VRA Investing Update: The Powell Pivot. Disinflation! VRA Quick Hitters; The Bullish Case.

Good Thursday morning all. The Jekyll and Hyde that is Fed Chair J Powell made another appearance yesterday, but instead of the ultra-hawisk Powell from the Jackson Hole Wyoming speech of last August (which crashed the markets) we got the sweetheart J Powell that, without question IMO, wanted to see stocks and bonds rise further still. Powell actually seemed confused at times yesterday and most notably had a full on brain-freeze when asked “did the Fed discuss a pause or rate cuts during their Tue/Wed FOMC meeting”. When he refused to answer the question, the markets quickly picked up on the tell (Powell would be fun to play poker against). 

As expected, the Fed raised rates by .25% at its first meeting of the year, slowing the pace of rate hikes after it hiked by .50% in December and by .75% at each of its previous four meetings. The upper band of the Fed funds rate now sits at 4.75% while the 10 year yield continued its non-stop move lower, currently down to 3.39% (down 22% in just 3 months). 

I repeat; the Fed never leads, they only follow. We “may” have one more rate hike next month but that should be it. The markets focus has already shifted to rate cuts by year end, a sentiment that we fully back. By years end I expect the 10 year yield to have a 2-handle. 

Powell’s Favorite New Word: “Disinflation” 

The markets were sharply lower as Powell began to speak (Dow -380), but then an immediate u-turn kicked in when Powell uttered the following words:

“We can now say, I think for the first time, that the disinflationary process has started.” Once that sentence left his mouth the ramp higher was on. Powell went on to use the word ‘disinflation’ a total of 13 times, after using the word exactly ZERO times at the December Fed meeting.

The S&P 500 finished 1% higher while Nasdaq jumped 2%, with market leader SMH (semi ETF) finishing higher by 4.7%. The semis have been on fire.

I encourage you to listen to Tyler’s podcast from yesterday. The Fed, led by J Powell, are the ultimate gas lighters. First they cause inflation, then they come to the rescue to solve the problem, never hesitating to pat themselves on the back. It’s a subject that is near and dear to Tyler as he had the opportunity to get to know the great G Edward Griffin at a young age and read ‘The Creature from Jekyll Island’, Griffins masterpiece on the creation of the Fed. 

Our bullish base case remains. Following 3 bear markets in 4 yrs (where the average stock fell >50% each time) and from the 10/13 capitulation lows we’ve seen numerous/overwhelming buy signals:
-Semis/tech/housing leading

-key indexes sectors >200 dma with golden cross buy signals popping up everywhere 

-multiple bullish thrust momentum events

-market internals continue to improve, now with 76% of the S&P 500 >200 dma

- All while bears have outnumbered bulls for 22 straight weeks in AAII Survey (a record) and institutional investors equity exposure in bottom 30% historically.

The following, from BofA’s quarterly fund manager survey, shows us just how much investors continue to hate this market (signifiant contrarian buy signal)

Investor risk appetite is at its lowest level in 22 years. Crashes and bear markets do not happen when funds and investors are this bearish (and its barely better for institutional investors)

VRA Quick Hitters:

1) The internals remain red hot. Yesterdays new 52 week high/low came in at 375–41, the best in a very long while, with internals of 3:1 or better across the board. Bullish. 

2) I believe we’re witnessing the Bill Clinton pivot from Joe Biden (from 1994) that we forecast in our new book The Big Bribe. If he is coming back to the middle, as the US economy recovers and as the markets soar, Dems are set-up to potentially take back the house in 2024, and possibly the presidency as well. I take no joy in writing these words but I am not impressed by the early efforts of this new R house. I’ve yet to hear of a single investigation of our rigged voting systems. Without changes R’s cannot win.

3.) Housing is on fire. In the last 3 sessions, $HGX (housing index) is up nearly 8%. 

Housing stocks actually bottomed last June and have been leading the markets higher since. Nothing is more important than housing, to either the state of the US economy or to the make-up of the VRA Investing System. Note: housing will soon hit our most overbought condition, “extreme overbought on steroids”. We have made the decision that we will not be selling our leveraged ETF’s (at this point)…we will simply pause any new purchases. We want to let this new bull market run. Still a buy on pullbacks.

4.) Everything but the DOW is higher this AM, led by Nasdaq, up a big 2.8% as of writing this, on the heels of META’s big earnings beat. The old Facebook is up 23% as I write. The focus now shifts back to the earnings season with tech behemoths Apple, Amazon and Google set to report results today after the market close.

5.) Perhaps the most important piece of analytics was completed this week as we just wrapped up the bullish trifecta. You have to look hard to find analytics more bullish than below.

First, going back to 1950, if you have a down year plus a positive Santa rally, plus a positive first five trading days, then in that case the market (S&P 500) has been up an average 21% and the frequency of gains is 92%. If you add the third level, with the market positive in January, the market has been up 29.1% and with gains 100% of the time. 

Second, there’s an even better chance for a strong return when the S&P 500 is up more than 5% in January (we’re right there now), following a negative year. This combination has only occurred five times and the S&P 500 has been higher on the year all five times with an average gain of 30%. The last occurrence was 2019 when the January gain was 7.9% and the return for the year was 28.9%.

VRA Bottom Line: while we are reaching overbought levels on the VRA Investing System we use patience on adding to positions in our our ETF’s while we continue to use monthly dollar cost averaging on our VRA 10-Baggers. We expect any market weakness to be short-lived. We are buyers on dips. This has the markings of a big year for the US and global stock markets. 30% + in US.

Until next time, thanks again for reading.

Kip

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