For Friday August 30, 2013, We Recommend Against Investing

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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 advanced 0.2% on Thursday with volume below Wednesday and lighter than the 30 day moving average, so Thursday was another light-volume up-day.  There are not technical patterns forming to indicate any sort of market strength.  Should the S&P 500 decline about 14 points on Friday (-0.8%) our market forecast would likely change to an uncertain trend.

Subjective Comments:

The weekly update of the US M2 (not seasonally adjusted) money supply was published.  The annualized growth over the past 16 weeks has been 6.4%.  The 4-week sub-cycle appears to be present as this week’s number declined a bit from last week.  If the 4-week sub-cycle holds then next week should see a mild decline as well.  The 6.4% growth rate has been for just under 4 weeks, so it’s not as important as the longer term growth which is 2.1% annualized since the beginning of the year.  2.1% is very small compared to the 9.2% growth last calendar year.

Austrian Business Cycle Theory (ABCT) explains why an accelerated money supply growth rate creates a bubble-boom in the economy and asset prices, including stocks.  Since the money supply growth has now slowed (2.1% vs. 9.2%) and has remained slow for nearly 8 full months, ABCT goes on to explain that the current conditions are ripe for an economic and market crash.  Historically September and October tend to be bad months for US stocks.  The looming political crisis in Washington D.C. over the next Federal budget and debt ceiling could create fear among some to many investors.  US consumers typically increase purchases of consumption goods in the late summer and early fall as children go back to school and the holiday season approaches.  This increase of spending on consumption goods is seasonal, but the timing this year will put further pressure on the capital structure of the US economy.  When the money supply is growing rapidly there is enough new money to over-stimulate malinvestments in capital goods.  With this money growth gone the capital goods sectors are experiencing slowing sales.  The seasonal shift towards consumption goods will mean even less money flowing into the capital goods sector.  This further increases the likelihood of the market crashing.

We continue to conclude from all the available evidence that US markets are heading for a crash as explained by ABCT.  Our best guess on timing is before the end of this October.

Although money supply growth has slowed, the money supply is still growing.  Remember that US M2 has grown tremendously over the past several years and this will eventually drive price inflation higher.  Consumer prices will continue to advance even as the market crashes and unemployment remains high.  The national strike of fast food workers was organized for political reasons and occurred today.  It would not have occurred if low wage workers were not feeling the pinch of price inflation.

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