market, with 2400% in net gains since 2014, beating the S&P 500 14/15 years since inception in 2003!

Until next time, thanks again for reading…

Kip

VRA Update: The Next Catalyst for stocks, DOW 40K and the Trump Infrastructure Plan

One of the advantages this week of waking at 3am has been watching the events at the annual Davos World Economic Forum (Switzerland), where the global warming/global cooling/climate change establishment billionaire elites take their fuel guzzling private jets to meet each year to remind us peons that “they got this”. But man oh man, are this years meetings different from the previous 8 years. Nationalism is sweeping the globe…and the elites aren’t happy about it.

This morning the head of the World Bank said “with Brexit and now Trump, we may even be forced to cut the EU and World Bank budgets this year”, he proclaimed, with shocked face and deep sigh, as the Bloomberg moderators nodded in sad amazement. And Trump is only now arriving at Davos…this should be fun.

Yesterdays meetings produced Treasury Secretary Mnuchin’s statement that “the Trump Admin. wants a lower US dollar”. VRA readers were not surprised…we’ve nailed the lower dollar trade all year (plus this was not new policy from Trump, as we’ve covered here often).

Precious metals are loving Davos. Gold soared $20/oz to $1357, silver even more, with a 3.8% gain, wile both copper and oil spiked sharply higher as well (3.8% and 2.4%). Remember, this is just the beginning of the reflation/inflation move higher. We still want to see gold break $1370 to confirm the breakout technically…trading at $1358 this morning.

Oil is ramping…but this is only the beginning of the move

I’ll have more on this soon…here’s my tweet from last night.

But know this; when I say “animal spirits are in full force” I mean that I have not heard company heads this excited in many, many, many years. They are charging forward, with more money than they know what to do with, backed up by the view that a global dynamo of an economy is directly ahead. Again, our biggest risk is selling too soon, certainly in our favorite natural resource names.

From Trumps tax reform to killing overly burdensome regulations to his upcoming infrastructure bill…just…wow. Folks, we have a president that understands how a free market capitalist system is supposed to work. And he’s just getting started.

Next Catalyst for Stocks; Trumps $3 Trillion Infrastructure Bill

As I read the leaked draft report, it confirmed one of the next major catalysts for US growth/earnings is directly in front of us. While the biggest winners are co’s like Caterpillar (CAT) and John Deere (DE), this is also how the US gets back to 4%+ GDP. I’ve been expecting a $1 trillion plan…this leaked document blows that estimate away.

And remember, to build/rebuild all of these roads, bridges, airports, schools, etc., it will require basic materials to do so (copper, lead, aluminum, silver). Just another reason to own the miners. This group will be the next big group to move.

BIOTECH Breakout

This is the technical formation we’ve been keying off of (XBI). Here’s the cup and handle chart I posted on January 11th. High probability technical formation.

138% ETF Gains In Two Months

VRA Portfolio

Strong start to 2018 for VRA Portfolio. S&P 500 is up 5.2% to start 2018…but we’ll take our 14.4%, which annualizes to 192%. Way too soon to be counting chickens…just confirmation that we’re on the right track and in the right stocks/sectors (and on the right side of the Trump Bull Market).

Here’s my BIG PICTURE tweet from over the weekend…this market is nowhere near topping out.

And the markets do just fine during a government shutdown (but yes, we are trading at Extreme Overbought Levels today, on the VRA System).

This past week saw a a fresh $58 billion pour into equities. This is what we’ve been expecting…this is what happens at the beginning of the melt-up phase…just wait and see what this chart will look like when the DJ is hitting 35,000–40,000 in 2019–2020.

Finally, My radio interview with the great @RealWayneRoot Trump bull market. Tax reform, deregulation, infrastructure bill & range expansion taking Dow Jones to 40,000.

https://youtu.be/8UTVQdVuv2o

Until next time, thanks again for reading..

Kip

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VRA Update: Precious Metals Are Speaking To Us

Good Monday morning all. If you're like me, you never own enough of an investment when it soars higher and you always own too much of an investment when it crashes lower. This is absolutely the case with mining stocks today...specifically the 600% gains in NUGT (3 x mining ETF) over just the last 3 months. This kind of move is the very definition of "parabolic".

This morning, lets make sure that we play the move higher in precious metals and mining stocks as intelligently as possible. We know that NUGT can swing 20% or more in a single day (its up another 6% in pre-market this morning), and these kinds of swings give us the opportunity to take excellent short term profits or buy more as the price declines. 

Fundamentally, you know my thoughts on PM's and mining stocks. We have just entered what, in my opinion, will be the single most explosive bull market in the history of gold/silver. I know...it's a bold claim...but its also the exact same prediction that I have been making for years (and I was very wrong from 2012-2015). At the same time, VRA Subscribers have booked more than 3000% in net profits over the years in my mining stock recommendations...gains that I believe will be dwarfed by the gains we will book over the next 2-3 years.

Gold is real money. Gold cannot be printed. Politicians cannot make and break promises with gold. The smart money is ALL over gold and silver...central banks have been snapping up every ounce possible, as PM's were artificially manipulated lower over these many years. 

But the biggie? As we continue to watch the two biggest bubbles in all of history burst (fiat currencies and sovereign debt), there will be one primary winner...precious metals. In my view, this is exactly why PM's have been on this historic 3 month run (the single best run in history)...they are speaking to us, loud and clear. PM's are telling us that a) inflation is on the way...massive levels of currency inflation are bubbling up globally, and b) central banks have lost control of the "system"....and once interest rates begin to move higher, there will be no stopping them. 

CURRENT VRA TECHNICALS - PM'S AND MINERS

First, while I highly doubt that we will sell our mining stocks or PM's at any point in the near future, timing is crucial for either lightning up or adding to your positions. 

For example, if you are not happy with the size of your holdings in PM's, buying today...after this historic 3 month run...could be a near term mistake...this move is heavily extended and due for a pullback in the next few trading sessions (GDX has jumped more than 10% in the last 2 days)

The VRA System shows GDX (mining ETF that underlies NUGT) has now reached an extended level. As you can see in this 10 year chart of GDX, we are bumping up against overhead resistance...from trading over the past 2 years. 

The reason for showing you a 10 year chart?? I wanted to make sure you saw the volume expansion...particularly over the last 18 months. Folks...this kind of price expansion, when added to the explosion in buying pressure, tells us pretty much everything we need to know. This move is real...and its only just beginning. 

As of Friday's close, GDX was right at 90% overbought on my momentum indicators. While its likely that the move will continue higher for now, we should not be surprised by a pullback...one that lasts 2-3 trading sessions and could take 10% off of the share price of GDX. And yes, a 10% correction in GDX would cause a 30% correction in NUGT.

But here's the problem with trying to be too cute with our timing...by the time the correction takes place, GDX could ramp another 10% higher first...taking NUGT up another 30%.

My point? As always, I am a huge fan of dollar cost averaging. Using pullbacks as an opportunity to buy more, and yes, even taking some short term profits as prices get too extended.

SHORT TERM KEY TO WATCH

Gold trades inversely to the US Dollar and this most powerful trend will continue for the foreseeable future (until Chinese Yuan PM trading kicks in...it has already started with their new exchange)  The USD has been incredibly weak of late, as this chart makes clear. 

 As you can see, the USD is right back to some incredibly oversold levels...a snapback rally is likely at some point this week as well. If you're looking to time some of your purchases, keep an eye on the USD.

As always, I will provide as much guidance as possible. We are now in nosebleed territory with precious metals. Traders love to shake people out of their positions with these short term sell-offs...just make sure you are prepared either way.

Again, ideally we want to add any new positions on pullbacks.

Keep this thought in mind. The investing public BARELY owns PM's or mining stocks. Many consider these to be investing relics (as my small sample twitter poll revealed over the weekend). Once the public jumps in, this move higher will take our breath away. 

Until next time, thanks again for reading...make it a good week

Kip

VRALETTER.COM