For Monday June 24, 2013, We Recommend Against Investing

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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 0.27% on Friday with volume above Thursday and higher than the 30 day moving average.  Friday was a strong-volume up-day following two consecutive strong-volume down-days.  The patterns over the past week and month have contained more strong-volume down-days.  This is more consistent with a weak market that is declining than a strong, growing market.  The S&P 500 would have to advance about 11 points on Monday (+0.7%) to change our forecast back to a growth trend.

Subjective Comments:

Given the state of the US M2 money supply we strongly advise against investing in positions that grow when US markets grow.  We think US markets will continue their recent decline, but it is possible there could be some up-days in the very near future.  Our pattern recognition software identifies market turning points, and so far a fully formed pattern that would predict a market decline has not developed.  The collapse of the money supply growth over the past 6 months is why we are going more concerned about the ability of US stocks to continue growing.  We think additional growth is unlikely and we’re guessing a market crash could occur in July or October if the money supply growth remains tepid.

We have been advising for a very long time to avoid all bonds.  The massive money printing has driven bond price up and their corresponding yields (interest rates) down.  US Treasuries have been declining in value recently with the market’s concern the Federal Reserve could slow the printing press.  Municipal bonds are also very bad investments.  There have been defaults as some cities have declared bankruptcy (Stockton, California and Detroit, Michigan are examples).  EconomicPolicyJournal.com pointed out that State Street had to halt cash redemptions in some of their Municipal Bond Funds.  All bond investments are going to decline in price as interest rates go up.  Interest rates are going to go up as the Fed slows the printing press, or interest rates will go up when price inflation causes investors to demand a premium on bond investments.  Either way, interest rates will go up and this means bond prices will fall.  Avoid all bond investments.

Price inflation hedges have taken a hit recently.  This is why we have been saying any investing in price inflation hedges should be very long term positions.  Only invest what you can leave set aside for a very long time.  If you do not have any price inflation hedges, now is an excellent time to buy them.  Consider the recent price declines a sale.  With nearly $2 Trillion Dollars of excess reserves in the US banking system the US is still facing very serious price inflation in the future, even if the Fed slows down the money printing.  If you think price inflation is low now because official CPI is around 2%, we hope you will remember the Bureau of Labor Statistics, at the direction of Congress, has changed the CPI formula over the years.  If CPI were measured today the same way it was in 1980, CPI would be around 8%.

Continue to hold and accumulate cash.  This will allow you to invest quickly when it becomes clear which way US markets will go.  We consider it highly likely US markets will decline from here, but we hold open the possibility US banks could aggressively resume lending.  If US banks do indeed get aggressive with new loan origination, the bubble-boom could continue and the crash could be delayed.

Thank you for your continued interest and welcome to our new readers.  We’re glad all of you are here and we hope we are earning your trust.  Would you consider “liking” us on facebook?

One Response to For Monday June 24, 2013, We Recommend Against Investing

  1. Price inflation data point – Starbucks is raising their prices.
    Hat Tip: EconomicPolicyJournal.com
    http://www.economicpolicyjournal.com/2013/06/price-inflation-watch-starbucks-to.html