For Tuesday November 05, 2013, We Recommend Against Investing

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Investment Recommendations:

Avoid US markets and watch closely to see what trend develops.  Cash positions (including currency) and price inflation hedges are still recommended.  Subjectively we hold a neutral market opinion that has been turning bullish recently, but there is too much uncertainty in US markets right now to make an investment recommendation.

Technical Comments:

The S&P 500 advanced 0.36% on Monday with volume below Friday and lighter than the 30 day moving average, making Monday a light-volume up-day.  If the S&P 500 declines about 55 points on Tuesday (-3.1%) our market forecast could change to an uncertain trend.

Subjective Comments:

The light-volume up-day on Monday was neither bullish nor bearish.  Some financial news seems very bad, including poor performance by Caterpillar and weak factory orders.  Austrian Business Cycle Theory (ABCT) explains that capital goods sectors boom before consumer goods sectors as well as crash before consumer goods.  For the first three quarters of 2013 the money supply growth rate has been very low compared to 2012, and as a result the performance of capital good sectors has crashed.  The recent acceleration in growth of the money supply has not yet produced accounting gains in the capital goods industries.  The economy does not react that quickly.  Instead there is evidence the recent growth acceleration in the US money supply is finding its way into stocks.  Some companies are borrowing to fund stock buybacks, and the US IPO sector is booming in the past month.  This is all anecdotal evidence, but it is consistent with accelerated lending and money supply growth seen in October as measured by the US M2 money supply.  Continue to follow the money supply closely and watch to see what trend develops in the US stock market.  It appears the recent money supply growth acceleration might be enough to keep the bubble boom going, but only if the new accelerated growth rate is sustained.

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