For Tuesday June 18, 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 advanced 0.76% on Monday with volume higher than Friday but below the 30 day moving average volume.  Monday could be considered a strong-volume up-day, but being below average it can also be considered a light-volume up-day.  Either way it did not significantly contribute to pattern formation as determined by our automated algorithms.  Should the S&P 500 decline about 19 points on Tuesday (-1.2%) our market forecast could change to an uncertain trend.

Subjective Comments:

US markets this week will trade on speculation of what the Federal Reserve (FOMC) meeting will produce.  The FOMC meets Tuesday and Wednesday with announcements coming early Wednesday afternoon.  There is speculation the Fed will hint at “tapering”, which would be a future slowdown of the monthly money printing which is currently at $85 Billion.  There is also speculation the Fed will say it is too soon to slow the printing presses.  What matters is the fact US M2 money supply is not growing!  The Fed’s money printing is simply growing excess reserves in US banks.  As banks sit on all this extra cash the fractional reserve money multiplier is not growing the overall money supply.  The slow-down in US money supply growth has also been noted at, where they noted “3-month annualized money growth has declined from 11.4% to 3.6%”.  (Note: calculates money supply growth using a 3-month averaging technique to isolate the growth rate from the noise in the data set.  This technique differs from our observation of 0% growth in the past 6 months, although the difference is one of technical calculation only.  The interpretation about the slowing money supply growth leading to a classic Austrian Business Cycle Theory crash is the same.)

Late last week Detroit defaulted on several of their bonds.  We have been saying to avoid all bonds, and this is part of the reason.  The US Federal Government along with the Federal Reserve can print money to pay their bonds, but this will cause interest rates to climb as well as lead to price inflation.  This will result in real losses in US Treasuries.  Municipalities and US States don’t have the ability to print money, so in these sectors look for outright bond defaults.  Stockton, California recently defaulted too.  This trend will continue.

It’s hard to say why the stock market might have increased or declined on any given day.  Monday’s advance could be speculation about the coming FOMC announcement, or it could be in reaction to some headline good news regarding the Empire Fed indicators.  Despite the dramatic surprise in this indicator, points out the rest of the details in the Empire Fed showed all bad news, “To wit: New Orders down, Shipments down, Unfilled Orders down, Delivery Time down, Inventories down, Number of Employees down, Avg Workweek down…”  Austrian Business Cycle Theory (ABCT) explains why capital good industries boom first and larger than consumer industries.  For the same reasons capital goods sectors boom first, they crash first and decline further than consumer industries.  With the money supply having slowed and not grown for 6 months, it is consistent with ABCT to see the Empire Fed details showing slowdowns in these capital goods industries.

Please ignore our automated forecast.  Our software algorithms look only at daily market data for pattern recognition and stop loss indications.  The money supply changes combined with ABCT show why a crash is becoming more and more likely.  Our pattern recognition software will likely pickup on the downward patterns as the crash gets closer.  The odds of a US market crash in the near future continue to climb.

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