For Thursday June 6, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US stock markets right now.  Price inflation hedges remain good long-term investments.  Continue to avoid all bond investments.

 Technical Comments:

The S&P 500 declined 1.4% on Wednesday with volume below Tuesday but above the 30-day moving average.  Tuesday’s market decline was similarly with volume below Monday but above the 30-day moving average.  Our pattern detection software considers Tuesday and Wednesday light-volume down-days.  After the past two days of market declines our stop loss algorithm was triggered and changed our automated market forecast to an uncertain trend.  If the S&P 500 were to advance about 1% on Thursday our forecast could return to a growth trend.

Subjective Comments:

Tuesday and Wednesday could be subjectively considered strong-volume down-days since both days saw the market decline with above average trading volume.  This does not fit the strict technical definition used by our forecasting algorithms.  If you have been following our automated forecast and disregarding our subjective recommendations lately, we hope you will now liquidate your positions in US markets and move into cash.  The economic data suggest a slowdown is occurring in the US economy, and this is precisely what Austrian Business Cycle Theory predicts.  The current US M2 money supply is effectively unchanged since mid-December.  That’s over 5 months at an aggregated growth rate of 0% following at 14% money supply growth rate.  This is why the bubble-boom is ending.  The odds are increasing that US markets will continue to decline.  In addition the prior money printing (Quantitative Easing) by the Fed ensures price inflation will continue to be a problem.  Increasing prices mean increasing costs for businesses, and businesses that took cheap loans recently will find growing difficulty in maintaining profitable margins.  Many businesses will also discover a lack of consumer demand for their products.  This is how the crash develops after the money supply growth slows.  Price inflation hedges remain a good long-term investment.  We recommend avoiding bonds as they will drop in price as interest rates climb.  Price inflation will also put downward pressure on bond prices.  We recommend having cash ready to invest in leveraged short positions that grow when US markets decline.  We are not yet forecasting a decline and investing in short positions.  We are warning that a decline is becoming more and more likely and recommending against investing for growth.

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