For Thursday January 09, 2014, We Recommend Investing in US Markets

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Investment Recommendations:

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 declined a very small 0.02% on Wednesday, but volume was higher than Tuesday and above the 30-day moving average.  Wednesday was a strong-volume down-day.  The frequency of strong-volume down-days has increased but a predictive pattern has not developed.  It would take a few more over the next few days in order for a predictive pattern to have a chance at emerging.  If the S&P 500 were to decline about 21 points on Thursday (-1.1%) our stop loss algorithm could trigger a change in our market forecast to an uncertain trend.

Subjective Comments:

We are watching with interest the accumulation of strong-volume down-days.  We do not think US markets are going to decline given the recent acceleration in the growth rate of the US money supply, but we must watch the data carefully.  Austrian Business Cycle Theory (ABCT) describes how bubble-booms occur, and an accelerating money supply growth rate is the root cause of the boom as well as the eventual bust that follows.  The increasing employment numbers are consistent with ABCT.  We still recommend leveraged investing for growth in US markets.

Price inflation remains a serious concern.  As price inflation accelerates, so will the premium demanded for bonds.  The fact that bond rates continue to increase shows this economic reality.  If the growth of the money supply grows the demand for bonds will fall, resulting in a drop in bond prices.  If the growth of the money supply accelerates people will start to fear inflation, and that will cause bond prices to fall.  After years of mad money printing by the Fed all bond markets are poised for large price drops.  If you own long position in bonds we recommend selling now before prices drop further.  TIPS bonds should also be avoided.

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