Money Supply Hits Record; Elon Musk's 'America Party' Stirs Debate; Trump Targets BRICS

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

America Party

Please click here for an enlarged chart of M2 money supply (M2).

Note the following:

• The chart shows M2 money supply rose sharply during the pandemic.  The M2 money supply represents the total amount of money in circulation that includes M1 (cash and checking accounts) plus savings accounts, small deposits, and retail money market funds.
• The chart shows that when the government free money train stopped, M2 money supply dipped. 
• The chart shows that M2 money supply has been rising since last year.
• The chart shows that M2 money supply has hit a new record.
• As M2 money supply hits a new record, part of the liquidity created by more money circulation is going into the stock market causing the stock market to rise.  
• The ‘One Big Beautiful Bill Act' (OBBBA) is projected to increase the Federal Deficit by $2.8T over the next decade and will likely fuel money supply increase.
• In our analysis, the realistic cost of OBBBA is $5T, and not $2.8T, as politicians are unlikely to end Trump's temporary tax cuts.
• For prudent investors, mounting debt is a concern as it is not sustainable in the long term.  In contrast, for the momo crowd, mounting debt is a reason to buy stocks as some of the borrowed money flows into the stock market.
• There is some selling in the stock market in the early trade for three reasons:
  • Musk is forming the America Party to challenge the excessive spending and borrowing.  
  • Trump is threatening BRICS with 10% tariffs for Anti-American policies.  BRICS originally included Brazil, Russia, India, China, and South Africa, and recently added Egypt, The United Arab Emirates, Ethiopia, Indonesia, and Iran.  BRICS over the weekend, expressed ‘serious concerns about the rise of unilateral tarrif and non-tarrif measures.'
  • There is also concern about the approaching July 9th tariff deadline.
• In our analysis, the momo crowd's concern about the America Party is valid. If the America Party gains traction, it will be a negative for the present policy of reckless borrowing and spending.  It will be negative in the short term to medium term for the stock market but positive for the stock market in the very long term.  It is worth a reminder that the momo crowd is always exclusively focused on the short term and doesn't care about the long term.
• Tesla Inc (TSLA) stock is down about 6% in the early trade on Musk forming the America Party.  There are twin concerns here:
  • Musk will be distracted.
  • President Trump may retaliate against TSLA.
• The momo crowd is aggressively buying the shallow dip in the stock market.

Magnificent Seven Money Flows

Money flows are positive in Amazon.com, Inc. (AMZN) and Microsoft Corp (MSFT).

Money flows are negative in NVIDIA Corp (NVDA), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), TSLA, and Apple Inc (AAPL).

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

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).

Oil

In a strange twist of events, OPEC+ plans to increase oil supply by more than expectations but Saudi Arabia is planning to increase oil prices next month.  The reason Saudi Arabia is able to increase prices even when supply is being increased is that summer is a peak demand season in the Northern Hemisphere.

Bitcoin

Bitcoin is seeing mild buying.

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors. 

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.