For Monday December 30, 2013, We Recommend Investing in US Markets


Investment Recommendations:

We recently changed our investment recommendation.  It is time to invest in US stock markets.  Price inflation hedges should be held for the long term and remain a good idea as we see price inflation heating up in 2014.

Technical Comments:

The S&P 500 declined 0.03% on Friday with volume above Thursday but below the 30-day moving average.  Most of the time a decline, no matter how small, is classified a strong-volume down-day when volume is above the prior day.  However, there are exceptions to this general rule and the very low volume compared to the 30-day average is something considered by our pattern detection software.  The very small decline in the market index is also considered, and as such Friday was not classified as a strong-volume down-day.  There are currently no predictive patterns developing in the daily market data.  If the S&P 500 were to decline about 41 points on Monday (-2.3%) our stop loss trigger could change our market forecast to an uncertain trend.

Subjective Comments:

There is no telling how long a bubble-boom will last.  Bubble-booms are created by accelerated growth of the money supply (as explained by Austrian Business Cycle Theory).  When banks engage in fractional reserve lending and the Fed prints money, the money supply grows.  It now appears to be growing fast enough for a bubble-boom to occur.  This will mean price inflation as well.  When the Fed slows how fast it prints, or the banks slow how fast they loan, the money supply growth will slow.  Thus the slowing of the money supply growth results from the decisions of a few people.  Guessing what they might do is frequently done by Fed watchers.  We watch the money supply growth and recommend investments based on ABCT and our proprietary technical analysis.  This gives us the ability to identify turning points, but we do not know how long a bubble will last.  We have recently seen both our technical indicator and money supply growth at a turning point, and we expect US stock markets to advance from here.  Since price inflation will erode the purchasing power of the US Dollar, we strongly recommend investing with leveraged index funds.  This is a high risk investment since it magnifies gains and losses.  The risk is mitigated right now because of the accelerated growth in the money supply.  Markets are going up.  Leveraged investments will help you grow your wealth faster than the rate of inflation.  If you’re not invested in US markets, do so ASAP.  Also, keep reading our blog every day US markets are open.  If circumstances change it will be important to exit US markets quickly.

Consider your circumstances carefully and decide how much of your portfolio to invest in equities.  If you own price inflation hedges we still think these are good long-term investments and a wise part of your overall portfolio.  Avoid all bonds.  TIPS are a type of bond designed to protect against inflation.  Avoid TIPS bonds too.  TIPS adjust based on official measures of price inflation, and those “official” measures will not be as high as the real price inflation.  As price inflation accelerates bond investors will demand a larger premium to compensate.  This means bond prices are going to decline from here.  If you own any bonds, sell them!  Avoid all bonds for the indefinite future.  Treasury yields are at their highest in 29 months, which means bond prices are at 29 month lows.  It will get worse for bonds.

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