For Tuesday August 20, 2013, We Recommend Against Investing


Investment Recommendations:

No Change: 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 0.6% on Monday with volume below Friday and lighter than the 30 day moving average volume.  Our pattern recognition software classifies Monday as a light-volume down-day.  If the S&P 500 were to advance about 16 points on Tuesday (+1.0%) our market forecast could return to a growth trend by the reversal of our stop loss trigger.

Subjective Comments:

US markets continue to show technical weakness.  The decline over the past week has been on relatively light volume.  This continues an overall trend of weak volume.  We have nothing new to bring to your attention right now, so we will remind you of the recent cluster of Hindenburg Omens.  This post at gives a good explanation of the Hindenburg Omen and explains why it is a reasonably good indicator from an economic perspective.  Our pattern detection software identified a sign of market weakness about 2 weeks ago and US markets have not shown any material signs of strength since.  All of this is happening as US money supply has experienced over 8 months of very little growth following 9.2% growth in 2012.  It is the slowing of the US money supply that is why the bubble-boom is ending and a market crash is nearing.  It is true the Fed is still printing $85 Billion per month, but all of that money is accumulating in bank deposits as Excess Reserves.  The US M2 (not seasonally adjusted) money supply is barely growing because banks are effectively not lending.  New loans are occurring at the same rate old loans are maturing.  This is obvious because banking Required Reserve data is effectively unchanged since the beginning of the year.  A classic business cycle bust, as explained by Austrian Business Cycle Theory, is approaching.  Our best guess regarding timing of the coming market crash is sometime in September or October this year.  We admit our timing of the crash is a guess based on historically similar periods.  The fact a crash will occur is sound economics based on Austrian Business Cycle Theory.

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