For Thursday May 02, 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.  Continue to avoid all bond investments.

 Technical Comments:

The S&P 500 declined 0.93% on Wednesday with volume below Tuesday but above the 30 day moving average.  Our automated process considers Wednesday to be a light-volume down-day.  Subjectively it could be considered a strong-volume down-day since volume was above average.  Either way, Wednesday does not contribute to a pattern of growth or to a pattern of market decline, thus leaving the future direction of US markets impossible to predict.  If the S&P declines about 16 points on Thursday (-1%) our stop loss algorithm could trigger a change in our automated forecast and produce an uncertain trend.

Subjective Comments:

The Federal Reserve announced no changes to monetary policy.  Also on Wednesday ADP published their employment statistics, showing a decline in overall employment.  Manufacturing ISM declined as well after yesterday’s drop in the Chicago PMI.  (Hat Tip ZeroHedge.com)  The declining economic indicators are consistent with the slowdown in US M2 money supply growth that occurred 3 months ago.  That money supply shock put the US economic bubble-boom and stock market rally in jeopardy of collapsing.  US banks are not lending the new money printed by the Fed, and this is preventing US M2 growth from achieving the necessary growth to sustain the current bubble.  It is not clear if banks will accelerate lending or not.  If the current trend persists we are likely to see US stock markets stagnate and the economy slow.  Money supply growth remains strong enough that price inflation will continue and likely accelerate.  The Fed’s money printing has been propping up the economy, stock market and bond markets.  Eventually this will end.  Here is another analysis explaining why bond prices will suffer when the money printing ends.  Continue to avoid US index funds and all bond investments.  Be sure to check with us tomorrow when we’ll comment on the weekly update of the money supply.

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