For Wednesday November 06, 2013, We Recommend Against Investing


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 declined 0.28% on Tuesday with volume above Monday and larger than the 30 day moving average volume.  Tuesday was a strong-volume down-day, resulting in the third such day in the past five trading sessions.  This is not a predictive pattern but it is not typically consistent with a growing market.  Should the S&P 500 decline about 49 to 50 points (-2.8%) on Wednesday our market forecast would likely change to an uncertain trend based on our stop loss algorithm.

Subjective Comments:

So far this week the daily market data is not encouraging.  Monday was a light-volume up-day and Tuesday was a strong-volume down-day.  It is possible US markets remain at a turning point where both bullish and bearish signals develop simultaneously.  If the US M2 money supply were still accelerating strongly we would expect to see US markets increasing and US bond yields holding steady or falling.  Instead US markets seem to be weakening and bond yields are growing (meaning bond prices are falling).  The stock and bond price action seem more consistent with a market top and the beginning of a market decline.  The recent US M2 growth acceleration came from bank lending, and only continued aggressive lending by banks would seem able to sustain higher M2 growth rates.  Some reports published today suggest the Federal Reserve will continue printing money until unemployment falls to 6%, which would be a change from their previous guidance of 6.5%.  The money printing has piled up $2.3 Trillion dollars of excess reserves that banks are able to lend.  This should have never happened, but we are stuck with the current situation and it is not clear what direction markets will go from here.  Continue to be patient and put some of your money into price inflation hedges.  Price inflation will eventually accelerate as a result of the current and prior money printing.  Official Consumer Price Index might be near 2%, but if CPI were measured as it was back in 1980 it would be close to 9% right now.  Price inflation hedges have had a rough year in 2013, but with the continued money printing they will eventually recover and grow.  Only invest in price inflation hedges amounts you can leave invested for a long period of time.

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