Welcome back to the VRA Investing Podcast, hosted by Kip Herriage! In this episode, Kip Herriage breaks down a busy day in the markets, with small caps and semiconductors leading the charge higher. He dives into the latest geopolitical developments, including the escalating tensions with Iran and the potential market impact of a 15-point peace plan. Kip Herriage raises concerns about overseas conflicts, interest rates moving in unexpected directions, and the Federal Reserve’s surprising stance during this turbulent period.

Don’t look back because the market is closed. Good Wednesday afternoon, everyone. Kip Herridge here with the Daily Verifying Investing Podcast. Hope you had a good day today. Pretty good day in the markets today. We got a lot to talk about, don’t we? Uh, good, good smart money hour. Semis led higher. These are the things we want to see.

Russell 2000 also had a very good day today. It’s back-to-back days, or 3 days in a row, the Russell 2000 small caps have done better than the broad market. Uh, are the lows in? Talk about that. What’s the latest on this war? Well, the Marines— my biggest concern, because you saw the news about the 15-point plan, uh, that Team Trump has submitted, uh, to Iran via Pakistan apparently. And my biggest concern really is, you know, the Marines begin to arrive this week. Matter of fact, they may already be there. And so as much as we want this war to be over, my concern is that, probably like yours, that if this doesn’t get done, if Iran continues acting out and there’s no deal signed, I think we have a pretty good idea what’s going to happen next. I think it’s going to involve boots on the ground, and that’s escalation that we don’t want to see.

Um, because I think that we haven’t seen Iran’s hardest shot yet, and I’m concerned about our guys. And girls in uniform. I know I speak for a lot of people when I say that. I don’t know what a win looks like here. I don’t know at this point what a win looks like. Regime change is not going to happen, not now. Maybe over time. It’s certainly not going to happen in this particular phase of the war.

This was Trump’s original goal. His original demand was for regime change. That’s not going to happen here. But on the backside of this, let’s say this ends, we get a 15-point plan. On the backside of this, think about who’s going to be most exposed in Iran. It’s going to be the IRGC. It’s going to be the new leadership because the people are ready for a change. And that’s one of the reasons Iran’s military has refused to give up.

Number one, they’re— they’re— this is— this is— they, they kind of want to die. They want to be martyrs. They want the virgins. That’s just a reality. That is— that’s what they believe, and that’s why they really haven’t quit. But on the back end of this, there’s going to be a whole lot of pressure on them, and that’s what they know. They know that if they enter into a peace deal, their lives are probably not worth very much in their own country because they’re going to be targets of the Iranian people. So it’s very complicated, a lot of risk here, of course.

But it’s good to see the markets acting where they are. As I shared this morning, you know, the markets in geopolitical, like, events like this— we talked about this a couple days ago, uh, going back to 1937, these tend to last on average 15 days from the market’s point of view. And then the damage is done in the markets, and the markets begin to lead higher even if we don’t have finality for that particular war, conflict, geopolitical event. So we’re past that now, and the market’s been acting like it— like we are. So that’s very good to see. Look, we know what’s coming up. We know the midterms are coming up. Listen, the polls that I’ve seen on Fox and then I see online may well indicate that Republicans are supporting Trump in this.

I’ve yet to hear from a single person that does, to the point that they want this war to continue. They may be out there, and maybe everyone, maybe all of you listening to this, maybe you do agree and think it should continue. Regime change. I’ll go all the way. I just haven’t spoken to anyone that feels that way. I don’t think that’s the mood of the country at all. I think Trump knows that. So we get into a situation where this goes on much longer, boots on the ground, again, mission creep.

Now we’re talking about it being essentially a near impossibility. The Republicans win the midterms, especially if the Save America Act is not passed. I don’t know about you, I’m hopeful. I’d say I’m probably 70-30 against at this point. We have a majority. All it would take is taking a vote and forgetting about the filibuster, and, uh, it would be passed. What, 85% of the country including Democrats, believe that you should have to show an ID and be an American citizen when you vote. Talk about a bunch of spineless uniparty losers that do not— have never deserved to hold the office they have.

[00:05:15]:
But without the Save America Act, without an end to this war, global production shipping issues will worsen, inflation will continue to grow, interest rates will continue to rise because— and they shouldn’t. But what we know with certainty, and I mean absolute certainty, is that Trump is not going to get any help whatsoever from this Federal Reserve. As we’ve been telling you now for 3 weeks, this is the first thing that happened that shocked me, surprised me at that point. First day of bombing came in Monday. Markets did pretty well. One thing stood out. What was that one thing? Interest rates went up. Now you might say, well, Kip, hey, oil went up, that makes maybe rates— isn’t that normal? No, it is not normal.

It’s completely the opposite of normal because going back 75 years Every single time America has gone to war, had military conflict, every single time for actually 76 years, interest rates have gone down. We’ve talked about a lot over the last 3 weeks, haven’t we? This is not normal, which tells us Trump’s not going to get help from the Federal Reserve. Again, rising rates, inflation, oil issues. $100-plus barrel. That’s, that’s all coming unless we get some finality here. I think the Republican turnout in November would be pathetically low. I’m not sure I’d vote. I’m just being honest.

It’s disgusting. I saw today people are talking about the crimes that, that are, that are being discovered from the both Obama and Biden administration. We’ve known about these for a long time. But now just more and more evidence is coming out about the rigged elections, the coup attempt, the coup, crimes against Americans, and not a single person has been arrested. It’s disgusting, isn’t it? And I’m sorry, but Trump can blame Pam Bondi, Attorney General, all he wants to, but he put her there. He put Jay Powell in as well, and he has the power to replace her and demand that the replacement— and they say there’s not supposed to be, so you get Chinese wall between the presidency and, and the Attorney General. Well, we know that’s not true. We learned that during the Obama and Biden administrations.

So Trump’s gonna have no one to blame but himself. And again, all this adds up, and I think November could be brutal, which is why this has to happen. The war has— the war has to end sooner than later. And to me, I don’t care at this point if it looks like Trump lost or Iran got the better of him. I, I don’t care at this point. It’s time for it to end, certainly before we have boots on the ground and something horrible happens, something worse than it’s already happened. Already lost, what, 8 Americans so far? So it’s time for the pivot, and I do believe we’re going to get it. I do believe we’re going to get it.

I think the market’s action is telling you that, uh, that there are signs that one way or another this is going to end and there will be some kind of a peace deal. Uh, again, decent day today. I mean, at one point, you know, we opened up Uh, futures are up at 1 point, 600 points, finished up 300 points in the Dow. Very good Smart Money Hour, good to see. NASDAQ finishing up 8/10 of a percent, S&P 500 up half a percent. VIX today down 6%. And maybe most importantly, 10-year yield back down to 4.328%. Again, rates are key.

We’ll get no help from Powell whatsoever. I repeat, Powell must— excuse me, Trump must, must drop this lawsuit, the DOJ’s lawsuit against Jay Powell and the Fed. Must. Because Powell’s already told us, and he told us proudly, didn’t he? It’s like a peacock strutting up there. I ain’t going nowhere. I’m— matter of fact, I’m going to stay on past my term. Which could be through 2028, because of course Tom Tillis, Republican, uh, Senator, head of the Senate Banking Committee, is not going to allow hearings to take place for the new Fed chair, Kevin Warsh, until this lawsuit is resolved. Folks, that, that could go on for years, and Powell could stay because his term is not actually up.

His Fed chair term is up in May. But his term as a Fed governor is not up until 2028. Now, again, as I said this morning in our letter, perspective matters, right? When the war started, rates were at 3.8. Well, now we’re just under 4.4, right? Should have gone the other way. Didn’t. Not going to. And Powell has all the COVID he wants Because the mainstream media is there. No one’s asking these questions, right? No one’s asking these questions.

Why is this the first time in 76 years that the United States has gone to war and interest rates have gone up, Chair Powell? Why is that? They don’t ask the question because they’ve been told not to. That’s just the bottom line. But perspective helps. Even at 4— we’ll round up— 4.4% 10-year, that sounds high. Again, we were at 3.8% 3 weeks ago. That sounds high because it’s gone the wrong way, and it’s gone the wrong way with some velocity. But perspective here is we’ve equated often this bull market, uh, most similarly to the dot-com melt-up. We think this is going to be much longer lasting, deeper, broader, because it’s about much more than just dot-coms, right? This is, this is a generational bull market about many things.

But again, for perspective, during the dot-com melt-up, 1995 to 2000, the average on the 10-year yield was 6.1%. Average. There were spikes of, uh, added up to over a year where the 10-year yield was higher than 7%, and yet the market still melted up. So, um, again, we’re not obsessed about rates here. It’s the direction and the velocity of that direction that matters most. That’s what the markets care about. And frankly, they care more about that than oil prices. Much more.

The markets are watching yields. With the level of debt that exists around the world, it’s not hard to understand why. The bond market vigilantes, that’s Trump’s biggest enemy. And the Federal Reserve, central banks around the world, this is the control that the deep state banking cartel has over Trump. And obviously, if I know it, if you know it, he knows it. That’s why this has to end. Um, again, semis continue to lead up another 1.1% today. We shared this chart, I believe it was yesterday, in our letter.

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The most important relative strength chart that I know of, because it, it gives you market direction. If you just want to know market direction, the relative strength chart of the semis to S&P 500, that’s what matters most. At least it has since the birth of QE in 2008. The semis continue to lead higher, and they have from the April 7th lows. Every, every, every, every correction— tariff mania, what have you— every time we’ve had a dip, it’s been a buy-the-dip opportunity because the semis have continued to lead higher. That is the tell. That is the directional tell. And again, they continue to lead now.

That’s, that’s an extraordinarily bullish sign. I think this is a good time to think about the big picture. Again, the macro is very good. Economy is on very firm footing. You may have seen this— analysts are still raising their earnings estimates for Q1. Rates— I’m sorry, earnings estimates continue to rise, and they will continue to throughout the year. It’s a rock-solid economy. We’re very— how fortunate are we? It’s not fortune, frankly.

It’s not certainly not luck. It may be fortune, it may be fortuitous, but it’s not luck. A lot of this Trump gets credit for, and some is just because we’ve understood the importance of certain things over the years. We have an economic moat— excuse me— we have an economic moat around this country unlike anywhere, anywhere else on the planet, which is why The only country that I would invest in right now is right here, good old US of A. There’s no other country I would invest in right now than right here. And look, over the years we’ve, we’ve, we’ve done very well. We’ve been very active in global markets. Not now.

The place to be is right here because we have an economic moat that is so powerful. Obviously the big one that we talked about right now is energy. You know, again, oil prices today, um, they were down today, but they had been like $87. Right now they’re $90, last trade $91.44. But the mode here, because we’re energy independent and a net exporter, right, we can withstand this so much better than other countries. Right now in Europe, gas energy prices are 7 times higher than they are in the US. Wow, imagine that. It’s like living in California all the time.

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I mean, it’s, it’s almost the same parallel. Not much, not much worse in California. What a disaster. But we have a, a mode of free market capitalism, especially with Trump as president. Energy as well with Trump, right? No one practices free market capitalism, major, right, a major modern economy like the United States. And it’s, it’s, it’s, it’s, it’s, uh, but of course, you know, structurally speaking, right, as far as the, the wealth creation taking place in this country, commitment, leadership on AI, Again, these are, these are not— you can’t even question America’s leadership because it’s that stark. And again, Trump gets a lot of credit for much all of this. And then also the public and private markets, right? We’re the largest, most powerful.

Boom, it’s all right here, which is why this country and our markets have held up so well and why they’ll continue to. I guess I wrote this morning The markets are set for a dramatic move higher from here. We may have again backing and filling, but the first big tell for me— I think we’ve already actually already had some, haven’t we? The, the first in, first out, right? Bitcoin is the first to move higher, uh, software momentum first to move higher. They’ve led higher. That’s classic rotational bull market action. But we are set for a big move higher, and I think the big The next big tell is going to be when we get bad news out of Iran and the markets go higher. Should we get bad news, the markets go higher, that— there you go, go buy calls because that’s a tell. The markets have baked it all in.

And that is common, isn’t it? Again, the markets bottom well before the worst of most geopolitical events. And it looks like that’s already taken place here. Now, seasonality— this is one of the most bullish periods of the year. Hadn’t acted like it so far, but I think the war gets credit for most of that. Seasonality is fantastic from now, frankly, through mid, mid, mid, mid-late May. And again, Q1 earnings reports start coming out here in, in just, just under 2 weeks. Short selling is at its highest level since tariff mania. You know, we’re seeing all the extreme oversold-on-steroids indicators that tell us the lows are— the lows are in.

The lows should be in here, but we’re set for a big move higher, and it will be big. Remember, we’ve had two of these in Trump’s president— in both of Trump’s presidency, right? The first was the pandemic. The markets fell hard for 3.5, 4 weeks and then went parabolic. Everybody got flushed out and then parabolic. Same thing with tariff mania, just over 3 weeks, everybody got flushed out, markets went parabolic. This time we’ve not been hit as hard, and I think the reason is people, the bears, remember Tariff mania. They remember when they capitulated, sold, and went short right at the bottom and got smoked, right, in short order. I think that’s one of the reasons the markets haven’t gone down.

They know that— call it the taco trade or whatever you want to call it— they know that Trump knows when to, when to, when to, uh, when to pivot. I think that’s helped our markets. Plus, of course, again, the economic moat that we have around the entire country. So this is a great time to be an investor, great Great time to buy the dip. Is it going to end very well? I believe for the U.S., barring some unforeseen tragedy. And then I think the rest of this year, even through the midterms— because again, even if Republicans lose the midterms, the markets like gridlock. We know this throughout history. The markets like it because nothing gets done and Congress is out of our way.

By then, Trump will have already passed. Look, he’s, he’s got his one big beautiful bill. He’s accomplished so much in his first year in office. A lot of this legislatively, that will remain in place. Yes. Will he be impeached? Yes. Will it pass? I don’t— probably not. Probably not.

[00:20:09]:
Depends how bad the losses are in November. It’ll be ugly. It’ll be just like his first term. But again, the markets like gridlock. So I think, again, once this— if the lows are in, as we believe now, then we, we have to stay positioned long. That’s what we’ve done here, adding two positions along the way. Again, it’s our call. Is it now a deeply contrarian call that rates are going to plummet into year-end? We stand by that call.

Once Kevin Walsh is in, we’re going to see an entirely new setup, or at least we should. Our call remains that 10-year yields will fall below 3.5% again. Right now, 4.4%, call it. With 30-year mortgages below 5%, what are these, 5.6% now? Right there, they’re what, 4-month highs right now, 6-month highs. But here’s how we’re positioned. These are all interest rate sensitive decisions we’ve made because our forecast is for lower rates. Housing, I think we understand why. One of our favorite themes, the $35, $36 trillion sitting in home equity.

Once rates start going down, people are more confident that that’s going to continue to happen. You’re going to see unleash a, a completely unleashed American consumer that are using their home equity, which now again, it’s at an all-time high. 40% of Americans have no mortgage. Average home equity now 71%. Again, these are all-time highs. Small caps, small caps are, are a huge beneficiary of lower rates. They have more debt. They tend to have more debt than major Fortune 500 companies.

And again, borrowing costs would plunge for them. And with surging economic growth, which we’re having this year, small caps, which have led this year, will continue to— semis and tech— a lot of people understand this, but semis and tech are also highly rate-sensitive sectors. Again, it drives valuations, it drives CapEx, lower rate to do all of that. Where again, Bitcoin, cryptos, of course our new one Tao, we love, uh, same, same reason gold, silver, the miners would go up. Again, liquidity floods into the markets at lower rates. We’ve already seen that snapshot. So that’s, that’s really how we’re positioned here. Hey, if something changes, you know, uh, the only thing I can see that would change, again, because we’ve seen this movie before, again, dot-com Average 6.1% on the 10-year.

That’s not the— that’s 4.4% is not going to hurt the markets. 5.4%, on the other hand, in this environment with this Fed chair, yeah, we’re talking about a market going a lot lower. Again, Trump has got to drop that. He’s got to drop that suit. He has to drop the suit and get rid of Jay Powell because otherwise he’s not going anywhere else. Obviously Trump knows this. Let the ego go. If you need to get the Federal Reserve, uh, find another way to do it.

But this lawsuit’s not going to be the way to help the country. Second America is getting crushed. First America is fine. Corporate America is great. Again, rates don’t affect those people, those groups, but they crush the Second America. It’s the only reason the economy is not— we’re not at 5% GDP growth right now because the Second America is getting crushed. Powell’s got to go one way or another. All right, let’s take a look under the hood today.

Good internals today, uh, advanced decline, uh, better than 2 to 1 for both NYSE and NASDAQ. Up volume 68.8% NYSE, NASDAQ 67.8%, uh, But we did have about 120 more stocks hitting 52-week lows and 52-week highs. Again, that, that will change as the markets continue to move higher, of course. Good, good sector day as well. 9 of 11 sectors finished higher, really nothing to the downside, uh, real estate and energy, but just minor losses. Materials up almost 2% today. Again, gold, silver, uh, big recovery moves higher. Consumer discretionary 1.1%.

Healthcare up 1%. Tech also putting in gains of 6/10 of a percent. Good day. Commodity watch. Gold finishing up right now $101 an ounce, better than 2.2%. Had been up $170, gained some of that back. Again, oil prices inching higher, rates inching higher. Last trade, gold is $4,535.

Silver Last trade, $71.42. Also up, uh, just better than 2%. Copper today up 1.1%, $5.51 a pound. West Texas Intermediate, $91.34. That’s down a buck a barrel in the day. Interesting also, uh, Brent crude, which remember was $116, $117 just a couple of days ago. It’s now back down to $98. That’s, that’s, that’s a big move lower.

[00:25:23]:
And again, that’s a tell. I believe that’s a tell. Once this is over, oil’s going back in the $70s. Ultimately, I think $40s, $50s. That’s a year, year and a half from now. And, and that, that remains our call. All right, folks, that’s it for the day. Hope you had a great day and even better night.

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