For Friday September 6, 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 0.1% on Thursday with volume below Wednesday and lighter than the 30 day moving average.  Thursday was a light-volume up-day and our pattern detection process still does not see anything developing that will predict the future direction of US markets.  The last time our software identified a pattern was back on August 6th.  The pattern was a 50/50 pattern that suggests the odds of an advance or a decline was equal.  Since then the market is down only 2.5%.  Should the S&P 500 decline about 25 points on Friday (-1.5%) our stop loss algorithm could trigger a change in our market forecast to an uncertain trend.

Subjective Comments:

Welcome to our new subscribers!  We’re excited you’ve joined our community.  Every Thursday we analyze and comment on the growth rate of the US M2 (not seasonally adjusted) money supply and the ramifications for the US economy and stock market based on Austrian Business Cycle Theory (ABCT).  Here are the numbers for the most current data:

  • US M2 growth rate since beginning of the year (annualized): 1.4%
  • US M2 growth rate last year (2012): 9.2%
  • US M2 growth rate for the current trend (past 17 weeks), straight line annualized: 5.9%

The 1.4% growth compared to last year’s 9.2% growth continues to be the single most important statistic when predicting the future trend of the US stock market.  A bubble boom is created when the money supply growth accelerates.  After a period of accelerated growth the bubble will pop when the money supply growth slows.  This is explained in detail by ABCT.  The longer the bubble has been growing, the worse the crash and following recovery will be.  However, ABCT does not provide a mechanism for predicting precisely when the bubble will pop and markets will decline.  This is where we use our proprietary pattern detection software to identify market turning points.  Our software does give off false signals from time to time because it is only analyzing patterns in the daily S&P 500 data.  When these patterns and signals are combined with the ABCT analysis of money supply growth, our system becomes very good at predicting what will happen.  Since there are currently no patterns present we think it could be a little while yet before the crash occurs.  Still, we’re guessing the crash is getting closer and we still are estimating a crash prior to this Halloween (Oct 31, 2013).

Every other week data on the required and excess reserves of US banks is published.  This data series was updated Thursday and continues to show virtually not growth in required reserves.  The $85 Billion per month of money printing by the Federal Reserve continues to accumulate in excess reserves.  This means QE is not growing the M2 money supply fast enough to sustain the recent bubble boom.  Should banks start lending their $2.1 Trillion of excess reserves then the money supply could accelerate sharply.  If that happens, then the crash could be delayed.  We’re guessing this will not happen.

The reason we’re guessing the crash will come prior to the end of this October is based on the historic frequency of when banking crisis start, the various events in September that could trigger investor selling, and of course the persistent weak growth of the money supply since the start of the year.  Avoid all stocks and avoid all bondsAnother possible trigger would be the bursting of the US student loan bubble.  Invest in cash and price inflation hedges.  Having cash available at your broker will give you the opportunity to short the US market in the near future as the crash approaches.  Please tell your friends and family about the pending crash.  Urge them to move their investments into cash to protect their wealth.  Share our website with them and encourage them to subscribe to our daily posts.

Thank you to all of our readers.  We appreciate your interest and loyalty.

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