In today's episode, Kip covers that despite a down day today, we continue to look for opportunities in this market. He dives into the latest economic trends and their potential impact for the stock market. Lastly, Kip discusses the impact of the Federal Reserve, and what looks to be another policy error. Tune into today's podcast to learn more.

Don’t look back because the market is closed. Good Wednesday afternoon, everyone. Kip Herriage here with the Daily VRA investing podcast. Hope you had a good day today. Not such a great day in the markets today. We’ll talk about that a little bit. Had a strong open only to close towards the lows of the day. We’ll talk about that and talk about stock market bottoms and how they take place.

The reason this happened in the first place, Tyler covered this in pretty good detail yesterday. If it weren’t for Japan’s meltdown because of the carry trade that we covered with you on Monday and Tuesday, if it wasn’t for Japan’s markets crashing and that was a crash, 13.4% on Monday, then we wouldn’t have had the Monday that we had and we wouldn’t have had the fear the VIX index skyrocketing and so many stocks led by tech and semis getting crushed, that wouldn’t have happened. Talk about that a little bit. I guess I did talk about the economy, which continues to be strong. The recessionary fears. We don’t see this. We’re just nothing. Not seeing it.

Not seeing corporate earnings again. You know, sometimes a recession happens and you don’t see what’s coming, but you pay attention to the indicators and these indicators, we’re not seeing it. And as you probably know, you don’t even know you’re in a recession until the recession’s over. That’s just the way, based on reporting of the economic data, that’s the way it works. So you have certain indicators that you look for. We were looking at those not seeing that. So much strength in the economy across all the sectors that matter most corporate earnings, of course, are growing by. What was the latest here? Latest on corporate earnings for the second quarter.

[00:01:40]:
Corporate earnings are coming in at with 10.2% increase in earnings per share. That’s up from estimates of 8% just from two to three weeks ago. But one of the things that I will also talk about this is the Fed easing because they should be, either they should have already cut, we’ve covered this now for the last two, three quarters. They should have already happened. Bill Dudley is an ex president of the New York Fed. Is that with the piece today on Bloomberg where he, where he talks about this? I’ll mention that more in a second. And I’m going to talk a little bit about the election at the end here because the Democrats just added a vice presidential candidate from the great state of Minnesota. If you remember the Reagan landslide, then you’ll remember where Mondale was from Minnesota, and you remember the outcome.

It was brutal for Democrats. And so we’re looking for a repeat of that here now as well. Some of the markets, Dow Jones today finishing down 234 points. That’s down six tenths of 1%, s 500 down seven to 1%. Rough 2000 was our loser on the day, down 1.4%. Nasdaq down just over 1%, down 171 points. And of course, our bellwether, our market leader, detail for the markets, for market direction, the semis down 3.3% of the day. And that really is what we’re talking about.

[00:03:04]:
That’s the root of this decline. Again, the markets opened sharply higher. Dow Jones at one point was up over 400 points. So we saw a 634 point swing in the Dow Jones today. Nasdaq also was up well over 200 points. Big swing there as well. And that’s because of the semis. The semis reversed early gains of about 2.5% today, again to finish down 3.3%.

They lead in both directions. It’s not any more complicated than that. And so this is a market, in our opinion, based on everything we look at here, including the VR investing system, which is pretty good precursor of market direction. Everything we say, looks at everything we’re looking at, says this is a market trying to find its footing. First of all, seasonality is not great here. This is not a great time to be in the markets on a month by month basis. August is not a great month, but that’s not really the case so much in a presidential election year. That’s why we say seasonality is spotty at best.

But there is, there is some downside for seasonality from the July peak, which is July 16. From then, we’ve seen these big losses, namely the loss in the semiconductors, SMH, the semi ETF, and the SOCSA index down as much as 24, 25% from the highs in a three week timeframe. So that’s been the, that’s been, again, the directional tell. And now we’re looking for a floor. Now we’re looking for a tradable bottom. Again. We’ve held those muddy lows. I expect that we will hold those lows unless against something extraneous happens, something Japan actually does blow up again.

[00:04:46]:
Now they’ve regained their losses. Japanese ekdao closed down 13.4% on their Monday trading. Well, in two days of trading, they gained all but 1% of that back. They gained back 90% of those losses. So still, they’re sporting pretty decent losses. Even headed into that, that, so that the, the obvious risk that everyone was talking about, let me, let me say this. Put it this way, the obvious risk that every person that cares about this country is talking about, you know, the fact that they tried to take out President Trump and now it’s disappeared from the media. No one’s talking about it.

Right. It reminds us very much of the Las Vegas massacre. You know, it just, it just disappeared from the news as a lone gunman. We just don’t know. Right. Yeah. Social media is wiped. Sure.

We don’t know. Okay. Yeah, we, unfortunately, we do know. That’s my personally, my biggest concern is that they are going to do something like that again. And that is why we’ve looked to put on some insurance here. We talked about it last week on Thursday by adding some insurance and portfolio. And of course, that’s when the decline started. So we’re still looking at that just to give us insurance.

You know, insurance is great because it, but you have to have it. And in the stock market, if you’re heavily invested, as we are, as we have been from the bear market lows of October 2022, then there are times it makes sense to put on insurance. And I think this is probably one of those times because the crazies that hate Trump apparently are willing to do whatever it takes to keep him out of that job. Again. Okay. Some basic things we shared this morning about the market. As I mentioned a minute ago, bottoms are messy. Often you need to have a double bottom or even a slight break of the previous lows just to flush out the weekends.

[00:06:46]:
So again, August is not a great month. So this is a time we believe is the time to pay attention to what matters most. That is our base case. The fact that this is a bull market of bull markets based on the innovation revolution that’s underway. We’ve been talking about this now for a couple of years, wrote a book called the big Bribe, where we broke all of our five mega trends out in detail. And bottom line is that this is a structural bull market of size and scope. Structural bull markets are the strongest bull markets, and the reason they’re the strongest is they’re based on a structurally strong economy. And that’s exactly what we have.

We have covered this with you ad nauseam now for a couple of years. And again, I hate to even go into it again because we’ve been a broken record on this. But everywhere you, the mainstream media is not reporting this. But the fact remains, the economy is strong. American companies and consumers have rarely been stronger than they are now. I’m talking about the first America, the second America. There are two Americas, there’s no doubt about that. The second America is struggling, but the second America, and this is just a very.

I don’t know, there’s a way to say this. It doesn’t sound like a very crass statement. The second America doesn’t matter when it comes to the financial markets. The second America doesn’t matter when it comes to the us economy. It just no longer does. What drives the economy, what drives the markets is the first America. And when you look at these, I’ve got at least ten major facts that back this up. The fact that the home price is all time high, credit scores all time high, consumer net worth all time high.

[00:08:24]:
One third of Americans own their home outright. Again, these are all all time highs. In the last 15 years, both consumers and american companies have cut their debt to disposable income and to market cap by 25%. So significant balance sheet improvement has taken place over the last 15 years from the financial crisis. And there’s much more I could keep going on. One that I think is really important is that because this is where, as it pertains to the stock market, american companies, their debt to market cap is a 50 year load, five out 50 year lows. So the ability all is combined, the ability to lever up is significant. And that fact right there really matters in times like these, because you got people that are flush with cash in companies and consumers that are flush with cash, right.

They now have the ability to say, hey, the stock market, we’ve had a correction in the stock market. Hey, let’s take, let’s take some money out of savings, right? $6 trillion sitting in money markets. Let’s take some, or let’s get a home equity loan. We have no debt. We paid our mortgage off. Why don’t we take out 10% of that? It’s a good time to buy stocks, a good time to buy real estate. So that’s going to be very, very supportive of the markets, certainly of the economy. Again, corporate earnings are soaring.

We believe that’s only going to speed up, remind everybody and the innovation revolution that we see taking place, and that is taking place right before our eyes. You’ve got no fewer than five to six major growth areas of the economy that are major drivers of future economic growth. Again, based on innovation, based on disruption, things that didn’t exist are about to exist. From the testes of the world, space exploration, financial engineering is taking place. AI, of course I can keep going. And we did in our book, the big bribe. But all of this is really in a once in a lifetime. It’s a once in a lifetime boom that’s taking place here.

[00:10:27]:
But even the strongest bull markets have corrections. The fact is, in every year we have at least one correction of 10% plus now we haven’t even gotten there yet. SV 500. Dow Jones are not down 10% as of yet. That’s a correction territory. Again, some eyes are there, some. I had a 24% downdraft. Right.

That is a bear market, in fact. But we haven’t yet officially had a 10% correction this year. And that does happen every year. As we’ve been sharing with you now for a very long time. We’ve compared this bull market to the.com melt up. I think it’s a great, I really do believe it’s a great analogy, except this one’s stronger. This is stronger by far because it’s much more powerful, it’s much broader, and it’s going to be longer lasting. The.com melt up was based on hope.

The.com melt up was based on error. It was based on putting a.com after your company’s name. Those are the companies that did the best and they had promised. Right. But remember, 90% of those companies were out of business within five to ten years. So again, a lot of hope. But that hope is now turned into reality. All of these companies from the, from the 95 to 2000 melt up, right? So we’re looking at 2025 years ago.

All those companies now that survived are the ones now that have not only staying power, but they’re worth many, worth over now a trillion to $2 trillion again. So this is unprecedented. And that’s what, a combination of that is what’s going to drive this economy, economic growth, innovation, revolution. Again, unprecedented disruption is going to drive all this going forward. And by the way, that’s also the reason interest rates will continue to fall, because that’s what disruption does. That’s what innovation does. It brings down the cost of everything. This is something, a major point that the Federal Reserve has simply missed.

[00:12:29]:
Jay Powell, I’ve only said this about a thousand times. Jay Powell is the worst Fed chair in us history and there’s not a close second. This is his fifth major policy mistake, made a mistake about it. Not having already cut rates is a major policy mistake, and he will be forced to correct it. And his merry band of money printers will soon. They have Ford, 500 PhD economists on their payroll. Those are just the PhD economists. They get another 500 to 700 economists on their payroll, more than 1000 economists on the Fed’s payroll.

And they cannot see the trees for the forest. They can’t see these major trend changes happening when, you know, it’s Tyler and I, a two man operation here from a research point of view in sugar land in Austin, Texas. And we’ve been able to forecast very correctly what’s going on in the economy and what the Fed should be doing. They completely missed the build up to inflation. Remember, at first they said there was no inflation. All of a sudden then, oh, it’s transitory. And then finally, six months later, they’re forced to admit, oh, yeah, you know what? Yeah, it’s kind of raging. It’s 41 year highs.

As a matter of fact. They fed completely, Jay Powell, the Fed completely missed that. And so now we’re supposed to have confidence in them. And that’s, that’s a big part of what this decline is. People are losing, I’m not talking about, you know, your neighbors and mom and pop investors. I’m talking about the smart money is losing confidence in the Federal Reserve and the central banking system, but primarily in the Federal Reserve, because we’re the granddaddy of them all. We’re the driver. Everyone follows the lockstep behind the Federal Reserve.

[00:14:10]:
And of course, the bank of England. Yes, and the ECB, European Central bank. But it’s the Federal Reserve that’s the granddaddy of them all. And people are losing confidence. People that matter are losing confidence in the Fed. But again, the primary point is that the economy is strong, but that doesn’t mean you don’t go through periods where the Fed has been way too restrictive and they’re just out of whack. And that’s where they are. Now let me talk about this Bill Dudley piece, because I, I think it was a fantastic piece.

Again, Bill Dudley was president of Federal Reserve in New York for a number of years, well respected. He had been in lockstep essentially for the last year or so with Jay Powell and the fed kind of backing up what their view was. Well, that changed two weeks ago. Bill Dudley came out very publicly and said, the Fed must cut. The Fed must cut now. Well, today he’s in a piece in Bloomberg. We’ll share this with our VRA folks in the morning. It’s a great piece from Bill Dudley, but in that he said they completely missed this and they’re missing it now.

And it matters because they’re way too restrictive. And this is how you cause recessions, what he proposes. Check this out. As I tell you this, remember, the ten year yield is at 3.96%. Right. The Fed funds rate is an effective funds rate. Fed funds rate of 5.33%. So we’re essentially a percent and a half.

[00:15:38]:
A percent and a half. The Fed funds rate is a percent and a half above where the market says it should be. Based on the ten year keynote, Bill Dudley is saying the Fed should cut now to either 2.4% to 3.8% on the Fed funds rate. So Bill Dudley is saying the Fed may be off by as much as almost 3%. Almost 3%. So that’s dramatic. And I can tell you this, if Bill Dudley is saying this, there are a whole lot of people that agree with him and the fact that Jay Powell, they’re going to say obstinate instead of cutting it to July meeting now everyone’s looking forward to the Wyoming Jackson Hole, Wyoming Fed event coming up here this month, later this month. Everyone’s looking at that for Jay Powell speech.

Because in that speech, and this is what the markets are going to start discounting here pretty soon. Without question, Jay Powell will be dovish af, okay. He will be ultimate in dovishness. And the market’s going to start discounting that because the one thing the Fed can do and the one thing that I think the markets are about to start wrecking, this is, by the way, why we haven’t been a seller. This is why we’re saying this is a big buying opportunity, especially in our favorite names, is that we’re about to go into an easing cycle now. This is where massive liquidity floods into the markets. It’s not just rate cuts. It’s doing away with quantitative tightening because that’s going to be done away with as well.

[00:17:14]:
Remember, they’re still got a full slate of monthly quantitative tightening happening where they’re still selling bonds in the market. That’s going to bonds that they hold on their portfolio. That’s going to stop. Dramatic easing cycle. I fully believe that they should cut rates at their September meeting, which is September 18. That’s, was it five weeks from now. I believe the Fed should cut rates by 4%. That’s how far off they are.

And again, that doesn’t mean the economy’s in recession. It doesn’t mean it’s weak. It just means the Fed is that restricted. They’re way too restricted. It makes no sense for the Fed to be where they are again. This is why Jay Powell is the worst Fed chair in history. He has no feel, no instincts for the market. And, you know, they think they have to, I guess, reputation to them and credibility.

They say it’s very important. Is it really? How can you make this many mistakes and expect people to believe that you have any credibility whatsoever? So I’ve not been a Jay Powell fan for a long time. He tried to remember, he tried to take down Trump right after he got the job. He hiked rates because Trump got into a pissing match with the Federal Reserve. And so the Fed hiked rates eight times into the midterm election. It sunk the markets. It certainly hurt the Republicans chances of winning in the midterms in 2018. Right.

And so when we talk about the Fed saying they’re not political. Oh, really? Okay. Well, you were in 2018. You helped sunk republicans chance to win in the midterms because a stock market crashing, which is what happened, we had the worst fourth quarter for the stock, us stock market since the Great Depression. We had the december from hell. The Fed raised rates in December when no one’s around to buy. The market completely sunk the market. The fear greed index on Christmas Eve, after the market tanked 700 points, the fear greed index hit a two two.

[00:19:13]:
Right. It’s like 18 now. So it’s complete panic again. You can’t be a responsible Fed chair and do anything like that. They were getting Trump with that. So again, if we’re saying that they are, of course, a political, which team do you think the Federal Reserve is rooting for to win in November? Would it be Republicans and Trump, which we know they hate? He was already said he wants to fire Jay Powell and he wants to make major changes at the Fed or maybe even including in the Fed, or would it be their buddies in the Democrat party, which is really the uniparty, it’s the deep state. It is their team, right. That is the Federal Reserve.

90% of all Fed governors are Democrats, 90%, folks. So there’s no mystery here. It’s completely, they’re completely political. And so with that in mind, what do you think I, the Fed’s going to do as we get closer to November? Meaning? Meaning now, because we’re very close already. Right. What do you think the Fed’s going to do? Are they going to allow the market to tank, maybe do things to encourage that? Or are they going to go, no, we want our team to win. As weak as Harris and this new guy Wals are. Yeah, they’re going to need all the help we can get.

We need the market rocking and rolling. And so we need to start cutting. That’s what’s about to happen here. And I think it’s going to be aggressive. But again, that’s not. There is a plunge protection team. Anyone that tells you there’s not, it may be one of the most naive people on planet Earth. There is absolutely, without question, unequivocally, there’s a plunge protection team.

[00:20:50]:
And they are, they, this is when they operate. So I think, again, we’re stock market bulls. Don’t apologize for that. We have, we’ve been aggressively long, again, from October of 2022. And I think this is another reason to be bullish here, because the Fed’s just not going to let the markets tank from here. And I do think they’re going to be flooding cash into the markets to help, to try to help their team win. So there you go. There’s my fed commentary for the day.

Tyler is our resident Fed watcher. But I had to get the answer today because I’ve made it very clear for a long time what my thoughts are about Jay Powell and the Federal Reserve. Yes, hashtag inthe Fed, but not looking for recession. The Atlanta GDP you may have seen as just yesterday, the Atlanta Fed came out with what they call their GDP now estimate, and they raised their estimate for us for third quarter economic growth from 2.5% to 2.9%. Not exactly the sign of an economy going into the toilet. Right. As I said a minute ago, corporate earnings are rising. They will continue to rise because of the innovation revolution and this very timeframe that we’re in.

We think it’s a generational bull market, which means this must be a buying opportunity. You know, everyone’s got a different timeframe. Look, I’m, I’m, I’m the first to raise my hand when you say, do you want to buy something now that you could buy cheaper in a month? No, I don’t want to do that. I want to time the market as perfectly as possible. Matter of fact, that’s our job to do that. Right? So I don’t like buying something with the, with the thinking that it may go lower. But I’m also a medium to a long term investor because I know that’s where the real money is made, the money’s weight and the money is made in the waiting. The money is made by being patiently disciplined.

[00:22:36]:
And so there are times where it just makes sense to do nothing or to add to your positions. And this is one of those times because of what we foresee happening after the election, we do think that Trump is going to win. As I mentioned a minute ago, the last time there was a Democrat on the presidential ticket from Minnesota. Yep. That was during Ronald Reagan’s attempt to repeat in 1984 against Walter Mondale. Do you remember Walter Mondale wearing the military helmet in the tank? It was too big for him. You remember his head, the helmet bouncing around like a complete clown. And that’s the way the election turned out to be.

It was a clown show for the Democrats. They won one state. Ronald Reagan won 525 electoral votes. Mondale got 13. That’s, that’s 13, folks. 13. All right, so there’s never been a wipeout quite like that, of course. And by the way, Reagan barely lost Minnesota.

He didn’t even, he didn’t even campaign there. Of course. Yes, Mondale’s home state. But anyway, that’s the last time Democrats, there was a person on the ticket from the great state of mine. We’ve got a lot of clients and friends in Minnesota. So it is a great state, but it’s run by people that don’t have their best interests at heart. And that’s this guy. That’s this Governor Tim Walsh.

[00:24:03]:
There’s a story out now that I think is going to get a lot of traction about this guy, that he came into politics. I think he was in the House five terms. And the story has always been right. The story’s always been that this guy had a military background and he served in the Gulf War, I believe, the first Gulf war, and Operation Enduring Freedom, I think, was the name of it. And that he, that he served there, you know, he was in combat and then he became an elected official. Well, this truth is coming out now that this guy did not serve in the Middle east. He actually, when he was called up, he abandoned his leadership post to, so he would not have to go serve there. This is going to be a story.

This is going to be a big story because that means he’s a fraud. You know, that means that, you know, if you claim to have been in battle and combat, you know, in, with your, with your, with your cohorts there, you know, fighting over there and you didn’t do it, boy, that’s a, that’s a bad look. So I think there are a lot of stories like that. They’re going to come out. So again, we’ll see how much they rig it. That’s the question. You know, how, how much can they rig it to still try to win like they did in 2020? But we’re hoping the history repeats. And then we get another shellacking like Reagan did, 525 electoral votes to 13 for Mondale.

[00:25:38]:
See here. All right, that’s enough today, let’s get into the internals here and talk about the market. Again, we think this is a bottoming process. This is a buying opportunity, medium to long term, short term. I do not believe there’ll be much damage done whatsoever. I think the lows are in place for Monday. And again, we’re keying off the semis. If you’ve got a pen and paper there, let me tell you the level that we want to see hold.

Right. The semis finished down today, 2.7%. I’m using SMH as a guide. The semi ETF, which today closed at 211. We’ll call it, we’ll just round up. We’ll say closed at 212 for SMH. Okay. The low for Monday was 200.

All right. Again, we’re basically 212 now. 200 was the lows. What is that? It’s not a lot, is it? Twelve points based on. That’s 5.6% lower from here. We want to see that level hold for the semis. And by the way, it doesn’t mean it can’t be violated. We can’t have a crack through it.

Okay. These, these false breakdowns or breakouts are pretty common. But what it does mean is that level is important because the semis lead everything. Again, we believe that level is going to hold. We are buying this with the belief that level will hold and that the markets are going to go higher from here. Again, bottoms are messy, but this is the time to be a buyer, not a seller. Based on our views of where this market is going to go, which is the Dow Jones will top 100,000, 100,000 in this cycle, and Nasdaq will top 40,000 in this cycle. Got a very long ways to go.

[00:27:17]:
All right, let’s take a look at our sector watch today. Internals today, not great, not horrible. Again, internals were. We had an 80% up volume day this morning by about 10:11 a.m. that all reversed completely. We had a 60% down volume day for NYsE. Nasdaq had a 68% down volume day. Fans declined negative one and a half to one on NYSE and two to one on the Nasdaq.

And we had 250 stocks hitting 52 week low to 146, hitting a new 52 week high. Second here. Just going to give a page to load. Apologies, folks. I’m trying to get to the sector. Watching internals is not coming up for me. All right, here we go. In our sector watch today, we had four sectors finished higher, seven finished lower.

[00:28:26]:
No great damage done anywhere, really. But consumer discretionary was down 1.4%. Materials down 1.4 as well to the upside. Again, four sectors to the upside, led by the utilities. Interesting, because rates didn’t move higher today. Utility stocks again, a defensive move higher that closed up 0.5% today. My computer is acting very strange today. All right, commodity watch.

Apologies for that. Commodity watch. We had 24 gold, 24, 23 on the day. So, you know, gold again has been moving higher. It was down $8 an ounce today. We’re now right at about 75, $80 from all time highs. Gold is a phenomenal buy here for many, many reasons. Gold today, though, was down $8 from the day.

Get to 24, 23. Silver today was down 1.9%. $0.51 an ounce to $26.70 an ounce. Copper today, crack now below $4 a pound at 392 a pound, down 2.4%. Doctor copper is telling you the global economy is slowing. Jay Powell, are you paying attention? That’s my question. Are you paying attention to doctor copper and what he is trying to tell you? Oil today, West Texas Intermediate was up today. $2.27 is a barrel to 75 47.

Kip Herriage [00:30:00]:
That’s a big move. 3.1%. And finally today, bitcoin gave back a little bit today. Right now trading about one and a half percent lower from yesterday’s close. Yesterday’s afternoon trading price now trading at 55,178. We like bitcoin very much here again, if you’ve been with us, we’ve been buying bitcoin since 28.8. This time around. We had a great trade the first time from 2050.

$8,000 of bitcoin, where we sold it. Then we went back long again last July at 28,800 again. We are long for this move. We still expect bitcoin to top 100,000 by year end. I know that means it’s got to get going, but I fully expect that’s what’s going to happen. Our cycle high for this, my cycle high is 250,000. That’s a two to four year cycle high that I’m looking for in bitcoin. I think I may even be on the low side, so.

All right, folks, I think that’s everything today, right? Hey, thanks. Always appreciate you. Listen, hope you had a great day. Even better. Night. We’ll see you back here again tomorrow after the close. Bye.