WORLD’S SMARTEST BANKER SAYS “COULD BE HELL TO PAY” IF WALL STREET’S CRAZE GOES WRONG

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By Nigam Arora & Dr. Natasha Arora

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

Hell To Pay

Please click here for a chart of 20 year Treasury Bond ETF (TLT).

Note the following:

  • TLT moves inverse to long term yields.  A fall in TLT means long term yields are rising. In this environment, rising yields are a big negative for the stock market.
  • The chart shows that the rally in TLT failed at the trendline and close to the bottom of the resistance zone.  This is a negative.
  • The chart shows that TLT fell below the bottom band of the support zone prior to the release of the GDP data.
  • The chart shows that TLT has slightly recovered after the release of GDP data.
  • RSI on the chart shows that TLT is oversold and thus positioned to quickly bounce on the slightest good news.
  • $44B seven year Treasury auction was soft.  Here are the details:
    • High yield: 4.650% (When-Issued: 4.637%)
    • Bid-to-cover: 2.43
    • Indirect bid: 66.9%
    • Direct bid: 16.1%
  • In The Arora Report analysis, the just released GDP data is slightly softer, and for the time being, takes the prospect of a rate hike off the table.  Here are the details:
    • GDP – second estimate for Q1 came at 1.3% vs. 1.3% consensus.  You may recall that the advance report showed a 1.6% rise.
    • GDP price deflator was up 3.0% vs. 3.1% consensus.
  • Initial jobless claims came at 219K vs. 219K consensus.  This data indicates that the jobs picture remains strong
  • Private credit has been growing fast as banks have pulled back their lending.  Wall Street has gone crazy for private credit.  Previously, private credit was popular only among institutions.  Now, private credit is being increasingly pushed on retail investors.
  • Thank you for all of your great emails asking why The Arora Report is not recommending private credit at a time when almost everyone on Wall Street is pushing private credit.  The answer is that unlike Wall Street, The Arora Report is dedicated to helping its members extract the maximum money out of the markets with the lowest possible risk over their lifetimes.  To serve this purpose and avoid conflict of interest, The Arora Report does not sell private credit products, which is in contrast to Wall Street that is making a lot of money by selling private credit.
    • There is a big contrast between The Arora Report analysis and Wall Street’s analysis regarding the risks in private credit.  Wall Street sees no risk.  The Arora Report sees quite a bit of risk.  In The Arora Report analysis, it is only a matter of time before problems emerge in private credit.  The risks in private credit are likely to become evident to everyone if and when there is a deep recession.  A recession is not on the horizon, but the economic cycle has not been repealed.
    • Most private credit products are illiquid and long term.  For this reason, if the data starts showing a recession, it will be difficult to get out of them.
    • Now, the world’s smartest banker Jamie Dimon, CEO of JP Morgan (JPM), is warning if Wall Street’s craze for private credit goes wrong, there “could be hell to pay.”
  • Among notable earnings, software company Salesforce’s (CRM) stock has plunged after a weak forecast.  CRM stock is important because it is a component of the Dow Jones Industrial Average (DJIA). There is a short position in CRM in ZYX Short.  The position is profitable as of this writing in the premarket.
  • Among AI stocks, C3.AI (AI) reported earnings better than the whisper numbers.  There is a long position in AI in ZYX Buy.  The position is profitable as of this writing in the premarket.
  • Best Buy (BBY) reported earnings better than the whisper numbers.
  • The all important PCE data will be released tomorrow morning at 8:30am ET.  PCE is the Fed’s favorite inflation gauge.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
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South Africa

Early election results in South Africa show that Nelson Mandela’s party African National Congress may lose absolute majority.  The FTSE/JSE All Share Index dropped more than 2%, and South African currency rand fell more than 1%.  If there is a substantial decline in the South African stock market, it will likely be a buying opportunity.  For the buy zone and ratings in three time frames on South Africa ETF (EZA), please see ZYX Emerging.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA) and Apple (AAPL).

In the early trade, money flows are negative in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).

In the early trade, money flows are negative in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).

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.

Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling.  Over a long period of time, investors come out ahead by adopting smart money’s ways.  The exception is in a raging bull market – for very, very short term trades, consider following the momo crowd and not smart money.

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.

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Oil

API crude inventories came at a draw of 6.49M barrels vs. a consensus of a draw of 1.90M barrels.

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is seeing buying.

Markets

Our very, very short-term early stock market indicator is ***.  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 down, and bonds are ticking up.

The dollar is weaker.

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 $2364, silver futures are at $31.54, and oil futures are at $78.65.

S&P 500 futures are trading at 5267 as of this writing.  S&P 500 futures resistance levels are 5400, 5500, and 5622 : support levels are 5256, 5210, and 5020.

DJIA futures are down 315 points.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills 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.

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A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.  A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

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.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less.  Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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