For Tuesday, Sep 20, the market forecast is for growth

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

Here are some options:

2x Leveraged ETFs


Russell 2000

S&P 500




3x Leveraged ETFs


Russell 2000

S&P 500




Technical Comment:

The S&P 500 dropped 1% on Monday. Volume was lower than both Friday’s volume and the 30-day moving average volume. The S&P 500 would have to drop about 31 points on Tuesday to cause our automated forecast to change from growth to uncertain.

Subjective Comment:

European stock markets declined between 2% to 3% on Monday. US markets opened about 2% down, but after European markets closed US markets recovered some of the decline. This is consistent with our on-going hypothesis the Eurozone crisis is the downward force on US markets while US money supply expansion is exerting upward pressure. We blame the Eurozone weakness for dragging US markets lower on Monday. One headline causing concern was the on-going bailout funding for Greece. It is unlikely the authorities will deny Greece the next bailout tranche of $11 Billion as this would cause a Greek bond default. The international authorities want Greece to implement more spending cuts (austerity). This is unpopular with the Greek population, hence the drama. Another big headline from Europe is the downgrade of Italian debt by Standard and Poors. S&P downgraded Italy from A+ to A with a negative outlook. European headlines focus on symptoms and not the root cause of the financial problems, which has been the prior Euro-printing followed by the recent slowing and halting of Euro-printing by the European Central Bank (ECB). By removing liquidity after a monetary inflation, the ECB has guaranteed European banks will have significant problems, along with the inability of governments to payoff old bonds by selling new bonds after decades of fiscal deficits. The bigger news from Europe is the slow-motion bank runs. Deposits have been declining as more and more people become aware of the solvency problems of large European banks. The headline that really caught our attention was the withdraw of €500 Million Euros from a French bank by Siemens. (Siemens is a large European conglomerate corporation.) Even more shocking is the fact Siemens took these funds and deposited them directly with the ECB! This is an example of a private company depositing its funds in a central bank! This shows how concerned Siemens is about the stability of all European banks. Siemens established a banking business last year, so they are able to deposit funds at the ECB. Most likely they did this not as part of their banking business, but to protect their capital.

The Federal Reserve’s FOMC 2-day meeting starts Tuesday. On the cover of Monday’s Wall Street Journal was an article with speculation what the Fed might do. The speculation in the WSJ included some of the options we linked to in our prior post, including the suggestion the Fed might lower the interest rate paid to banks for Excess Reserves. Lowering this interest rate would encourage banks to make more loans. The banks are already increasing their loans, causing the fractional reserve money multiplier to dramatically increase the money supply. We’ve said several times the Fed does not need to do anything in the way of additional monetary stimulus. They’ve already done enough damage via their reckless money printing since August 2008. We hope they do nothing more. If they do nothing, US markets could decline briefly. If the Fed begins printing Dollars again, US markets will likely advance quite a bit. Expected continued volatility as Europe continues to drag against the expanding US Dollar supply. Regardless of the Fed’s actions at this week’s FOMC meeting, the expanding US Dollar supply will eventually drive US markets (and all other prices) much higher.

While our automated forecast has been for growth and we have written a lot about the upward pressure the expanding US Dollar supply will have on US stock markets, none of this is driving a real economic recovery. We focus our discussion on what we think will impact US stock markets. We are not offering a forecast of the strength of the US economy or other things like the unemployment rate. We do not think businesses are investing to expand their productive capabilities and are instead hoarding their cash until there is less uncertainty about the future. Without real investment, we expect little change in unemployment rates and little (if any) improvement in the real US economy. The appearance of an economic improvement will occur as the money supply continues to expand, but this will be muted by the accelerating price inflation that comes with it.

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