For Monday April 8, 2013, We Recommend Against Investing


Investment Recommendations:

The past several days of US market data suggest an increasing likelihood of a decline in the future..  The weekly money supply we discussed yesterday might show a resurgence of money growth, but not yet enough to persuade us to change our subjective recommendation.  Avoid US stocks right now.  Price inflation hedges remain viable alternative investments.  Continue to avoid all bonds as they will fall in price when price inflation eventually accelerates.  Avoid TIPS bonds and municipal bonds too for the same reason.

 Technical Comments:

The S&P 500 declined 0.43% on Friday with volume above Thursday but below the 30 day moving average.  Friday was another strong-volume down-day.  Strong-volume down-days combined with weak-volume up-days is a pattern that usually indicates a future market decline.  A fully formed pattern with predictive value has not presented itself, but the pattern increases the odds that US markets are going to decline.  Friday’s decline was not quite enough to trigger our stop loss algorithm, but if the S&P 500 drops a little more than 1 point on Monday our automated forecast is likely to change to an uncertain trend.

Subjective Comments:

On Friday it appears the news headline with the most influence on the stock market was the non-farm payrolls report showing an increase of 88,000 jobs in March.  This was a big miss from expectations.  Included in this data is the Labor Force Participation Rate which dropped to 63.3%.  This is the lowest the rate has been since 1979 (hat tip  Headline news reporting bad economic data obviously impacts markets.  After the early bad news the market recovered to close down 0.4% but had been down over 1% right after the news.  What matters is the money supply growth rate.  US banks are not lending as fast as they were about 3 months ago and US money supply growth has slowed.  If the growth remains slow then markets will eventually crash.  We think the deceleration in money supply growth has now been long enough to see the markets begin to react.  This conclusion is consistent with the daily patterns we see in our technical analysis.  US banks could accelerate lending and the current bubble-boom could resume, but if that happens remains to be seen.  Avoid US markets until it becomes clear what will happen.  Our automated forecast is showing growth, but our subjective assessment using Austrian Business Cycle Theory and the money supply is why we encourage you to stay out of US markets right now.

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