For Friday January 03, 2014, 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 expect price inflation to accelerate in 2014.  Avoid all bonds.

Technical Comments:

The S&P 500 began the New Year with a decline of 0.89% on Thursday with volume unpublished at the time of this post.  If the S&P 500 were to decline about 25 points on Friday (-1.4%) our automated forecast could change to an uncertain trend.

Subjective Comments:

The weekly US M2 money supply (Not Seasonally Adjusted) was published today for data ending 12/23/13.  For the past 10 weeks the annualized growth rate of M2 has been 8.8%.  This rate continues to grow and remains accelerated versus the 6% annualized growth that preceded the current rate.  Per Austrian Business Cycle Theory (ABCT) the accelerated growth rate of the money supply suggests US markets and the US economy will continue to experience a bubble-boom.  Looking a little deeper into the M2 trends we noticed the 4-week sub-cycle has not been as repetitive as expected.  The data published today should have dipped below the straight-line trend in order for the sub-cycle to remain present.  M2 instead grew versus last week and remained above the 8.8% straight-line trend.  This could be a year-end anomaly, or it could suggest M2 growth is actually accelerating even more.  An increase in the growth rate would explain why the expected sub-cycle dip did not occur.  It is not clear if this has happened or not.  It will take a few more weeks of data to see if this one data point was an anomaly or a shift in acceleration.

The market decline on Thursday appears to be a technical correction in the recent advance.  Although volume was likely strong (we assume) there remains no predictive pattern to suggest US markets will decline.  With the accelerating growth rate in the money supply we expect US markets to advance further from here.  We do not know nor will we ever guess how long a bubble-boom might endure.  It can go on as long as the money supply growth continues to accelerate.  As recently as 3 months ago the market was teetering.  IF not for the sudden 2-week growth (26% annualized) in early October we think a crash would have occurred.  Since then M2 growth has been stronger than before.  As this continues the duration of the current bubble-boom will become more extended.  We see Thursday’s pull-back as a buying opportunity and encourage our readers to invest in US markets using leveraged index funds.  Price inflation hedges already owned should be held.  We still think price inflation will get worse in 2014 causing price inflation hedges to do well.  Do your own research to determine the best hedges for your circumstances.

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