For Tuesday September 17, 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 0.57% on Monday with volume above Friday and above the 30 day moving average.  Our pattern recognition software classified Monday as a strong-volume up-day.  The S&P 500 30 day moving average volume has dipped below 3 Billion shares per day.  The last time the 30 day average was this low was for 8 days in October 2007, almost 6 years ago.  From that point US markets began a gradual decline for the next 12 months and then crashed hard in October 2008.  This does not mean the same thing will happen now, but it is very interesting that average market volume is so low.  If the S&P 500 were to decline about 50 points on Tuesday (-3%) our market forecast would likely change to an uncertain trend.

Subjective Comments:

The interesting market news from Monday, September 16, 2013, was that Larry Summers withdrew his name from consideration as the next Chairman of the Federal Reserve.  This places the current vice-chair, Janet Yellen, as the front runner for the next Fed Head.  Regardless of her qualifications, or lack of qualifications, it does not matter who the next Fed Head will be.  The Federal Reserve should not exist.  The idea that printing money is rational is tragically laughable.  Printing money is really all the Fed does.  Everything else is secondary or propaganda to bamboozle the public into accepting money printing as legitimate, as long as experts are doing it.  Evidently there was an impression that Larry Summers might slow the money printing a bit and that Janet Yellen is more likely to keep the presses running fast.  The announcement that Larry withdrew might have contributed to the market advance on Monday.

For the record, we see money printing as theft.  Regardless of what any legal code might say, regardless of any precedents set by court decisions, and regardless of any propaganda to the contrary, money printing is theft.  It is theft when done by a counterfeiter just as it is theft when done by the Fed.  We also consider fractional reserve bank lending to be fraud.  Both money printing and fractional reserve lending cause the money supply to grow.  Money supply growth provides an advantage (via theft of purchasing power) to those who get the new money first.  Everyone else suffers a decline in purchasing power via price inflation, and that is how the theft occurs.  A few people can buy more with the new money and the rest of us can buy less.  The more insidious effect of a growing money supply is the resulting boom-bust business cycle as explained by Austrian Business Cycle Theory (ABCT).  Not only do the vast majority of us feel the impact of price inflation, but the unemployment associated with the crash and depression phase of the business cycle is the result of money printing.

Until the practice of money printing and fractional reserve banking are terminated, we must contend with the effects of the boom-bust cycle caused by money supply growth.  Fortunately ABCT explains how changes in the money supply growth rate affect asset prices, including stocks.  When the growth of the money supply accelerates, a boom phase occurs.  US M2 money supply increased 9.2% in 2012, and near the latter half of 2012 the growth rate accelerated.  Since the start of 2013 US M2 has grown less that 3% per annum.  This deceleration of money supply growth will eventually lead to a market crash (financial panic) and economic contraction (recession, depression, etc.).  The US economy is so large that market prices and economic activity to not suddenly change in response to accelerations and decelerations of money supply growth.  There are many other factors influenced by the decisions made by millions of people that make predicting the timing of a market crash a guessing game.  Still, we’re making a guess.  We continue to guess US markets will crash by the end of October, and we’re basing that guess on the history of market crashes typically happening in September and October.  ABCT does not predict the timing.  ABCT explains cause and effect.

Our market forecast looks for patterns in the daily market data that have historically preceded turning points in the market.  Our forecast is not perfect, but it does a reasonably good job.  It does not forecast how long a boom or a bust will last.  It only looks for patterns in the buying and selling of stocks that appear to be common at historic turning points.  When combining this technical approach with ABCT and money supply growth rates we think our subjective forecast offers our readers a very good wealth preservation strategy with strong growth potential.  Readers who have been following our advice for all of2013 should have fair gains but are likely wondering if they could have earned more if they stayed in the market when we advised moving to cash.  Yes, they could have.  Regardless of this fact, we still see US markets on the precipice of a large decline.  Our technical pattern recognition has not yet identified a crash pattern, so we are advising caution and recommending holding cash.  Stay out of US markets and avoid all bonds.  Thank you to all of our readers who continue to follow our comments.  We appreciate your trust.

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