For Thursday July 11, 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 barely changed but managed to increase 0.02% on volume below Tuesday and lighter than the 30 day moving average.  Wednesday was another light-volume up-day.  The daily market data continues to provide no predictive patterns to help determine future market direction.  If the S&P 500 were to decline about 27 points on Thursday (-1.7%) our automated market forecast could change to an uncertain trend.

Subjective Comments:

Wednesday was an interesting day for US markets.  Prior to 2PM eastern the market had been down a bit, but then the Federal Reserve release the minutes from the most recent Federal Open Market Committee (FOMC) meeting.  FOMC minutes are usually little more than gibberish and doublespeak, but they usually offer a clue which way future monetary policy (money printing) will go.  The initial reaction by the market was an advance in reaction to the FOMC comment that “many Fed officials saw bond buying into 2014”.  In less than an hour the spike up in the market collapsed as people read further and got confused by ambiguous comments that left “no clear picture what the group is thinking”.  Evidently the FOMC gibberish was even more confusing than normal.  (We recommend reading FOMC comments only if you suffer from insomnia.)

Not long after the FOMC minutes were published, Fed Chairman Bernanke gave a speech and answered Questions.  There are lots of articles coming out about what he said.  Here and here are a few examples (hat tip  The market moved upward and closed the day virtually unchanged.  With more time to overanalyze Bernanke’s comments it appears currency traders have concluded the Fed will keep printing money.  Most market participants have figured out over the past 100 years since the Fed’s creation that monetary policy causes reactions in the stock market.  This basic understanding comes from years of observation.  The detailed explanation is provided by Austrian Business Cycle Theory (ABCT).  There is a connection, but the connection is not just the manipulation of interest rates and money printing.  ABCT explains that it is the rate of growth of the money supply that explains the boom-bust cycle in the economy and stock market.  The Fed is printing like crazy.  Seriously, it is absolutely crazy to print money given the thousands of years of historical experience that show money printing leads to price inflation and economic chaos.  The Fed’s recent printing might have re-inflated stock market prices, but the real economy is still awful considering the real situation of employment.

Do not listen to what the Fed says.  Ignore the speeches of the Fed officials.  They deliberately lie to order to project confidence in their policy actions and to try and get the markets to react in the way they desire.  The only thing to watch is the money supply data.  That will tell you what is going on.  It is astounding that Fed officials appear to have no idea what they are doing.  They might know what they’re doing and choose to lie when they speak, which is likely and makes them evil.  Or they actually believe the nonsense and fallacies contained in Keynesian Economics, which makes them highly educated fools.  Either way they print and print as if that will solve our problems.  Money printing and fractional reserve banking are the root cause of our economic problems.  The US M2 money supply is not growing because banks are allowing loans to mature faster than new loans are being created.  This would normally shrink the money supply, but the Fed is printing like mad.  In the past 6 months the money supply has zigzagged up and down resulting in net zero growth.  ABCT says 12 months of 9% money supply growth followed by 0% money supply growth will lead to a crash.  This is where US markets are heading.  Our best guess is anytime between now and the end of October US markets will crash, assuming the money supply growth remains small.  Avoid US markets.

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