This is our final blog post

Hold_Recommendation

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 declined again Friday by 0.95% on volume below Thursday but above the 30-day moving average. The overall daily data from the market continues to be consistent with a market that will continue to decline, but a predictive pattern has not formed. Our stop-loss algorithm remains triggered so our automated market forecast is currently an “uncertain trend”. The S&P 500 would have to advance about 21 points on Monday to reverse the trigger and change our forecast back to a growth trend.

Subjective Comments:

Even if our automated forecast were to return to a growth trend after Monday’s trading session, we would not recommend investing in US markets right now. The daily data shows too many strong-volume down-days and we think a negative pattern is becoming more likely. The US money supply growth is not strong enough to continue the bubble-boom that has been in progress. If the money growth were to accelerate, the bubble-boom could resume. However, all indications are that US banks have slowed lending and have little incentive to change path. The Fed has tapered. The sources of accelerated money growth do not appear present, so we expect money growth to slow even more in the near future. We are not yet at the point of recommending a short position, so stay out of US markets for now.

End of Daily Blog Posts:

We will continue to update our market signals at TimerTrac.com for our readers interested in tracking our automated and subjective market recommendations:

Automatic Forecast Here:

This is our automated forecast. We don’t always recommend investing per the output of this forecast, but whatever our forecast does will be published at TimerTrac.com and available from this link.

 

Subjective Forecast Here:

We evaluate the growth of the money supply using Austrian Business Cycle Theory and consider the status of our automatic forecast when making our subjective investment recommendation. We will update our subjective forecast at TimerTrac.com from this alternative link.

 

Our Recommendations for 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.

For Friday April 11, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 2.09%! That’s a big one-day drop, and it was on volume higher than Wednesday and above the 30-day moving average. This is a continuation of down-days on strong-volume with up-days on light-volume. A fully formed predictive pattern has not appeared, but the general market data is more consistent with a market about to decline as compared to anything else. The drop on Thursday was more than enough to again trigger our stop-loss algorithm and change our automated forecast to an uncertain trend. The S&P 500 would have to advance about 19 points on Friday (+1%) to change our forecast back to a growth trend.

Subjective Comments:

The increase in day-to-day market volatility will likely keep changing our forecast back and forth between a growth trend and an uncertain trend. This is the triggering and trigger-reversing of our stop-loss algorithm and should be ignored. Given the continued accumulation of strong-volume down-days we continue to recommend avoiding US equity investments.

The updated US M2 money supply was published on Thursday, and it is still not clear if the growth rate is going to continue to accelerate or not. Recall from last week that US banking required reserves are down and the Fed has tapered. This means the money supply growth should slow. It’s possible that M2 might indeed slow, but from week to week there is enough variability that it can take several weeks for a clear growth trend to be identified. If M2 continues at the current growth rate, the market is likely to move sideways for a while before crashing. If M2 growth slows, then we expect a crash sooner than later.

We still expect price inflation to accelerate. The money supply is still growing; it is just not growing as fast. The speed of growth drives to boom-bust cycle, but the overall growth is what will eventually drive up price inflation. In addition the Fed meeting minutes appear to indicate the new Fed Head Janet Yellen is highly likely to accelerate printing (quantitative easing) if there is a crash. This means we could have a market crash and price inflation. Price inflation hedges remain good long-term investments.

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 Thursday April 03, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 dipped down 0.11% on volume below Wednesday and below the 30-day moving average, resulting in a small-volume down-day. With the recent light-volume days combined with a few strong-volume up-days, the developing negative pattern has fallen apart. If the S&P 500 declines about 35 points on Friday (-1.9%) our automated forecast is likely to change to an uncertain trend.

Subjective Comments:

The US M2 (not seasonally adjusted) money supply showed the expected 4-week sub-cycle dip with the most current data published on Thursday. The current growth rate of the money supply, if sustained, will spark a continued bubble-boom of the US economy and stock market consistent with Austrian Business Cycle Theory. However, we think it appears unlikely the money supply will continue to grow at its current annualized growth rate of over 12%, which is the rate seen over the past 2 months. US banking reserves declined, both required and excess reserves. This indicates that new loan origination is slower than the rate of old loan maturation. The Fed has tapered again so the rate of new money printing by the Fed has slowed, and this slowdown of bank lending is happening at the same time. This means the money supply growth will slow. It is very possible the Fed will accelerate printing again, but they are unlikely to do so unless the economic and market data start to deteriorate much more than at present. In other words, the Fed will be slow to react. Bank lending can accelerate, but banks appear to have little incentive to do so. As long as the current situation persists the money growth will slow, and this will increase the odds of a market crash. We think the US economy is much more fragile now than at any time last year. We don’t know how long the bubble’s momentum can sustain itself without accelerated growth of the money supply, but we doubt it is very long. At present the market is booming from the accelerated money growth over the past 2 months. US markets are likely to continue growing or at least move sideways for a few weeks from here. It is beyond a few weeks that has us worried. Now is a good time to get out of US markets and protect your wealth from a crash. Of some interest was the resignation of a member of the Fed who had 4 years left on his term. It could be Mr. Stein is clever enough to get out before the next crash and hopefully avoid the potential scorn and condemnation he deserves as a member of the banking politburo.

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 Friday March 27, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 declined 0.2% Thursday with volume above Wednesday and higher than the 30-day moving average, resulting in yet another strong-volume down-day. A predictive pattern has not formed yet, but a pattern that predicts market weakness is clearly developing. Additional strong-volume down-days in the near future could complete this pattern. Our stop-loss algorithm remains in a triggered state, resulting in an uncertain trend for our automated forecast. If the S&P 500 were to advance about 5 points on Friday our automated forecast could return to a growth trend.

Subjective Comments:

The forming pattern that predicts market weakness has absolutely caught our attention and we will be watching very, very carefully to see if additional strong-volume down-days complete the pattern. When our stop-loss algorithm triggers it sometimes reverses within 3 days. A reversal tomorrow would make the current uncertain trend a false trigger of the stop-loss algorithm. Regardless of the possible false trigger, we are changing our subjective recommendation to risk-off. We suggest you sell any investments that grow with US markets.

US M2 (not seasonally adjusted) is growing near an annualized 14% rate. This rate continues to accelerate, although it is likely to slow next week because the 4-week sub-cycle dip is due. The 14% growth is only over the past 7 weeks, but the longer term growth rates show a slight acceleration as well. We believe it will require several more weeks of sustained M2 accelerated growth to keep the current bubble-boom going, and there are concerns the M2 growth could slow. The Fed is tapering again and the yield curve is flattening. Both of these things could slow the growth rate. US M2 data published every Thursday is also delayed by 10 days, so it is possible the 14% growth in the most current data has already slowed. The next 2 to 3 weeks of M2 data will reflect any immediate changes to the most recent Fed taper and any bank lending changes from the flattening yield curve. Conditions appear present for money growth to slow. The weakness in M2 growth during the first quarter of 2014 quickly showed up in the stock market, and this strongly suggests the US economy and market are much closer to crash conditions than most people suspect. Austrian Business Cycle Theory explains that continued acceleration in the money supply growth rate is necessary for a bubble-boom to continue. If growth continues but does not accelerate, the unavoidable crash that follows money printing will absolutely occur. If the growth rate slows the crash comes that much sooner.

Price inflation is accelerating, although it will not show up in the government’s official CPI numbers. Official CPI is designed to under-report the true rate of inflation, and the government has been caught falsifying the data to further suppress the reported CPI (hat tip ZeroHedge.com). Price inflation is showing up if you know where to look. There are reports of inflation as well as MIT’s online billion price index. Other sources of inflation are products being sold in smaller sizes or with reduced quality. This report from the Wall Street Journal a few days ago identified that “peanut butter prices accelerated faster than any other food item”. While it is true poor crops contributed to a constrained supply, the money printing is having an impact. Jif peanut butter has come up with a clever idea to mask this price inflation. They have decided to dilute the peanut butter with air and market it as “Whipped Peanut Butter Spreads.” This is an example of a smaller serving size and a lower quality product being promoted when in fact it simply hides the underlying price inflation. Continue to hold and accumulate price inflation hedges as they will perform well over the long term. The massive money printing since 2008 will continue to drive prices up for quite some time into the future, and we seriously doubt the bimbo Fed Head Janet Yellen will have the courage to raise interest rates high enough to stop the price inflation when it gets really bad. She’s been setup to take the fall when the economy crashes. That’s why we think Bernanke got out when he did, and also why Stanly Fischer has been nominated to be the Fed’s new vice chairman. Janet is too clueless to see she’s been setup as a patsy and will take the blame for the next crash, and Mr. Fischer will be in place to “come to the rescue”, which means more money printing in the future.

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 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 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 Friday March 07, 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 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.

For Friday February 28, 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 0.5% on Thursday with volume below Wednesday and lighter than the 30-day moving average, making Thursday a light-volume down-day.  Thursday also saw another all-time high for the S&P 500.  There are no predictive patterns currently developing in our technical analysis, but breaking an all-time high can be interpreted as breaking through resistance.  If the S&P 500 were to decline about 21 points on Friday (-1.3%) our stop-loss algorithm could trigger a change in our automated forecast to an uncertain trend.

Subjective Comments:

6 weeks ago the US M2 (not seasonally adjusted) money supply peaked and then declined sharply for 3 weeks.  In the past 3 weeks the sharp dip has been completely reversed and M2 has reached a new all-time high as of 2/17/14.  This is zero growth over the past 6 weeks, but the trend suggests a growth rate that could remain positive.  If the money supply dips again and we see up-and-down movement without an overall up-trend, then the markets will be at a higher risk of crashing soon.  It is not time to declare a green light for investing, but we are becoming more bullish.  If the M2 growth rate continues upward at a sufficiently strong rate, we are going to recommend investing.

For Tuesday February 25, 2014, We Recommend Against Equity Investing

Hold_Recommendation

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 bond scheme from the Feds.  Ignore the propaganda.

Technical Comments:

The S&P 500 advanced 0.62% Monday with volume above last Friday and above the 30 day moving average, making Monday a strong-volume up-day.  Last week each day’s volume was below average, but there was one strong-volume up-day and one strong-volume down-day.  There are no predictive patterns developing presently.  However, there were quite a few strong-volume down-days a few weeks ago, and this continues to suppress the formation of any pattern that would predict market growth.  The S&P 500 would have to decline about 32 points (-1.9%) on Tuesday to change our automated market forecast to an uncertain trend.

Subjective Comments:

We apologize for the lack of daily posts last week.

Thank you to everyone who sent us questions and suggestions about the future discontinuation of our daily blog.  The most common question we received was about a continued fee-based subscription service for readers interested in continued updates.  We are considering a continued update of our daily signals using TimerTrac.com.  If you bookmark this link (http://www.timertrac.com/private/medallion.asp?mlid=8CD77AB2-6894-4A39-9142-B832D8293125) you can continue to receive our daily signals for free.  However, via TimerTrac there is a 1-day lag, and you will only see updates when signals change.  You will have to access the link every day to see if anything has changed.  TimerTrac offers fee-based subscriptions that might offer additional features, but at least in this manner you can continue to receive our daily forecast.

What you will not receive at TimerTrac is any commentary.  Since there was considerable interest in a subscription service by many of our readers, we are considering a weekly newsletter published on the weekends.  The primary content of the weekly newsletter would be updates on the money supply trends.  We would be comfortable selling this content as it would be the publication of information as opposed to investment advice.  We are philosophically opposed to selling investment advice since that changes the incentives for the publisher.  By accepting tips (donations) from satisfied readers, our incentive as the publisher is to provide valuable advice.  Our incentives change to acquiring many subscribers, regardless of the effectiveness of our advice, when we sell subscriptions.  We would surly lose subscribers if we publish bad advice, but the incentive changes and many newsletter publishers simply attempt to replace lost subscribers with new subscribers when they should be focused on providing the best investment recommendations possible.  If we sell information about the money supply trends and commentary about the implications, this would be different than an investment recommendation.

Speaking of the US M2 money supply, last week it bounced upward in what appears to be a recovery of the 4-week sub-cycle.  There remains a collapse in the growth rate of the money supply.  From last October through early January M2 growth had been at or above 10% per annum depending on the method of measurement.  For the past 5 weeks M2 growth has been 0%.  The recent upward movement in banking required reserves appears to have reversed and was likely something that happens every January.  These things taken together indicate the continued growth rate of the money supply could be mild to near zero.  If this indeed happens for an extended period then the boom-phase of the business cycle will draw to a close and the bust phase will occur.  There is no avoiding a crash after all the massive money printing over the past several years.  If the new Fed Head Janet Yellen allows M2 growth to slow, then the current bubble-boom will end.

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

Hold_Recommendation

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.