By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Debt Ceiling Crisis Ahead
Please click here for a chart of U.S. national debt.
Note the following:
- Prudent investors need to look beyond a few months to be prepared.
- The chart shows the national debt increase has gone parabolic.
- For healthy stock and bond markets and a good economy, the pace of national debt rise is not sustainable.
- Conditions have become ripe for a debt ceiling crisis ahead.
- As a reminder, The Arora Report is politically agnostic. Our sole job is to help investors.
- The U.S. has become strongly politically divided on tribal lines with very few people paying attention to important issues from the perspective of what is in the best interest of the nation.
- Both Democrats and Republicans have been responsible for the rise in the debt. Here is the major difference between Democrats and Republicans these days on the issue of debt. Most Democrat politicians almost always want to borrow and spend. Most Republican politicians want to borrow and spend when they are in power but oppose borrowing and spending when Democrats are in power.
- Kevin McCarthy has become the Speaker of the House after a tough fight with some conservative Republicans.
- Conservative Republicans are going to demand McCarthy to take a stand against enacting a clean debt limit increase now that Republicans control the House.
- This is going to set up a fight with President Biden and the Senate which is controlled by the Democrats.
- The U.S. has avoided a debt limit crisis since 2011, but one is highly likely to occur in 2023.
- The U.S. Treasury is not disclosing when the present debt limit will expire.
- In The Arora Report analysis, the most likely time for the debt ceiling crisis is August to October.
- If both sides are not able to compromise, expect a major overhang over the stock market.
- Setting aside the longer term concerns, the momo crowd is buying stocks in the early trade based on the momentum from Friday.
- The jobs report and ISM Non-Manufacturing report has increased the probability of a soft landing and thereby reduced the probability of a recession. We will be sharing more on this important subject with you as appropriate.
- Powell will be speaking tomorrow in Sweden at a symposium sponsored by Riksbank, Sweden’s Central Bank. The topic of the symposium is the independence of central banks. Powell is expected to indirectly hint at the Fed’ future course of action. This is especially important after lower wage growth and slowing services from Friday’s data.
Previously large layoffs have been mostly confined to tech companies. We shared with you in advance that Goldman Sachs (GS) was likely to announce major layoffs. Goldman Sachs will layoff over 3,200 people, over 6% of its workforce, this week. Investors need to keep an eye on the potential of layoffs spreading across Wall Street.
Supporters of former President Bolsonaro broke through security barriers and overran the Congress complex. Brazilian police have cleared the protestors. If there is a major drop in the Brazilian market, it will likely be a buying opportunity.
The eurozone unemployment rate remained unchanged for November, sitting at a record low. In theory, the European stock market should have reacted negatively to this news, but European stocks are higher, encouraged by the strong rally in U.S. stocks on Friday.
In a sign that the wealthy are still on a spending binge in the U.S., in spite of the Fed’s rate hikes, on the strength of U.S. demand Rolls-Royce car sales hit a 119-year record. As the stock market has come down, the expectation has been that spending by the wealthy would moderate.
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.
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.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin is range bound above $17,000.
Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒. 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 and bonds are range bound.
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 $1884, silver futures are at $24.10, and oil futures are at $75.92.
S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770, and 3630.
DJIA futures are up 113 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 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.
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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