VRA Investment Update: Our "Big Bribe" Megatrends Are Playing Out. Fed Chair J Powell; A+. Our Bullish Case is Unchanged.
/Good Thursday morning. Just prior to publishing “The Big Bribe” in the fall of 2022 we went aggressively long the market, citing our primary base case;
We’re in the Roaring 2020’s, powered by consumers and US co’s in their strongest financial shape in decades. Combined with our “5 Megatrends”, we’ve entered an innovation revolution that will drive both corporate earnings and stock prices higher…for years to come.
With the “innovation revolution” in just the early innings we continue to see this as the best opportunity for significant wealth creation since the 1995–2000 melt-up. 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 (likely longer).
“Buy the dip” will continue to be the smartest of smart money strategies, as this Fourth Industrial 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 5 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 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 their best financial shape in decades (regardless of the PSYOP of negativity in place designed to make us think otherwise). Housing drives “everything”.
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 first wrote these words 20 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. Many remain negative…even frightened…by buying stocks at all-time highs. It’s this level of fear among many investors that will help to drive stocks higher.
Fed Chair J Powell; A+
Since Powell became Fed Chair (2018) few have been more critical of the jobs he’s done than us. Five major policy errors tends to have that effect. But we proudly give Powell an A+ for both the FOMC statement and especially his presser, where he stayed the course on Fed policy and stuck to the script.
We wrote the following in yesterday’s VRA Letter:
“We think we can save you some trouble and maybe some anxiety…today “should” be a nothing burger….which means the markets should like it. We’ve had only slight misses to inflationary reports over the last 2–3 months, but the key is they were “slight” misses, as the US (and global) economies have remained strong.”
Powell’s focal point was firm; “we will remain data dependent” and when pressed about the potential for rate “hikes”, Powell simply wasn’t having it, nor was he willing to entertain the latest buzz words of the financial MSM, that “stagflation” has arrived. Powell had this teed up beautifully; “I don’t understand where concerns about stagflation are coming from. Stagflation in the 1970s was 10% unemployment, high single digit inflation, slow growth. Now we have solid 3% growth and inflation under 3%. “I don’t see the stag, or the flation.”
Kudo’s Mr. Powell.
Our forecast from January is unchanged; the Fed will cut rates 2–3 times in 2024. For one of the few times since Powell became Fed Chair he’s exactly right to stay the course. His dovish presser almost certainly means that Powell and his merry band of money printers know what’s coming; slowing employment data with continued disinflation. The lag effects from the Feds 11 rate hikes are about to start showing up in the data. Buy this dip in equities.
VRA Quick Hitters — Our Bullish Base Case is Unchanged
1.)We’ve entered the Fourth Industrial Revolution, or what we’ve referred to over the last 20 months as an “innovation revolution”. Not only will the economy remain strong, but more importantly, rising corporate earnings and wages will continue to “force” stock prices higher as US consumers remain financially sound. This is one of our long-term Megatrends…our base case. It’s kept us aggressively long stocks and will keep us aggressively long stocks.
Remember, the Fed was “supposed” to cut rates over a year ago. Have the markets cared that they have not? With the S&P 500 up more than 30% over this time frame, the answer is a resolute “absolutely not”. If you’re a fan of Occams Razor, the markets reaction would tell us that the most likely answer is “the stock market is ok with higher rates.”
We continue to expect that “gravity” will keep US rates from surging higher. Global institutional money flows (plus central bank direction) control interest rates. With this in mind, if you were in charge of institutional investing what would you rather buy; US 10 year debt yielding 4.6% or German 10 year debt at 2.58%? US 10 year debt yielding 4.6% or Japanese 10 year debt at 0%? It remains our view that global demand for higher yielding US debt will continue to keep a lid on US rates.
2) Keep buying the semis. Last week we added to our position in the semis (you can find our pick at VRAletter.com). As we’ve covered often over the last decade, from the birth of QE the semis have lead the market (in both directions). The semis are the ultimate market tell. At last weeks lows the semis hit their most oversold levels since the bear market lows of 10/13/22, giving us a rare opportunity to buy on the cheap. When the largest tech companies in America are reinvesting $100 billion back into their own businesses, due to the Semi/AI boom that’s just now getting underway, you’ll rarely if ever get a stronger buy signal for the semis/tech.
3) Bitcoin: we’re actually seeing BTC trade as it has in the past, post-halvings, where near-term sell-offs have been common. However, since re-adding BTC to the VRA Portfolio at $28,800 our focus has been on the medium-longer term. Here’s what matters most; on average, BTC has soared 3224% in the year following the previous 3 halvings. Do not fall victim to this latest shakeout in BTC. In the coming days/weeks/months, we see massive demand for BTC, combined with continued shrinking supply, sending BTC through $100k (by year end). As a reminder, we first recommended BTC at $2000…then sold it at $58,000…then re-recommended BTC last June at $28,800.
And we got this from Blackrock this morning: Blackrock Sees Sovereign Wealth Funds and Pensions Buying Bitcoin
“Don’t be fooled by the first break in inflows into spot bitcoin exchange-traded funds (ETFs) after 71 straight days. The current lull is likely to be followed by a new wave of buying from a different type of investor, said Robert Mitchnick, head of digital assets for BlackRock, the world’s largest asset-management company.”
4.) Sell in May and Go Away? Not so fast. As the always excellent Ryan Detrick points out below, over the last 10 years the markets have been higher 9/10 times in May.
Until next time, thanks again for reading…
Kip
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