VERY LITTLE INFLATION REDUCTION IN “INFLATION REDUCTION ACT”

To gain an edge, this is what you need to know now.

Inflation Reduction

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• In the Morning Capsule, we shared with you that Senator Manchin and Senate Majority Leader Schumer had reached a deal.  They are calling their bill the Inflation Reduction Act.
• President Biden is urging Democrats to quickly pass the Inflation Reduction Act.
• The chart shows that after the market opened there was initially some selling due to negative GDP.  We shared with you in the Morning Capsule that the GDP came at -0.9% vs. +0.5% consensus.  Now there are two negative quarters in a row.
• President Biden is emphasizing that the economy is not in a recession.  We shared with you in yesterday’s Afternoon Capsule that Powell said the economy was not in a recession.
• The chart shows that selling in the morning quickly turned to aggressive buying.
• We wrote in the Morning Capsule,

Momo gurus have been predicting that GDP would be a positive number.  This was one of the pillars of their narrative to buy stocks.  Now that the momo gurus’ call on GDP has been proven very wrong, what are they saying? We will find out more as the day progresses.  Expect them to twist again and come up with a new narrative to persuade investors to buy stocks.

• The buying is caused by the new momo narrative that has taken hold.  The narrative is that there is no recession, the Fed is not going to fight inflation, and now we have an Inflation Reduction Act to reduce  inflation. The momo guru narrative is clearly succeeding in persuading investors to buy stocks.
• In the Arora Report analysis, here are the key points. 
  • Inflation Reduction Act does not do anything significant to reduce  inflation.  The bill will reduce  prices of a handful of drugs for seniors only and cap out of pocket expenses for Medicare recipients.  The overall impact on inflation will be minor. Calling this act “inflation reduction” is a misnomer and a political exercise.  Just a reminder, we are politically agnostic and our sole job is to help investors and money managers.  
  • The Arora Report call is 85% probability of a recession.
  • Powell did not say that the Fed would stop fighting inflation.  Powell simply said that the Fed will make decisions from meeting to meeting based on new data.  We at The Arora Report, support the Fed’s decision as it is prudent.  Momo gurus have simply twisted Powell’s words.  
• Thank you for all of your requests for a podcast on the definition of recession.  There is a lot of confusion as the definition of recession has turned into a political football.  In view of the importance of the subject and to cut through the politics to the reality that is important for investors to know, we will start work on the podcast.
• Due to recession fears, money is flowing into bonds.
• The chart shows when the results of the Treasury auction were announced.  The auction was good.  Here are the details:
  • $38 billion 7-year Treasury note auction
  • High yield: 2.730% (When-Issued: 2.735%)
  • Bid-to-cover: 2.60
  • Indirect bid: 70.9%
  • Direct bid: 18.4%
• For next level information on Treasury auctions and their impact on the stock market, listen to the podcast titled “Treasury Auction Data: Ignore The Most Popular.”
• The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
• The VUD indicator is mostly green, indicating a net demand for stocks.  The reason is that the momo crowd is aggressively buying, but those concerned about the deteriorating macro picture are holding back selling.  

Money Flows

The momo crowd money flows since the Morning Capsule are 🔒 (To see the locked content, please take a 30 day free trial).

Smart money flows since the Morning Capsule are 🔒.

Short squeeze money flows are 🔒.

A Special Note To New Subscribers

Note the smart money behavior.  Smart money tends to sell into strength on strong up days.

New subscribers should consider adopting smart money’s way of investing and trading.

Sentiment

Sentiment is 🔒.

Sentiment is a contrary indicator at extremes.  In plain English, this means that when sentiment becomes extremely positive it is time to sell and when sentiment becomes extremely negative it is time to buy.

Close

There appear to be sell on close orders.

There is merit to watching the pattern of market on close orders as they represent the day’s dominant net cumulative activity by many professionals and funds.

Gold

The momo crowd money flows in gold are 🔒 since the Morning Capsule.

Smart money flows are 🔒 in gold since the Morning Capsule.

Oil

The momo crowd money flows in oil are 🔒 since the Morning Capsule.

Smart money flows in oil are 🔒 since the Morning Capsule.

Buy Zones And Buy Now Ratings

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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.