For Monday June 10, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US stock markets right now.  Price inflation hedges remain good long-term investments.  Continue to avoid all bond investments.

 Technical Comments:

The S&P 500 advanced 1.3% on Friday with volume below Thursday and lighter than the 30 day moving average.  Friday was a light-volume up-day with enough of an advance in the index to result in the S&P 500 having an overall up-week.  Every trading session this past week had volume lighter than the prior day, so the up-trend for the index is not technically indicative of continue growth.  Patterns that predict growth began to form but did not complete in the past week.  There were also the beginnings of patterns that predict market decline.  Our pattern detection software looks for clues in strong volume days, and there were no useful clues this past week.  Our automated forecast changed to an uncertain trend during the past week when the S&P 500 drop triggered our stop loss algorithm.  On Friday the market advance was enough to reverse this trigger and our automated forecast returned to a growth trend.  If the S&P 500 declines about 20 points on Monday our forecast could change again to an uncertain trend.

Subjective Comments:

Our automated forecast detects turning points in the market, and at turning points there is high volatility with up-days and down-days both occurring.  Turning points happen when many people change their outlook regarding the future of the market.  As this happens, there are still other people who have not changed their opinion.  This is why patterns of strength and of weakness can begin to appear at the same time.  What matters are the fully formed patterns which can take days or weeks to develop.  Our technique looks for these fully developed patterns to avoid the noise and find the signals.  Additionally, our stop-loss algorithm can produce false signals when day-to-day volatility increases, and this is why our automated forecast changed twice in the past week.

What really matters is the 0% growth rate of the US M2 money supply over the past 6 months.  It might seem unbelievable that the money supply should fail to grow when the Federal Reserve is printing $85 Billion Dollars per month.  In the past 6 months the Fed printed $510 Billion Dollars.  That’s a Half Trillion Dollars!  In order for US M2 to remain unchanged during the past 6 months a corresponding Half Trillion of loans had to mature in excess of new loans being created.  Of course banks are lending, but they are not lending as fast as old loans are being paid off, and it took a half trillion of money printing to keep the money supply unchanged.  US Money supply has grown and shrunk in a zigzag pattern over the past 6 months, but the net growth has been zero as shown on the graph below.


Our best guess is the US M2 money supply will resume growing over the next two months, but not fast enough to sustain the asset bubbles in the US stock market for much longer.  We recommend avoiding US markets and moving your portfolio into cash.  Avoid stocks and bonds.  Price inflation hedges remain a good investment but only for that part of your portfolio you can keep invested for a very long time.  Should the money supply accelerate enough to keep the current bubble going, you will be able to see this and get back into US markets.  In the more likely event money supply remains at or near 0% growth, eventually there will be an opportunity to invest in leveraged index funds that grow when the US market declines.  Until then hold and accumulate cash to be ready for either the long or short investment opportunities that will come.

Welcome to our new readers!  We’re excited to see additional readers arrive and we hope you’ll find our recommendations useful.  We post every evening after US markets close, so we do not post on the weekends or holidays.  Occasionally we will not post on a Friday night, but when that happens rest assured we will post well before markets open on the following Monday.

3 Responses to For Monday June 10, 2013, We Recommend Against Investing

  1. Anton says:

    I love the subjective comments section(s). Maybe you could consider writing a guest post for zerohedge about the reasons for the need for accelerating M2 to sustain the bubble.

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