For Wednesday July 10, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US stock markets right now.  Continue to avoid all bond investments. Price inflation hedges remain good long-term investments, but only invest in price inflation hedges amounts that you can leave invested for a very long time.

 Technical Comments:

The S&P 500 advanced 0.72% on Tuesday with volume below Monday and below the 30 day moving average.  Tuesday was a light-volume down-day and does not contribute to the formation of either a growth or decline pattern for US markets.  If the S&P 500 declines about 32 points on Wednesday (-2%) our automated market forecast could change to an uncertain trend.

Subjective Comments:

Price inflation remains a serious concern in the US.  Although official Consumer Price Index published by the Bureau of Labor Statistics suggests price inflation is not very high, MIT’s Billion Prices Project shows the online index continuing to grow despite “official” government numbers.  Anecdotal evidence abounds that prices are going up, including rents in New York City.  According to, CPI as measured by the methodologies in place in 1980 is currently around 8%.  Even though US M2 money supply has not grown in the past 6 months the large growth over the past several years will continue to fuel price inflation into the future.  Precious metals are a popular hedge investment against price inflation.  Precious metal prices have not performed well lately, but there are indications prices might be bottoming.  All price inflation hedges are subject to many market factors, but we still see the massive money printing and money supply growth as the driver of long term prices for such investments.  We recommend doing your own research to determine what price inflation hedges might be right for your circumstances.  Consider investing part of your portfolio in these investments, but only invest that portion you can afford to leave invested for a very long time.  Now might be a good time if you think prices are bottoming.

Investors with a simple understanding of the connection between money printing and price inflation might think the Fed’s talk of tapering back on Quantitative Easing means price inflation hedges will stop climbing in price.  The connection between money printing and price inflation also has to be understood via the money multiplier that results from fractional reserve banking.  Bank lending has collapsed in the past 6 months, and that’s why the US money supply (M2) is virtually unchanged despite almost $600 Billion Dollars of freshly printed money from Quantitative Easing.  We suspect M2 will not grow very fast for another few months.  As we have explained in previous posts we think US markets (and the economy) will crash within the next 4 months if money supply growth remains unchanged.  If this happens, we expect the Fed to massively ramp up the printing presses.  If true, price inflation hedges will again rally.  As for the market and the economy, that’s an entirely different story.  Avoid US stocks for now because of the risk of a market crash.

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