For Tuesday October 01, 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 declined 0.6% on Monday with volume above Friday and higher than the 30 day moving average.  Monday was a strong-volume down-day, marking the 4th such day in the past 7 trading sessions.  This is a clear beginning of a negative market pattern, but the pattern is not fully formed.  If formation continues and is completed, the pattern could predict a decline in US markets.  The decline on Monday was almost enough to trigger our stop loss algorithm, but not quite.  If the S&P 500 were to decline about 7 points on Tuesday (-0.4%) our market forecast could change to an uncertain trend.

Subjective Comments:

The threat of a Federal Government shutdown had an impact on US stocks Monday.  The market bounced up and down as news headlines suggested a last minute deal might avoid the dread shutdown.  The weak growth in the US money supply has resulted in the current market weakness and the shutdown threat is just a potential trigger for the crash we’re still expecting to develop soon.  The money printing in 2012 grew the money supply 9.2% last year.  Since the beginning of the year US M2 money supply growth has been about 3% annualized, although growth has been a bit stronger lately but still not enough to push the pending crash into the future.  September has ended 3 consecutive quarters with the low money supply growth compared to last year, and now businesses are starting to really feel the pinch in their profits with negative outlooks outnumbering positive outlooks by a ratio above 5-to-1.  As businesses asses their performance after this quarter has closed we expect many will implement cost cutting measures, including layoffs.  This is consistent with the sequence of events as described by Austrian Business Cycle Theory (ABCT).  The bubble-boom we are experiencing is ending.  We have guessed US markets will experience a crash by the end of this October.  The guessing part of this prediction is the timing.  ABCT provides the economic basis for our contention that a crash will happen.  We will recommend shorting US markets when our pattern detection software identifies a pattern predictive of a market decline.

Should the political circus reach a “solution” to keep the US government open, we would expect a temporary bounce up in US markets.  Any such bounce will not last.  The only way a market crash can be delayed (not avoided, only delayed) is if the money supply growth accelerates very soon and very strong.  We will continue to update the status of the US M2 money supply every Thursday and the status of our pattern detection software every day US markets are open.

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