For Tuesday April 08, 2014, We Recommend Against Equity Investing


Investment Recommendations:

We have changed our subjective investment recommendation to risk-off. 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 dropped Friday and again on Monday, both as strong-volume down-days. This has restarted the formation of a pattern that predicts additional market declines, although the pattern is not yet fully formed. The market decline last Friday was almost enough to trigger our stop-loss algorithm, but not quite. However, Monday’s decline did trigger the algorithm and our automated forecast no signals an uncertain trend. The S&P 500 would have to advance about 9 points (+0.5%) on Tuesday to reverse the trigger and change the forecast back to a growth trend.

Subjective Comments:

The slow-down in the money supply growth rate appears to be quickly having an effect on US markets. This is what we’ve been concerned about. Most of last year we were concerned about the slow-down in the growth rate through the first 9 months of the year, but there was enough new money in the economy to keep the boom going. We wrote about weakness developing in early October last year, and then the money supply growth rate accelerated through the end of the year. Since the start of this year a similar slow-down has occurred in the growth of the money supply, but this year appears to be different than 2013. This year the US market and economy appears closer to a crash and the current slow-down in the money growth could trigger the down phase of the business cycle. This will include a market drop. Exact timing and magnitude are difficult to predict, but our opinion is that a crash could be getting closer.

The Fed has stated they intend to further taper, meaning they will slow the printing press. Never believe anything the Fed says, but instead verify by watching the data and what they actually do. In this case, they have slowed the presses. They should stop them altogether, but slowing means the growth rate of the money supply will slow unless banks accelerate lending. Watching the banking reserves shows banks are not lending faster. In fact they appear to barely be lending fast enough to keep their loan portfolios from shrinking. We’ve noticed this in the trend of US banking required reserves. News articles now inform that mortgage originations have plunged to the lowest on record and that most of consumer credit last year was student and car loans. The two sources of money creation are Fed printing and bank fractional-reserve lending, and both sources appear to be slowing down.

The slow-down in money growth increases the risk of a market and economic crash (adjustment) which is necessary and the unavoidable outcome of the prior money printing, as explained by Austrian Business Cycle Theory. However, all of the past money printing still is putting upward pressure on price inflation, something Keynesian economists do not understand. Continue to avoid the stock market right now. It’s not clear if we have an opportunity to short the market yet, but the uncertainty implies the best thing is avoiding stocks all together. Avoid all bonds because they will decline in value as interest rates go up, and up they will go in response to accelerating price inflation. We recommend price inflation hedges for your portfolio.

Wind Down of Daily Blog Posts:

We will continue to post about US markets through the end of March. We are planning on suspending daily posts in early April. We will continue to update our market signals at for our readers interested in tracking our automated and subjective market recommendations. For interested readers, we have the following recommendations for finding excellent commentary:

Best Economic Blog:

The editor of is Robert Wenzel, and he offers a daily email subscription that is absolutely fantastic! You can subscribe at this link. We highly recommend this subscription. You will continue to get great commentary and analysis on the US money supply growth rate using Austrian Business Cycle Theory.

We also suggest, although the blog posts there tend to be a bit snarky and often use terminology that can be difficult for the average reader to follow. is intended for professional traders. There is a larger staff at, so you will find it updated more frequently than, but that’s not always a good thing.

These recommendations will serve you well as we continue to wind down our daily commentary.

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