For Friday August 2, 2013, We Recommend Against Investing

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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 advanced 1.25% on Thursday with volume higher than the 30 day moving average but below Wednesday’s volume.  Our pattern recognition software classified Thursday as a light-volume up-day since volume was below Wednesday.  The formation of a negative pattern continues although it is not fully developed.  Should the S&P 500 drop about 24 points on Friday (-1.4%) our market forecast could change to an uncertain trend.

Subjective Comments:

The S&P 500 index advanced a large amount and closed at a new record high on Thursday, but volume was below Wednesday.  If you are looking for a sign that the market is going up, then the above average volume combined with the strong advance in the index could be construed as a positive sign.  Remember it takes multiple days to form a predictive pattern, and if Thursday is to be considered a positive day, it must be put in context.  In the past two weeks there have been 4 strong-volume down-days, and this is more significant than the up days.  We think the market is topping and is still headed for a crash.  Our best guess for timing of the crash remains prior to the end of October, likely in September or October.

The weekly US M2 (not seasonally adjusted) money supply statistics were published and we have analyzed the M2 growth rate.  The 4 week sub-cycle appeared, continuing the pattern of 3 weeks of growth followed by a dip in the 4th week.  In the past there has been 2 consecutive dips every 3rd sub-cycle, so M2 could dip again next week before resuming growth.  Another possibility is the zigzag quarterly pattern that has been present since the beginning of the year could again present itself.  If the zigzag appears again it will appear next week or possibly in 2 weeks.

The most important thing to note in the M2 growth is this: Since the beginning of the year US M2 has grown only 1.0% per annum compared to 9.2% growth for the full year in 2012.  This is an absolute collapse in the money supply growth rate.  Austrian Business Cycle Theory explains why these circumstances will first cause a boom, which is coming to an end now, followed by a bust.  US stock markets are going to crash.  Additional evidence that supports this conclusion is the increasing interest rates on the 10-year US Treasury note.  Despite the Fed’s ongoing QE money printing and purchasing of US bonds, there is not enough demand to keep bond prices high and interest rates low.  This is for the same reason US M2 is not growing, and that is because US banks are not lending.  All of the QE money printing is winding up as excess reserves in US banks.  Without commercial lending, the fractional reserve money multiplier is not growing the money supply.  The Fed’s $85 Billion of monthly money printing is not enough to overcome maturing loans and the absence of new loans.  The deflationary effects of maturing loans are offsetting the money printing, and that’s why US M2 is essentially unchanged since the beginning of the year.

The Federal Reserve’s “monetary policy” is nothing but money printing, and it is absolute and utter fraud.  It does nothing to advance neither “full employment” nor “stable prices”.  The propaganda published to justify the Fed’s existence is just a cover for the massive counterfeiting that has existed since its inception in 1913.  Counterfeiting is fraud, but if you can get away with it you can be tremendously profitable.  US banks and the US government are the winners in this racket, and the vast majority of everyone else are the losers.  Not only are the obvious consequences of price inflation an erosion of our wealth, but the boom-bust cycle is caused by the Fed’s money printing and commercial bank fractional reserve lending.  The free market does not cause economic booms followed by busts / recessions / depressions.  This is the result of the ongoing fraud, legalized counterfeiting, but still fraud.  We strongly support ending the Federal Reserve and halting the practice of fractional reserve banking.  Until that happens, the boom-bust cycle along with serious price inflation will continue.  This is why investors need to monitor the money supply carefully and invest accordingly.  Do not be fooled by the record highs on US stock markets.  Investing now is getting in at the top of this market cycle.  Now is the time to avoid US stocks and all bonds.

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