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VRA Investing Podcast – Kip Herriage – December 12, 2023

Welcome to the VRA Investing Podcast with Kip Herriage. In this episode, Kip delves into the Fed's FOMC meeting and its potential impact on the market. He analyzes the latest CPI data and provides insights into sector performance. ...

Posted On December 12, 2023Episode 1295
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About This Episode

Welcome to the VRA Investing Podcast with Kip Herriage. In this episode, Kip delves into the Fed's FOMC meeting and its potential impact on the market. He analyzes the latest CPI data and provides insights into sector performance. Stay tuned for a detailed exploration of the current market trends and opportunities for investors. 22 minutes.

Transcript

Don’t look back because the market is closed. Good Tuesday afternoon, everyone. Kip Herriage here with the daily VRA Investing podcast. Hope you had a good day today. We’ve got a big week this week. Of course, tomorrow is the biggie. The Fed began their FOMC meeting today. That, of course, is in complete confidence, supposedly, although the market reaction may say that it’s going to be a dovest JPAl tomorrow.

We’ll see. But tomorrow at 02:00 p.m., Eastern, we’ll get the statement and their decision on rates, which of course is going to be nothing. They won’t take any action on rates tomorrow whatsoever. Someone reminded me on Twitter or X today, I wonder if JPOW is going to have another December 2018 moment. And Mike asked me that question. I know he’s a regular listener. Thanks for that, Mike. You took me back to a pretty painful time five years ago.

We all remember, don’t we, when the Fed crashed the market by hiking rates. That was for the 8th straight time in Trump’s second year, full year as president and destroyed the market. We had the December from hell. It was a complete capitulation that took place on Christmas Eve. The fear and greed index hit two. I think Tyler and I saw another instance. My memory is failing me now. But anyway, two is right there only goes to zero.

[00:01:28]:

And so that was a great buying opportunity, by the way. You always want to buy panic. Always buy panic. That was true. Blood in the streets. No, I don’t think, Mike, I do not think that the Fed is going to hike rates tomorrow and freak the markets out. But you know what? It is JPOW. We are talking about JPOW, aren’t we? So anything is possible, although it’s highly unlikely tomorrow.

[00:01:52]:

JPow, if anything, should be very dovish, if he’s being honest, and frankly, I don’t think it’s going to matter. The markets are front running. The Fed is being front run by the markets. This is very clear. It really started happening last month with the CPI data last month. And everybody said, okay, yeah, inflation is over. Disinflation clearly is the play here. And this morning we got the CPI data.

Tomorrow came in exactly in line, year over year, headline inflation coming in at 3.1%. Core CPI came in right in line with estimates of year over year inflation of 4%. And what’s going to change going forward? And this is why the markets have been rallying. This is really why the bond market has been rallying. It’s why fed front running is taking place. Is that the internal components of core CPI are plummeting inside their matrixes, if you will shelter rent, home prices are absolutely plummeting. If you follow anybody that knows their stuff in housing, you know this to be true. It’s happening.

[00:02:59]:

We started reporting on this about six to eight months ago, that multifamily apartment construction all over the country was absolute boom time at all time high. Very few people reported on that that told us once these apartments start getting built and filled, you’re going to see rent prices begin to crater. And that’s happening now. And so again, that’s a big component of core CPI. Of course, you see what’s happening with oil prices, not in core CPI, but outside of that, in the headline CPI inflation data, oil prices, we’ll cover that in a minute. In our commodity coverage here, oil prices took another dive today. Natural gas prices are down to about the $2 per mcf level. So again, as we go into these winter months, it’s good to see these energy prices down, giving consumers a break from this incredible inflation we have had over the last couple of years.

[00:03:56]:

But again, that is now a thing of the past. We now have disinflation. And no, that doesn’t mean we don’t have inflation. It means inflation is lower than it was the month before, six months before the year before. Clearly, that’s all in. You know, China is exporting deflation, purely exporting. They have deflation in China. And of course they have just a little bit to do with the global export market.

So they’re exporting those lower prices to the world. And again, that’s actually very good for consumers. So we’ll see what Jay Powell says has to say tomorrow. He has been known to crash the markets, but he’s been a little bit of a hot streak. The markets have been going up of late. When Jay Powell speaking, probably because they’re just not listening to what he’s saying, they’re not trusting his lying lips, if you will, and there’s no real reason to. Again, the ten year now yield on the tenure down to 4.2%. Remember, we peaked it just over 5% a month and a half ago and it’s been straight down since then.

[00:04:57]:

Again, that’s fed front running. Remember those words? Because that’s what the markets are doing. They did it for 40 years before. So people that think that rates can somehow magically break through to higher levels, not saying it can’t happen. If the world started selling debt for some reason, then of course it could. But outside of some kind of a shock to the system, if you think that rates can’t fall for decades, then you’ve already forgotten what happened in the 41 years prior to the spike in rates started about 18 months ago because we had again, four decades of declining interest rates. And we think we’re going back to that. We think we just had a great reset of a different kind and that we’re now back into an era of lower rates, lower rates, lower rates.

[00:05:47]:

And again, that’s been a great growth recipe for the equity markets as well and for the economy, frankly, outside of QE, which of course kills free market capitalism. Start with the markets now. Dow Jones finished today up pretty much the highs of the day. I think almost exactly the highs of the day. Dow Jones up 173, it’s up a half percent. Same thing. SPF 100 right there, up half percent. Good days there.

[00:06:14]:

Nasdaq led the way higher, up 17% to 1%. Up 100 points even. That’s good to see. Roast 2000 splat on the day has been our leader. It’s been leading for the last month ish five weeks. Small caps have been leading the large cap brethren. We want to see that continue. That’s a broadening of the market.

Kip Herriage [00:06:33]:

That’s bullish. And today also, we always talk about the semis here. They actually led the tech today. Semis up 1.2%. Today, again, Nasdaq up 17% to 1%. Semi is leading tech. Tech leads to broad market. This is textbook bull market action.

We’ve been talking about this for some time. Our inflection points, our VRA macro themes and they remain. We’ve got disinflation, we’ve got product. It really is a Goldilock setup. We have disinflation. We have strong productivity growth of 4.9%, GDP growth 5.2%. Wage growth is taking place at a better than 5% clip. Corporate earnings continue to grow.

They’ll hit an all time high this quarter. And we of course have plummeting interest rates led by Fed front running. That’s the smart money getting in front of the Fed because rate cuts are coming likely. We still believe second quarter next year about mid year. But now the betting ods now favor rate cuts in the first quarter of next year. So this is all combined continues to be a highly bullish setup in place for both equities and for debt. Yesterday was interesting. We saw it again today.

[00:07:49]:

Again, folks are talking about this is again textbook. Maybe I don’t pay close enough attention what other people are saying, and I kind of am that way, to tell you the truth. But I don’t hear a lot of people talking about this. Everybody’s talking about the 52 week highs. We got them again today, right? SB of hundred, Dow Jones, Nasdaq first time today, 52 week highs. Also the queues. Nasdaq 152 week high. But the all time highs, this is back to back days for the semis, tech sector, XLK, semis, tech and housing hit all time highs again today.

[00:08:23]:

Joining them were the industrials, the industrial ETF, which is XLI. Tyler, he’s our sector watcher and just reported this to me. But again, all time highs and back to back days. Yeah, folk, guess what though. We are hitting extreme overbought on steroids. We’re there on the Dow Jones. We’re just about there on the SP 100. Nasdaq, Hughes pretty much small caps, still in good shape.

Yeah, we’re in rare, but, but we’ve been there for a while, haven’t we? After November, right. We got to extreme of all stairs. We had a little bit of weakness in early December. And now here we are again, rocking and rolling. This brings me back to what my mentor Ted Parsons used to tell me. Nothing is more bullish than markets or stocks that hit extreme overbought levels and then stay there. We’re talking primarily about RSI. That’s what you’ll see most technicians refer to is relative strength.

[00:09:21]:

We apply it to all of our momentum oscillators because they work in tandem pretty well together. But again, when you get to extremely robot and these markets don’t want to fall very much, there is nothing more bullish than that. That is the number one thing. And I think pretty much every technician will tell you that that is a full on bullish buy signals. But at the same time, it does carry a higher degree of risk because we are that overbought. But remember, the great thing about being at all time highs, no one that owns that investment has a loss. And that’s why it’s so bullish. So when you start hear people that are momentum investors, they like to buy stocks breaking up to all time high.

That’s the basis of that approach to investing. It’s incredibly bullish. And we’re seeing it now back to back days and again, all time highs and 52 week highs coming across the board. This is leading to all time highs in our major indexes. This is leading to exactly that. This is why the market keeps going higher. There’s a magnet now pulling these indexes higher, following the leaders again, tech, semis and housing. I’ll say it one more time and I’ll move on.

This is textbook. What was also interesting yesterday is that yesterday didn’t have a single magnificent seven. Right? The big boys, not a single one of those seven magnificent tech stocks. Big boys had a mega cap. Stocks were up yesterday, but the market still closed higher. And then today, again, Nasdaq played some catch up today. But again, this is a market that is broadening out. This is what bull markets do.

[00:11:05]:

It is again, I won’t even say it, but a rising tide does lift all boats. We’re beginning to see that. And just a reminder, because I think it’s such good data. The second year of a new bull market has been higher 100% of the time since 1952. It’s not been a single second year that’s been lower with average gains, the SPF 100 of 14%. We think it’s going to be a lot better than that, especially in small caps. We think it’s going to be a great year. Again, they were flat today.

They have been leading. We want to see that broadening action continue. I’ll just have to say this too. Based on seasonality, these stocks really shouldn’t even be going until the third week. Now we’re almost there, but until the third week of December. Then we get closer to the Santa Claus rally. That’s the final five days of the year and then the first two trading days of the new year. That technically is the Santa Claus rally.

[00:11:57]:

But again, we’re coming up on that and we just haven’t seen much weakness. I can’t say anything, but that is bullish. And look, we’re in the roaring two thousand and twenty s. I mean, I don’t think anyone listening to this is surprised. This is what our theme has been now for well over a year. This is a powerful structural bull market of size and scope driven by an economy that is in boom time. We talk about the data all the time here. A few more people are talking about it, but almost nobody else, to be honest with you.

[00:12:29]:

And again, that’s how we want. It’s contrarians. That is how we want it. Okay, let’s take a look at the hood today. A good day today. In our sector watch, we had eight of eleven sectors finish higher. Not a lot either way though, really. Energy was down 1.3%, not much else.

Kip Herriage [00:12:45]:

To the downside, we had tech and financials. Financials right at 52. Ekais, by the way, as well. That’s XLF, not BKXLF, right at 52. Ekais. Financials and tech up seven tenths. Eight tenths, 1% today. That’s really about all that happened.

But still, eight of eleven sectors finished higher on the day. And our internal watch. Here we go. Kind of quiet here today, honestly, today as well. I got to say, it was mixed to negative today. Not what you want to see on a day where everything was pretty much up, but nothing shocking in the way. Both Nasdaq and NYSE slightly negative on advanced decline. Not a lot there.

[00:13:30]:

Volume over Nasdaq was flat on the day. Volume for NYSE was negative by 1.8 to one. That was kind of the big surprise there. And we also did have, however, 100. And combined for Nasdaq, NYSE roughly 140 stocks. More stocks hit a new 50 week high than 52 week low. Now we’re starting to put together a string of much better readings in new 52 week highs to lows. And that again is more evidence of a market that’s broadening out again.

We want to see that continue really watching the small cats like a hawk here. Look, they’ve been a brutal bear market for two years. If you own them, you know what we’re talking about. Brutal bear market for two years. Small caps are trading depending on the metrics you look at 20 to 30 year lows to their big cap brethren on the SP 500 and other large cap indexes. Again, small caps have just been trounced. You have to go back to at least the.com days where the peak where small cats were destroyed. And then again, here came Nasdaq catching up with it.

[00:14:39]:

But you have to go back to that in 2001, at least to that date. Some of these metrics, again go back even further. That’s how beaten up and undervalued, under love, hated the small caps are. I wrote it this morning. I’ll say it again, if small caps don’t get going, that means the market’s not really broadening out, or at least not to a large degree. Right. That would not be a bullish setup. We do not want to continue to see smallish percentage of stocks leading the way.

We want to see this broaden out. There’s no hard and fast rule that’s got to happen. But as a market watcher, 38 years, that’s what I want to see. And I wrote this morning, if the small caps don’t start playing catch up, I’ll have concerns about this market, and I’m going to stand by that. I don’t think that’s going to happen. I believe the small caps are going to have a great year. I’ve said it on Charles Payne show we’ve been saying, I’ve been talking this regularly, we think small caps are going to have a great 2024. I’m on record as saying they’ll be up 40% next year, leading the way.

[00:15:43]:

And we want to see that happen again. I think the setup is really strong for that, and I think it bodes well. Something starts to happen when you get these reports of all time highs. Now, again, no major indexes there yet. You have to use all these sectors are hitting all time highs, right. But they’re paving the way for the index. When indexes Dow Jones, 8500, Nasdaq. When they start hitting all time highs, we’re getting pretty close now.

When they start hitting all time highs, bells start to go off in the ears of investors. It’s like, what? What do you mean we’re all time high? You ever went staying in markets going to crash? How did we get to all time highs? And so that’s when people start, okay, I got way too much cash. Of course, there’s $7 trillion all time high sitting in money market funds. Hard to blame them when money markets are paying what they are. But still that bell starts going off, it’s that cow bell starts going off. It’s dinner time. You’re not participating. Let’s go.

Markets hitting all time highs. You got to take some of that cash out, get liquidated in the money market account. Let’s put it into stocks. And you start to see those shifts take place in 401 ks, et cetera. And so that is kind of the metamorphosis, if you will, of a bull market and how it starts to build momentum and how the train starts to lead the station. And I think we’re right there. I do think we’re right there. But again, I want to see the small caps really start participate also in the market action today.

[00:17:11]:

Put call ratio would close at a point 99 today. That’s highly elevated. Kind of interesting to see. Maybe there’s some nervousness about the Fed tomorrow. Of course, JPAL tends to make you nervous. The VIX again, Tyler watches all this very closely. The VIX at a better than three year low today at twelve. Right.

It kind of stinks up on you. Better than, wow. That is kind of a shocker to see the Vix at twelve. My message from that is good. I hope all the perma bears are getting plunt, getting just utterly destroyed. They deserve it for many years to come for their psyop of negativity. That is false and has led so many investors to stay out of the market. But yeah, Vix at twelve.

[00:18:01]:

That is a little tension getting, especially when we’re hitting extreme. We’re bought on steroids, just something to be aware of. But again, we would just keep buying dips. That is what I said on Charles’s show last Monday and I’ll say it here, we’ll keep saying it time and time again as we have from the October 13 lows of last year. Keep buying dips. That’s the smartest, the smart money plays that will continue. I think these dips are going to be shorter and shorter lived, frankly. Again, in a market that stays overbought is a very bullish market.

What else today? Oil, by the way, had an outside day. Let’s get to our commodity watch here. First of all, gold today up a buck and a quarter at 1994. No real technical damage has been done here. Now, if gold were to break below 1980, it’s only $15 above there now. But if gold were to break below and close below 1980 now, it’d be a short term technical sell signal. We just hit all time highs a week ago Sunday, and then big outside day finished selling pressure. This space is so heavily manipulated, it’s very painful to own it.

[00:19:11]:

But you got to remind yourself, gold is still up 19% from last year. The lows the miners are up close to, well, they were up more than 40%. Now they’re up like miners have been hit hard last week. They’re still up 37% last year. Silver still up about 37, 38%. So it’s been a very good year, but we’re ready for that move. I think we’re going to get it. I think all it’s going to take is for JPow to do his job tomorrow.

And to be honest about where inflation is and what the Fed is doing, I think they’re going to have to start telegraphing rate cuts because that’s the last thing they want to do is be surprised, surprise the market with it. It’s time to start telegraphing we’ll be ready to cut rates when we need to. We’re highly restrictive now. We’ll be ready. A message like that tomorrow would send gets gold and the miners soaring. I did not like the fact today that even though gold was essentially flat up a bit, but essentially flat on the day, the miners are down 2.4% today. Now they have pulled back to solidary support. We are getting golden crosses.

Matter of fact, I think today we had a golden cross in GDX, kind of an od day to have it with 50 cross the 100 day, not the 200 day that’s coming next, of course. But we pull back to an area of solid support. We actually pull back to the trend line where GDX broke out from today. That should serve as support. That’s how we’re playing it. I don’t like this weakness, but that’s our analysis. And no, I can’t explain it. I can’t explain this move lower dollars.

[00:20:47]:

Again, the dollars had a good bounce from extreme oversold levels. Rates hit. Bonds hit extreme overbought. They sold off a little bit. But this kind of weakness in GDX has surprised me. Silver, cover them. Silver down five, six an ounce. Excuse me.

Silver down flat on the day, actually, at 23, six an ounce. Copper up one penny a pound today at 379. Crude oil, again, had an outside day today. An outside day. So we’ll see if that serves as a short term. Bottom down, 257 a barrel today at 68, 75. Still, like this group seasonally, this is not a great time to own crude oil. Frankly.

[00:21:26]:

The energy stocks have held up much better. And I do think this is a buying opportunity in oil, although it has been below the 200 day for a while. But supply and demand wise, short term, OPEC, there are some issues, trust issues, about whether or not they’re going to abide by their cuts. But that’s the market telling you they don’t believe they will. But again, I think that’s being priced in now. And I like crude oil at these prices. Finally, on the day, bitcoin, it’s pulled back again. Extreme robot on steroids at 44,000.

[00:21:57]:

Now back to 41,081, down 29 on the day. Again, that’s another buy the dip asset here as we pair for etfs to be blessed by the SEC for bitcoin next year. And that’s going to allow all the big money to come in and finally start participating as this asset gets the blessing of the almighty SEC. All right, folks, always appreciate you listening. Hope you had a good day and even better night. We’ll see you back here again tomorrow after the close.

Podcast Newsletter

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Time Stamps

00:00 Multifamily construction booms, rents drop, energy prices down.
04:57 Markets are expected to continue lower rates.
09:21 Momentum oscillators work well, bullish buy signals.
11:57 Bullish view on strong economy and market.
15:13 Market watcher predicts small caps will outperform.
19:40 Fed may need to telegraph rate cuts.
21:26 Energy stocks held up, opportunity in oil. Bitcoin pulls back to 44,000.

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