For Wednesday March 20, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US markets because of the uncertainty in our automated technical analysis combined with the drop in the US M2 money supply growth rate.  Research and invest part of your portfolio in price inflation hedges as an alternative to stocks, but be aware the weakness in international markets could create volatility in these investments.  Avoid all bonds including TIPS because all bond prices will fall when price inflation accelerates.  Prices are already going up, and we expect this will get worse in the coming months.

Technical Comments:

The S&P 500 declined 0.24% on volume higher than Monday and above the 30 day moving average.  Tuesday was a strong-volume down-day.  The daily market data continues to show signs consistent with a down turn.  We still have not seen a fully developed pattern with predictive value, but there is enough weakness that investing should be avoided.  The decline on Tuesday was enough to trigger our stop loss algorithm and change our automated forecast to an uncertain trend.  If the S&P 500 should advance about 2 points on Wednesday our forecast would likely return to a growth trend by a reversal of the stop loss trigger.

Subjective Comments:

If US markets bounce about without making significant progress in either direction our forecast is subject to flips between growth and uncertain trends.  Regardless of this behavior in our algorithms we can safely conclude from the daily data and money supply trends that it is a bad time to invest in US markets.  We do not know if markets will turn down or eventually resume their growth, although we’re leaning towards a decline.  We are not recommending shorting the markets at this time because we honestly see too much uncertainty.  US banks could resume aggressive lending and the bubble boom in the US could resume.  Alternatively, US banks could continue to accumulate the Fed’s money printing as excess reserves, in which case the bubble will pop.

Cyprus Update – The national parliament voted down the Tax Levy on bank deposits.  36 “No” votes, 19 abstentions and 0 “Yes” votes.  The Cyprus finance minister resigned, but their President refused to accept it.  The bank holiday continues, and this means people do not have access to their money.  Capital controls in the near future would be consistent with historical debt crises.  Capital controls are things like limits on withdraws, blocking funds from crossing borders and other such nonsense.  The United Kingdom is protecting its government employees and military in Cyprus and has flown in a planeload of cash (€1 Million) should ATMs and debit/credit cards stop working.  The Eurozone debt crisis is the result of years of money printing by the European Central Bank, followed by nearly zero money printing combined with government bailouts and regulations that prevent necessary bankruptcies from happening.  Things could go from bad to worse across the Eurozone in the coming days, and there could be spillover effects on US markets if investors get nervous.  There is a lot of speculation what might happen as a result of this attempted raid on Cyprus bank deposits.  Just ask yourself what you would do if your bank accounts (checking, savings, debit cards, credit cards, money market accounts, etc.) were frozen and you were unable to make any transactions except for cash.  That’s what is going on in Cyprus.  The grief model has the stages of Denial, Anger, Fear, Bargaining and Acceptance.  We would guess everyone is beyond Denial and no one is at Acceptance, which leaves Anger, Fear and Bargaining.  Emotions are likely running high, and rational decision making almost never happens when emotions are elevated.

All things considered, having your investments in cash and in price inflation hedges will allow you to watch from the sidelines and avoid serious losses over the near term, should such losses occur.

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