For Thursday, November 1, 2012, We Recommend Against Investing

Technical Comment:

The S&P 500 advanced a tiny fraction (0.02%) on volume higher than the 30-day moving average volume and higher than last Friday, the last day the market was open prior to Wednesday.  The S&P 500 would have to advance about 10 points on Thursday to return our automated forecast to a growth trend.

Subjective Comment:

With US markets finally reopen following the closure from Hurricane Sandy, it was interesting to see the indices end the day with little change.  Wednesday was the end of the quarter, so there could have been a lot of activity as various funds performs trades at quarter points.  Another consideration was the need of the large insurance companies to raise cash in anticipation of claims from damages.  Instead the volume for the S&P 500 was slightly elevated and the up-day for the index contributed nothing to pattern formation.  International markets remain very weak, geopolitical risks still exist and uncertainty regarding the US elections persists.  US money supply growth remains at levels insufficient to continue a bubble-boom but high enough that a decline in US equities is likely weeks or month in the future assuming nothing changes.  The Federal Reserve will update money supply and banking reserve statistics tomorrow.  Today the Federal Reserve announced US banking reserve requirements will remain unchanged in 2013.  This is not big news since nothing is changing, but if the Fed were to change requirements it could have a very big impact on bank lending.  In turn bank lending impacts the growth of the money supply and has a direct impact on the manipulated economy as explained by Austrian Business Cycle Theory.

Continue to avoid all stocks and bonds.  If conditions change we might recommend investing in stocks, but we will continue to recommend against bond investments for a very long time.  We think bond prices are at the top of a bubble and have no more room to grow.  Price inflation will become a greater problem than it already is, so investments in hedges to preserve wealth during price inflation remain a good option for part of your portfolio.

Comments are closed.