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Small Caps on the Rise: VRA Investing Podcast – Kip Herriage, December 08, 2023

Exciting market movements today in the latest VRA Investing Podcast! Big tech is back in the spotlight, with Google's AI system propelling their stock up 5.3%. The tech rally also lifted semiconductor giants like Nvidia and AMD, s ...

Posted On December 08, 2023Episode 1293
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About This Episode

In this episode, Kip digs into the latest market trends, highlighting positive job status, wage growth, and the potential for small caps. He also takes on the negativity in the market and discusses an interesting poll that challenges common economic perceptions. 25 minutes

Transcript

Don’t look back because the market is closed. Good Friday afternoon, everyone. Kip Herridge here for the Daily Burn investing podcast. Hope you had a great week this week and big plans for the weekend coming up. You know, a lot to talk about today. Let’s get it in quickly. Some of the bullet points we’re going to cover today, it was kind of a flatline week. However, we had some important new 52 week highs today.

Again, we’re seeing now a pattern of these start to develop the job status today. Talk about that kind of a hot number with wage growth that continues to impress. This is very, very good for the US consumer. What’s happening in the ten year again, technicals, two things have held up incredibly well this year. The analytics or the seasonality has held up incredibly well. And technicals have traded almost perfectly. We’ve had trading ranges and then we’ve had, whenever you hit extreme overbought, we sell off extreme oversold, we rally. If you’re a short term trader, this should have been a pretty good year for you.

[00:01:10]:

I think a lot of money has been made by traders in this market. We don’t focus on that day to day, but the trends are clear. All you have to do is look at the charts and go, okay, this is trading as it should. Pretty rare to have all this happen in the same year. I know. We’re happy to see it. I believe you probably are too. And then we’re going to talk about also inflation a little bit here because there’s something amazing I saw today.

I shared this morning with our folks. We’ve talked about this, about this psyop of negativity. I think people maybe laugh at me when I say these things because I’m saying things. I don’t hear anybody else saying it. I never know that means I’m a little insane or just maybe my IQ is just barely above Jethro bodine. I don’t know, but I know that I see things that don’t make sense to me and those are the things that I tend to be hyper focused on because they drive me crazy. And this is one of those things. It’s psyopic negativity.

Kip Herriage [00:02:07]:

Everybody’s so bloody negative, right? A great piece in the Financial Times of London today. I can’t wait to get in with you. Let’s get right to the market first, Dow Jones up 130 points today. We had a weak futures market. Okay. When the jobs data came in and then here came the rally caps. This is again textbook bull market action. We saw that again today.

Again, weakest open. Good rally. Intraday weakness. And then we finished strong. Good to see Dow Jones up 130, up three tenths of 1%. SPF hundred up four tenths of 1%. Our leader on the day was the Russell 2000, up seven tenths of 1%. And Nasdaq up four tenths, 1%.

[00:02:48]:

As you know, we love small caps. We think you’re really getting ready to go on a monster run. I was on Charles Payne show this week. I’ll say here what I said there. If I can say it on national TV, I can certainly say it to a bit of a smaller audience here. If you are an investing podcast looking for a 40% move higher next year in small caps, I think it’s going to be a monster year when they get going. I’m a small cap guy. One thing I know in my career is that when the small caps get going, they tend to run and they run hot and heavy and it can only be a six month or a one year thing.

[00:03:25]:

But when they get going, they get going and they’re so oversold. So oversold. I actually didn’t get to work this into the interview with Charles, but we’ve had a brutal two year bear market in small caps. That’s number one. Number two, because of that, small caps are not just under loved and under owned, they’re hated. People are buying strength, magnificent seven semis, housing. Right. That’s where the focus is.

I have no problem with keep going, playing your strength and buying leadership because that certainly has been working. But there’s a rising tide here. The Oak cliche rising tide lifts all boats. That is going to start happening now. And I see all the signs that that is exactly what’s about to start happening here. And it ties in with so much what we talked about with investor sentiment. Again, the Psyop of negativity. We had three bear markets in five years, unprecedented.

[00:04:22]:

The average stock lost 40, 50, 65% in those three bear markets. I mean, it was a range of 45% to 65%, depending on the one you’re talking about. Brutal bear market, three of them in five years. So people are washed out, their confidence is shaken, and look who’s president. You got all of this combining. The media has just never been more negative. All of this combining to set up what is an ideal buying opportunity. I can’t stress this enough.

It’s just ideal. And I see it pretty clearly. Pretty clearly. So this is a high confidence call, folks, that not only is the market going to keep going, but it’s going to broaden out. It’s going to really take the small caps next year. Next year is going to be another very good year because the economy is in great shape, consumers in great shape, corporate America in amazing shape. Outside of the insanity happening in DC and these stupid global wars, we have to keep fighting and the risk that those all present outside of that, this thing is set up to go. And that’s been our message from last October.

[00:05:28]:

You know this, if you’ve been listening, and we don’t keep saying it because we’ve done right and we’re going to keep riding that horse until it dies on us. All the signs point to this. So, yeah, big move higher in small caps coming again. Also today the semis led. Semis up today, right at 1%. Again, semis lead tech, technically the broad market. Now small caps are going to start racing because they got so much catch up to do. Small caps are undervalued to their large cap brethren at 20 to 30 year lows.

[00:06:04]:

So it really is set. It really is set. Here’s what I’ll say. This is the caveat. If the small caps don’t perform, I’ll start to be more concerned about this market because this is when they should start performing. This is when they should start playing catch up. If this is the bull market we think it is, that’s what’s going to happen here. High confidence call that it’s going to happen.

Okay, that’s the market. Let’s get into. I want to cover A couple of things from our VRA letter this morning. Number one, the jobs report came in. You could call it semi Hot, 190,000, 99,000 jobs created versus estimates 185,000. So a slight beat there. But here’s what people are talking about. Unemployment rate ticked down to 3.7% from 3.9.

[00:06:51]:

It was supposed to be, again, 3.9 last month, 3.8. They’re all expecting it’s going to jump over four, and then they’re all going to start flapping there. It’s a recession. That’s going to be their call. Right? Here comes a recession. And of course they’re wrong. I’m not saying we want a recession, but it would be so minuscule because of the strength of the consumer. Again, it’s the most overlooked thing.

And it drives me crazy. It really drives me crazy. More people are starting to talk about this, the strength of the consumer and corporate America, but not, I mean, it’s just barely anybody. So anyway, it was a good job to report again, unemployment 3.7% but the biggie was wage growth. Wage growth came in at annualized growth of 4.8%. We just had a 5.2% GDP. Remember wage growth, 4.8%. Estimates were only 2.4%.

[00:07:46]:

So we’re seeing a continued trend of really good wage growth and increased productivity as inflation falls. This is called a panacea of bullish economics. You can’t call it anything else. It’s perfect. It’s absolutely perfect. And the markets, in case you don’t believe the data, and a lot of people don’t, it’s okay. The markets are confirming it. That’s how you know it’s true.

The markets are confirming it. Right? That’s the tell. And again, Todd and I talk about this all the time, but here you have the Federal Reserve and JPOW hyper focused on wage growth because, oh my God, that’s inflationary. We have to tamp down wage growth. We have to crash to the market or we have to somehow get unemployment over 4%. We have to stop this. Why? Give me one good reason why you want to do that. There is no good reason.

00:08:37]:

There is no good reason. Wage growth is not in and of itself inflationary, especially when we have disinflation happening everywhere else. Again, this is perfect. Okay. As long as they don’t mess it up, we have a really good setup. I’ll say this, too. Next year, if Republicans are banking on being able to try to win these elections by beating up Joe Biden and Democrats on the economy, they will get trampled. They’ll be roadkill next year because the public knows better, right? We may be stupid, we may be sheep, but somehow we know which side is right and wrong and who we’re going to vote for, it seems.

I always trust the voters. I really do. Look, I know we got a voting problem now, get that. But I think this is a point that is legitimate and that voters are going to vote on. They’re going to vote for Joe Biden and Democrats because this economy is roaring, we are in the roaring 2020s. So I’m just saying, I’m not saying Republicans can’t win it if they won’t. I believe they can and I believe they will if they run the right candidate. We won’t get into that today.

[00:09:45]:

But if they intend to attack Republicans on the economy, they’re going to get smoked next year. Surely they have smart enough people telling them this because the inflationary ship of 41 year highs, that ship has sailed. Now we have the good stuff, and there’s very good stuff that comes from inflation. We talked about it a lot. Not recently. We talked about a lot early on when inflation started. There is a big upside to inflation. A big upside.

[00:10:11]:

We’re all seeing it now, aren’t we? If you have money and own real assets, you’re seeing the upside to inflation. Employees are seeing it as well. Again, wage growth is outpacing inflation. Employees are seeing it as well. And the strong economy is creating so many opportunities outside of the mainstream and probably outside of a lot that are trackable from a tax point of view. Right? I mean, that’s the economy we’re in now. It’s almost a barter economy, a creative economy, a gig economy. Folks.

This is where the magic is coming from. They say they don’t know where all the street is coming from. That’s where it’s coming from. For years, it was the illegal drug economy that propelled that economic engine. And trust me when I tell you, it is a very big economic engine. That’s why they don’t want to shut it down. The global economies would crash without drug money. That’s just reality.

[00:11:09]:

We found that out in the financial crisis. We’ve talked about it before. The great story there, they don’t want to talk about anymore. About the European banking. London banking system would have crashed. Where? Not for drug money. The drug cartels were in business with the government to legally put cash into the system. They gave them a pass.

You insert the cash because we’re drained. People are withdrawing it, people are broke, people are panicked. You put your drug money in our banks, support us, we’ll look the other way. You can do what you want to. That’s what happened. Matt Taevi wrote this up. I think it was like Tyler and I used to talk about all the time, like 2010. Love is fascinating.

[00:11:49]:

Well, guess what? That drug economy is now expanded to so many different ways to make money for an entrepreneur. That’s why we have no patience here, for people to complain about the economy. We have no patience for this. Stop whining. Open your eyes. Open your eyes. Jackass is right in front of you. Right? And I’m not saying, look, obviously, there’s some people that can’t do it.

Some people maybe feel they’re past the age of being able to be an entrepreneur. But for the average person, that’s a go getter. There is no excuse to complain. I think people recognize that we’re in the roaring 20s. That’s just the way it is. Okay? But again, for the Fed to be trying to limit wage growth, I mean, this is not the way you operate in free market capitalism. Wage growth should be undeterred. It should be at the level that it’s supposed to be at.

I would love to see wages growing by 20% a year. Who wouldn’t? And no, it’s not inflationary as long as companies are still making money. Inflation comes from money printing, not from paying people what they deserve. Again, it’s another thing. It drives me crazy because that’s the truth. But you never hear it on TV, do you? Or very rarely. Okay, I’m going to mention this, and then we’ll get to the internals, because a couple of other things. Again, SPF 152, Akai today, I forgot to say that.

[00:13:18]:

Here are the highs. SPF hundred 52, Akai, new highs. As Tyler goes to say, new highs. Forget new all time highs. Congrats. SVF 100. Guess what’s going to follow behind it all the major indexes. Okay, we’ve already seen that, of course, in tech and semis, they’re already at all time highs.

Now we’re seeing our major indexes hit 52 week highs and then that’ll follow. This is how a bull market works. This is how it develops. I can’t tell you how long I’ve waited to see all this stuff after being in this business so long and being the victim of a couple of bear markets and crashes and not being prepared because I didn’t know I hadn’t been through it. Now, to having been through multiple bull and bear markets, to understand the psychology, number one, of how they operate and the patterns and trends, to look for the repeating patterns, the basis of technical analysis, to see the repeating patterns and now to be able to recognize them. That’s why we love what we do, folks. That’s what we love what we do. Hope we can help you with this.

[00:14:20]:

And this is why we’re pounding the table and have been for a long time about this bull market, because it’s only just getting started. And what else today, HGX, all time high. Housing stocks, all time high. Yes. Yes. The DAX, Germany’s DAX, most important German index. Most important economy in Europe is Germany. All time high.

Guess what’s going to happen throughout Germany. Throughout Europe, yeah. There’s an upside to inflation. Here’s the upside. We’re seeing it just. It’s structural. It really is beyond that, beyond money print, it’s a structural bull market. Size and scope.

That’s the thing to remember. And that means it’s going to go a long time. Ten year yields today. Okay? Now, this is important. Okay, just what I said earlier. Technical analysis held up really well. Just pull up a chart of TNX, dollar sign TNX, depending on your charting systems, Stockcharts.com, which is what I use. Tyler uses dollar sign TNX.

[00:15:17]:

That’s the ten year yield. You’ll see it’s had a. And we did call the peak in this. Okay. After calling it several other times earlier in the year, we finally got it right. Yeah. Broken clock principle. That tends to work a lot here for me over the years.

But you look at the chart, you see a waterfall decline from the peak. It was an outside day. Love outside days. Very reliable, especially the big ones. And then here came the collapse in yields. But look what happened. Look at the chart. It is extreme oversold.

So it’s due for a bounce. I don’t think the jobs data would have mattered today. I don’t think that’s what moved the bond market today. Yields popped up a little bit, but the ticker is only at a 4.24% now. Okay, yeah, it was up a bit today, but it’s just extreme oversold. The rubber band stretched too far. It’s due for a technical bounce. Perfect.

[00:16:12]:

But that’s why gold and silver today too. And so now that’s setting up a great counterpunching opportunity coming in. Gold and silver and the miners especially. Right? But there’s this big psyop of negativity. Wrote this up this morning. I’m online this morning. I’m checking things out. I come across this piece, I’m like, wow, I needed to see that.

How perfect is this? The Financial Times, I’m going to go through it quickly. Financial Times of London ran eight, did a poll and they do a lot of good American work, culture work and business stuff. FT is good. And their poll was asking Americans how they’re feeling about things. And their point is, there’s a big disconnect here, folks. I’ll read the first paragraph. Something weird is happening in America. This is FT saying GDP growth.

The third quarter was revised up an already scorching 4.9% to 5.2%. More Americans have jobs than any time in history. But the public is up in arms about economic conditions. With consumer confidence dropping to a six month low, there really is no pleasing some people. That’s a good opening. That’s a good opening paragraph. But in all the things we talk about here, all time highs, right? Home prices, consumer net worth, net equity in homes. One third of Americans own their home outright.

[00:17:37]:

Again, these are all first time. First all time highs. Is incredible. Credit scores, all time high debt load. Debt levels reduced by 25% to disposable income in 15 years. Corporate debt at a 50 year low to market value, but no one’s talking about it. So thank you FT, for writing this. I need to see this.

So here’s what the poll said. They ask Americans four questions compared to one year ago, what has increased faster, US prices or wages more, inflation or wage growth? 90% of Americans said prices have risen faster than wages. I would think most people would answer that way. We know better, but we’re not most people. We’re the elite insider. We’re the smart money elites, aren’t we? It’s Friday, folks. Having a little fun. Today, wages have actually grown 10% more than prices, so it’s a big miss there.

[00:18:38]:

90% got that wrong. Second question. Do you think the rate of inflation has gone up, down, or stayed about the same of the last year? 73% says inflation has risen in the last year. They’re wrong. Down 9%. Number three, this is a pretty good one here. In terms of net worth, do you think the American household is wealthier today than before the pandemic? 67% said wealthier before the pandemic and they’d be wrong. We’re 11% better off today than we were before the pandemic.

[00:19:20]:

Final question. Do you think someone on immediate income could afford a better lifestyle today or one year ago? 63% said it’d be you could afford a better lifestyle a year ago. Wrong. It’s 11% better today. So this really confirms if you’re not a VRA member, shoot me an email. I’ll send this to you, but you can do a search again. The Phoenician Times of London today. It’s this fascinating piece.

Definitely going to save this one for the long run because it makes the point we’ve been making. There is a psyopic negativity. And if you’re a contrarian, this is a pure, I mean, a crystal clear, whitewater pure contrarian signal right here. Then the status could hardly be more bullish. This is how major bull markets are born, when there is nothing but negativity and people don’t believe the facts being told to them. When I talk about this stuff at parties, and we’re going to a wedding shower tomorrow, so I’ll try that again. I do it on purpose. I go to the person that I know is probably the most bearish of everybody in our family and our know, you know somebody long enough, you know their outlook on things.

And I go to them. In this one, our, I won’t say your last name, David, but our last get together. And I started repeating these same things. He goes, what are you talking about? There’s no way that’s true. I said, david, this is what the data says, well researched. I wouldn’t be telling you if it weren’t done 38 years. And he goes, that just can’t be true. I said, let me ask you a question.

Is your home price worth more than it was a year ago, a couple of years ago? Are you making more money now? Your stocks up? He goes, yeah. I go, so what’s down? He goes, with inflation. I said, well, that was last year’s story, my man. We have inflation. Prices are still rising. That’s not what disinflation is. Disinflation is less deflation than we. Less inflation than we had a month ago, six months ago, one year ago.

[00:21:24]:

That’s disinflation. Clearly we had that. And of course, wages are rising faster than inflation. So really it’s a win all around. So I’ll try it out again this weekend. But it’s fascinating piece. I highly recommend it because again, it’s another signal that we’re just at the birth of this bull market. Okay, let’s get to it.

Internals today, what is that? Seven sectors higher, four finished lower, led the upside by energy of 1.1%, tech of nine tenths to 1%. To the downside, not much. Consumer staples down a half percent and real estate down a quarter perCent. Internals. The internals finished. Let me do a quick refresh here. Yeah, they’re positive. They were positive.

The only thing negative today was NASDAQ volume, which is just barely negative. Everything else with a good solid beat, not a two to one volume. NYSE better than two to one. Everything else was solid beat, not quite two to one. And we’re now seeing a trend change, a pattern change, and new 52 highs and lows on a daily basis. We’re getting more highs and lows. You know why that is? Because small caps are participating. Right? Small caps, participating, markets broadening out these internals.

[00:22:44]:

If I’m right about this and tell them I write about this, these internals, 52 Kaise lows will only continue to get better. I think they’re going to get really good, right? I think, like in the first quarter next year, we’re going to be, put this on your calendar. We’re going to be having days where we have 1100 new highs. Boom, boom, boom. Everybody’s going, wow, look at this. That’s coming. We haven’t even done that yet. Haven’t done that.

We don’t have a plethora of IPOs coming that are jumping 100% a day. Again, these are all things happen at the end of a bull market when it’s bubble time. How many of your Lyft drivers or Uber drivers are giving your stock tips? Nobody is doing that. How many people are quitting their job to go day trade? None of these are happening right now. Obviously, none is barely happening right now. But it’s going to. If we’re right about this. If we’re right about this.

And again, it’s a high confidence call. That’s where this market is going to go. Okay, commodity watch again. I think technical trading is going on here. Shake out of the weekends that bought gold at all time highs. This is a buying opportunity. As long as gold stays over $2,000 an ounce, I’ll be perfectly fine. Got a little close today, 2010.

[00:24:03]:

I’m not saying you can’t dip below it, but trade below it for more than a couple of days. Gold today down $25 an ounce. That’s 1.2% at 2020 an ounce. Silver 23 29. That’s down 3% today. Silver has been getting hit hard here. Copper 380 a pound. And that is up 1% on the day.

Crude oil bouncing back and was a pretty rough week. Up $2 a barrel today at 71 36. Up 2.7% today. Finally on the day. Bitcoin, boy, it’s just every day you get a little new glimpse that the SEC is going to approve this as an official asset class. Right. Legitimize it. And you’re seeing, okay, meetings are happening.

SEC is giving direction. This is coming. This is coming. That’s huge. And in the having next year, just getting started, folks. Bitcoin, 44,000, 648, up 1200 a day. Up 158% in one year. One year ago today, up 158%.

[00:24:59]:

And today finishing up just right at 3% of the day. All right, folks, always appreciate you listening. Hope you had a great day and even better weekend. We’ll see you back here again Monday after the close. Bye.

Podcast Newsletter

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Time Stamps

00:00 Small caps poised for monster run in 2023
04:50 Market confidence high, good year ahead.
08:37 Wage growth not inflationary, good economic setup.
12:46 Desire for 20% wage growth, not inflationary.
13:36 Bull market seen in all-time high indexes.
17:57 Poll: 90% say prices rose faster than wages.
19:49 Bullish signal, negativity, contrarian, major bull markets.
23:08 Bubble time: IPOs soaring, stock tips spreading.

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