For Wednesday March 19, 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 advanced 0.72% Tuesday with volume above Monday but below the 30-day moving average.  This made Tuesday a strong-volume up-day, but there remains no predictive patterns in the daily market data.  Tuesday’s advance reversed our stop-loss trigger, changing our automated market forecast to a growth trend.  Should the S&P 500 decline about 12 points on Wednesday (-0.7%) the stop-loss could trigger again and change our forecast back to an uncertain trend.

Subjective Comments:

Volume on Tuesday was low again, mitigating the significance of the strong-volume up-day.  Most likely market participants are waiting on the Fed’s monetary policy announcement due out Wednesday.  The FOMC announcement tomorrow could move markets a bit in the short term.  In the long term, which might not be so far away, watch out for China.  After years of aggressive money printing by the People’s Bank of China, their economy and stock market are eventually going to crash.  This is precisely what Austrian Business Cycle Theory explains must happen when accelerated money growth slows down.  Money printing creates price inflation and distorts the economy.  If the FOMC “tapers” more tomorrow, the overall growth of US M2 could slow.  US banks could choose to slow new loans, which would also slow US M2 growth.  Or, US banks could accelerate lending and the rate of US M2 growth could accelerate.  It is not clear what will happen, and this is why we still recommend avoiding US markets.  Price inflation hedges remain a good long-term investment.

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