For Friday March 07, 2014, We Recommend Against Equity Investing


Investment Recommendations:

Sell US equity positions and hold cash, but be prepared to move investment funds back into US markets.  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 bond scheme from the Feds.  Ignore the propaganda.

Technical Comments:

The S&P 500 closed to another record high on Thursday, advancing 0.17% on volume below Wednesday and lighter than the 30-day moving average.  Thursday was thus a light-volume up-day.  No patterns are forming, but there have been a lot of strong-volume up-days in the past two weeks with zero strong-volume down-days.  This is generally bullish for the stock market.  Should the S&P 500 decline about 19 points on Friday (-1.0%) our automated market forecast could change to an uncertain trend.

Subjective Comments:

The weekly US M2 (not seasonally adjusted) money supply data and bi-weekly banking reserve data was published Thursday.  The M2 money supply dipped from last week to this week, but this could be the reappearance of the 4-week sub-cycle that is often present.  Alternatively it is worth noting since the start of January the M2 supply has effectively had zero growth with sideways zigzag motion.  This follows strong growth during the 4th quarter of 2013 and is similar to the zigzag low growth at the beginning of 2013.  However, 2013 had sideways zigzag slow growth well into July, followed by growth in the second half of the year.  This brought the US markets near a crash in October last year which was avoided by a sudden and rapid acceleration of the M2 growth rate.  The current record highs for US markets could continue for a while, but if M2 growth does not accelerate the bubble we are in will pop.

The banking reserves were accelerating from October through February.  This suggests the money supply growth was being driven by accelerated bank lending.  For the past 4 weeks it now appears bank lending has slowed.  This could be a temporary slowdown or the result of old loans maturing.  The slowdown in reserve growth is consistent with the sideways motion of M2.  US banks are sitting on $2.5 Trillion of excess reserves, so they can certainly lend if they want.  The question is will banks continue to lend?  We will not speculate.  Instead we will continue to watch the money supply trends and report what happens.  Based on what we see, we are becoming more bullish but are not yet ready to recommend investing.

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