For Monday December 24, 2012, We Recommend Against Investing

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Technical Comment:

The S&P 500 declined 0.94% on Friday with volume above Thursday and higher than the 30 day moving average.  Friday was a very clear strong-volume down-day, and as such the growth pattern that began forming Thursday has been interrupted.  The decline on Friday was not quite enough to trigger our stop loss algorithm.  Should the S&P 500 decline about 2 points on Monday (-0.1%), then the stop loss could trigger and change our automated forecast to an uncertain trend.

Subjective Comment:

The decline on Friday appears somewhat related to the political uncertainty in Washington D.C.  This is why we have continued to leave our subjective investment recommendation as “Risk Off”, even though the accelerating growth in the money supply has us quite bullish on the prospect for the market in the very near future.  There are other factors influencing selling decisions of course, but the accelerating money supply will continue to fuel a bubble-boom in the US economy and stock market.  Aggressive investors who have started to accumulate positions in US stocks hopefully used Friday as a buying opportunity.  If you have started accumulating leveraged index funds that grow with US markets, you should not sell.  We still think the rest of December will see US markets bounce about but not make any significant progress.  Our best guess remains early January as the best timing.  Conservative investors should continue to position their investable funds in brokerage accounts to be prepared to invest.  If you have never invested using a leveraged index fund before you should know they are considered very risky financial instruments.  Some brokers require you to submit additional paperwork to purchase these risky types of investments.  This is another thing you can do now if your broker requires it.

The accelerating money printing from the Federal Reserve will, in our opinion, lead to serious price inflation.  Price inflation does not always occur when money printing happens.  Increases in productivity or the desire of the public to hold large cash balances can offset some price inflation.  The Consumer Price Index is a highly manipulated metric and not a good representation of true price inflation.  For a better measure we recommend Shadowstats.com where CPI is plotted using the “official” method and the method that was official in 1980.  Shadowstats.com shows price inflation (1980 method) is already near 10%.  Another very interesting fact is that US Oil Production has skyrocketed recently.  This increase in supply will put downward pressure on Oil prices, and this will offset some of the price inflation coming from the money printing.  When various factors combine to mute or offset price inflation from money printing this does not mean a bubble-boom will be avoided.  Austrian Business Cycle Theory describes how the economic distortions occur (bubble-boom followed by the bust / crash) even when price inflation is offset.  The roaring 1920’s in the US is a prime historic example where Fed money printing was offset by increasing productivity, negating price inflation but still causing a massive boom that ended with an equally massive bust.  Any mitigation of price inflation in 2013 will not stop the bubble in the economy and stock market.  We think the increased Oil production and any other mitigating factors will have little effect on price inflation, but the awareness of how seriousness of the price inflation might be delayed thanks to the Oil production.  Our opinion about price inflation is derived from the accelerated bank lending we have observed over the past 3 months since QE3 was announced, and our assumption banks will continue to lend when QE4 doubles the rate of money printing in January.  For additional details about Fed money printing we recommend this article at mises.org.

Avoid all bonds.  Hold your price inflation hedges for the long run, and prepare to invest in US markets in the near future.  US stock markets will be open on Monday but closed Tuesday for Christmas.

2 Responses to For Monday December 24, 2012, We Recommend Against Investing

  1. I know nothing says:

    Interesting article.

    Although I personally believe you are reluctant to make true associations that would be more powerful indicators. “The decline on Friday appears somewhat related to the political uncertainty in Washington D.C”. Appears..really? The market has shrugged off bad and good data (The market saying F*#k the GDP and housing shine like a neon sign?) coming out in the last 2 weeks and is moving solely on the hysterical antics of the fiscal cliff. No offense we do not need algorithms to know this. I will make a prediction solely on market mentality, retail sales from the Santa clause rally and 4th quarter numbers and we all know what they are approximately so here gos.

    1- A weak arse deal will be made for the 98% commoner in exchange for reforms ins social security and Medicaide/Medicare. All else will be booted down the road. Result: Rally in the market until the standard January 2nd and business will not make any change to increasing employment and may seek foreign sources.

    2- Retail sales and earnings whispers start coming out….and it isn’t looking good.

    3-The Iceberg hugs a boat to the bottom. Week three the Financials report pushing the market up, BUT….

    4-The market starts to get the rest of earnings and sharks start to eat the floaters in the ocean.GET OUT AFTER FINANCIALS REPORT.

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