World's Smartest Banker Says "Could Be Hell To Pay" If Wall Street's Craze Goes Wrong

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

Hell To Pay

Please click here for an enlarged chart of iShares 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 JPMorgan Chase & Co 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 Inc CRM stock has plunged after a weak forecast. CRM stock is important because it is a component of the Dow Jones Industrial Average (DJIA). As full disclosure, there is a short position in CRM in The Arora Report's ZYX Short.  
• Among AI stocks, C3.ai Inc AI reported earnings better than the whisper numbers. As full disclosure, there is a long position in AI in The Arora Report's ZYX Buy. 
• Best Buy Co Inc 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.

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.  As full disclosure, there is a long term position in iShares MSCI South Africa ETF EZA in The Arora Report's ZYX Emerging.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVIDIA Corp NVDA and Apple Inc AAPL.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Microsoft Corp MSFT, Alphabet Inc Class C GOOG, Meta Platforms Inc META, and Tesla Inc TSLA.

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

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive 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 selling gold in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

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 selling oil in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is seeing buying.

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 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 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.

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.

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