For Tuesday September 10, 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 advanced 1% on Monday with volume above the 30 day moving average but below Friday’s trading volume.  Our pattern detection software classifies Monday a light-volume up-day, and the above average volume was just barely above average.  Last week there were two strong-volume up-days, but the week before there were two strong-volume down-days.  At market turning points it is common for both bearish and bullish patterns to begin development.  This is why it takes several days for patterns to fully form, and that still has not occurred.  The most recent fully formed pattern occurred several weeks ago and predicted 50/50 odds of market growth or decline.  Our technical analysis remains highly uncertain regarding the future direction of US markets.  The growth signal is nothing more than the recent reversal of the stop loss algorithm.  The S&P 500 would have to decline about 37 points on Tuesday (-2.2%) to trigger the stop loss algorithm and change our market forecast to an uncertain trend.

Subjective Comments:

When bear market declines occur, there are brief periods of growth.  We think the past several trading days, Monday included, is an up-tick in an otherwise declining market.  Part of the reason stocks increased on Monday was from the value of the US Dollar declining.  When US Dollars decline in value, everything priced in Dollars goes up.  Another reason to be unimpressed with a 1% gain is the fact it occurred on volume lighter than last Friday.  Weak volume market advances are not typical of a bull market, but weak volume growth does happen in bear markets.  The massive money printing by the Federal Reserve is causing price inflation, although the price inflation has been restricted as most of the new money accumulates in banks as excess reserves.  Price inflation from the Bureau of Labor Statistics is reported to be low, but when measured by the BLS method in place prior to 1980, the Consumer Price Index shows near 10% price inflation.  This price inflation from the Fed’s Quantitative Easing is why the value of the dollar is going down and contributes to the apparent increase in stocks.  The BLS is full of BS!

The US M2 money supply has been growing a bit lately, but nowhere near enough to prevent the coming crash.  With bond yields going up as prices decline, US banks could decide to accelerate lending.  With $2.1 Trillion Dollars of excess reserves, they have plenty of cash to make loans.  At some point rising interest rates could encourage rapid lending.  If this happens, the US M2 growth rate could easily accelerate into double digits.  If this happens, the crash we’ve been predicting could be delayed.  US M2 money supply must be watched closely for any indication of a change.  If no change occurs we still predict a market crash by the end of this October.  Protect your wealth and get out of US markets and all bonds now.  Let your family and friends know and encourage them to follow us.

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