For Wednesday April 24, 2013, We Recommend Against Investing

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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 1% on Tuesday with volume above Monday and above the 30 day moving average.  Tuesday was a strong-volume up-day and a change in the recent pattern of market weakness.  The preponderance of pattern formation remains consistent with a weakening market, but still nothing definitive has developed.  One strong-volume up-day is not enough to change our technical forecasting process, but the 1% upward move in the index with strong volume is notable and we will be watching to see if this develops into a new trend or if it is a one day exception.  The S&P 500 would have to decline about 24 points on Wednesday (-1.75%) to trigger our stop loss algorithm and change our forecast to an uncertain trend.

Subjective Comments:

We really wish we had better advice for our readers right now.  Holding cash provides zero return on investment while price inflation erodes away purchasing power.  Frankly, we’re tired of writing the same advice.  If we felt there was sufficient evidence of a pending market decline, we would say so and advise taking a short position.  If the daily market data showed consistent strong-volume growth and the US M2 money supply was growing at an accelerating pace, we would recommend investing with a long position.  It is because M2 growth has been just over 7% for the past 2 years that we’re worried the current bubble-boom is nearing an end.  Economic data is mixed and the stock market shows mostly weak-volume growth.  However, US banks have almost $1.7 Trillion Dollars of excess reserves they could lend at any moment.  The US economy and stock markets could go either way from here.  It all depends on what US banks do.  If they continue to be stingy with their lending rates, then US markets will decline without much further growth.  The best advice we can give regarding US equities is to remain in cash and wait.

We do suggest investing in price inflation hedges and avoiding all bonds.  The reason for this is simple.  The US money supply is growing at 7%.  It must accelerate to sustain the bubble in the stock market, but the 7% growth means price inflation will follow.  You must do your own research to determine the price inflation hedge that best fits your circumstances.  Only invest what you can hold for a long period of time and the price inflation hedges will preserve your purchasing power.  Regarding bond prices, they are at historic highs (with yields at historic lows).  If the Federal continues to print money to buy bonds, price inflation will eventually cause other bond investors to demand a higher yield to compensate for the loss of purchasing power from price inflation.  This demand for higher yield will force bond prices down.  The only alternative is the Fed stops buying bonds, which will remove demand for bonds causing bond prices to fall.  The Fed will be able to keep bond prices where they are for a while, but eventually bond prices are coming down.  We advise against accumulating bond positions.  If you choose to continue to hold existing bond positions, then watch price inflation and the Fed’s monetary policy closely to make sure you sell before bond prices head lower.

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