For Tuesday, July 17, 2012, We Recommend Against Investing

We recommend selling your equity positions or hedging for a risk-neutral position.

Technical Comment:

The S&P 500 declined 0.23% on Monday with volume below Friday and lighter than the 30-day moving average.  Should the S&P 500 drop about 26 points on Tuesday (-1.9%) our automated market forecast is likely to change to an uncertain trend.

Subjective Comment:

Last Friday’s market advance was on light volume, and light volume is common on a Friday.  For Monday’s volume to be lighter than Friday is not unheard of, but it is notable.  Monday was a light-volume down-day, and the decline in the index was not an unusual amount.  There remains an absence of technical patterns consistent with market growth.

The collapse of the US M2 money supply growth we have discussed will pop the bubble-boom in the US economy and stock market.  The market has failed to grow and continues to show weak daily patterns.  This is consistent with the collapse in the money supply growth.  Economic indicators are also showing a slowing, including today’s US retail sales data.  Zerohedge.com provides commentary on the retails sales here.

With the US elections approaching as November nears we expect economic news to contain significant propaganda from all sources.  Economic indicators will be interpreted through increasingly political perspectives.  The data we think is most reliable is the stock market itself and the US money supply data.  Hardly anyone follows the money supply.  We think more people will become aware of the impact the money supply growth rate has on creating bubble-booms.  This will include an increased comprehension of inflationary monetary policy as the root cause for both the boom and bust of the business cycle.  As awareness expands, then more commentary will become available on the money supply.  Based on the trends in the M2 growth rate, our best guess is the slowing economy will become much more obvious in the coming weeks.  We also think a steep decline in the stock market is likely to occur.  When both political parties and pundits attempt to explain the crash, you can be sure there will be plenty of blame to go around.  Banks could get blamed given the recent news about the LIBOR scandal, or due to the large trading losses at JP Morgan Chase.  Unfair trade practices and currency manipulation could also be blamed, or perhaps droughts and poor crop harvests.  For sure Republicans will blame Democrats and vice versa.  Economic conditions in Europe and China are also likely to be blamed.  The true root cause is the manipulation of the money supply caused by central banking practices and fractional reserve lending by banks.  This true root caused is explained by Austrian Business Cycle Theory.

We are guessing regarding the timing, but prior to the November election seems like a safe guess assuming the US M2 growth rate remains near zero percent, which is where it is now and has been for the past 17 weeks.  The best thing you can do for your investment portfolio is position for a wealth preservation strategy.  We are not yet advising a short strategy where you could profit from a declining market.  We might advise this in the near future if our technical analysis detects predictive patterns suggesting a market decline is likely.  Unless and until that happens, we advise holding and accumulating cash.  Avoid all stocks and bonds, especially those from the Eurozone, China and the United States.  This applies to sovereign and corporate bonds.  We still expect price inflation to be a problem, but it will likely remain mild for a while with the exception of food prices in the US as there will be increased scarcity of crops due to a harsh drought.  We recommend holding price inflation hedges for the long term but not adding to those positions without additional research.

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