VRA Investing Podcast: The Innovation Revolution & Second Shot at Another Dotcom Melt Up – Kip Herriage – January 23, 2024

In today's episode, Kip covers the significance of the innovation revolution, particularly focusing on the demand for semiconductors and the strength of the consumer and corporate sectors. Kip also shares insights on specific stoc ...

Posted On January 23, 2024Episode 1314

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About This Episode

In today's episode, Kip covers the significance of the innovation revolution, particularly focusing on the demand for semiconductors and the strength of the consumer and corporate sectors. Kip also shares insights on specific stocks such as Netflix and Tesla, the latest in earnings, and the potential in small-cap and housing stocks.


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. Let’s get right to it, folks. It was an interesting day today. You know, Taiwan semi kicked off fourth quarter earnings last week with a pretty handsome, it wasn’t really a great beat, but it’s what they said about AI and all their business going forward. The demand for chips around the world, really specifically for AI.

And of course, that’s the buzzword that’s been driving much of this rally, is the future that we’ve called the innovation revolution. I was on Charles Payne’s show today and just actually got back in the studio, and we talked a lot about this today. The first time I was on Charles’s show was just after the market bottom in October of 2022. That was the bear market bottom. Of course, we called that capitulation the day of, and we were aggressive along the semis and housing stocks. And of course, that turned out to be a pretty good call. But it’s what’s going forward. Looking back in the markets doesn’t really help you a whole lot.

Kip Herriage [00:01:07]:
You got to make money on what’s going to happen. And for that, you have to have an approach. Our approach is we’re trend followers, number one. So the most important thing about making money in the markets is being on the right side of the markets. Probably the second most important thing is patience. And number three is, I would say, understanding that, yeah, market timing does work. Market timing absolutely works. And that if you follow some very simple momentum oscillators and moving averages, that you can time the markets and beat the markets.

Anyway, the point being, I made the case again today with Charles that we believe that investors are being given a second shot@another.com. Melt up. And if you weren’t an investor from 1995 to 2000, that’s okay because I was, I was a broker, the Oppenheimer and then Raymond James shortly thereafter. And it was a magical boom time. And I think we’re entering another one now. As I told Charles today, if you weren’t making your clients 10% a month, you were going to get fired. That was the pressure we had to outperform. Nasdaq went up over 500%, 583% actually, in that five year stretch.

And all of this structural, the structural foundation of this bull market is what’s so impressive. And it’s the fact that very few people are talking about these things. That’s what blows me away. The things that I can’t make sense of gnaw at me. Probably you too, right? And this is what makes no sense to me. It’s one of the strangest things I’ve seen in my 38 years in the business. The consumer is as strong as the consumer has been in decades. That’s just fact.

Look, we can complain and bitch and moan about inflation all we want to. We can complain about who’s in the White House in DC and about the open border. Look, these are all legitimate concerns. But the reality, these are the things we’ve been talking with you folks about here for the last year. Plus, the reality is home prices all time high. Net income, consumer net wealth all time high. One third of homeowners have paid their mortgage off is what I’m trying to say. I can keep going down the list.

Maybe most impressive is that we’ve learned from the financial crisis. I think this is probably the structural reason that the markets and corporate earnings are in such great shape, is because both the consumer and american companies learned from 2008. We learned we didn’t want to get over leveraged, and so we reversed all that. And we have both consumer and corporate debt is down by 25% to disposable income and to market cap from 2008. Again, almost no one’s talking about this. It’s a major, major point. And I’m telling you folks, this is what’s driving everything. And this is different than, as Charles pointed out today, this is different than 1995 to 2000, because this is a real bull market.

That bull market was on the basis of something cool is happening here, right, with the Internet, somethingcool.com, online shopping, something cool is happening here. But then it took years for the infrastructure to be built out. Well, guess what? It’s built out now. Not only is it built out, but again, the consumer is in great shape. American company corporate debt to market cap is at a 50 year low. The reason all this matters more than anything is we have the ability to lever up. We have the ability to lever up like never before. These are the financial statistics and the balance sheet fundamentals that you see at the birth of economic expansion, not the end.

And so again, I think the public is waking up to this. They’re certainly going to, but that’s the root of why this market is going higher. I’m absolutely convinced of it. And again, we’ve been following the semiconductors. I mean, that’s our religion, right? That’s our religion. The semiconductors, they lead everything. And what have they been doing? Going parabolic. Going parabolic.

We’re up 480% in Soxel, which is a three time leverage semi ETF. We have 480% gains in that three time leverage ETF from the October 13, 2022 lows. And that means we didn’t have to buy Nvidia. I kind of wish we had, of course. But that gives you risk to one company, exposure to one company in an ETF. Of course you have ownership of multiple companies. I think there are 2025 different semis that are in the three time leveraged ETF Soxl. So that’s why we prefer those, frankly, because you don’t have to worry about waking up if the CEO do something wrong.

Did the board screw up? Are they being sued? Is the government going after them? You don’t have that risk with etfs. That’s why we love especially leveraged etfs, because if you get the trend right, if you get the trend of the market, and it works both ways, you can use them for short when the market’s going down. But long. And of course, right now we’re very long. But if you get the trend right, why wouldn’t you want the leverage? Especially if you’re an aggressive investor that really wants to crush Mr. Market. And that is our game plan here. So we make no bones about it.

We’re aggressive. We’re proud of that. Now let’s go crush Mr. Market. Let’s do it every year, if possible, again with parameters, risk reward and control parameters in place at the same time so it doesn’t protect you against one day crashes. Of course, you’re kind of stuck there. There is a risk to it. But that’s why I use, why, this is why you’re more aggressive.

Money is what you use for this. But anyway, let’s talk about the markets and we’ll get back to some other important things today. We had Netflix earnings today again. Taiwan semi kicked it off last week. Stocks soared, what, 9% today? Here we go again. Netflix. Netflix. These numbers are pretty amazing.

Netflix’s market cap on these earnings is up over $20 billion, just based on this fourth quarter earnings report. Taking the market cap now to $252,000,000,000. They added 13 million new subscribers in the quarter, big time. I think estimates were like 8 million new. And now they have 260,000,000 subscribers worldwide. Netflix, that’s only going to go up. Netflix has got to figure it out, don’t they? Blockbuster, right? Blockbuster had the opportunity, but Netflix just put them out of business. Wow, great story.

Anyway, Netflix on their earnings report today. Stock is now up nine and a half percent in after hours, again putting on better than $20 billion in market cap on a single earners report. Tomorrow we get Tesla. And again, this is the innovation revolution. If the aiinnovation revolution is what everybody that I trust thinks it is, if it is what we think it is, then this is just the beginning. Again, this is like having like a crystal ball in 1995 and saying, okay, we’ve seen this movie before. Now, how do we want to crush Mr. Market? And of course, that means you want to be very long tech.

That is without question, that’s the best play you want to have. Not that other groups won’t participate, but tech is going to continue to lead this market higher. That did again today, by the way. Dow Jones today down 114 points. Not really a big deal. We’ve had a pretty nice move higher, haven’t we? SB 500 was up nine points today. Has three days in a row closing all time highs. Rust 2000, a day after really opening strong, gave it all up, finished down three tenths of 1%.

As I meant to tell Charles today, we didn’t get to it. This is one of our favorite groups. Of course, Tyler covered this in detail yesterday in the small caps. There are a lot of reasons to love this group. Is it a value trap? I don’t think so. I think it’s going to participate. I think a rising tide is going to lift all boats. And we know that Rust 2000 is still going to go 20% higher just to get to an all time high.

And of course, in big bull markets, every major index gets. I think every index goes to an all time high. That’s what’s going to happen in this one, too. Again, unless something goofy happens and you go with this president, you got to sleep with one eye open. But anyway, I think small caps are going to give us a really good exposure to an area that’s been beaten up pretty badly to your bear market for small caps. Pretty brutal. Nasdaq today. Well, actually, our leader, which you want to see, Nasdaq today, up three tenths of 1%.

And again, the semis up three tenths of 1% again today after being sharply lower, reversing back higher again. You just got so much money chasing this, and you’ve got a lot of people that don’t have exposure to the markets, not like they want, not in the right sectors. They want. I’ve said it before, I’ll say it again. So many people thought they were smart when they were making 5% of money markets, and they’re out of the stock market. Well, how do they feel now? Right. $7 trillion in a money market. I think it’s lower now.

Certainly more is coming into equities, but that’s going to take time. You still got a lot of skepticism about this market and its contrarians. It’s exactly what we want to see. All right, let’s get to, by the way, I think Tesla is going to rally tomorrow on this earnings report. I have no idea what it’s going to be. I think it’ll beat estimates. I think the stock rallies, of course, is what Elon Musk says. And now he’s got a lot of detractors, doesn’t he? He’s got, the state is kind of coming at him.

So there is a risk here. He’s being targeted. There’s no doubt about it. They don’t like the fact that he owns Twitter or X now. But Musk is a pretty smart guy. My guess is he’s going to figure it out. A lot of wealth creation is taking place inside that company. The innovation is taking place in so many different areas.

It’s going to continue to propel that stock higher. We are aggressively long Tesla recommending on this pullback as well. All right, let’s take a look under the hood today. Internal state were actually pretty good. They actually rallied into the close Nasdaq today. First of all, advanced decline was flat. We’ll get that out of the way. Volume today was two to one positive Nasdaq.

And what is this? 1.5 to one positive on NYSE. And we had 245 stocks hit a new 52 week low to 107 hitting a new 52 week high. Those numbers are getting better. We think that’s going to continue in our sector watch today. We had seven sectors finish higher, four finished lower. Led upside by consumer staples up just over 1%. Communication services, which Netflix is in, was also up 1% today. Imagine what it might do tomorrow.

Tech up a half percent to the downside. Really not much at all. Real estate down a half percent. Dior Horton announced earnings. I was actually on air when this happened. Did not know what was happening in the space, but I could see housing stocks were getting hit. Didn’t know know. We have taken profits in housing.

As I told Charles today, we are antsy. Tyler said this as well. We are antsy to get back into this group because this is going to be a sensational bull market in housing stocks. We got a decade plus, folks. It may be two decade long housing bull market. That’s the structural set up for supply and demand. Look, 68% of americans own a home. 55% of millennials now own a home.

Right. One third of America, again, third of Americans have their mortgage paid off. 68% of Americans own at least one home. A lot of Americans own more than one home. So again, when you own it, especially, you have a good mortgage rate. You don’t want to sell it. So again, these structural imbalances are going to continue. That is so bullish for everything in this market.

I know it’s not good for new buyers coming in, but there’s a flip side to that coin. If you believe, as we do, that home prices are going to continue to rise. Bite the bullet. Bite the bullet. If you got to buy something a little smaller, buy something a little smaller, bite the bullet, get exposure. You can upgrade in the years to come, but you want to be in this market. And folks, if you can’t afford a home, I got another option for you. Buy housing stocks.

We’ll be back in this group before long. Finally today, let’s get to commodity watch gold today. Up $8 announced. 2030 announced again. We love this group. Rate cuts are coming. Rate cuts are coming. I think the rate bonds actually were weak today.

The yields were. Bonds are weak today. Yields were up today. I think that won’t last. I think these are all little temporary counter move to the primary move. And I think that march they’re going to cut. Fed is going to cut. And that’s just the beginning.

That’s when this group really starts to shine. Silver today, kind of flat 22, 57 copper also flat 380 a pound. I saw Robert Friedland today on Bloomberg and we’ve done very well investing with this man, Ivanhoe Mines, which became Turquoise Hill. We made what, 1700 percent in gains in those two. Same company really over two trades. And now he is extremely bullish on copper. We are looking for something in that space. Of course, we already have exposure to the miners, so it would have to take something pretty special.

But again, that’s the guy that’s saying copper is the place to be. And trust me, if I tell you, if copper is a place to be, Dr. Copper is telling you what the global economy is going to do. So again, the global economy is in good shape, led by the US economy. We have like just a small percentage of the world’s population, something like 20% of the world’s gdp, and we’re now once again driving global growth with China being stuck in the mud. I think that’s a very interesting story. Natural gas today, sorry, gas was flat. Oil today was also flat. 74, 54 a barrel. And finally on the day, bitcoin down 279 at 39 529.

All right, folks, always appreciate you listening. Hope you had a great day tonight.  We’re not going to be back with you. No podcast for the next three days. We’re going to be traveling, going to a conference and in Florida.And so no podcast for the next three days. We’ll be back with you on Monday of next week. Appreciate it, folks. Take care. We’ll see you soon. Bye.

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Time Stamps

00:00 Bullish outlook on innovation revolution, past investments.
03:16 Lessons learned from financial crisis driving markets.
07:26 Netflix stock up, tech revolution beginning. Tesla next.
09:59 Equities gaining momentum, skepticism persists in market.
14:13 Copper indicates global economy's positive direction.

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