For Monday December 31, 2012, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 declined 1.1% on Friday with volume below Thursday and lighter than the 30 day moving average.  Our automated forecast remains uncertain based on the triggering of our stop loss algorithm.  On Monday the S&P 500 would have to advance about 16 points (+1.1%) to restore our automatic forecast to growth.  Volume has been very small the past two weeks which is common for the last half of December.  The low-volume makes the market indices more volatile and also mitigates the impact of the recent down-days.  Strong-volume down-days accumulating in a short time period is when to be concerned.  The recent market action appears to be typical year-end volatility and low volume trading.

Subjective Comment:

We have just recently changed our subjective investment recommendation from “risk off” to “invest for growth”.  The decline on Friday should be seen as another discounted opportunity to accumulate investments prior to the manipulated bubble-boom that will drive stock prices higher in 2013. Our guess about the selling and decline in the past week is from unsophisticated fear of the political “fiscal cliff” drama combined with more sophisticated tax avoidance strategies.  The acceleration of US M2 money supply growth has been strong enough and long enough to drive a bubble-boom in early 2013, assuming nothing else changes.  If US M2 accelerates further, which we think is likely given QE4’s commencement in January, then the bubble will be stronger and likely last longer.  Lots of forecasters make predictions at the end of the year.  Our prediction has been on the one topic of a bubble-boom, and we have shared in our daily posts the development of this opinion.

Since the end of the year is nearing, we’ll throw in some additional predictions for 2013: When the bubble-boom causes increased employment and a rising stock market, look for politicians of all parties to claim credit.  When price inflation gets worse, we predict politicians of each party will blame the other.  When this happens, remember the accelerated money printing from the Federal Reserve, combined with fractional reserve bank lending, is the true root cause of the bubble-boom and price inflation.

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