March 9, 2014 Leave a comment
Sell US equity positions and hold cash, but be prepared to move investment funds back into US markets. Price inflation hedges should be held or accumulated for the long term as price inflation is starting to accelerate. Avoid all bonds, including the new MyRA bond scheme from the Feds. Ignore the propaganda.
The S&P 500 inched higher on Friday, moving up 0.05% on volume above last Thursday but below the 30-day moving average. There are no predictive patterns present but there continues to be an abundance of strong-volume up-days, suggesting a bull market might continue. Should the S&P 500 decline about 14 points on Monday (-0.8%) our automated forecast could change to an uncertain trend.
International financial and political issues are likely to have some influence on US markets. The nonsense going on in Ukraine along with a developing economic crash in China has the potential to spook investors. Since last October there has been enough lending by banks in the US to accelerate the overall money supply growth and that has kept the current stock bubble going. It is not clear if bank lending will continue or if the sideways zigzag since the start of the year is an indication of banks pulling back on new loan originations. With all this uncertainty we recommend not investing in US markets right now, although we are becoming more bullish.
We still recommend against investing in any and all bonds. We also recommend investing in price inflation hedges as a long-term position for part of your portfolio. Although stocks might stagnate and even decline, there has been so much money printed in the US that price inflation is going to accelerate. When it does the result will be falling bond prices and growth in the nominal value of price inflation hedges. The US stock market has shown the ability to grow during 2013 even when the money supply growth slowed. This was the momentum of previous money printing. It is our opinion that the market was near a crash last October, but this near crash was avoided by a sudden acceleration of lending by US banks. Since the market was near a crash in October, we are concerned there might not be as much momentum right now if indeed bank lending has slowed.