Powell Criminal Investigation

Please click here for an enlarged chart of SPDR Gold Trust (NYSE:GLD).

Note the following:

• Federal prosecutors have launched a criminal investigation of Fed Chair Powell.  The investigation is focused on Powell's testimony to Congress over renovations at two Fed buildings.
• The chart shows the jump in gold as investors see gold as an antidote to the potential loss of the Fed's independence.
• Powell is standing firm.  He said, "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation."
• Prudent investors need to pay attention to unintended consequences of the Powell investigation.  Here are the potential unintended consequences:
  • Drop in the dollar
  • Rising long term interest rates
  • Spike in gold
  • Higher inflationary pressures
• The reaction in the stock market is as expected – the momo crowd is buying stocks on the news of the investigation while smart money is selling.  The reason for the different reactions is that smart money understands the potential unintended consequences.  In contrast, the momo crowd is exuberant about lower short term rates if Powell is kicked out.
• The news of the investigation into Fed Chair Powell has major implications for the next Fed chair.  Before the news, the new chair would have had difficulty shepherding hawkish FOMC members to go along with steep interest rates cuts.  Here is the key question for prudent investors: Will the Powell investigation strengthen the resolve of hawkish FOMC members, or will they submit?
• Prudent investors should carefully watch Treasury auction results today.  The results of the $58B 3-year Treasury note auction will be announced at 11:30am ET, and the results of the $39B 10-year Treasury note auction will be announced at 1pm ET.
• There is panic among credit card issuers.  President Trump has called for a maximum of a 10% interest rate for one year on credit cards.  There is panic selling in stocks such as Capital One Financial Corp (NYSE:COF) and Synchrony Financial (NYSE:SYF). Selling is also being seen in the early trade in the stocks of JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C), American Express Co (NYSE:AXP), Visa Inc (NYSE:V), and Mastercard Inc (NYSE:MA).
• There is aggressive buying in the early trade in the stocks of buy now pay later companies such as Affirm Holdings Inc (NASDAQ:AFRM) and Klarna Group PLC (NYSE:KLAR) on the prospect of credit card issuers pulling back.
• There is aggressive buying in Walmart Inc (NASDAQ:WMT) on the news that WMT stock will be added to Nasdaq 100.  Walmart is also entering an agreement with Google (GOOG, GOOGL) that pairs Gemini with Sam's Club's merchandise for shopping.
• President Trump is warning Cuba to “make a deal, BEFORE IT IS TOO LATE."  There will be new signals from us on Cuba related opportunities.
• Earnings season kicks off tomorrow with earnings before the regular session open from JPMorgan and Delta Air Lines Inc (NYSE:DAL).  Bank of America Corp (NYSE:BAC), Citigroup, and Wells Fargo & Co (NYSE:WFC) will report earnings Wednesday morning.
• Consumer Price Index (CPI) will be released at 8:30am ET tomorrow and may be market moving.

Iran

More than 500 people have been killed in protests against the regime.  The main reason behind the protests is very high inflation.  President Trump is talking about intervening in Iran.  Prudent investors should keep an eye on Iran.  Depending upon how the situation develops, it may have a significant impact on the markets.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. 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.

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 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.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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