For Monday November 25, 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 advanced 0.5% on Friday to a 7th consecutive weekly increase, the longest streak since 2007.  Friday volume was below Thursday and below the 30 day moving average, making Friday a light-volume up-day.  The past two full weeks have been below average volume.  Next week is likely to see below average volume since Thursday will be the Thanksgiving holiday.  If the S&P 500 declines about 56 points on Monday (-3.1%) our market forecast is likely to change to an uncertain trend.

Subjective Comments:

The acceleration of M2 money supply growth was 26% annualized during the first 2 weeks of October and since then has been essentially unchanged. Prior to that M2 had been growing at 6% annualized for 22 weeks.  It appears this acceleration was enough to ignite a mini-boom.  Our estimate of a crash by the end of October was wrong.  If M2 growth remains at 0% from here, there will eventually be a market crash as described by Austrian Business Cycle Theory.  Even if M2 remains at 0% through the end of 2013, it is unlikely US markets are going to decline much before 2014.

We remain grateful for the interest of all of our readers and will continue to publish our recommendations based on our technical analysis combined with subjective interpretation of the US money supply growth rates.  We hope you find our perspective useful and welcome your feedback.  Thank you to our readers who have been sending suggestions recently.  We might not reply to all of it, but we do read everything.  We will continue to post during the coming week although the holiday will reduce our ability to respond to comments, but feel free to keep sending them.

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