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

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

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VRA Market and System Update: US Markets Hitting Oversold Levels, China at its Most Oversold Levels in 5 Years, Crazy Investor Sentiment Readings

Good Friday morning all. Just a week ago we began warning about the VRA Investing System’s extreme overbought levels in our market leaders, the Nasdaq and Russell 2000. What followed was an almost immediate overbought sell-off that (as of yesterday) took the Nasdaq back to its 50 day moving average (dma) and to a now heavily oversold level. We see an almost identical picture in the R2K.

As of this morning, most of that overbought selling pressure has evaporated. Doesn’t mean our market leaders cannot go lower, but here’s what it does mean; buying opportunities are here, once again.

In the Dow Jones, the VRA Investing System sees an even bigger opportunity. With yesterdays advance, the DJ is now back above its 200 dma and remains at extreme oversold levels. In the interest of time, we won’t repeat ourselves this morning (too much), but with blow-out Q2 earnings approaching, I remain HIGHLY skeptical of a sharp sell-off from current levels. And here’s an interesting trading note; July is the best performing month of the 3rd quarter. With today being the final day of Q2, look for major fund flows (from rebalancing and retirement/pension accounts) to support the markets until the blackout period on share buybacks is lifted (for co’s that report in the next 1–3 weeks).

Folks, I see almost NO chance that the current trade related fear mongering will match what we saw in Q1. Once again, the financial media has Trump Derangement Syndrome.

This morning we saw blow-out earnings from industry leader KB Homes, which is trading up 8% in pre-market trading. It’s time for the financials and housing stocks to start trading better. Both have pulled back to major support levels and are trading at extreme oversold levels. Buying opportunities, plain and simple.

8/12 VRA System screens remain positive. The biggest concern? The action in global markets, where 40% of all primary equity indexes are now below their 200 dma. Headed into today, each major US equity index is either hitting heavily oversold levels or in the case of the DJ, at extreme oversold levels.

What’s happening here appears clear to me. As Trump reverses decades of unfair trade policy, impacting US GDP annually by as much as 2%, revenue and growth that had been exported to other countries is now returning to the US. Yes, its a form of short term chaos for global markets, but its exactly what Trump ran and won on. Frankly, no one should be surprised.

Bottom line: highly positive for the US economy…short, medium and long term. But also not without its hiccups. Most especially for global markets.

In China, there’s growing talks of financial panic, as evidenced in this leaked news to Bloomberg.

https://www.bloomberg.com/news/articles/2018-06-27/china-think-tank-warns-of-financial-panic-risk-in-leaked-note

Most typically, when it comes to China, articles like this that are “leaked” are the sign of near term panic lows, resulting in higher stock prices in Chinese markets. Take a look at this 5 year chart of FXI:

Current oversold levels in FXI (on RSI and MFI) have only been seen one other time, over the last 5 years. The last time China was this oversold, within 5 trading sessions the bottom was in place and over the next 20 months FXI would soar 100%, doubling in price.

As if right on cue, China (Hong Kong and Mainland shares) were both up big overnight (1.6% and 2%). Only time will tell if the worst is over in China…I expect that it is…which is (90% of the time) the case when investors reach “panic selling” levels of fear. As contrarians, we embrace the fear. we buy when there is blood in the streets. With China’s Shanghai down 40% from its highs, I’d say that qualifies…

For our newer VRA Members, an important reminder; using the VRA Investing System and my 33 years of doing this, day after day, we use leveraged ETF’s and my favorite growth stocks/story stocks to crush Mr. Market. With this approach we’ve outperformed the S&P 500 14/15 years and since 2014 our VRA Portfolio has net gains of more than 2400%.

Not every day is roses…but we must trust the process. Remember, its hard to “buy low” when everyone is bullish.

Finally for this morning, check out what I can only refer to as RIDICULOUS readings from this weeks AAII Investor Sentiment Survey. Bulls sit at just 28.4% (down a huge 10%), with bears surging to 40.8% (up an even bigger 14%).

Folks, this is not how bull markets end. It’s just not. When investors reach this level of fear…in a roaring bull market, no less….as contrarians, we must be buyers. The public is rarely (if ever) on the right side of Mr. Market. Nothing says “short term bottom” more than readings just like this.

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

Kip

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: Do Not Fight the Tape. VRA System Approach To Crushing the Market. Investing Comes at You Fast.

Good Tuesday morning all. After Monday’s big close I continue to be amazed by the bears that somehow appear blind to whats occurring in the US economy and stock market. Our long time VRA Members know how bullish I am…how bullish I’ve been since Trump was elected and made it out of the historically dangerous first year of a new presidency.

My mentors taught me a few things well…chief among these was “do not fight the tape”. Todays stock market bears obviously had inferior mentors. Both the macro environment and the structural set-up of this powerful bull market continue to scream “higher prices ahead”.

One month ago, the VRA began writing (daily) that the internals were breaking down. To protect ourselves we placed some tight stop losses on our most exposed positions to a market correction. As the market plunged 10% in less than 8 trading sessions, we were stopped out of some positions….combined (over the last 4 months) the VRA has booked 167% in net profits (24% average per position) and we then used the 10% correction to re-enter the markets.

This is how the VRA System works. We are quite likely the most unique investment advisory you’ll find, as our objective is simple; make money for you…our valued clients…as we crush the markets, month after month and year after year.

I highly encourage our newer VRA Members to read (re-read) our VRA Update from Friday. It explains our approach to beating the markets, using the VRA System, ETF’s and “Story stock” growth stocks, which produce gains for us of several hundred percent to more than 1000% percent.

Obviously, to make money in the markets, we must be on the right side of big moves. We nailed last weeks huge rally in stocks, punctuated by the 650 combined point move higher in the DJ on Friday and Monday. Remember, we are now at month end positioning (bullish) which will be followed by the even more bullish month beginning equity purchases (pensions, buybacks, retirement plans, etc).

We’ve now broken through levels where a multitude of bearish “gurus” said that we would reverse lower from. WRONG.

If you follow me on Twitter, you’ve seen my chart and comments.

This tweet sums up whats about to happen next:

MELT UP….massive amounts of fresh $ coming into the market this week and into next.

The 10% correction is behind us…weak hands have sold their positions…now the shorts are being squeezed and investors are plowing 10’s of billions back into the markets weekly. The melt-up is back on.

Assuming the VRA System remains bullish this week (high odds), it is likely that US markets will hit fresh all-time highs again in the month of March, closing out a stellar first quarter for 2018.

The VRA has +2413% net gains since 2014… just getting started.

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

Kip Herriage

Founder/Publisher VRA (2003)

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