By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Wrong Biden Focus
Please click here for a chart of commodities ETF (PDBC).
Note the following:
- First and foremost, we are politically agnostic. Our sole job is to help investors, investment advisors, and money managers. This post is about helping you with your investments and not about politics.
- Let us start by understanding the basics of inflation.
- The famous economist Milton Friedman won the Nobel Prize in 1976 for his contributions to consumption analysis and to monetary history and theory.
- Friedman established that inflation is primarily a monetary phenomenon. In plain English, whatever the cause of inflation maybe – demand or supply – it has to be financed. For higher inflation to be financed, it takes higher money supply.
- The root cause of inflation that the economy is experiencing now is the demand caused by government policies. Yes, there are supply disruptions, but they are only a minor part of the story.
- The demand has been primarily the result of the following:
- $5 trillion of money printing by the Fed
- Federal Reserve keeping interest rates near zero
- Rapidly expanding money supply
- Heavy government borrowing
- Government sending free money to consumers, such as through expanded child tax credit
- Government policies that lead to near free money to corporations and the wealthy
- If the government would have pursued sensible policies, the supply for most goods and services, in spite of COVID, would have been enough to supply the demand and inflation would have stayed under control.
- In his State of the Union address, Biden focused on supply disruptions but ignored the root cause of higher demand. If that was not enough, Biden wants to spend even more money.
- Biden’s lack of focus on the demand and wanting to spend more money on top of the Russian situation that may cause supply disruptions in commodities is triggering the following:
- Commodities are flying.
- There is buying in stocks on the prospect of more government spending.
- The chart shows that commodity ETF PDBC was on a strong uptrend before the Russian invasion.
- The chart shows that the price pattern on PDBC gave a classic technical sell signal on Russia situation. The sell signal was generated when commodities gapped up by a large amount but then fell to close the gap and were followed by lower prices the next day.
- The chart shows that the sell signal failed on worsening Ukraine situation.
- The chart shows that as fighting in Ukraine intensified, commodities were flying even before the latest jump on Biden’s speech.
- Of note is that there are plenty of stock piles of commodities to meet the present needs. Commodities are running up because of inflation expectations and a siege mentality that is beginning to develop. This is exactly what happened in the 1970’s. Ultimately the main driver of inflation becomes expectations and siege mentality.
- PBDC is in ZYX Allocation Model Portfolios. This is the best ETF for investors that provides the appropriate balance between various commodities for investors who do not want to delve into individual stocks and individual commodities. Please see ZYX Allocation for the buy zone.
OPEC Friendly To Russia
Here are the important points.
- The most influential OPEC countries, Saudi Arabia and UAE have been historically aligned with the U.S.
- Lately, both Saudi Arabia and UAE have become closely aligned with Russia.
- OPEC+ just finished its latest meeting in a record 10 minutes. The + indicates the inclusion of Russia.
- The expectations were that OPEC+ would increase oil production by significantly more than 400K bpd in view of Ukraine fighting.
- It appears that the close ties between Russia and Saudi Arabia, as well as UAE, prevailed and the production will be increased by only 400K bpd.
Powell
Investors are eagerly awaiting Powell’s testimony for clues to the monetary policy.
Beige Book
The Fed’s Beige Book will be released at 2 pm ET.
ADP
ADP is the largest private payroll processor in the country. ADP uses its data to provide a glimpse of the employment picture ahead of the official jobs report that will be released on Friday at 8:30 am ET.
ADP came at 475K vs. 350K consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is 🔒 in the early trade.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API data showed a draw of 6.1M barrels vs. a consensus of build of 2.8M barrels.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 oil above $110 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
The momo crowd continues to 🔒 bitcoin on the narrative of use by Russia to get around sanctions. Smart money is 🔒 bitcoin as smart money understands the flaws in the narrative. Please read yesterday’s Morning Capsule section “Flaws in Bitcoin Move Thesis.”
Markets
Our very, very short-term early stock market indicator is 🔒 as the market will move based on Powell and the Ukraine situation. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking up, and bonds are ticking down.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1932, silver futures are at $25.24, and oil futures are $110.22.
S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.
DJIA futures are up 146 points.
Protection Bands and What To Do Now?
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short-term bond funds or allocated to short-term tactical trades, and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
