Follow the Semis & Buy the Dip - Economic Acceleration

Good Friday morning all and hope you had a great Christmas. Welcome to the final trading day of 2022. We’ll be back with full updates on Tuesday, as markets are closed Monday in observance of New Years day.

We start todays trading with 3 days left in the Santa Claus rally (today and first 2 days of 2023) and roughly 1 month left for the January effect, where history tells us that small caps outperform big cap stocks by a sizable margin, with tax loss selling in small caps the culprit for their year-end weakness.

Here at the VRA we aren’t blind to the risks, nor to the forced spread of authoritarianism and coordinated Deep State global attempts to push the world into communism (AKA control by globalist elites). From the plandemic to rigged election systems to proof that the Intelligence Community controls social media/internet…all empowered by the DC Uniparty…we cannot look past the possibility that it’s all orchestrated intentional destruction. Should we take out the 10/13 capitulation lows this is a market based situation that we will be forced to deal with. We do not expect that to be the case.

Why January (and 2023) Should Sizzle

Our views are unchanged from the 10/13 capitulation lows; the dollar, interest rates and inflation have all peaked and US stock markets have bottomed. We will continue to use pullbacks to add to positions.

3 Key Pieces of Analytics Point to a Big Move Higher

One: History tells us that the New Year…specifically this new year...should kick-off with a bang. Going back to 1950, pre-election year Januarys are the single best month of the 4-year election cycle, with the S&P 500 higher 88% of the time and with average gains in the S&P 500 of 4.1% and a massive 6.8% gain in Nasdaq.

Two: History also tells us that the worst years for stocks are followed by some of the very best years on record and the year following midterm elections is our best year on record (historically). As seen below, since 1950, following a 20% decline in the S&P 500 the market has been higher 100% of the time with an average gain of 27.1% (as we start trading today the S&P 500 is down 19.2% with nasdaq down 32.9%)

Three: Importantly, and as we’ve been focused here for the last couple of months, this remains the most powerful piece of analytics of my 37 year career; since 1952, from the midterm lows to 12 months later, the S&P 500 has had an average return of 32% with gains in every single midterm year (18 for 18). Bullish for 2023.

Bottom Line: The VRA Big Picture

If the Fed continues down this path (their new boogeyman is wage inflation) and intentionally destroys the jobs market, then all bets are off and this market is going lower. But again, the bond market does not see that and neither do I. The Fed is “wrong”, the bond market is “right", and stocks should keep sniffing this out as well.

Our thoughts on the markets remain unchanged from the 10/13 capitulation, one of the most textbook cases of capitulation in my career; It’s increasingly likely that the bear market is over and a new bull market has begun, just as inflation, interest rates and the US dollar have all peaked. Highly bullish and highly risk on. And talk about a great looking wall of worry that’s in place (which bull markets love to climb).

Importantly, and as we’ve been focused here for the last couple of months, this remains the most powerful piece of analytics of my 37 year career; since 1952, from the midterm lows to 12 months later, the S&P 500 has had an average return of 32% with gains in every single midterm year (18 for 18). Again, bullish for 2023.

Big VRA Call for 2023: No Recession!

As of now, 88% of Economists Predict a Recession in 2023. This is Why They Will Be Wrong

All the talk is about recession next year. Inflation has become a past tense concern. It’s recession. And who knows, we may have a recession next year. It feels like we probably should. I mean, look who's president. Look what's happening. I'm going to tell you why I don't think we will. Two reasons. Well, there's more than two, but I'll give you my two biggies. First of all, 88% of economists believe that we will. Economists are rarely right, certainly not when they are in agreement by 88% (lesson of my mentor Ted Parsons. RIP Ted). Then there was a big event, several hundred people attended, a financial conference with economists, financial advisors, etc (two weeks back) and they asked them all a series of questions.

One of those questions was, will we have a recession in 2023? Every single attendee said, yes, we'll have a recession in 2023. Now, if you're a contrarian like me, then you know what that means. There's no way we're having a recession next year. It’s not even possible because the majority…excuse me the unanimous majority in this case...is never right. It's one in several billion odds that many people would all be right. So that's number one.

Number two, and this has actually, the more, this has got more substance to it. I think it's more important as to why we won't have a recession next year. There's still over $3 trillion worth of rona stimulus. There's still over 3 trillion of stimulus money that is yet to go into the economy.

It was structured that way. Trump did some of it. Biden did the rest, along with Congress. It was structured that way to filter into the economy, so we didn't have a rough patch. Structured to go into the economy over time, which is probably why inflation will remain elevated because all this money, although it's been printed already, it's already been accounted for, it's still going to find its way into the economy. But the good news is that this $3 trillion will also support the economy (yes, even if it's government money). I'm not saying it's a good thing. I'm saying that it's very hard to have a recession when half of your employees in the country work for the State (for the government). That's about right. Our largest employer is the government (state and federal) and they're going to keep their jobs.

They don't lose their jobs. Those jobs don't go away in a recession and when you add this $3 trillion that's still filtering its way in, that's all GDP folks. That's all growth that goes directly into the gdp. Slow growth but still growth. Very hard to have a recession with that kind of a structured system, which is kind of why the globalists want this. It makes things more predictable. You don't have the highs and the lows economically speaking, right? It's a little more boring. Look at Europe. Every single person we know said "Oh my God, is Putin is shutting off gas and oil supplies? Look at their prices for energy. They're going to have a recession, it's guaranteed. Guess what? No recession so far. Doesn’t mean they won't next year, but Europe has that socialist, system structured economy with slow growth.

Very hard to have a negative GDP with all that money coming from the State. Capital S, the government. No one really talks about this anymore. It's a mistake. I think it's another reason why we won't have a recession here in the US.

But there's another reason, and this is the more exciting, more positive reason that I really like talking about. We just wrote a book about it (find our new book here). It’s this pretty good stuff we think, and it's Trump. It's Trump. It's The Trump Economic Miracle, which is his America First policies are still in place. Low taxes still in place. Your taxes have not gone up, have they? Now, some corporate taxes had those have flow through. Inflation certainly has destroyed our buying power but I'm talking about your personal income taxes. They haven't risen. Trump brought those down for us. In addition, China used to take our jobs. That’s not happening now. That's all Trump and his tariffs on China are still in place. That's a big deal. That's brought a lot of jobs back to this country. And we cannot forget deregulation. Trump eliminated so many regulations and most of that deregulation is still in place.

So yeah, Trump is still winning. He's structured all of this. His America First policies...his Trump Economic Miracle. He structured all this and built it to last a decade. It's still in place. That's why we won't have a recession next year and yes, I think we're setting up for an amazing buying opportunity.

Until next time, best wishes for a very happy New Year!

Kip

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