For Wednesday September 25, 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 declined 0.26% on Tuesday with volume above Monday and higher than the 30 day moving average.  Our pattern detection software classified Tuesday as a strong-volume down-day, the second such day in the past three trading sessions.  A fully formed predictive pattern has not formed, but the rapid accumulation of strong-volume down-days is not a bullish indicator and does start the formation of a pattern predictive of a market decline.  If the S&P 500 were to decline about 33 points on Wednesday (-2%) our market forecast could change to an uncertain trend from our stop loss algorithm.

Subjective Comments:

It is common for our pattern detection software to notice the beginning of patterns in the daily S&P 500 data.  It is much less common for a fully formed predictive pattern to develop.  Given that the US M2 money supply growth has been much smaller since the beginning of the year, we have been expecting to see market weakness as described by Austrian Business Cycle Theory (ABCT).  We will be watching the daily market data very closely now that we see strong-volume down-days accumulating in late September.  We’ve been predicting a market crash before the end of next month, so we’re looking for clues that our prediction could be correct.  We admit we’re biased right now and expect to see the market decline.  We remain 100% certain that a crash is coming based on the economic reality explained by ABCT and the current money supply growth rate.  We are less certain about the timing of our prediction, but we’re still certain enough to stand by the prediction.

Not long ago we indicated the potential taper of money printing could spook the market.  The Fed’s head-fake has taken the taper off the list of potential events that might spook the market, but there remain plenty of possible triggers that could start a market decline.  The political circus in Washington D.C. matters little but can still spook investors unfamiliar with ABCT.  The US Treasury, without an increase in the debt ceiling, could become unable to fund government spending as soon as October 18th.  Many Austrian Economist are predicting a market decline for the same reasons we have explained (see here and here for two examples).  Historically banking crises have begun in September, but September is almost over.  The factors that influence September as the timing for a start of a banking crisis remain in place right now.  Those factors are the slowing of money supply growth and the seasonal shift in consumer demand away from capital goods and towards consumption goods.

Time will tell if our timing guess is correct.  If the money supply growth accelerates we will notify our readers and back off of our prediction of timing, but it would have to be soon and a very strong acceleration in order to delay the coming crash.  Stay out of US markets and avoid bonds.  We still think an opportunity to short US markets could present itself soon, so consider keeping some of your funds in cash.  Price inflation hedges remain a good long term investment.  If the mad money printers at the Fed accelerate money printing we will see serious price inflation sooner than later, and this is very likely what the Fed will do when the market crashes.

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