For Friday February 15, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 advanced 0.07% on Thursday with volume above Wednesday and higher than the 30-day moving average.  The Dow was down 0.07% and the Nasdaq was up 0.06%, so US markets were essentially unchanged.  The stronger volume with the unchanged market suggests balanced selling and buying.  The market could be consolidating as others cash out to take their gains at the same time others are investing for future growth.  Should the S&P 500 decline about 6 points on Friday (-0.4%) our automated forecast could change to an uncertain trend.

Subjective Comment:

US M2 (not seasonally adjusted) bounced up 65 Billion from the week ending 1/28 to the week ending 2/4, but this was not enough to bring the overall US M2 trend back to the aggressive growth rate that has been occurring.  Instead the current M2 (NSA) is where it would have been if the 7% annualized growth had never accelerated 4 months ago.  This is concerning.  Looking at the components of M2 shows the decline was mostly in Savings Deposits (including money market deposits).  It is curious that savings deposits would decline and the money would not be recorded elsewhere.  If the data is accurate, it suggests a lot of money was withdrawn as currency and not replaced via redeposit or printing of new currency.  QE4 continues to create new money at $85 Billion per month and bank lending remains strong.  It is unlikely so much currency was actually withdrawn.  We still speculate the data could be erroneous.  If the data is accurate, we think it is likely the currency will eventually be re-deposited and reappear in the money supply data in the near future.  The 65 Billion up-tick in the most recent weekly data is another reason to maintain a wait-and-see position regarding US M2.  As a result, we continue to advise holding price inflation hedges and US equity positions.  We also advise against owing all bonds and suggest accumulating cash for another week until the next M2 update is available.