For Thursday August 15, 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 declined 0.5% on Wednesday with volume below Tuesday and lighter than the 30 day moving average volume.  Wednesday was a light-volume down-day.  If the S&P 500 should decline about 3 points on Thursday (-0.2%) our market forecast is likely to change to an uncertain trend.

Subjective Comments:

The clustering of Hindenburg Omens continues to appear.  (The H.O. is a technical indicator that can predict a market crash 30 to 45 days in advance.)  There have now been 6 occurrences of the Omen in the past 8 trading sessions, increasing the count in the most concentrated cluster on record.  Our pattern recognition software identified a 50% chance of growth or decline last week.  These technical indications are a big clue the market is weakening.  The fact these indicators are occurring now is not surprising given the collapse in US M2 money supply growth since the beginning of the year.  Austrian Business Cycle Theory (ABCT) explains how the boom-bust cycle is created by growth rates in the money supply.  In 2012 US M2 grew 9.2%, and since the beginning of 2013 the annualized M2 growth has been 0.7%.

In addition to explaining the business cycle of boom and bust, ABCT describes the capital structure of the economy and how it becomes too heavily invested in capital good industries during periods of strong money supply growth.  Capital goods sectors boom first, and then when the crash nears they decline first.  More evidence of this appeared today as CISCO announced more layoffs and their stock price dropped 10%.  It was also reported today that US consumer bankruptcies jumped the most in 3 years based on second quarter statistics.

All of the Federal Reserve’s “Quantitative Easing” (money printing) is driving up price inflation.  While official government propaganda reports low levels of price inflation, more realistic measurements show it is a serious problem.  Rick Santelli also discussed price inflation and said “I don’t believe the government’s calculations.”  Price inflation hedges have been recovering in price recently and are likely to continue to climb.  If US stock markets crash the Fed would very likely accelerate their money printing, further pushing up price inflation hedges.  This is why we recommend part of your investment portfolio be hedged against price inflation.

US markets are nearing a crash.  Sell all your bonds and stocks.  Hold on to cash for the time being and be ready to short US markets.

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