For Wednesday March 26, 2014, We Recommend Investing in US Markets

Investment Recommendations:

Begin accumulating investments that grow with 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 0.44% on Tuesday with volume below Monday and lighter than the 30-day moving average, resulting in a light-volume up-day. The most recent market trends have been strong-volume down-days interspersed with light-volume up-days. This type of pattern is usually indicative of a market in decline, or about to decline. Presently there are patterns developing, but nothing fully developed to the point of having any predictive value. Should the S&P 500 decline about 10 points on Wednesday (-0.5%) our stop-loss algorithm could trigger and change our automated market forecast to an uncertain trend.

Subjective Comments:

We will be watching the US money supply growth rate very closely this Thursday and next Thursday. With the yield curve becoming flatter and the Fed tapering back the printing press, we are concerned the growth rate of the money supply will slow. If this happens, we will change our subjective investment recommendation to a risk off position. We remain cautious in our subjective recommendation. Accumulate long positions slowly and don’t go all-in. Let’s see what develops with the US money supply.

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 TimerTrac.com 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: EconomicPolicyJournal.com

The editor of EconomicPolicyJournal.com 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 ZeroHedge.com, 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. ZeroHedge.com is intended for professional traders. There is a larger staff at ZeroHedge.com, so you will find it updated more frequently than EconomicPolicyJournal.com, but that’s not always a good thing.

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

For Tuesday March 25, 2014, We Recommend Investing in US Markets

Investment Recommendations:

Begin accumulating investments that grow with 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 declined 0.49% Monday with volume below last Friday and lighter than the 30-day moving average, making Monday a light-volume down-day. Monday’s decline was almost enough to trigger our stop-loss algorithm. There are currently no predictive patterns present in the daily market data, but negative patterns are forming. Should the S&P 500 decline again on Tuesday our automated market forecast will likely change to an uncertain trend.

Subjective Comments:

Be cautious adding positions to investments that grow with US markets. We have changed our subjective investment to “Invest for Growth” recently, but with the caveat that positions should be accumulated slowly and not to go all-in. We continue to recommend this as it is not clear what direction the US money supply will go. If growth continues to accelerate, then we are poised for another bubble-boom. The Yield Curve is at its shallowest point since 2009, and this provides a disincentive for US banks to lend. With the Fed tapering further and Banks less likely to lend, our call to invest for growth could be wrong.

World geopolitical tensions are high, but we seriously doubt a conflict will break out over Russia’s annexation of Crimea. Poland is calling up Army reservists, while Russia is cutting back on the energy supply to Europe. Tit-for-tat travel bans are being implemented, but it just doesn’t seem like there is support for a conflict. For example, 54% of Germans believe the US and EU should accept the annexation. Still, logic can often go out the window where state actions are involved. When economic conditions deteriorate because of state action, the state usually looks for scapegoats or starts a conflict to distract the population. Geopolitical tensions would likely have unpredictable impacts on markets. Let’s pray for peace and prosperity, and an expansion of trade among nations.

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 TimerTrac.com for our readers interested in tracking our automated and subjective market recommendations. The commentary is what we are going to suspend. For interested readers, we have the following recommendations for finding excellent commentary:

Best Economic Blog: EconomicPolicyJournal.com

The editor of EconomicPolicyJournal.com 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 ZeroHedge.com, 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. ZeroHedge.com is intended for professional traders. There is a larger staff at ZeroHedge.com, so you will find it updated more frequently than EconomicPolicyJournal.com, but that’s not always a good thing.

We hope these recommendations will serve you well as we continue to wind down our daily commentary.

For Friday March 21, 2014, We Recommend Investing in US Markets

Investment Recommendations:

Begin accumulating investments that grow with 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 0.6% on Thursday with volume not yet published at the time of posting this blog.  If the S&P 500 were to decline about 14 points on Friday (-0.7%) our stop-loss algorithm could trigger and change our automated market forecast to an uncertain trend.

Subjective Comments:

We are cautiously changing our subjective investment recommendation.  We explain why and offer specific investment advice in the following paragraphs.

The US M2 money supply and banking reserves data was published Thursday.  Money supply growth continues to accelerate over the past 7 weeks following a 3-week decline at the beginning of the year.  At the present growth rate of 13% annualized (over the past 7 weeks), or a rate of 7.6% annualized (over the past 23 weeks), M2 is experiencing accelerated growth over the prior periods.  According to Austrian Business Cycle Theory (ABCT), this will cause a bubble-boom in US markets and the economy.  If Austrian True Money Supply is used instead and the past 2 years are considered, the past 6 months has a slightly accelerated rate compared to the prior 18 months.  All of this points to a continued bubble-boom.  There are three reasons for some caution, however.  First is that the accelerated growth rates are not yet exceptionally stronger than the prior growth.  ABCT requires accelerated growth.  That is what is happening, but the acceleration is not yet much faster than prior periods.  The second reason for caution comes from the Fed’s announcement of another taper, meaning the rate of money printing by the Fed will slow.  The third reason for caution comes from the US banking required reserves which are unchanged over the past 6 weeks.  There was accelerated lending for the three months of November, December and January, but since the end of January net lending has leveled off as indicated by the unchanged required reserves.  There are three ways the US money supply can grow:

  1. Money printing by the Fed (AKA Quantitative Easing & Open Market Operations)
  2. Bank Lending (Fractional Reserve Money Multiplier)
  3. Off shore Dollars coming back from over seas

The Fed is still printing, but they are “tapering”.  For the past 6 weeks the Fed has stopped lending.  Russia recently threatened to dump US dollars, which would have caused them to come back to the US, but so far they have not followed through on that threat.  So, right now, the three sources that can accelerate the money supply growth rate are not doing what is necessary to sustain the current accelerated growth rate.

Here is what we suggest given the state of the US money supply.  There has now been sufficient growth that any market crash has now been pushed at least several weeks into the future.  Should the US money supply growth slow or even go negative (deflation), there will be time to react to such a change and exit the market.  Investing some money to grow with US markets has much less risk now.  If banks resume aggressive lending then the money supply will continue to grow and a bubble-boom could continue.  How long and how high the bubble will grow is unknown.  If you choose to invest in US markets now, but sure to keep close track of the weekly updates of the US money supply for any changes in the growth rate.

Additionally, continue to avoid all bonds.  Price inflation is going to accelerate and this will drive bond prices down.  It appears less and less likely the US will resort to violence over the Crimean annexation, but the stupidity of US foreign policy could still antagonize the Russians and cause them to dump dollar holdings.  This would flood the bond market with a huge supply and push bond prices down further.  For all these reasons continue to avoid all bonds.  Price inflation hedges remain a good long-term investment.

We are changing our subjective investment recommendation to “Invest for Growth”, but we don’t suggest going all-in all at once.  Instead begin to accumulate positions in investments that grow with US markets.  If the US money supply continues to accelerate, continue to accumulate positions.  It will be two weeks before the next banking reserve data is available and about three to four weeks before the Fed taper starts to take effect.  It will be another 6 weeks before it is clear if banks will accelerate lending and keep the bubble-boom going.  Slow accumulation over the next 6 weeks will limit downside exposure and position for continued growth that could occur.

For Thursday March 20, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 declined 0.61% on Wednesday with volume above Tuesday and below the 30-day moving average, resulting in a strong-volume down-day.  There are still no predictive patterns present in the daily S&P 500 data.  An additional decline of about 2 points (-0.1%) on Thursday could trigger our stop-loss algorithm and change our automated market forecast to an uncertain trend.

For Wednesday March 19, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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.

For Tuesday March 18, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 0.96% Monday with volume lower than last Friday and lighter than the 30-day moving average volume, making Monday a light-volume up-day.  Light-volume up-days are not a sign of market strength, but they are meaningless without context.  Currently there have been strong-volume down-days, so an advance on a light volume day means there is no reversal of the recent trends.  There are still no predictive patterns.  Monday’s advance was not quite enough to reverse our stop-loss trigger, but an additional advance on Tuesday would probably restore our automated market forecast to a growth trend.

Subjective Comments:

Volume was very light on Monday, which is not uncommon the week of an FOMC meeting.  It appears highly unlikely the geopolitical tensions surrounding Crimea and Libya/North Korea will affect markets, but the FOMC statement to be released this Wednesday afternoon could have a short-term impact.

For Monday March 17, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 declined 0.28% on Friday with volume below Thursday and below the 30-day moving average, resulting in a light-volume down day in a week that had 2 strong-volume down-days.  No patterns have formed that provide any prediction regarding the future trend of US markets.  Our forecast remains uncertain from the triggering of our stop-loss algorithm on Thursday.  If the S&P 500 goes up about 20 points on Monday (+1.1%) our stop-loss algorithm would likely reverse and our automated market forecast would return to a growth trend.

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

Hold_Recommendation

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 dropped 1.17% on Thursday with volume above Wednesday and higher than the 30-day moving average, resulting in the second strong-volume down-day in the past three trading sessions.  This type of daily action suggests market weakness, but so far a predictive pattern has not formed.  Thursday’s decline was sufficient to trigger our stop-loss algorithm and change our automated market forecast to an uncertain trend.  The S&P 500 would have to advance about 19 points on Friday (+1.0%) to reverse the trigger and change our forecast back to a growth trend.

Subjective Comments:

In the past two weeks we have said we have been turning bullish but not enough to recommend investing.  We’re glad we have been cautious to avoid Thursday’s decline, but we are still becoming more bullish although not enough to recommend investing.  It appears the first three weeks of January were indeed a drop in the US money supply, but it seems to have been a mild dip and only three weeks long.  Since 1/27/14 the money supply has resumed growing at near the same accelerated rate seen from mid-October to the end of December last year.  Since the start of the year the money supply is currently little changed, but this is because of the zigzag down and back up over the past two months.  There are two ways to look at the money supply growth rates right now:

  • Essentially 0% since the start of the year which follows accelerated 10%+ growth since last October
  • A 3-week drop at an annualized rate of -24% at the start of January that interrupted a double-digit growth rate that started last October and continues through the most current data available

Both statements are technically accurate.  What is not clear is if the money supply growth will continue to be accelerated, or if it will slow.  Our concern is if it slows.  The short 8 week zigzag in the money supply did not take long to cause the stock bubble to hiccup.  There are also multiple economic indicators being published that suggest the first quarter of 2014 will be weak.  Such a quick response to a slowing money supply growth rate means the bubble is close to collapse.

Watch what the Federal Reserve does with money printing, and how US banks react with lending.  These are the two mechanisms by which the US money supply grows.  If weak economic data and an unstable geopolitical situation occur, what will happen to the money supply?  There are likely emotional reactions by investors, but will the Fed taper more, or will they reaccelerate the printing press?  Will banks freak out and slow or stop lending, or will they accelerate new loan originations?  We don’t know.  Watch the money supply and be ready to invest accordingly.  In the meantime maintain and/or accumulate price inflation hedges, and continue to avoid all bonds.

For Thursday March 13, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 was down most of the day Wednesday but managed to close up a tiny 0.03% on volume below Tuesday and lighter than the 30-day moving average.  No patterns are forming that help predict the future direction of US markets, although recent daily data suggests an up-trend.  If the S&P 500 declines about 3 points on Thursday our stop-loss algorithm could trigger and change our automated market forecast to an uncertain trend.

For Wednesday March 12, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 declined 0.51% on Tuesday with volume above Monday but below the 30-day moving average, making Tuesday a strong-volume down-day.  This was the first strong-volume down-day in almost 3 weeks, during which time there have been 5 strong-volume up-days.  On a purely technical basis, this one down-day is not important.  What matters are trends, and overall the trend is still with the up-days.  The 30-day average volume has peaked and has started to decline a bit, indicating that the market might be at a new daily volume level.  The decline on Tuesday was almost enough to trigger our stop-loss algorithm, but a subroutine designed to minimize false sell signals kicked in and adjusted the trigger point.  If the S&P 500 declines about 1 to 2 points on Wednesday our automated market forecast is very likely to change to an uncertain trend.

Subjective Comments:

Geopolitical tensions in Ukraine might settle down as the coup-government in Kiev announced they will not act to prevent Crimea from joining Russia.  No sooner does that good news appear than tensions between Libya and North Korea flare up.  It’s very unlikely that will affect world markets, but any hostilities are concerning and can cause blips.  Market conditions in China continue to deteriorate, and a crash there would likely have spillover effects across world markets.  The crazy money printing by the Federal Reserve since late 2008 leaves conditions in the US uncertain.  The near future growth rate of the US money supply will dictate what happens with US markets and the economy.  The current bubble-boom could be near an end.  Money printing is always crazy and leads to inflation.  Just ask the Venezuelans for a current example.  Price inflation will accelerate at some point as a result of the Fed’s Quantitative Easing, also known as money printing.