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VRA Investing Podcast: Stock Market Turnaround, Michael Burry’s Turnaround, and What We See Coming – Kip Herriage – February 14, 2024

In today's episode, Kip discusses the market's turnaround from yesterday, the recent moves of legendary investor Michael Burry, and his insights on the semiconductor and tech sectors. He also delves into the current state of the m ...

Posted On February 14, 2024Episode 1324
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About This Episode

In today's episode, Kip discusses the market's turnaround from yesterday, the recent moves of legendary investor Michael Burry, and his insights on the semiconductor and tech sectors. He also delves into the current state of the market, the potential impact of the March rate hike, and his bullish outlook on various investment opportunities, including Bitcoin and energy stocks.

Transcript

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 after yesterday’s shakeout. Tyler covered this in depth yesterday in his podcast. A lot of trepidation overnight going into today, and for good reason. We’ll talk about that a little bit. The Federal Reserve, they broke the system.

They bought it, they built it, they own it, is the buyer of first and last resort. That’s what’s producing this illiquidity that we’re seeing in so many different asset classes. It’s really in place at the banks. This is what the Fed really is paying attention to getting that a little bit. Michael Burry of big short fame. Do you see the news today? Michael Burry announces that he has covered, he had invested, first reports were $100 million in puts in semiconductor stocks. And this is the same time that we here at the VRA were going long semis right after the October 2022 stock market bottom we announced we’ve gone aggressively long. By the way, we’re up 560% in that investment now.

[00:01:10]:
That’s in 14 months folks. The same time we were doing that, Michael Bury, a big short fame, announced that the market was going to crash and that this is the worst setup since 2008 and that he had invested up to $100 million in semiconductor put options. We didn’t understand that call at the time we talked about on this podcast here with you said made no sense to us because we just saw a capitulation bottom that was as clear a capitulation bottom as I’ve ever seen. And so again, people have forgotten that Michael Burry, Michael Burry was on the wrong side of his big short call for almost three years. Like he got buried in that position, but he stuck with it and it wound up being great call. Not taking that away from mean, it’s legend, okay? His name will always be remembered for that call because he was the first to get it right and he stuck with it. Kudos to him on that. However, name the other good call that he’s made since then and you won’t be able to find it, I don’t think.

But anyway, back to the semiconductor call. Today he announced that he have liquidated that position. The hit there has got to be enormous, tens of millions of dollars, maybe as much as 60, $70 million, I don’t know the exact size. Rumors of $47 million to $100 million put position. So tens of millions dollars in losses there for sure. Those puts are likely at near liquidation value. In other words, they have no value. And that he has gone aggressively long.

[00:02:39]:
Mega cap tech stocks, including chinese tech stocks, by the way, which we like here a lot. So we’re on the same page with Barry on that. We’re on the same side of the fence now with call. He believes the market’s going to lie higher. We think he’s right. Now we are on the same page. My wife said, do you think you should sell everything? When I told her about it. And so we don’t base our portfolio decisions based on what one person does.

Although if it was Jim Kramer, maybe you would. But otherwise, Michael Berg, we’re rooting for him. Hope he’s right now, because we’re on the same side of the fence. But anyway, that was an interesting story of the day, I thought because the semiconductors is Michael Burry now can see folks, they’re just getting started. This bull market is going to be led by the semis, led by tech for years to come. We are in the infancy of this bull market. That’s the most important thing investors need to know here. This is a structural bull market of size and scope driven by consumers in their best financial situation in decades.

[00:03:44]:
If that sounds like heresy to you, reach out to me, I’ll share the data with you. Because we’ve got reams of it, okay? It all says the same thing. We know that companies have never been in better shape. Again, corporate debt to market cap is at 50 year lows. Both consumers and american companies have the ability to lever up like they’ve never had before. And this is not what happens at a market at market top. This is what happens at a market bottom. This is not what happens when economic expansions are weakening and preparing to turn into recessionary kind of environments.

This is what happens at the birth of economic expansions. That’s how powerful what’s happening now is. Again, a lot of people waking up to this. And folks, Tyler covered this yesterday, too. It will not be straight up, okay? I’m not saying we can go parabolic into 2030. Please understand me. We will reach a situation probably in April, I would think, of this year, okay? I think in a couple of months, I think in a couple of months we will hit a situation where we will be taking profits in our tech positions, okay? Because we’re going to get so overbought. That’s how we see it.

[00:04:56]:
We’ll be such overbought levels, what we call extreme overbought on steroids. But maybe extreme extreme, because then I think by April I think mid April, early May, I think we’ll have better than 90% of the S and P 500 trading above both the 50 day and the 200 day moving average. We’re like 60% to 70% now. It’s a process, but this won’t be a straight up move. This is why you have to have an understanding of what the discipline you’re going to choose to use for this market. If you’re a long term investor, I don’t think you need to do much anything. Now, if you use leverage etfs, that’s not the approach to take, by the way. But if you’re just a straight up ETF mutual fund, blue chip stock, know Microsoft and Tesla and whatever you might own, then you probably don’t need us.

You probably just need to make sure you hold through the end of this bull market. Again, we think it’s got years to go. But if you’re like us and you really like timing the market at extremes, again, not day trade at extremes. So we want to be selling at the absolute peak, and then when the sell off is over and it’s washed out, we want to be buying in. This is how you really juice your returns. You can double your returns every year in the market with a simple trading approach. And this is what we’ve done here. So that’s what I think we’ll be doing in April or May.

[00:06:23]:
I think we’ll be selling our semis, I think we’ll be selling palantir, I think we’ll be selling a number of positions, and we’ll probably go to 50% cash. But again, that’s a more aggressive approach because we do use leverage ets and we do use high beta growth stocks. And again, we want to then trade them and we want to buy them back a lot cheaper. So the risk is, of course, the market does just keep going up and it is just a parabolic move higher, which is very possible, and then you’re forced to buy back at a higher price. But anyway, we’ll cover that down the road. But I just want to give you kind of a snapshot of our approach here and the not trading mentality, really. It’s just kind of a smart money investment approach that we use here. And I’ll repeat as I’ve said a million times over my career in the industry, if you’re listening to somebody that says you can’t time the markets, you’re talking to the wrong people.

Because there’s a way that people that have gotten really wealthy on Wall street, and I don’t mean by owning a mutual fund family or being a brokerage firm. I’m talking about actual being the investor building your net worth as an investor. A lot of people have done this, okay? I’ve made a career of doing this. And so that’s what we teach here, folks. I’m going to tell you something. You’re not going to hear what we talk about on Bloomberg. You’re not going to hear talked about on CBC. It’s amazing to let me go on Fox Business without the fact that I talk about these things.

[00:07:47]:
But that is the approach that we’ll continue to use because it works and we have the very investment system to back us up, and that is what we see. But again, there is no reason to do anything right now except to continue to buy the dip because we are in a very bullish setup right now. Although yesterday was scary, but again, Tyler made the point yesterday. Even in the 1995 to 2000 melt up, we had five corrections of more than 10%. One was a 33% bear market in Nasdaq in three months. That was in 1998. So that was just before the final parabolic move higher in Nasdaq. But it shook a lot of people out.

And these 10% shake, think about it. A 10% shakeout may not sound like a lot, but that’s just what the indexes do. If the indexes lose 10%, most stocks go down 30%. And etfs leverage. Etfs, of course, will go down at least 30%. In a lot of cases, 30, 40, 50%. So that’s why a trading mentality, a shorter term approach, not just buy and hold, is what I’m saying. That’s why it does make sense, because this almost certainly will not just be a parabolic move higher.

[00:09:01]:
However, I would not be surprised if that is what happens in bitcoin. I tweeted this out a few minutes ago. I’ll write this up tomorrow. I’ve been saying it for a while. Look, our initial target on bitcoin is 50,000. We’ve already hit that, surpassed it with 50, 116 right now, essentially. But our target for 2024, that was just our short term target. We hit that.

Our longer term target for this year is 100,000. I tweeted this out a few minutes ago, and it’s not hyperbole. I know some people must think I just try to come up with things that are clickbait. I don’t do that, but when I say something, I actually mean it. I think that bitcoin will likely break 100,000 by the April having, and that’s like 65 days away from now, is when they’ll have the next having. I think this setup is so clean with the SEC approving it. These havings again, the last time they did a having, bitcoin went up 1100% in eleven months, 5000 to 64,000. I’m working off memory, but that’s pretty close.

Think about that in eleven months. Now, it’s obviously, market cap is a lot greater now. There are a lot of different ways to trade bitcoin. There’s a lot of different vehicles to use for cryptocurrency. So that will be a very concentrated move. What are the ods? I don’t know. 20% maybe. I think 20% obviously.

[00:10:35]:
I think it’s likely to happen. So while the average person would tell you it’s probably 20%, I’d say 51%, I think it’s likely. And the reason is everybody bought bitcoin on this last move higher because of the SEC approving the etfs. Right. That was speculative. Last October, November, the word started leaking out that it was going to happen. And of course, boom, then it happened in January. Right.

So everybody front ran that, but it was on faith, kind of, that the SEC was going to do it, and then it happened. Now you don’t have to take it on faith that the having is going to take place. It’s going to take place. And matter of fact, I read one report yesterday. It said that the time is speeding up. So it may not be 66 days, 65 days, it may be 50 something days. And so excitement is starting to build about the having and front running is taking place. People that own bitcoin aren’t selling it.

[00:11:37]:
I read this morning 80% of the bitcoin in existence is in hands. That’s not going to sell it. It will not sell it. True hoddlers, they are not going to sell it. I think that’s probably right. I’m not selling. I do think bitcoin is going to a million dollars. I think there’s almost no chance it doesn’t go to a million dollars.

Again. It’s supply demand. They don’t have unlimited amounts of coin that’s going to keep mining. This is a very finite supply demand. This is mathematical. This is just math. And now the world has gotten the AOK from the SEC. Other countries had already approved it.

[00:12:15]:
So this is a very unique story. When people say, okay, kip, you really think this could be another 1995 to 2000 melt up? Yeah, we’re seeing it right now because cryptocurrencies are.com. This is the new. So yeah, I do think it’s going to happen. I think fortunes are going to be made here. We said often, early and often, this is the time to stay locked in, folks. It’s a magical time to be an investor. Know that.

Know that. And I got to say, I’m embarrassed. I’m embarrassed for a lot of folks that I know that have been doing this almost as long as I have, some cases longer that seem to be blinded by I don’t know what. They don’t seem to understand what’s happened. How do you not see this? To me, it’s clear as day. To them, it’s clear as mud, I guess. But to me, it looks clear as day as to what’s going to happen here. Both of the stock market, specifically tech, specifically in the US.

[00:13:11]:
We really want to stay focused here in this country. It’s not that there’s a great value elsewhere, because there is now. I like chinese tech stocks. I’ve made that clear. Love chinese tech stocks here. Okay. Michael Burry, by the way, also announced today he’s long chinese tech stocks. I think he’s had that position placed for a little while.

So we’re on the same page here, too. But tech, us tech, chinese tech, bitcoin, derivatives of bitcoin. And there’s some other strategies that we’re going to employ here. We kind of have started employees in a parabolic options program, too, because you can trade options on these things now. So again, this is the time to stay locked in. I think it’s going to be a phenomenal. We’re going to have a big party going into 2030. We’ve decided to have a big party to celebrate what we think is going to be a magical run here.

And I hate to jinx it, right? It sounds like I am doing that, but very confident, folks. But we’ve been saying this now for close to two years. So people are catching up to our view, we think. And again, six and a half trillion dollars sitting in money market accounts. How stunning is this? A couple of things. Six and a half trillion dollars in sitting in money market accounts. It’s a record. Okay.

[00:14:25]:
Commercial money markets. That’s fuel for the fire, baby. That is fuel for the fire right there, because that money is not going to stay in money market accounts as this market keeps going higher. That’s where the fuel comes from, number one. Number two. And again, this is a very short term observation, but I find this very interesting. Nasdaq is still what 2%, 3% from an all time high. In that ballpark.

Nasdaq, okay, still has yet to hit an all time high, and people are calling a top in tech stocks. I’m sorry, but what? Maybe when Nasdaq has doubled from here, maybe then you start saying, okay, it’s frothy. We’re not. We have yet to hit all time highs. Again, that’s a common sense observation that I think more people should be thinking this way. Right. Okay. Markets today after yesterday.

[00:15:24]:
Again, the Federal Reserve, they built it, they broke it, they bought it, they own it. It’s really a disgrace what the Federal Reserve has done. We’ve got a broken record on this for a long time. I’ve written four books, talked about in every one of those, talked about on stages all over the world. I got to make this analogy one more time. People talk about the problem in this country, the problems in this country. And I’ll go, well, we took prayer out of the schools. Sure.

I don’t disagree with you. I think that’s definitely a big problem. People talk about, well, both parents have to work. Both parents are working because we got to keep up the Joneses. So both parents are working, and then strangers are raising our children. Yeah, that’s a problem, too. But those are all symptoms. The root of the problem is the Federal reserve.

[00:16:14]:
Because of their money printing, because of their currency debasement, our money is essentially worthless compared to what it was. Again, fed was created in 1913. Everyone knows it’s lost 90% of its value. The US dollars lost 90% of its value since that time frame. When I was probably like a lot of you, my mom stayed home with us. Now, she chose to work as we got older, but she actually drove a school. We were broke, okay? We were poor. My mom drove the school bus when I was like, eight.

My God, those are long days. We got home at like, 07:00 every night. Little country roads, long bus trip. My mom’s like five foot, 490 pounds. So, anyway, the point being, I was with my mom all day long. Even when she did work, she worked from home, or I was on a school bus with her. But a lot of you, probably the same, know one income would get the job done. Well, that’s not the case.

Once the. Once Nixon took the dollar off the gold standard, of course everything started to change quickly, right? And now, all of a Sudden, both spouses have to work because of their currency debasement. The Federal Reserve is the blight on this country. They are the biggest blight on this country. There’s not a close second. It’s the Federal Reserve. And what happened yesterday, this illiquidity in this market, again, from the birth of quantitative easing, 2008 2000, actually started in Japan in 2001. But from the birth of QE in 2008 2000, and following the financial crisis, the Fed has been the buyer of first and last resort.

[00:18:00]:
Well documented, well written about, okay, we cover this in our book, the Big Bribe, financial engineering that’s taking place in a positive light. But as Tyler covered yesterday, there’s a flip side of that coin, too. When you see, as it happened yesterday on barely a CPI miss, this should not have been a big event, and it really wasn’t. Okay. It’s no big deal. Fed’s going to cut this year. We have disinflation, not inflation. I mean, yesterday was stupid, to tell you the truth, but the market’s reaction was not.

Because all of a sudden there was no liquidity, there was no flight to safety. Trade bonds got smoked, stocks got smoked, gold got smoked. Silver, everything got smoked, except for the dollar. And that’s another sign of illiquidity. There’s not enough dollars in circulation globally. People are saying the dollar is going to crash. They’ve been saying it my whole career. They’ve been wrong my whole career.

[00:18:56]:
They’re wrong. Now, the dollar is the world’s reserve currency, and I think it probably will be when our grandkids are no longer on this planet. Okay, but the point being with the Federal Reserve is that yesterday was a big ring the bell call for the Federal Reserve. Trust me when I tell you, days like yesterday, that’s when the Fed really pays attention. That’s when they’re really like, okay, yeah, this market, there’s no liquidity. Look at this. We have a semi hot CPI print. It really wasn’t even that.

It was a slight mess. And then the buyers disappear and there’s no buyers. Any amount of selling crashes. The markets essentially, remember the Dow was down 750 points one time yesterday, remember, this is not even bad news. It was just a miss. It was just a miss. That tells you the reality of how illiquid our markets are, because the Fed is the buyer first and last resort. And so JPOW and crew watched yesterday very closely.

[00:19:56]:
And as I wrote this morning, it would not take more than a couple more days of yesterday’s action before a March rate hike was a certainty. And we’re only at 17% possibility. I think it’s even lower now. There’s almost no chance, right, according to the markets, that we’re going to have a Fed rate cut at their March meeting. We had another couple of days like yesterday. Yeah, because the Fed understands, because as illiquid as the market can be, multiply that illiquidity times a thousand for banks. Banks hold these derivative instruments, both commercial Wall street banks, regional banks, community banks, they all hold these derivative instruments. Right? Now, some of these they’ll hold through duration until they mature.

But if banks get in trouble, they don’t have that option. They need a place to sell stuff, right? We all do. That’s when a liquid market forces to happen. And we saw with Silicon Valley bank last March, we saw all these banks get in trouble. It happens like a domino’s. Here they go. That’s how liquid our system is. That’s how illiquid our system is.

[00:21:06]:
So the Fed obviously is paying attention to this. The Fed knows that they’re going to be cutting rates very soon. And that’s why, again, buy the dip remains the smart money strategy. It will continue to be the smart money strategy for some time. It’s really your only chance to add cheap. And again, we did hit extreme robot. Tyler covered it yesterday. But that’s only in a short term basis, really medium, long term.

We’re seeing really no sign to that whatsoever. Okay. We talked about bitcoin going to 100,000, I think by the April having, and then a million dollars. Bitcoin is going to a million dollars again, supply Demand, 21 million. Bitcoin, that’s going to happen. Dow Jones today up four tenths 1%. We had another good smart money hour. Yesterday was just a good smart money hour.

[00:21:55]:
Remember, the markets came charging back yesterday. Same again today. Good solid day today. After yesterday, Dow Jones up four tenths 1%. Sdf 100, up almost 1% today. Rust 2000, small caps, 2.4%. Thank you, but we needed that after yesterday. Again, 4% drop yesterday in small caps.

Illiquidity, right? Today, different story. Love small caps. Again. Buy the dip there. Nasdaq today, up a strong 1.3%. Semis again, they just can’t stop, won’t stop. Up almost 2% today on the semis, just a house of fire. Again.

They’re telling you what the rest of the market is going to do. It’s going to keep going higher. When the semis reverse lower, we’ll be the first to tell you, okay? But right now, on a relative strength basis, they continue to lead the market. There is no better tell than that. All right, the internals, internals are good today. We had four to one. Positive is declining. YC three to one.

[00:22:51]:
Nasdaq volume also yesterday, remember, 92% down volume day for NYSE. That was not good today, 75% up volume day. Good to see. Nasdaq up 80% up volume day. That’s pretty rare for Nasdaq to have that kind of a reading. That’s good to see as well. In our sector watch today, we had nine of eleven. Really, it’s all eleven.

Two sectors that weren’t positive were just barely negative, but nine of eleven positive. Industrials up 1.7%. Communication services, really. Tech up 1.4%. Technology of 1.1%. Again, good day from the internals as well. And our commodity watch, quiet day again, all the actions. Bitcoin, it just robbed gold and silver of all of its excitement.

[00:23:37]:
It just has. That is a reality. Still long, it still love it, but gold is just barely over 2000 an ounce. It’s very hard to compete with bitcoin, folks. It just is very hard to compete with bitcoin. That’s just a reality. Gold today down $3 an ounce at 2004 an ounce. Silver up.

Crude oil, a big supply built today in crude oil, finishing down a dollar 30 a barrel at 76 56. Love energy stocks here, as we’ve been reporting, wrote this up this morning. Fund managers now have net short energy stocks and now have their most bearish position, the most underweight energy stock since December of 2020. Why that matters is the last time that happened where they are now, energy stocks XLE, the energy ETF, went up 248% in 18 months because fund managers are horrible with their jobs. And the reason is it’s groupthink. It’s groupthink. It’s not that they’re not really bright people. They’re not allowed to do what they want to do.

[00:24:40]:
They have to go around the table. Let’s take a vote. I mean, you just can’t make. Why do you think money managers lose every year to the markets? Nine out of ten lose to the markets every single year. This should be mandatory education in high school and college and should be on CBC. Should have to run a program every day that says nine out of ten people we’re going to have on the air don’t ever beat the markets. That’s called truth in advertising. But that’s why it’s not that they’re dumb people, it’s just that they’re myopic.

They’re in New York, et cetera. They work with a group of people. It’s group think. We’ve all seen that happen right in our own lives at our workplace and you go, what are these idiots thinking? But if we say something different, we’re an outcast. So just your mouth shut, go along with the crowd. Right? Keep getting that paycheck. But that’s why these fund managers are such a great tell. When they’re all long, you want to go short.

[00:25:33]:
When they’re all short, you want to go long. Any asset class, take that to the bank. Not sometimes. Every time. And because of that, we love energy stocks here right now. All right, that’s it for the day, folks. Hope you had a good day. And even tonight.

We’ll see you back here again tomorrow after the close.

Podcast Newsletter

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Time Stamps

00:00 Michael Burry makes successful market prediction, doubted.
06:23 Selling positions, moving to 50% cash. Use leverage and trade high beta stocks.
07:47 Continuing to buy the dip in bullish markets.
11:03 Anticipation grows as bitcoin halving approaches.
13:27 Excited about tech, bitcoin, and future possibilities.
17:20 Nixon led to currency changes, spouses work.
19:56 Fed unlikely to cut rates in March.
23:57 Crude oil down, energy stocks prime investment.

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