For Tuesday November 19, 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.  There is too much uncertainty in US markets right now to make an investment recommendation, although it is probably safe to hold any currently owned equities through the end of the year.

Technical Comments:

The S&P 500 declined 0.37% on Monday with volume below last Friday and below the 30 day moving average, making Monday a light-volume down-day.  Consequently the downward motion of the market index does not contribute to a bearish pattern, nor does it support or breakup developing bullish patterns that began developing last week.  If the S&P 500 were to decline about 53 points on Tuesday (-3%) the stop loss algorithm in our automated process could change our market forecast to an uncertain trend.

Subjective Comments:

The DOW and S&P 500 both hit all-time highs before falling by the end of Monday’s trading session.  Conventional market reporting suggests comments by Carl Icahn caused the market to decline after hitting the highs.  The timing was there for causality, but we don’t know if his comments actually caused anything in the market.  What we find much more interesting is the light-volume of Monday’s decline.  Bullish patterns are forming and it is possible the money supply growth rate could remain higher than it has been.  The bond yield curve is presenting a larger spread between short and long term rates.  This creates an incentive for banks to lend.  Accelerated bank lending would accelerate money supply growth via the fractional reserve money multiplier effect.  However, bond markets are in a bubble, so do not invest in any bonds.  If you own bonds, we urge you to sell.  Bond prices are likely to remain elevated through the end of the year, but when bond prices finally fall it will be a sudden and rapid decline.  Bond prices are being supported by money printing by the Fed, but sooner or later the Fed will slow money printing or price inflation will heat up.  Either or both events will cause bond prices to fall.

Watch out for price inflation. shows price inflation around 8% based on CPI as measured by the 1980 methodology.  UBS economists are warring about price inflation and the number of $100 dollar bills has grown to be a much larger amount of the currency printed by the Treasury.  Money printing causes price inflation.  This is a fact that all economists agree upon.  The time lag between printing and prince inflation varies on many factors.  Eventually price inflation occurs, just as it always has throughout all recorded history.  In addition to money supply growth causing price inflation, Butterball released a statement recently that fewer full size turkeys will be available this Thanksgiving.  This will add upward pressure to food prices.

Price inflation hedges remain a good long-term investment.  Cash will not be a great investment as price inflation accelerates.  If we continue to see signs of accelerated money supply growth we will become more bullish and could change our subjective advice accordingly.  Time will tell.

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