For Monday February 4, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 advanced 1% on Friday on volume below Thursday and above the 30 day moving average.  The advance was sufficient to make up the decline over the past two days and then some.  Friday was not a strong-volume up-day, but the strong advance in the index with volume continuing to be above average shows money is moving into the market.  If the S&P 500 were to decline about 10 points on Monday (-0.7%) our automated forecast could change to an uncertain trend from our stop-loss algorithm.

Subjective Comment:

Jobs are improving as shown by employment data released Friday.  The overall unemployment headline remained unchanged, but the fact remains hiring is going on.  Now that aggressive money supply growth has been going on for 4 months it is not surprising to see employment picking up.  When money printing accelerates and a bubble-boom starts, employers do not immediately begin hiring.  After several months of a new trend, then employment starts to pick up.  Employment shows uptrends in both capital intensive industries and consumer industries.  Bubble-booms begin in the capital intensive industries and then spread to the consumer sectors, so the uptick across the board is consistent with a spreading and growing boom.  We’ve been reporting on the growth of the money supply and despite the fluctuations in the growth rate measurement we use, the past 4 months has seen a doubling in the growth rate over the previous period.  Just as Austrian Business Cycle Theory describes, a bubble-boom is happening.  Investing in price inflation hedges and using leveraged index funds that grow with US markets is how we recommend our readers position their portfolios.  Also, avoid all bonds.

We do want to emphasize we are not approving of the monetary policies of the Federal Reserve.  Money printing always causes problems.  Too much investment is directed towards capital intensive industries.  This is called “malinvestment” by Austrian economists.  Too much hiring in these sectors will occur, and when the current bubble eventually bursts, unemployment will rise again along with a market crash.  That is the nature of every bubble.  The duration of the bubble depends on how the money supply grows.  As long as money supply growth remains strong and continues to accelerate, the boom will continue along with price inflation and malinvestments.  The longer the boom, the worse the bust will be.  By watching the money supply growth rates and by following our automated forecasting of the US stock market you can invest knowing now is the up-phase of the business cycle, and you can rest assured we will let you know with sufficient warning before the down-phase begins.


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