Is it the Cheapest Bubble to Burst Ever?

Market Update - Tuesday, 14 July

Markets faced another difficult start to the day. President Trump has informed the Senate that a full-blown attack is underway. An address to the nation is scheduled for Thursday at around 9:00 PM US time, where he will most likely formally declare war on Iran. Consequently, situations have become highly volatile and messy, with global oil prices rising on a day-to-day basis.

The Indian market seems to be tracking this geopolitical development in its stride so far. For the second consecutive day, there was a gap-down opening, but the overall decline remained reasonably contained.

Other Market Triggers

• The Bank Nifty faced a steeper decline primarily because bond yields are rising very dramatically across the globe. This movement signals that it will be highly difficult for interest rates to come down anytime soon.

• In fact, if yields stop rising, interest rates will have to rise instead. This challenge is already being priced into the market, reflecting the imminent difficulties arising from high oil prices and subsequent interest rate pressures.

• As a result, major finance stocks like HDFC Bank, State Bank of India, and Kotak Bank were all in the red. The automotive and infrastructure sectors also ended the day in negative territory.

• Aside from a few resilient names like Bharti Airtel, Sun Pharma, and some gains in TCS, there was hardly any green on the board.

• Within the Nifty Next 50, Adani stocks rallied hard, while Divi's Lab and Jindal Steel performed reasonably well.

• Certain capital goods stocks, including ABB, CG Power, and Siemens, also managed to hold steady.

• Beyond these exceptions, the market map presented an entire sea of red, with real estate stocks taking the hit directly on the chin.

U.S. Market Updates

The previous session in the US markets also ended on a down note. The S&P 500 lost 0.7%, the Dow Jones dipped 0.2%, and the Nasdaq fell 1.88%.

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What to watch next ?

• The tweet of the day features an illuminating comparison between the S&P 500 and Berkshire Hathaway stock. The first chart displays the 10-year returns, revealing that Berkshire and the S&P 500 delivered almost identical returns over the last decade.

• However, the second chart highlights the past year, showing Berkshire down 8% while the S&P 500 has surged 32%. Even the top fund manager in the world is experiencing a highly challenging period, with a massive 40% performance gap opening up within just a year and two months.

• If the broader market does not come down, this underperformance could widen even further because Berkshire is currently sitting on enormous amounts of cash, with a third of their total portfolio allocated to US Treasuries.

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Strategy Of The Day

What To Read This Week ?

The Golden Shadow: Why Gold Tracks the Money Printer

Have you ever wondered what happens when the global money-printing machines go into overdrive?

A fascinating dataset shared by analyst Gary Bong sheds light on this exact phenomenon. By plotting a 70-year face-off between two economic titans, Gold and the U.S. M2 Money Supply, the data reveals a striking truth: gold isn't just a shiny metal; it is the ultimate shadow of fiat currency.

Here is a breakdown of how this relationship works, why gold recently surged, and what it means for your long-term portfolio.

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The Tale of Two Lines: Gold vs. M2 Money Supply

To understand the big picture, we have to look at the two lines on Gary's chart:

• The Golden Line (Gold Price): The market value of physical gold.

• The Green Line (M2 Money Supply): The total amount of money circulating in the U.S. economy.

What exactly is M2? It's not just the physical cash in your wallet. In the modern banking era, Central Banks don't physically print every dollar bill. Instead, they type numbers into a computer, instantly injecting digital billions into the commercial banking system. M2 tracks all of this—both the paper cash and the digital ledger entries.

When you look back at over 60 to 70 years of historical data, a clear pattern emerges: Gold price closely tracks M2 money supply.

• When the money supply expands rapidly, Gold prices shoot up.

• When the money supply pauses or slows down, Gold takes a breather.

The "Preemptive Strike": Why Gold Surged Recently

If you've been watching the markets over the last couple of years, you know gold has been on a massive run. But why did it move before we saw a massive, obvious spike in hyper-printing?

Think of Gold as a highly sensitive economic smoke detector. It made a preemptive move because smart money anticipated what is coming next. We are currently living in an era of:

• Severe Geopolitical Tensions: Creating a global rush for safe-haven assets.

• Sky-High Interest Rates: Pushing government debt-servicing costs to unsustainable levels.

• Massive Debt Burdens: The U.S. and other major economies are carrying record-breaking debt.

To keep the global financial system from collapsing under the weight of this debt, central banks have only one real exit strategy: expand the money supply and let inflation run. They must inflate the debt away to bring back a semblance of "normalcy." Gold sniffed this out early and ran ahead of the printer.

The Long-Term Play: The Printer Won't Stop

In the long run, stopping the growth of the money supply is next to impossible. Modern economies are practically addicted to credit expansion.

With money supply projected to grow at a double-digit rate over the coming decades, Gold is highly likely to mirror that growth. If M2 is growing in the double digits, Gold is fundamentally wired to deliver double-digit returns over the long haul.

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Meme Of The Day