For Thursday January 23, 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 advanced 0.06% on Wednesday, which is virtually unchanged.  Volume was above the 30-day moving average but below Tuesday, so Wednesday was a light-volume up-day.  Above average volume remains a persistent trend.  Overall US markets are little changed in the past few weeks but the S&P 500 remains near its all-time high.  Should the S&P 500 decline about 20 points on Thursday (-1.1%) our stop loss algorithm could trigger a change in our market forecast to an uncertain trend.

Subjective Comments:

Recent news from various sectors and companies paint a picture of poor financial performance during the 4th quarter of last year.  Our regular readers likely recall our concerns and warnings about the very slow growth of the US money supply.  We even predicted a market crash in early October which turned out to be wrong.  We explained at the time that US money supply growth had been very slow for months.  By Austrian Business Cycle Theory (ABCT) and our technical analysis it appeared conditions were ripe for a crash.  In mid-October the US M2 money supply growth accelerated suddenly and has remained strong from an increase in US bank loan originations.  This averted the crash we thought was going to occur, but the acceleration of money supply growth does not turn immediately into an economic boom for businesses.  In a large and complex economy there is a lag between the changes in money supply growth and the resulting bubble-boom.

The months of slow growth had a depressing impact on Q4 results for many businesses, especially those that produce capital goods.  Consumer goods suppliers also had a bad Q4, so the cracks in the economy were absolutely showing.  We did not anticipate the ability of the market to maintain its momentum through the 3rd quarter last year, but the market in Q4 was helped by the accelerated money supply growth.  The Fed tapering is a slow-down in the printing presses, but because of accelerated bank lending the overall M2 money supply continues to grow above 9% annualized over the past 3 months.  This will continue to fuel a bubble-boom.  The recent sideways movement in the market is most likely from investors who do not understand ABCT but instead react to the most recent news.  The financial performance of the economy in Q4 is completely consistent with ABCT and the slow money growth through the first 9 months of 2013.  As long as the US money supply continues to grow at or above 9% per year (the current rate) we expect the bubble-boom in US equities to continue.  For this reason we recommend investing.

Another consequence of the accelerated money growth will be price inflation.  For this reason we recommend leveraged investing in US markets along with price inflation hedges for the long term.  Many people have turned very bearish on commodities and metal investments, and it is true 2013 was not a great year for price inflation hedges.  However, 2013 was a very good time to accumulate price inflation hedges at reduced prices.  This is why we’ve consistently recommended price inflation hedges for the long term.

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