VRA Update: I May Be Crazy, But the Zika Virus Concerns Me FAR More Than it Does Wall Street

Feb 04, 2016

Since we're all friends here I can speak honestly. I'm either going crazy or the whole of Wall Street is badly missing the risk that is the Zika virus.

I know, I know...the uproar over the Ebola virus was short-lived and it didn't really hurt the stock market.

WRONG! 

In less than one month, during October of 2014, the Dow gave back over 1100 points...a crushing 6.6% decline, as Ebola was feared to become a global epidemic...it absolutely freaked the world out (in case you've forgotten, like everyone in the investing world has, apparently).

I can find pretty much NO ONE that is talking about the investing risks from Zika.  I think this is a mistake...possibly a very big one.

Question: now that Zika has it's first confirmed US transmission via sex (Austin, TX), we know with near certainty that it can be passed from person to person 'readily" through bodily fluids (and of course, mosquitos), let me ask all of our female readers this; "Knowing that the virus can cause children to be born with terrible birth defects, would you travel to another country where you could be exposed to the Zika virus? Would you allow your daughters to travel to these countries?"

I think we all know the answer to these questions....not no but HELL no!

But it gets much worse. Because men can get Zika as well, they in effect can become carriers, and then infect women. Question for men: "knowing these risks, would you travel to a country where you might get the Zika virus?" Now, most guys tend to think they are bullet proof...so the percentage might be a bit lower than women...but not my much...at least that's my view.

Don't Believe Me? Ask the CEO of Royal Caribbean (RCL), who appeared on CNBC earlier this week, just as his stock price was whacked by 17%...in a single hour of trading...and right after the company reported earnings that were actually pretty good. 

I watched the interview carefully, and what I saw was a CEO that was desperate to convince viewers that Zika had "nothing to do with RCL's stock price getting hammered". He actually said something like "no, we're not hearing from customers that Zika is a concern". I call major BS on this guy! The truth was written all over his perspiring face. Trust me...he gets it. I think we should as well.

VRA Market Update

The near 300 point loss in the DJ was the real deal. I am seeing clear signs of things starting to break down...a market that's looking very broken. And the wheels are really coming off overseas and in high yield debt, currency markets. 

Check this out; Wall Street earnings reports have become a joke to those of us in the industry. During the QE driven bull market, more than 80% of co's reporting beat their estimates. They should beat them...these same co's spoon feed the numbers to the analysts...and they do it just right...to ensure that they "beat the street estimates", ensuring that their stock price will "pop".

But all of this has changed now. But again, I can find very few on WS talking about this....still in denial, is my best guess. 

Here's the deal: Through yesterday, less than 55% of all reporting co's have reported EPS beats. Worse yet, fewer than 40% are beating their revenue estimates! This is bigger than big, and it tells us corporate earnings are MUCH worse than anyone really wants to talk about.  

You know my thoughts...the bear market highs are behind us. The coming move lower should take us to fresh cycle lows...and it should not take long. 

Finally, every up open in the stock market is a gift to us short sellers...this is exactly when you want to initiate, or add to, existing VRA market short positions.

BTW....I want to be dead wrong about Zika...somehow, I don't think that will be the case. Just another black swan risk to add to the pile.

Stay Frosty, 

Kip 

VRA Update: The ACTUAL 2016-2017 Playbook

I've yet to hear a single, not one mind you, Wall Street/FED economist...certainly not many portfolio mangers...speak the truth as to why global financial markets are trading like a brutal recession (at minimum) is just around the corner.  

There are just two reasons why this might be; 1) they truly don't see the downside risks (economists) or 2) they have been instructed to "talk up the market"...so that their firms can sell their own positions (this happens ALL the time...something to keep in mind when you hear a portfolio mgr talking up their books).

Over the decades, I've gotten to know no fewer than 10 of Wall Streets top economists, and there was one thing that always stood out to me. Our best and brightest economists are...as a group...weak-minded, complete pushovers. When I would question them, over a drink or cup of coffee, as to their positions, few ever had the ability to back up their views in anything that you might call "confidently". This observation baffled me. How can these really bright folks be so weak?? It also explains how they get everything so incredibly wrong. 

Each year, the Wall Street Journal publishes their year end views from a collection of more than 100 top US economists. My firm was Oppenheimer, and their top strategist just happened to be my personal mentor. His name was Michael Metz and I've written about him often in these pages. Michael was the first to teach me that "these economists are wrong every single year. If you want your clients to make real money in the markets, take anything they might say with a big grain of salt. You're better off taking the other side"  

As clear proof of the sad state of affairs with our top economic brains, think back to early 2008. We were already seeing a large number of subprime lenders close their doors, and the stock market was obviously telling anyone that would listen that "something is very wrong here". 

Yet, the worlds best economists and market gurus routinely said "yes, we see a slowdown in housing and access to lending, but we do not view these as serious economic risks to the US economy".

The quote above is actually from THE WORLDS TOP ECONOMIST at that time, FED Chair Ben Bernanke...just 6 months before Lehman Brothers failed and the market route was on. Yep, the same guy that sees all of the economic figures long before anyone else, completely missed one of the worst market/economic crashes in all of US history.

But folks, remarkably, it gets worse. Like, much worse. Speaking to a congressional committee, under oath and all, Bernanke said the following, just 3 months before panic had set in and Bernanke and Treasury Secretary Paulson were begging our countries top leaders for a $700 billion bank bailout. Under oath, Bernanke said, "the housing slowdown is worse than we had expected, but we still do not see warning signs that the slowdown will have a serious impact on the overall US economy. We see the risks of a recession as small"

Again, this was just 3 months before the US actually entered "The Great Recession"!  

HERE'S WHY I BRING THIS UP TODAY:

Consider the following; 

1) the bond market, just this week, began signaling the first recession call.

2) we are IN an actual earnings/manufacturing recession, now!

3) global credit spreads have widened to such a degree that the odds of avoiding a recession are now 1 in 3 (in up to 70% of major economies). Yes, the actual odds in the debt markets tell us that a recession is almost certainly imminent.

4) After decreasing for more than 30 years, we are now reaching the end of the most powerful debt super cycle in world history. Rates have fallen dramatically since the early 80's, and played a massive role in the expansion/availability of credit, thus boosting global GDP levels to all time highs. 

5) the signs are clear to anyone that will simply pay attention...listen. The coming debt crisis/contagion, as marked by the end of our planets historic debt super cycle, is just now beginning to make itself known. Already, trillions have been wiped from equity markets, and the signs are everywhere that massive bankruptcies in the energy space are now moving into the rest of the global economy.  

6) just today, I heard Goldman Sachs top economist (Jan Hatsius) say the following: "with the US employment picture as strong as it is today, the odds of entering a recession are slim".

How is it possible that Hatsius is still getting snowed by the methods our government reports on employment?? It's now been proven that last months strong employment data, with 290,000 jobs created, was pulled straight out of the air! The gains were based on "modeling". What we know instead is the LFPR is at his lowest level since the 70's, with more than 93 million Amercians that still cannot find a full time job. 

7) Let me ask you each a question; from what industries do you see major employment gains taking place over the next 1-2 years; Energy? Banking? Retailing? Travel/Tourism? Technology? From the strength in global economies??

In just the last quarter, already announced layoffs from the group above total in the "hundreds of thousands". Yet somehow, our government will likely find a way to spin this into POSITIVE job creation. Don't believe it.

THIS "IS" 2007/2008

Don't believe the economists that can't shoot straight. Their backwards looking data collection is lame and only ensures that they are unable to forecast the future. Folks, this is the beginning of the next great financial crisis...it's on our doorstep. But this time, there will not be enough QE to rescue everyone...debt contagion of this magnitude is going to overwhelm the entire system.

The VRA will continue to do the ACTUAL research...we want to see what's directly ahead of us....not behind us. Once this bear market rally is over, we will be even more aggressively short...once again.

Stay Frosty,

Kip

vraletter.com

VRA Update: Happy New Year, New Twitter Survey, Recession On the Way

Dec 31, 2015

Good Thursday morning all and a Happy New Year. Gotta say, getting New Years wishes from parts of the world where they are "already" bringing in the New Year always feels strange...especially when it's 8 am here in Sugar Land (a city so sweet, it had to be named after processed poison...I mean, sugar cane). 

Next up: Please go to my twitter page (@kherriage) and take my latest survey. The question is: Will the FED manipulate the Dow +220 today; so it's positive for the year? (3 choices follow).

Market Update

I highly encourage EVERYONE to take a bit of time over the long weekend to get up to speed on my most recent VRA Updates, posted here, at this blog. Let me repeat; this is the most bearish that I have been in...well, since 2008. For those that may have forgotten, that's the year the market crashed...financial crisis and all. We also made close to 800% as the markets crashed...recovered...crashed...you get the picture. 

If you're using a financial advisor that has you long this market, you may want to ask "what are you on"? As in...what meds.

Remember these most important points:

1) In the average recession, the S&P 500 loses 36%. Hmmm...what might the markets do in a GLOBAL recession/depression?? AKA, the beginning of the end of the Debt Super Cycle.

2) the last time the Dow closed negative on the year? yep...2008. Kinda interesting...don't ya think?

3) Then, there's this. The last time the Dow closed down in a "pre-election year" was....drum roll, please...1939. Let's see, what was kicking off in 1939? Yep...WWII. That's not ominous, at all...

1939-1945....six years of living hell on earth. To our global powers that be, get your sh*t together...no ones going to win in the next world war. But man oh man, do the dominos seem to be falling.

Finally, the markets opening weak today. Oil is close to its yearly low....I'm afraid that "lower for longer" is going to be the case. Dow's down 130 points as I type.

Folks, every bit of research that I have done points to one thing; 2016 will be the year of pain for bulls. The selling pressure could overwhelm even the Plunge Protection Team, or PPT (yes, it's real...it absolutely exists...but even the FED answers to a higher authority. As in, the "global cabal of bankers" that control central banks...that rule most everything financial).

We could not be positioned any better. In 2016, if you are "long" the broad markets...you will be "wrong". At least until we reach those tradeable short term bottoms....which we will trade into on the long side as well.  

All my best for the New Year! 2016 does not have to be a downer...it certainly won't be with the gains that we will book here at the VRA.

Until next year...thanks again for reading....Stay Frosty!

 Kip

PS: Don't forget to vote! My twitter handle: @kherriage

AND....Holy Cow! The Chicago PMI was just released....it came in at just 42.9! Last months was only 48.7 (signaling possible recession), but todays was a HUGE miss to the downside. NOT good news...now, you'll see lots and lots of "gurus" saying, "damn...are we really heading into recession?"

YEP...we are...globally...or worse.

Remember my earlier thoughts about "why the FED actually raised rates?" Folks...what if they had no choice...when debts deflate (aka no buyers), guess what MUST happen? You got it...rates spike...like BIG time. Hmmm...wonder how long it might be until the MSM begins to report this story???

BTW....this is EXACTLY when we want to own gold. I'll have my 2016 Predictions/Forecasts soon as well. Guess what one of my top picks will be...the yellow metal. After a 4 year bear mkt, THIS IS THE YEAR TO OWN GOLD...the coming bull market in PM's will take the worlds breath away. And, it will last for multiple years.

vraletter.com

VRA Update: Trading Strategy - From Now to Year End

The markets sold off aggressively on Monday, with the Dow losing 179 points, or 1%, and each major index suffering similar percentage losses.

We've been highly overbought for some time, but this correction looks to be much more about the future of interest rates. More specifically, this weakness is about the FED and the month of December...will they in fact raise rates, following their meeting on Dec 15th and 16th. 

You may remember my thoughts...but let's put them in one place, just to be clear:

First, after waiting 9 1/2 years to raise rates, I see NO WAY that the FED would raise rates just 9 days prior to Christmas ...a borderline insane decision that would ruin far more than just the "spirit" of the shopping season. 

Can't you just hear business leaders, from all over the country, saying the following right after holiday sales stink (once again), with the stock prices of retailers having also collapsed in price: 

"Ms. Yellen, retailers all over the country depend on a solid holiday shopping season for as much as 75% of their annual revenues and profits. The FED's decision to raise rates...for the first time in almost a decade and incredibly, just one week prior to Christmas...has completely destroyed our hopes of turning a profit."

In reality, turning a profit would be most retailers last thought...staying in business would quickly become their primary concern.

Second, assuming I am correct...and I am confident enough to use 90% as my figure...here's the most likely outcome over the next 2-3 weeks...including another prediction that no one else sees coming today:

1) The stock market will continue to work off its overbought condition, with additional selling pressure coming from those that mistakingly believe a rate hike WILL take place.

2) At some point in the next 15-30 days, and on the heels of heavy selling pressure in the markets, the FED will do something that will stun the "experts". 

Without even waiting for their December meeting, Yellen will make a special announcement to the world that "a December rate increase is OFF the table"...hoping against hope that their confusing indecision and God-awful timing, has not already ruined the holiday shopping season. 

Should the above scenario play itself out, everyone reading this will want to STAY FROSTY:

1) Make sure you are positioned for profits on the way down

2) As the markets drop, from their current overbought levels to oversold, use that weakness to take profits on your short positions, then reverse course and go very long stocks.

Obviously, we'll use the VRA Trading & Investing System to ensure we are positioned correctly. 

If my predictions hold up, we can use this advance game plan to book some incredible profits (on top of the 830% in net gains for 2015).

Until next time, thanks again for reading...

Kip

PS; I honestly cannot believe that seasoned veteran after seasoned market veteran is now saying the FED will raise rates in December. Do they not have calendars? Do they not have common sense???

I know the FED makes huge mistakes all the time...with their 1000+ economists on the payroll...but raising rates for the first time in a decade...just before the holidays?? 

Insanity is the word that comes to mind...but hey, I'm sure the FED will make their decision based purely on the "data" and without any thoughts whatsoever on how a rate hike might affect the stock market :))

VRA Update: Is the Housing Market Really Strong?

VRA Update: Is the Housing Market Really Strong?

Oct 29, 2015

Literally every market analyst has been saying the same thing; the housing market is strong, and it's telling us that the economic recovery is in good shape. Certainly, the FED has been making this their case for higher rates....but is it actually the case? 

Clearly, it WAS the case for most of 2015...as the chart below makes clear...UNTIL late August, more specifically until that big 8/24 sell off that took the Dow down 1100 points in a single day.

In what I believe could be a most important disconnect, the HGX (housing index) is down more than 8% in the last two months, while the stock market has rallied back sharply. Troubling sign for the US economy, and likely an advance indicator of where stocks are headed.

In fact, pending home starts were just released, and for the second straight month they missed expectations, and by a wide margin. Instead of a positive 1% number, we got -2.3%...the lowest level for the past 12 months. 

As we've seen in the recent past, as goes housing, so goes the economy. Unless this chart can turn up, US economic growth will continue to lag expectations. In other words....no FED rate hike.

Instead of a FED rate hike, we will almost certainly begin to hear talk about additional economic stimulus, and even MORE QE. Hard to imagine for most, I know...but this is what a global economic crisis looks like...as it begins to unfold. Sadly, this is a preview of our economic future to come.

Let's keep a close eye on this chart of housing...looks very much like it is rolling over.

Kip