For Thursday July 25, 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 0.4% on Wednesday with volume above Tuesday but still below the 30 day moving average volume.  Wednesday makes for a second consecutive strong-volume down-day as classified by our pattern recognition software.  A fully formed predictive pattern has not developed, but two consecutive strong-volume down-days is the beginning of such a pattern.  If the S&P 500 drops another 9 points on Thursday (-0.6%) our stop loss algorithm could trigger and change our market forecast to an uncertain trend.

Subjective Comments:

Although volume was still below average on the S&P 500, the daily market volume has been going up combined with declines in the market index.  These types of strong-volume down-days suggest the stock market is unlikely to continue its advance.  When combined with the very low money supply growth since the beginning of the year we see conditions continuing to deteriorate.  Austrian Business Cycle Theory explains why markets must crash given the current circumstances.  While money supply growth might be much slower now than it was last year, price inflation is starting to accelerate now that the previously printed money is working its way through the economy to the consumer sector.  MIT’s Billion Prices Project shows annual price inflation above 2.5%. shows price inflation near 9% when calculating CPI using the method in use back in 1980.  The official price inflation from the government shows less than 2% price inflation and confused Keynesian economists think there is no price inflation.  Fortunately the truth is available from better informed Austrian economists.  It is outrageous mainstream economists would claim price inflation is no longer a problem anywhere in the world when Argentina is again suffering serious inflation right now!  When money is printed price inflation eventual follows.  There is almost always a lag between the acceleration of the printing press and the increase in consumer prices, especially in advanced economies.  It appears the US is heading into a period of economic stagnation and decline combined with high price inflation, aka “Stagflation”.  The same mainstream Keynesians claim stagflation is impossible, even though it occurred in the US during the late 1970s.

Our opinion has not changed.  We are guessing the most likely timing for the pending US market crash is by the end of this October.  Sell your bonds and your US stock market investments.  There will likely be an opportunity to short US markets in the near future.  Price inflation hedges remain very good investments for the very long term.

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