VRA Investment Letter: Led By Semis & Housing, Significant Technical Breakouts Abound. Excellent CPI Report. Our "Disinflation" & "Great Reset" Themes Playing Out.
/Good Thursday morning. Following what has been a near-parabolic move higher from the 10/27 lows, strength in the semiconductors has now led to key breakouts for the Nasdaq, S&P 500 and Housing stocks, negating what had bears believed was a picture-perfect short for these indices at resistance. Short-covering drove last Friday's big blast higher, which has once again taken our major indexes and VRA leading indicators back to extreme overbought on our shortest term momentum oscillator (stochastics).
Combined with the highly bullish technical signals that we’ve seen over the last two weeks it remains our view that important lows are in place and that pullbacks from here should continue to be bought (if we have pullbacks, that is). Frankly, this has the feel of a market that could just keep going higher into year end.
Most importantly, we are in a new bull market that is only entering year two. “Year 2’s” of new bull markets have been higher 100% of the time since 1952, with sharp gains. Longer term, we are in the Roaring 2020’s. There’s never been a better time to fade the permabears.
“Disinflation” Continues
October's closely watched CPI report came out Tuesday and was a solid beat. Disinflation continues to build, an important macro theme of ours over the last 6 months. “Disinflation” has also been one of our core “inflection points” that points to a “Great Reset” of a different kind.
** Highly bullish for stocks and bonds in general and wildly bullish for semis/tech, housing, small caps and yes, precious metals and miners.
CPI DATA:
- CPI YoY: 3.2% , Lower than Forecasted 3.3%
- Last month 3.7%
- Core inflation grows just .2% m/m
- Stocks jump. Nasdaq + 1.8%
-10 year yield plummets to 4.48%
US and global markets jettisoned higher and Tuesday’s “perfectly disinflationary” CPI report was the icing on the cake. This is why they call the equity and debt markets “discounting mechanisms”…they were telling us in late October that we were about to get very friendly inflation data.
And check this out; yesterday we learned that the October PPI (Producer Price Index) came in at MINUS .5%. Folks, that’s not disinflation…that’s “deflation”, another VRA macro theme for 2024.
From Goldman Sachs; Welcome to Deflation Nation
Know this: Disinflation (deflation) continues to build, an important macro theme of ours over the last 6 months. “Disinflation” has also been one of our core “inflection points” that points to a “Great Reset” of a different kind. And another massively important point; Fed “front-running” is now underway….it’ll be interesting to see how fast rates fall from here.
** Highly bullish for stocks and bonds in general and wildly bullish for semis/tech, housing, small caps and yes, precious metals and miners**
Next up: The Fed is “done”. Here comes Fed front-running, as the BIG money starts getting out in front of lower rates and aggressively buying bonds. Ultimately, Fed rate cuts by mid-2024, another big theme of ours for next year.
Tyler and I have been beating our “Great Reset” drum for the last 3–4 months. I typically don’t make predictions on month-to-month economic data but here’s my CPI tweet from this week.
The Next Chart That Really Matters: Long Term Bear Market in US Dollar Resumes
In Monday’s VRA Letter we wrote..
Below we see that the USD broke down in September 2022, followed by a counter-trend rally higher from July of this year.
I now expect the USD to begin resuming its bear market. This will be highly bullish for US co’s, specifically big multinationals, which should then result in a solid global economic recovery.
Of course, a sharply lower USD, along with plummeting rates, will be big-time bullish for precious metals and miners.
Now, check out what happened to the USD Tuesday; one of the biggest red candles you’ll ever see in currency markets
Based on our work, the US dollar has resumed its long term bear market. Along with a peak in rates, hugely bullish for multinationals, gold, silver, miners, energy & select foreign markets (Chinese tech).
Powerful, Decade Long (+) Bull Market in Housing
The structural bull market in housing that’s underway, and that we focused on in “The Big Bribe”, will soon begin to pick up speed (certainly with lower rates).
Housing drives everything, as our single most important leading indicator in the VRA System.
It’s hard to put into words how bullish this is for the US economy and for the consumer, but I tried (again) below:
Housing Strength and Home-Buying Realities; Be Careful Who You Listen To
I encourage everyone to read this article from yesterday (MarketWatch/Dow Jones News) on the reality of what’s happening in the housing market. As is increasingly the case, “financial engineering” is powering growth.
Home Buying — Upside Surprises
“‘You have to make your offer look as good as possible’ with competition over low inventory, one National Association of Realtors economist says
As mortgage rates have risen over the course of this year, home buyers have ramped up the amount of money they put down when they buy a home, according to a new report.
The share of a home’s asking price that buyers put down as a down payment has grown to its highest level since 1997, according to a report released by the National Association of Realtors on Monday.
In its annual Profile of Home Buyers and Sellers, the real-estate industry group found that the typical down payment for first-time buyers rose to 8% in 2023, up from 6% last year.
That’s lower than what most people assume they need to put down. Most housing affordability calculators assume a down payment of around 10% to 20%, and 35% of people believe they need to put 16% to 20% down to buy a house, a 2022 NAR survey found.
Down payments can be as low as 1%
But it’s possible to put down much less. Some lenders, such as Zillow (ZG) and Rocket Mortgage, are offering 1% down payments to make home-buying more affordable in this market. And first-time home buyers with an Federal Housing Administration loan can put down as little as 3.5%, for example. The only catch is buyers would need to pay mortgage insurance that would protect the lender in case they’re unable to pay.”
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VRA Bottom Line:
While short term overbought, we have an excellent set-up in place for a continued move higher for stocks into year end, to all-time highs.
The S&P 500 is now up 15% YTD. The last 22 years that SPX was up >5% by this time of the year, the remainder of the year was positive, every time. For the past 50 years the set-up was 27 positive years vs 3 negative.
With rates having peaked, the dollar resuming its decline (from late 2021 peak), we look for earnings to also hit all-time highs, as the global economy follows the US move higher.
The “innovation revolution” is real. And it’s only in inning one. Keep buying dips. They shouldn’t last long from here.
Until next time, thanks again for reading…
Kip
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