By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
A Terrible Milestone Reached
Please click here for a chart of U.S. national debt.
Note the following:
- The chart shows the accelerating trajectory of the U.S. national debt.
- The Treasury Department is informing that for the first time, gross national debt has exceeded $33T.
- The chart shows that about $10T worth of debt has accumulated since the pandemic.
- The national debt is likely to exceed $50T by the end of the decade if nothing substantial is done.
- We are politically agnostic. Our sole job is to help investors by being objective.
- Many federal programs passed by the Biden administration are costing more than expected. Here are two examples:
- The Inflation Reduction Act of 2022 was supposed to cost about $400B over 10 years. The reality is that it may cost more than $1T. The government simply underestimated the generosity of energy tax credits in the act.
- The Employee Retention Credit was supposed to cost about $55B. It has already cost $230B. Recently, the IRS froze the program to stop fraud.
- Estimates are that the Federal government will be paying over $10T in interest over the next decade.
- For the first 11 months of the fiscal year, the federal deficit stands at $1.5T, a 61% increase over the same period last year.
- The U.S. national debt equals over $254,000 per taxpayer.
- In addition to the national debt, the government has unfunded liabilities. These liabilities now total over $193T. This equates to over $577,000 per U.S. citizen.
- Prudent investors are concerned and are taking into account the rising national debt in their allocation.
- Momo gurus have convinced the momo crowd that the national debt and unfunded liabilities do not matter. Momo gurus keep urging their followers to ignore the debt and buy stocks.
- Today is the second day of the Fed meeting.
- The Fed will announce its rate decision at 2pm ET.
- Powell’s press conference is at 2:30pm ET.
- The consensus is no rate hike but a hawkish statement.
- In The Arora Report analysis, the most important item that investors need to pay attention to is the dot plot. Please click here for a chart of the prior dot plot. For details, please see yesterday’s Morning Capsule.
- The momo crowd is buying stocks in the early trade on hope strategy.
- The narrative from momo gurus is that the stock market will rocket up after the Fed announcement. Even though momo gurus have been consistently wrong, prudent investors pay attention to momo gurus’ narrative because they have a large following, and the momo crowd is often in control of the stock market in the short term.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are mixed 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.
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.
API crude inventories came at a draw of 5.25M barrels vs. a consensus of a draw of 2.667M 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 (BTC.USD) is seeing buying ahead of the Fed meeting. This is consistent with the historical pattern.
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 $1953, silver futures are at $23.58, and oil futures are at $89.56.
S&P 500 futures are trading at 4507 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are up 127 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.
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 five 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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