For Tuesday December 18, 2012, We Recommend Against Investing

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Technical Comment:

The S&P 500 advanced 1.2% on volume above Friday and stronger than the 30 day moving average.  Should the S&P 500 decline about 18 points on Tuesday (-1.2%) our forecast could change to an uncertain trend.  Monday was a strong-volume up-day with a larger advance in the index as compared to the strong-volume up-days last week.  Our pattern identification algorithms have still not identified a fully formed pattern, but the daily market action is consistent with a market that is gaining strength.

Subjective Comment:

We strongly believe the US economy and stock markets are at a turning point and are set to move higher in 2013.  We do not know how high the markets will go or how long this period of growth will last, but we do think a bubble-boom is about to begin in earnest.  Our opinion is based on the accelerated growth in the US M2 money supply over the past 3 months since QE3 was announced, and based on our assumption US M2 growth will accelerate further when the Fed money printing rate doubles starting in January.  Austrian Business Cycle Theory (ABCT) explains how an accelerating money supply growth ignites a bubble boom.  ABCT also shows how the artificially low interest rates resulting from money printing causes bad over-investment in the capital goods sectors.  Housing is an example, and housing data has shown an up-turn.  Additional housing data due out this week will very likely show continued strength.  After the boom begins in the capital intensive industries, where low interest rates encourage more investment, the boom will eventually spread to the entire economy.  Stock prices are expected to begin their climb along with the capital goods sectors.

Our subjective recommendation remains “Hold Cash” and not “Invest for Growth” because we think the last two weeks of 2012 could see additional market volatility.  There will be selling of stocks motivated by some investors who want to avoid the increasing capital gain tax rate scheduled to being in 2013.  The political “fiscal cliff” negotiations also create uncertainty, and uncertainty can be bad for the stock market.  Aggressive investors can begin accumulating positions now, and can consider buying into the US market on any down days.  We recommend the use of leveraged index funds that grow with the US market as a means of capitalizing on the coming growth and as a strategy to stay ahead of the price inflation that will follow from expanding money supply.  Conservative investors should consider waiting until early 2013.  Avoid all bonds as they will fall in price when the seriousness of inflation becomes obvious to more and more people.  Any price inflation hedges should continue to be held for the long term.  Look at your situation and decide how much of your portfolio to invest and be prepared by moving your funds into brokerage accounts.