For Monday January 14, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 closed Friday’s trading session virtually unchanged, declining 0.07 points (-0.005%).  Friday’s volume was below Thursday and below the 30 day moving average.  After the strong advance on Thursday there was some selling pressure to take profits, yet all that pressure was met with sufficient demand to hold the index unchanged.  This data is consistent with a growing (booming) market.  Our stop loss settings are adjusting upward, so a decline of the S&P 500 on Monday of about 4 points (-0.3%) or less could be enough to switch our automated forecast from growth to an uncertain trend.

Subjective Comment:

If our automated forecast does change to an uncertain trend based on our stop loss algorithm we are highly unlikely to change our subjective recommendation.  The accelerating growth of the US M2 money supply is driving a bubble-boom in the economy and stock market.  Price inflation will be a consequence as well.  Price inflation has been masked somewhat by the goofy reporting from the Bureau of Labor Statistics, from the desire of many producers to absorb the costs and keep their prices competitive, and by substitutions of lower cost inputs for various finished goods.  Perhaps you’ve noticed smaller portions and lower quality at the grocery store?  This is a form of stealth price inflation, and it further keeps official Consumer Price Index reporting from showing the true impact of the money printing.

These techniques will become less viable and prices are eventually going to go up.  As price inflation becomes more obvious, bond prices will fall as investors demand higher yields to compensate for the eroding purchasing power of the US Dollar.  This is why we recommend against all bond investments.  Take advantage of the bubble boom in the US market by using leverage, either a margin account with your broker or via leveraged index funds.  We prefer leveraged index funds.  This will grow your investment faster as the boom continues and should produce a real gain after inflation and taxes.  If you own price inflation hedges, continue to hang on to them.  How long a bubble-boom will last depends on the money supply growth and many other complex factors.  Our best guess is this bubble ought to last at least 6 months, but that could change and it is just a guess.  Please continue to check our daily posts and let your friends know about us.

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