For Tuesday, September 4, 2012, We Recommend Against Investing

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

Editor’s Note:

While traveling last week, August 27 – 31, our publishing staff was unable to provide daily updates for our automated forecast.  We apologize to our readers and regret any inconvenience.  The subjective comments below include commentary for the prior week.  We are resuming or normal updates every day US markets are open.

Technical Comment:

The S&P 500 has been declining for the past two weeks on consistently light volume.  On August 20th the index high reached was very close to the peak back on April 2nd.  The inability of the S&P 500 to break above the April 2nd peak is a form of technical resistance at this level.  At the close of trading on Thursday, August 30th, our forecast shifted to an uncertain trend based on the stop-loss subroutine in our algorithms.  Our forecast remains uncertain but could very easily change on Tuesday when the US markets reopen after the holiday weekend.  The S&P 500 is barely a half-point below the stop-loss trigger.  Any advance Tuesday will likely cause our forecast to return to a growth trend.

Subjective Comment:

The most notable items from the past week are the following:

Chairman Bernanke’s speech in Jackson Hole provided nothing of significance.  US monetary policy remains unchanged with the 7% annualized M2 growth still observed within the most recent money supply data.  By straight-line curve fit, we estimate the 7% annualized growth from last summer took a 2 to 3 month break where growth collapsed to 0%.  Since late May 2012 the 7% growth rate has resumed.  Austrian Business Cycle Theory explains that to sustain a bubble-boom caused by expanding the money supply, the money supply growth rate must continue to accelerate.  M2 growth is NOT accelerating, and the multi-week collapse to 0% creates a situation where M2 actually slowed.  This has weakened the residual simulative effect of the expanding money supply and has place the US economy and stock markets unable to continue their manipulated bubble-boom growth.  We fully expect US markets will stagnate here and no longer grow.  Only if US M2 growth accelerates and remains growing at a faster rate can the coming crash be delayed.  Now that a bubble-boom has occurred for the past year, a crash must eventually happen.

Our investment advice remains to avoid US stock markets and all bonds.  US Banks have not accelerated their lending and the Fed has not accelerated their money printing.  We expect price inflation to continue to be a problem.  We suggest accumulating cash to protect against losses we fear are getting closer every day for people invested in US equities.  Price inflation hedges are a possible investment option right now, but you must do additional research to determine which is best suited for your situation.  We have not seen the developing patterns predictive of a market decline, at least not yet.  Our stop-loss algorithm remains susceptible to frequent changes for our automated forecast.  Please continue to follow our subjective comments and do not just invest based on our automated technical analysis.

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