For Wednesday December 18, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US markets and watch closely to see what trend develops.  Cash positions (including some currency outside of bank accounts) 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 for a few weeks.

Technical Comments:

The S&P 500 declined Tuesday 0.31% on volume above Monday and higher than the 30-day moving average, resulting in a strong-volume down-day.  The accumulation frequency of strong-volume down-days has not reached the threshold for a predictive pattern, but they do continue to occur.  This is a bearish indicator.  The decline was not quite enough to trigger our stop loss algorithm, so our market forecast remains for a growth trend.  If the S&P 500 should drop about 1 point on Wednesday (-0.1%) our forecast would likely change to an uncertain trend.

Subjective Comments:

Tomorrow we find out if the Fed will or if the Fed won’t “TAPER”!  What matters is not the dread taper itself but how much of the money printing causes the overall money supply to grow.  All money printing is bad and should never happen.  All fractional reserve bank lending is bad and should never happen.  Until these practices stop it is necessary to understand how they grow the money supply, and to understand how the growth rate creates boom-bust business cycle as explained by Austrian Business Cycle Theory (ABCT).  In 2013 the Fed will have printed just over $1 Trillion Dollars, but the overall M2 money supply has grown by about half that amount.  Where did a Half Trillion Dollars go?  Banks in 2013 allowed more loans to mature versus originating new loans.  The net bank lending combined with Fed printing grew the money supply by about a half trillion.  This is why bank lending and Fed printing must both be watched.  They are both evil in how they distort the economy.  Always watch both.  (By the way, we support ending the Federal Reserve, but when we say “End the Fed” we also intend to convey our wish to see an end tothe practice of fractional reserve banking.)

In this light, we have seen indications that banks are accelerating the rate of new loan originations.  This will cause the money supply to grow.  If the Fed tapers there will be a short term reaction, but the net money supply growth will be affected by printing and lending.  Bank lending can easily overwhelm any taper if the banks choose to accelerate lending.  Watch the reserves data of banks that’s published every other week along with overall M2 money supply that is updated weekly.

We noticed the Hindenburg Omen indicator has occurred again, creating a 4th such instance in the past week.  Our proprietary technical indicator continues to see strong-volume down-days appear, but they are remaining infrequent enough that a pattern has not formed.  If they continue to appear more frequently we could become bearish.  We are still leaning in a bullish direction and think we could recommend investing near the end of December or early January.  We are watching everything closely and are not ready to change our current recommendation which is to avoid US markets.

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