For Friday February 14, 2014, We Recommend Against Equity Investing


Investment Recommendations:

Sell US equity positions and hold cash.  Price inflation hedges should be held or accumulated for the long term as price inflation is starting to accelerate.  Avoid all bonds, including the new MyRA bonds announced recently.

Technical Comments:

The S&P 500 advanced 0.58% Thursday with volume below Wednesday and lighter than the 30-day moving average, making Thursday a light-volume up-day.  After a few weeks of mostly strong-volume down-days the S&P 500 is advancing on light volume.  This type of action is not consistent with a market that will continue to advance.  If the S&P 500 should decline about 50 points (-2.9%) on Friday our automated forecast could change to an uncertain trend based on our stop-loss algorithm.

Subjective Comments:

The decline of the US M2 (not seasonally adjusted) money supply stopped as this week’s data bounced back up a bit.  However, the straight-line growth for the past 4 weeks is still a decline.  It appears the M2 growth is moving sideways in a zigzag pattern.  This represents a slow-down in the growth rate and puts the US market and economy at risk of decline.  It is much too early to know if this is a short-term blip in the money growth rate, or if a serious problem is developing.  After the slow money growth for the first 3 quarters of 2013 followed by rapid growth during the 4th quarter, we don’t think the bubble-boom can sustain its own momentum very long.  For these reasons we recommend against reacting to the recent weak-volume gains in US markets and remaining in a risk-off posture towards US stocks.  Continue to hold and acquire price inflation hedges and avoid all bonds.

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