For Tuesday July 9, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US stock markets right now.  Continue to avoid all bond investments. Price inflation hedges remain good long-term investments, but only invest in price inflation hedges amounts that you can leave invested for a very long time.

 Technical Comments:

The S&P 500 advanced 0.53% on Monday with volume above Friday but below the 30 day average.  Our pattern recognition software classifies Monday as a strong-volume up-day, even though volume was below average.  If the S&P 500 declines about 25 points on Tuesday (-1.6%) our stop loss trigger could change our automatic market forecast to an uncertain trend.

Subjective Comments:

Our forecast is for growth, but we still recommend against investing in US stock markets.  We would like to see several strong-volume up-days with above average volume before changing our subjective opinion about investing.  Last Friday and this Monday were consecutive strong-volume up-days, but they were below average volume.  Many strong-volume up-days occur with above average volume could be an early indication of accelerated bank lending and money supply growth.  Daily market data is available much sooner than the Fed’s money supply numbers, so a change in trend could be noticed in the market data first.  Still, the below average volume suggests the recent daily market data is nothing but random noise and not yet a signal for action.

The most important thing to watch remains the US money supply.  The 9.3% annual growth in 2012 has been followed by 0% growth so far in 2013.  As Austrian Business Cycle Theory explains this collapse in growth of the money supply means the artificial bubble-boom created by the money supply growth will eventually result in a market and economic crash.  We continue to think the most likely timing of the coming market crash is between now and the end of October.  It is remotely possible that sudden and strong bank lending could accelerate the money supply growth rate sufficiently to reignite the bubble-boom and delay the necessary crash into the future.  While we think this is unlikely, the possibility remains and this is why we do not recommend short investments yet.  We expect our pattern recognition software will identify a short investment opportunity in the next few months if the current money supply growth trends remain unchanged.

Continue to avoid all bond investments.  Evidence continues to mount that investors are starting to dump bonds.  Talk of tapering by the Federal Reserve has potentially caused bond investors to start liquidation of their positions now.  If you still have any investments in bonds, we encourage you to sell and avoid all bonds for the indefinite future.

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