For Tuesday April 23, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US stock markets right now, even though our automatic forecast predicts market growth.  Price inflation hedges remain good long-term investments despite last week’s drop in the price of precious metals.  Continue to avoid all bond investments.

 Technical Comments:

The S&P 500 advanced 0.5% Monday on volume below Friday and below the 30 day moving average.  Monday was a light-volume up-day, and that continues the pattern of market advances on light volume combined with market declines on strong volume.  This type of daily market pattern is more consistent with market declines and suggests continued market growth is unlikely.  A fully formed predictive pattern has not developed, but the pattern is still a clue indicating market growth is unlikely.  Monday’s advance was enough to change our automated forecast to a growth trend, but this was from the reversal of our stop loss trigger and not from a pattern predictive of growth.  If the S&P 500 declines about 7 points on Tuesday (-0.4%) our stop loss feature is likely to trigger again and change our forecast back to an uncertain trend.

Subjective Comments:

Monday market volumes are usually strong, but not so for the S&P 500 on 4/22/13.  The daily patterns continue to suggest weakness.  When this is combined with the money supply growth rate and various economic indicators we continue to think the US economy and stock market are at risk of crashing.  Regardless of the $85 Billion of monthly money printing (AKA Quantitative Easing) from the Federal Reserve, US banks are not originating new loans very fast.  We have made this observation for weeks and continue to watch the weekly money supply data and biweekly banking reserve data to keep our readers advised of changes.  We can only guess why US banks are hesitant to lend, but we saw this blog post at today.  While there are many potential reasons US banks would choose to be stingy with loans, the post provides one possible reason:

Regulators for the last several years have been religiously insisting banks do stress tests, or what we call interest rate risk scenarios, where we examine the effect on income and capital if rates were to suddenly shock up 100 to 400 bps.  No historical context for rates going up that rapidly, mind you, but they demand we do these scenarios anyway.

If bank regulators are repeatedly demanding US banks do these “stress tests” for interest rate spikes in excess of what is normal historically, perhaps US banks would begin to get worried and respond by increasing their excess reserves.  This is just speculation and circumstances could change.  While we don’t know why, we will continue to track the money supply and market data to determine what is happening.  For now, remain out of US stock index funds and avoid all bond investments.

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