For Friday December 14, 2012, We Recommend Against Investing

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Technical Comment:

The S&P 500 dropped 0.63% on Thursday with volume below Wednesday and below the 30 day moving average.  If the S&P 500 declines about 6 points on Friday (-0.4%) our forecast could change to an uncertain trend based on the current status of our stop loss algorithm.  It is worth noting the decline on Thursday occurred on light volume while the previous days advances were on stronger volume.  Advances on strong days combined with declines on weak volume days are typical of data patterns that predict growth.  The overall movement of the index has not been enough to form a fully developed pattern, but the change is still noteworthy.

Subjective Comment:

In our post yesterday we discussed at length the potential impact of the doubling of the rate at which the Federal Reserve is creating new Dollars.  Today we have analyzed the weekly US money supply data and the biweekly US banking reserves data.  The data published on Thursday is for the period ending December 3 (money supply) and December 12 (banking reserves), so these numbers do not yet reflect any impact from the accelerated money printing.  US M2 (non-seasonally adjusted) is now growing at 10.4% annualized over the past 13 weeks since QE3 was announced.  This growth rate is sufficient to cause a bubble-boom since the prior growth rate was around 7.5% for over a year.  The required reserves of US banks continue to show the uptrend evident in the data two weeks ago.  All indications point to very strong money growth and accelerated bank lending, and remember this data is prior to the announcement of QE4.

Continue to hold your price inflation hedges; those investments will do very well as all of the money printing and accelerated money supply growth will cause price inflation to go higher.  Avoid all bonds as they will decline in price as more investors become aware of how serious price inflation will be, and bond prices will fall further and faster when price inflation heats up.  Get ready to invest in leveraged index funds that grow with US markets.  Aggressive investors should start accumulating positions now.  More cautious investors should consider waiting a little longer, but not much longer.  Evaluate your portfolio and decide what mix of investments is best for your situation, then move your funds to your brokerage account(s) so you’re positioned to invest.