For Monday, Sep 19, the market forecast is for growth

We recommend any leveraged ETF that grows with the US market.

Here are some options:

2x Leveraged ETFs

 

NASDAQ 100

Russell 2000

S&P 500

QLD

UWM

SSO

3x Leveraged ETFs

NASDAQ 100

Russell 2000

S&P 500

TQQQ

URTY

UPRO

Technical Comment:
The S&P 500 closed up 0.6% on Friday on volume higher than Thursday and higher than the 30-day moving average volume. All US Markets closed up on Friday while European markets were mixed. Upward motion on higher volume is typically a bullish indicator.

Subjective Comment:
For US markets, the story continues to be the upward force from the accelerating growth of the US Money Supply and the downward drag from the European markets. For the past few months the story from Europe has been dramatic, but the root cause is explained by the Austrian Business Cycle Theory. The European Central Bank (ECB) expanded the Euro supply, then slowed and eventually stopped printing Euros. Inflating the money supply causes an artificial and unsustainable economic expansion. When money supply growth slows / stops, the unsustainable expansion collapses. Markets expand and collapse along with the economy when this happens. Europe is in the beginning stages of business cycle decline. The high levels of sovereign debt and bank liabilities is causing unrest and will likely lead to the breakdown of the Euro in some fashion. As this continues, some investors are selling US holdings, causing US markets to decline with Europe.

On 9/15/11 we posted the announcement from the ECB about a coordination among the ECB, the Fed and 3 other central banks. The Fed will be providing US Dollars to the ECB to fund European banks through December. This action will not prevent the crash (recession) phase of the business cycle, but it might delay the decline for a little while. This coordination through the end of the year probably means any action by the US Federal Reserve to provide funding to US banks will be supportive of Europe as well.

If Friday seemed like a slow news day, that’s because the mainstream media does not understand and is not interested in monetary developments. The most significant news was the publication of preliminary US money supply data from the Fed. The 3-month annualized growth rate of M2 (seasonally adjusted) was 23.3%. This confirms the expansion of the Dollar supply continues to accelerate. For context we used the Fed’s historical data to construct the following graph:

Since April of 1959, this M2 growth rate has only exceeded last month once, and that was in February of 1983 with a peak value of 23.8%. Excess reserves in the US banking system have dropped from $1.6 Trillion on August 10th to $1.569 Trillion on September 7th. This is a staggering amount of money capable of expanding to $15 Trillion through the fractional reserve banking money multiplier. Required reserves rose from $81.3 Billion to $91.9 Billion in the same period, showing that banks are lending. (Required reserves expand as banks make new loans and contract as loans are paid off. Excess reserves is the amount of money banks have available to make new loans.) Quantitative Easing (QE1 & QE2) added this money to the system, but never during that time did the growth rate of the money supply reach the level achieved in August 2011 (last month). The Fed has created this highly inflationary situation and does not need to continue creating new money for price inflation of goods, services and US markets to increase dramatically in the near future.

The Fed’s next FOMC meeting is Tuesday and Wednesday (Sep 20 & 21). Typically the FOMC meeting is 1 day only, but back at the Jackson Hole event Chairman Bernanke announced the two day meeting. The last 2-day FOMC meeting was mid-December of 2008 where QE1 was unveiled. There has been a lot of speculation what the Fed might do. A good summary of this speculation was posted at ZeroHedge.com. If the Fed does nothing, it is likely there could be a pull-back as many market participants do not understand the inflationary potential left over from QE1 & QE2 as we described above. If the Fed announces any form of additional money printing (“accommodative monetary policy” in Fed-Speak), they will only be adding unnecessary fuel to the inflationary fire that’s about to explode.

People are starting to notice the inflation. We mentioned the increase in the Consumer Price Index to an annualized 3.8% Thursday (which is really over 12% according to Shadowstats.com). On Friday the University of Michigan released its consumer sentiment survey. Beneath the headlines of this survey is a largely ignored measurement of inflation expectations. The survey’s 1-year expectation rose to 3.7% from 3.5%, and the 10-year expectation rose to 3.0% from 2.9%. With a real rate of 12% and the official rate at 3.8%, it is not surprising this survey confirms people are taking notice of inflation. As price inflation erodes the purchasing power of the Dollar, leveraged investing is an unfortunate but necessary risk in order to grow your speculative investments faster than the Dollar’s decline.

Near-term volatility will likely remain high as Europe struggles with their problems and the US begins a period of significant inflation. The growth in US markets will eventually occur, driven by the expanding money supply.