For Tuesday, April 17, 2012, the market forecast is uncertain

Our forecast for US stock markets is an uncertain trend.  If you choose to liquidate and hold cash, please avoid money market funds as they have exposure to European sovereign default risk.

Technical Comment:

US markets were mixed on Monday with the S&P 500 declining less than a point on volume below Friday and lighter than the 30-day moving average volume.  Our market forecast remains uncertain.  A slight increase in the S&P 500 on Tuesday of about 2 points would likely change our forecast back to a growth trend.

Subjective Comment:

The market was up and down on Monday.  If the S&P 500 had advanced enough to reverse our stop-loss trigger, we would report the change of our forecast back to a growth trend but would have advised caution before getting back into US equity markets.  The developing patterns predict a 50% chance of growth or decline from here, and those are not good odds.  Additionally the US M2 (not seasonally adjusted) money supply has been growing at a 7% annualized straight-line growth rate for the past 9 months, following two months of growth at a 25%+ annualized rate.  The long duration of 7% growth following the accelerated 25% growth means the bubble-boom in the economy and markets will eventually end unless the M2 growth rate resumes rapid growth soon.  Austrian Business Cycle Theory explains the cause-and-effect of money supply growth rates and the impact on markets via the boom-bust business cycle.  The boom-bust cycle is caused by money supply growth rates.  With nearly $1.5 Trillion of excess reserves US banks could resume aggressive loan originations and keep the current bubble-boom going, but they have chosen not to do so for the past 9 months.  This is why it is so very important to vigilantly track the money supply every week in addition to the technical market analysis we have in our forecasting process.

All of the money printing over the past several years by the Federal Reserve is why price inflation is getting worse and will continue to accelerate.  A good alternative strategy for investing part of your portfolio is to hedge against continued price inflation.  We recommend searching the internet and choosing a price inflation hedge best suited to your needs.  We strongly advise against TIPS bonds as an inflation hedge.  TIPS treasury bonds are indexed to the official Consumer Price Index, and the official CPI understates actual inflation.  As a result TIPS bonds will fall in real value.  Normal bonds will also fall in price as investors demand higher yields in response to accelerating price inflation.  Sell all your bonds, foreign, corporate and domestic, Federal, State and Local.  Finally, be watchful of the ongoing Eurozone debt crisis.  Spanish bond yields rose above 6% on Monday.  Spain’s national government has been considering taking on the debt of local governments within Spain.  The analogy in the US is if the Federal government took over the debt for one or more of the States or US cities.  This is making lenders nervous.  The European Central Bank may likely have to continue to bailout Spain and European banks who own bonds of the various over-indebted Eurozone governments.  For all of these reasons we advise a risk-off position for US equities right now.

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