For Tuesday March 12, 2013, We Recommend Against Investing


Technical Comment:

The S&P 500 advanced 0.3% on Monday with volume below Friday and lighter than the 30 day moving average volume.  Volume Monday was the lightest it has been in the past month.  The market advance on Monday was a light-volume up-day.  Up days on light volume is not consistent with a growing market.  The daily market data continues to be mixed with hints of strength and weakness.  The market has advanced for many consecutive days, but never on very strong volume.  It remains highly unclear if the up-trend will continue or not.  Our automated forecast remains for growth.  If the S&P 500 drops about 24 points on Tuesday (-1.5%) our stop loss algorithm could trigger and change our forecast to an uncertain trend.

Subjective Comment:

With the Dow index advancing every day and making a new record high, it might seem odd that we’re very concerned about the ability of US markets to continue their growth from here.  It could happen, but only if US money supply growth accelerates soon.  There has been so much money created in the past year that the capital structure of the US economy has most certainly accumulated malinvestments.  Malinvestments result from artificially low interest rates.  There is too much business activity in the wrong lines of business.  We don’t suppose to know what the right lines of businesses are, but we do know when the price of loans is reduced, more loans are made.  This will eventually lead to a crash and recession.  The only way a bubble-boom can continue is if the money supply growth remains strong and accelerates.  The Federal Reserve is trying to keep this going by printing $85 Billion per month, but US banks are simply accumulating this new money as excess reserves.  The situation could change if US banks change their policies regarding new loan originations.  For the past 6 weeks the money supply growth has collapsed after growing at 14% annualized for nearly half a year.  Economic indicators are showing signs of growth as a result of the past money printing, but this will change if money supply growth remains where it has been most recently.  Price inflation will still occur.  The official government statistics on Consumer Price Index are due out later this week.  MIT’s Billion Prices Project has shown price inflation accelerating, so the official CPI could show acceleration as well.  Price inflation hedges remain good investments for the long term and we suggest a portion of your portfolio should be invested there.  Regarding US equities we still see too much uncertainty right now and recommend avoiding US markets.

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