VRA Investment Letter: Evidence Builds of a "Generational" Bull Market. China is Exporting Deflation to the World.
/Good Thursday morning. Long-time VRA Members may remember that from the end of the bear market (10/13/22) we’ve written often about the “action” of this market and the fact that it’s largely been “textbook bull market action”. We’ve seen this repeating pattern again this week, as the Nasdaq and Semis continue to rally into market closes finishing at/near their highs of the day.
This is not the “repeating pattern” of a market that is tired and wants to go lower. This is the action of a bull market that’s building strength and wants to continue moving higher.
Another reminder that we’ve entered a structural bull market of size and scope is approaching, as the S&P 500 came within a fraction of a point of hitting 5000 for the first time (4,999.89) powered by a solid earnings season and featuring stunning reports from leading tech co’s.
In our view, bears that continue to fight this new bull market are missing out on the birth of a generational bull market, driven by the reality that corporate profits and upbeat guidance continue to show healthy spending patterns among consumers and businesses, while the “innovation revolution” begins to justify surging valuations in the tech sector.
As we start trading today our leading broad market indexes (S&P 500, Dow Jones, Nasdaq) are approaching overbought levels that may begin to influence the upside action (next week possibly), but are still a ways away from hitting a level of overbought that would concern us.
Know this; when only 64.2% of the S&P 500 is trading above the 50 dma and just 71.6% are trading above the 200 dma, we have forever to go before hitting extreme overbought levels that normally dictate a short term peak.
We reiterate our long-established forecast that we are in the “Roaring 2020’s” and that our “5 Megatrends” (from our 10/2022 book “The Big Bribe”) will continue to power the US/global economies and equity markets sharply higher into 2030-ish.
“Buy the dip” will continue to be the smartest of smart money strategies, as the innovation revolution “forces” earnings and stock markets higher, led by semis/tech, growth stocks and special situation opportunities. This structural move higher has the potential to become the most electric bull market since the 1995–2000 dotcom melt-up.
Our Big Bribe Megatrends are Playing Out
1) Financial engineering; its occurring at all levels (powered in part by AI); institutional/govt, corp America and consumers. Included is the “Great Reset” of a different kind (with rates falling sharply for an extended period).
2) Corporate earnings expansion, driven by the “Innovation/AI Revolution”, which should eventually surpass the euphoria of the dotcom/tech boom cycle.
3) Long term housing boom, powered by consumers in our best financial shape in decades (regardless of the PSYOP of negativity in place designed to make us think otherwise). Housing drives “everything”. We remain ready to repurchase NAIL (3 x Housing ETF) and will do so at the next major buy signal from the VRA Investing System (getting closer).
4) The millennial generation. 72 million strong (now the largest segment of the population), in the process of inheriting >$70 trillion. Millennials love housing, stocks, cryptos with an understanding of technology that’s in their DNA…and they are born entrepreneurs.
5) The red-pilling of America and the return of animal spirits. We’re waking up to the dangers of communism and what we want, instead. Hugely bullish for our long term prosperity, even our survival as the last great democracy/republic standing.
VRA Bottom Line: Combined, these 5 Megatrends have the power to take the Dow Jones past 100,000 and Nasdaq past 40,000 (into 2030-ish) with massive wealth creation occurring throughout the economy (when we wrote these words 14 months ago, we were among the first to state that we are in the Roaring 2020’s). We repeat; now is the time to stay locked in…something special is in the process of playing out. And we LOVE the fact that so many remain negative…even frightened…by buying stocks at all-time highs. It’s this level of fear among many investors that will continue to drive stocks higher.
The bullish setup and Roaring 2020’s scenario is “textbook”. First, beginning in 2018, we had 3 bear markets in 5 years, where in each case the average stock fell 40–50–60%…completely unprecedented. Investors became (and remain) shell-shocked. Look no further than the insanity coming out of DC, following 41 year highs in inflation, combined with aggressive global action from the military industrial complex, and we would fault no one for being hesitant to own stocks. However, this is also the perfect set-up for the birth of a powerful bull market, just as everyone thinks it’s not possible for stocks to keep going higher.
Key Bull Market Drivers
We should be in the sweet spot for US equity markets.
- We’re only now hitting all-time highs, which is when major bull markets begin to accelerate.
- We’re in just the first inning of the “innovation revolution”, as is now being made clear from tech earnings.
- We’re in just the second yr of a new bull market, which have been higher 100% of the time since 1952 (by approx 14%, S&P 500).
- Seasonality/analytics remain bullish.
- The semis are leading the way higher, and have in fact been going parabolic. From the birth of QE, the semis have been THE tell for market direction.
- The Fed is pivoting to lower rates. Don’t fight the tape, don’t fight the Fed.
- Momentum is (firmly) in favor of the bulls.
China Continues to Export Deflation to the World
Overnight China reported that they’ve now had 16 straight months of falling prices, meaning “deflation” has become firmly entrenched. Much of this can be explained by the melt-up in inflationary forces from the plandemic printing presses and global disruption in supply chains, but these readings are eye-popping. In January, China’s CPI fell .8% with PPI crashing an astonishing 2.5%, as deflation is occurring at the fastest pace since 2009.
As Ed Hyman of Evercore has been alerting for months, Chinese deflation is impacting US inflationary effects, which will likely soon speed-up. J Powell and his merry band of money printers should take notice. “Deflation” is the ugliest word in the banking industry, with the potential for a “deflationary spiral” that could result in rapid and sizable rate cuts here in the US as well.
Until next time, thanks again for reading…
Kip
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