For Wednesday October 16, 2013, We Recommend Shorting US Markets
October 15, 2013
Our automated forecast is predicting a decline for US markets! It is time to invest in leveraged index funds that grow when US markets decline. If you’re going to short US markets, take action ASAP, otherwise be sure to move to a risk off position with your investment portfolio.
The S&P 500 declined 0.71% on Tuesday with volume above Monday and higher than the 30 day moving average. Tuesday was a strong-volume down-day. Our market forecast continues to predict a Decline.
While it is obvious that the political circus around the government shutdown and debt ceiling is impacting US stock markets, it must be remembered the root cause of the current market weakness is the Federal Reserve and Fractional Reserve Banking. The prior expansion of the money supply (9.2% growth of US M2 in 2012) followed by slower growth so far in 2013 is setting up US markets and the US economy for a crash. This economic reality is deductively proven and explained by Austrian Business Cycle Theory (ABCT). When the political drama is eventually resolved with an increase to the Federal Debt Ceiling we expect US markets will spring higher for a day or two. Only if those advances are on strong volume would it be remarkable. Instead what has been happening is that most down days are on strong volume while most up days are on light volume. This type of daily data is predictive of market declines. There have been so many strong-volume down-days in the past month that our automated pattern detection software spotted a pattern that predicts a decline. Our automated forecast is independent of our ABCT interpretation of the money supply growth rates.
What is very important to remember is that US Banks have over $2 Trillion of excess reserves and could aggressively accelerate fractional reserve lending, assuming of course there are people and businesses willing to borrow. It is also possible other countries could begin reducing their supply of US dollar reserves. Should that happen those dollars would find their way back to the US and accelerate price inflation. The US M2 money supply includes the offshore dollars, so inflows from abroad would not be identified by M2 alone. Within the components of the US money supply those dollars outside the US are available from the Federal Reserve. The dollars offshore have been growing with a very consistent percentage of total M2, so there is no indication offshore dollars are coming back at this time. The most likely first sign of money flows that could delay the pending crash would be multiple strong-volume up-days on the S&P 500. If the Fed accelerates Quantitative Easing or if US banks accelerate lending, then US M2 growth will accelerate. For these reasons it is very important to watch the data every day for signs of market and money supply strength. So far those signs are all absent. Instead we see strong-volume down-days occurring more often. We also see no evidence of money supply growth accelerating. For these reasons we are still concluding that US markets will eventually crash regardless of the political outcome in D.C.
Please continue to share our blog with your friends and family. Let them know about the coming market crash and help them to protect their wealth.