Two specific Things the US cannot afford right Now

Market Update - Thursday, 9 July

The global markets recently experienced some downward pressure, and gold also came off its highs following the news of a new US attack on Iran. A chart of gold in the background highlights this sell-off. Tavi Costa very nicely articulates that there are two specific things the US cannot afford right now:

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Looking at the indices, Nifty made a good attempt to come back and recover what was lost yesterday, closing with a modest gain of 0.34%.

Other Market Triggers

• The heat map for the day was reasonably positive. Financials and select large caps did well, including HDFC Bank, Kotak Bank, SBI Life, Bajaj Finserv, Shriram Finance, Bharti Airtel, Sun Pharma, and UltraTech Cement.

• On the flip side, some losses were recorded in Dr. Reddy's, ONGC, Maruti, Infosys, and Hindalco.

• Moving over to the Nifty Next 50 space, there was a fantastic move in DLF, which shot up by more than 4%. Tata Capital rose almost 3%, while HDFC AMC and Canara Bank also registered gains. Lodha Developers climbed almost 7%.

• This clear strength shows that real estate is doing very, very well. In contrast, some losses were observed in Mazagon Dock, Solar Industries, and United Spirits.

U.S. Market Updates

Shifting focus to the US markets, the previous session was a mixed bag where the market segments were all over the place, showing highly diversified outlooks. The S&P 500 was down almost a quarter percent, and the Dow Jones fell remarkably by 1%.

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What to watch next ?

• The market sprang back up during the session to cover most of the losses that happened in the previous session, especially in the broader market. This indicates that the market is not willing to go down any further.

• Despite facing such significant headwinds, the market is sitting pretty much at 24,000, which serves as a very good sign.

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Strategy Of The Day

What To Read This Week ?

Why Traditional Valuation is Dead (and What to Do About It)

If you've been watching the global markets lately, you might feel like the ground beneath your feet is shifting. Well, it is.

Recently, analyst David Costa presented a chart that should be on every investor's radar: the US M2 money supply. For the past several years, the one-month change in the US money supply has remained stubbornly elevated. In fact, just a few months ago, we witnessed the largest monthly increase in M2 money supply in five years.

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When the world’s reserve currency prints at this velocity, it doesn't stay contained. It floods global crates, forces other central banks to expand their own money supplies to keep up, and alters the foundational mechanics of investing.

Central banks have raised interest rates to combat rising prices, but they have hit a ceiling. If they raise rates any higher, the cost to service this massive mountain of debt becomes completely unsustainable.

The Reality Check: There is no free lunch in economics. Since governments cannot afford to pay off this debt with real wealth, they will inflate it away. By keeping the money printers running, the value of the currency degrades, making past debt cheaper to pay off. Consequently, sticky inflation is a feature, not a bug, of the coming years.

Nominal Illusion vs. Real Wealth

In this hyper-inflated environment, your stock market portfolio is going to look fantastic on paper. However, you need to look past the vanity metrics.

• Nominal Returns: Will likely look incredibly strong as asset prices are pushed up by a tidal wave of cash.

• Real Returns (Adjusted for Inflation): May barely break even or could even be negative.

When the base layer of money expands so rapidly, every asset class—whether it is equities, real estate, or precious metals—experiences an upward trajectory. They aren't necessarily getting more valuable; your money is just getting worth less.

The Shift from Absolute to Relative Valuation

Because the money supply is expanding so aggressively, traditional "absolute valuation" (e.g., trying to calculate if a stock is worth exactly $100 based on historical cash flows) is essentially a dead game. The money base is a constantly moving goalpost. How do you measure the true value of an asset when the yardstick itself is shrinking every month?

Instead, the modern market belongs to Relative Valuation, measuring the strength of one asset class versus another.

The Playbook: Follow the Trend

In a world where liquidity dictates value, fighting the trend is financial suicide. It is now more critical than ever to identify which asset classes are capturing the momentum of this newly printed money and allocate heavier weightings to them.

When the tide rises, all boats float, but some rise much faster than others. Keep your eyes on the data, watch where the liquidity flows, and adjust your portfolio dynamically.

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Meme Of The Day