For Monday January 28, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 advanced 0.54% on Friday with volume below Thursday but above the 30 day moving average.  If the S&P 500 declines about 8 points on Monday (-0.6%) our automated forecast could change to an uncertain trend.

Subjective Comment:

If US markets should have some down-days in the near future this would not be a reason to panic.  There are real global risks that can spook investors.  The Eurozone debt crisis remains a serious problem and the Chinese economy is experiencing a crash that is likely to accelerate.  Anything could happen to spook investors, but the aggressive money printing from the Federal Reserve combined with accelerated lending by US banks is growing the US M2 money supply at about 13.5% annualized for the past 4 months, and this is double the prior growth rate.  US money printing (aka monetary policy / bank credit creation) has been very high and is likely to remain so for the foreseeable future.  Any short-term pullback in US markets is an opportunity to accumulate investments at a discount.  Price inflation will eventually result from all the money creation, so price inflation hedges remain wise investments as well.  As price inflation becomes more obvious, bond investors will demand a higher return to compensate for the eroding purchasing power of the US Dollar.  When that happens, bond prices will fall.  It appears bond prices have already begun to decline a bit.  The massive money and credit creation has interest rates at historic lows, and this is creating too much investment in long-term business ventures and projects compared to what consumers want to buy.  The bubble-boom which is accelerating will eventually pop, and that’s why it is important to monitor US money supply carefully.  The business cycle tends to be very long, lasting months to years.  The current boom has enough new money to last for a while, but it is impossible to guess what the Fed and Banks will do in the future.  For now the best financial advice we see is to avoid all bonds, hold price inflation hedges, and accumulate leveraged index funds that grow as US markets advance.  Depending on your situation, you might consider accumulating price inflation hedges if you don’t have any.

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