For Wednesday July 24, 2013, We Recommend Against Investing


Investment Recommendations:

Ignore our automated market forecast and 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 declined 0.2% on Tuesday with volume above Monday but below the 30 day moving average.  We consider Tuesday to be a strong-volume down-day, although volume was below average.  There have not been enough strong-volume down-days to form a pattern that would predict a market decline.  If the S&P 500 declines about 20 points on Wednesday (-1.2%) our market forecast could change to an uncertain trend.

Subjective Comments:

We continue to hold the view that US markets are at their top and will move sideways for a little while longer but should begin a decline soon.  The decline will turn into a crash if the US money supply continues its current low-growth trend.  By “crash” we mean the market index will fall far enough and fast enough that it will be a story covered by major media outlets.  We will not estimate an amount of the fall as that would be an outright guess.  We will guess the crash will occur before the end of October, and we emphasize this timing estimate is a guess but it’s based on historically similar events.  The crash will result as described by the economic reality contained in Austrian Business Cycle Theory.  There is no avoiding the crash, but there is a small chance the crash could be delayed if money growth accelerates sufficiently.  We doubt that will happen, so sell your US stocks now to preserve your wealth.

Here are interesting items we noticed today that are consistent with our view a market crash is coming and is likely to happen prior to the end of October.  Note in the following things scheduled in the near future that could spark a crash.

In addition to the above future dates we saw today that construction on the world’s tallest skyscraper, the Sky Tower in Changsha, China, has been halted.  Have a good look at the material in this blog post about skyscrapers.  There is also very interesting information about the link between skyscrapers and economic crashes developed by Mark Thornton.  You can read his 72 page paper or watch this half hour video on the topic.  We highly recommend the video.  It explains the capital structure of the economy and how money printing causes mal-investment in capital projects like buildings.  If you watch the video you will understand why the construction halt on the Sky Tower is significant.  You can learn more about how China’s past money printing has caused massive mal-investments in unwanted buildings by goggling “ghost cities of china”.  Just to show how crazy central planning is, consider that China has built millions of vacant apartments that no one wants, but yet Beijing’s subway is incredibly congested because of a lack of investment in transportation infrastructure that serves consumer demand.  Check out this short video of Beijing’s subway.  China is also heading for a major crash just as Austrian Business Cycle Theory explains.

Another thing to keep in mind is the Detroit Bankruptcy is just the first of many more to come.  This is a very good reason to avoid all municipal bonds.  We continue to recommend against investing in all bonds across the board.  If you are invested in bonds, we recommend selling as fast as you can.

Our last observation today was the data about manufacturing release by the Richmond Fed today.  The data shows a collapse in new order volume (the worst in 2 years), and a collapse in order backlogs.  The index was a -11 value which was the biggest miss since May 2006.  Manufacturing wages plunged, average work-week hours dropped and capacity utilization also declined.  Manufacturing companies are in the part of the economic capital structure that collapse first, just as the Austrian Business Cycle Theory describes.

The evidence continues to mount, and it is all consistent with the economic reality that occurs after the money supply grows and then slows or falls, just as it has from 2012 to present day.  Protect yourself and tell your friends.  Avoid US markets and US bonds.  Price inflation hedges are a good alternative investment.

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