VRA Investment Update: This is "That" Bull Market. The Macro That Matters Most for Inflation, Rates & the Market.
/Good Thursday morning. Heads up; I’m scheduled to be on Fox Business with Charles Paynes “Making Money” in the 2PM EST hour. Hope you can join!
This remains “that” bull market. The bull market that surpasses the 1995–2000 dot-com melt-up, except this move higher will be much broader in scope and longer lasting. The fact that we made this forecast over two years ago, without the knowledge that Trump would be President again, only makes us that much more confident.
Here’s the macro that matters most, when it comes to inflation, interest rates and the market. You won’t hear this in the financial MSM, nor from 99% of mainstream economists whose opinions tend to drift with the wind. We continue to forecast that both rates and inflation will continue to decline going forward. Yes, Trump 2.0 will be a powerful boost for the economy and yes, over the short term that may result in higher rates, with J Powells Fed likely to try and battle Trump again, as they did throughout his first term.
However, at the end of the day, it just won’t matter much to the markets. Remember, during the Dotcom melt-up of 1995–2000, the average 10 year yield was a big 6.1%…we’re at just a 4.3% yield today. During that 5 year bull market of bull markets the 10 year yield actually spiked over 7% at times, but it did little to slow down the markets gains.
Our detractors continue to tell us that “this time is different” because we have $36 trillion in government debt and that at 4.3% yields, our debt will become unmanageable. While that “may” be the case in another decade or so, it’s just not today. Remember, China’s debt to GDP ratio is a massive 300% plus, with Japan’s more than 260%, while US GDP sits at “just” 121%.
As unpopular as this statement might be, US government debt levels simply do not matter to the markets…certainly not now. In addition, with Musk/Viveks DOGE, it’s likely that our sickening spending levels will soon reverse.The markets absolutely are beginning to discount this.
Finally, as we’ve entered the Innovation Revolution, we expect to see pure “deflation” within about 3 years, as the combination of stunning levels of innovation plus the coming productivity boom, slashes inflationary costs across every US industry.
Finally, finally, the gravity of supply and demand will continue to drive down interest rates. Globally, debt yields are controlled by the “big money”, AKA central banks, sovereign wealth funds and the largest of investors (think Blackrock,etc). What would they rather buy, US debt at 4% or German debt at 2%? US debt at 4% or Japanese debt at 1%? It’s the gravity of demand that will continue to drive US rates lower.
VRA Bottom Line: over the years, one of the reasons we’ve been able to consistently beat the markets is because we pay little attention to the MSM, financial or otherwise. Their echo chambers, and the group think that follows, tend to destroy their investment returns. Neither inflation nor interest rates are a concern for our investment markets today. We expect that to continue to be the case, for a long while.
Animal spirits are back…they’re not coming back…they’re back (that was quick). The ramifications of this are extraordinary, especially with the fact that both the consumer and American companies are in their strongest financial shape in decades, likely ever.
Because this last points sounds like heresy to many, here’s a quick recap for our newer Members…
- Net equity in homes at ATH
- 40% of Americans home their home without a mortgage (ATH)
- Consumer net worth at ATH
- Credit scores at ATH
- Over the last 15 years consumers have cut their debt to disposable income by 25% (we learned from the financial crisis).
- Corporate debt to market cap sits at 50 year lows.
- The ability to lever up, for both the consumer & corporations, is unprecedented.
Combined, it’s hard to put into words just how bullish this is, both short and learn term. And now, we have the Trump Economic Miracle 2.0, directly ahead.
Yes, this market can and will keep marching higher. That’s been our call for more than 2 years and it remains our call today. In my career, I’ve never been this bullish. This is the bull market that takes the Dow Jones past 100k and Nasdaq past 40k. A clear cut generational bull market. A bull market of lifetimes.
Dot-com Playbook
During the 1995–2000 melt-up we were clueless as to what was going on. For the first couple of years it just didn’t feel real. What was a dot-com and how was it that these companies…without any revenue…were trading at such obscene valuations? If we weren’t making our clients 10% a month they were looking for another broker. And it just kept on going.
The comparison to today is palpable. Except again, this run is just beginning. We get this question a lot “what year is it in the 1995–2000 comp?” My answer is that we’re still in 1995. The Innovation Revolution is still very early days, especially if it extends out two decades, as we expect.
No, it won’t be straight up. In dot-com we had 5 corrections of more than 10%, along with a 31% bear market that occurred just before the final 18-month parabolic move higher. We’ll continue to use the VRA Investing System to protect us from the most severe of shakeouts.
The most successful strategy during dot-com was “holding your winners”. When investments like Tesla and Bitcoin are melting up, the smartest strategy is to “use dips” to buy more. I believe that’s going to be the case soon for many of our VRA holdings.
Until next time, thanks again for reading…
Kip
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