For Monday, Oct 24, 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:

US markets were up strongly on Friday.  The S&P 500 closed up 1.9% on volume stronger than Thursday and above the 30-day moving average volume.

Subjective Comment:

Friday’s market action can be characterized as the strong breakout above the 1216 – 1226 level on the S&P 500.  By closing 12 points above the high end of the resistance range (nearly 1% above) on stronger volume, this was the type of technical confirmation we have thought would happen and have been writing about this past week.  The graph below of the S&P 500 shows this breakout:

If you have been cautious and waiting for further indication a bull market has begun, we strongly urge you to consider investing in leveraged index funds now.  We think this technical breakout is further confirmation of our growth forecast.

On October 20th the Federal Reserve published their weekly update on money supply statistics.  Weekly numbers are less reliable estimates than the monthly numbers they publish, but they still provide an estimate of the direction and magnitude of the money supply growth.  Seasonally adjusted 13-week Required Reserves (annualized) grew at 72% for the week ending October 19th and has been above 70% for the past 8 consecutive weeks.  This is a measure of the rate banks are lending and shows continued strong expansion.  The absolute value of these required reserves declined $181 Billion over the past 2 weeks.  This decline could be a data estimate error, or a brief contraction in bank lending.  It is important to watch next week’s update to this data series to see if the values are revised (a common occurrence), or if the number continues to contract.  A brief contraction in a steady upward trend will have no impact on the economy, but a change in direction for several weeks would be less bullish.  As bank lending continues to expand, the money supply will continue to grow and feed the increase in stocks, producer prices and consumer prices.  Seasonally adjusted 13-week M2 (annualized) grew at 16.3% and the weekly data continues to increase in absolute values.  This data series has been growing in excess of 15% for the past 11 weeks, and higher than 10% for the past 16 consecutive weeks.

As if the rapidly growing US dollar supply were not fast enough based on bank lending, Friday’s Wall Street Journal reports the Federal Reserve is considering more Quantitative Easing!  Like QE-1, this QE-3 would purchase more mortgage-backed securities.  Regardless of what the Fed buys in a QE program, they are buying assets with newly printed Dollars.  More money printing from the Fed will only add more fuel to the fire!  Excess reserves in the banking system are estimated at $1.57 Trillion (as of Oct 19), and the Fed is considering adding more.  The Federal Reserve requires 10% fractional reserves, so this $1.57 Trillion can be turned into over $15 Trillion of new dollars by bank lending via the money multiplier.  With M2 currently at $9.6 Trillion the banks can increase the total money supply of US Dollars by 2.6 times (260%), and yet the Fed wants to print more money to prop up housing prices.  Assuming equilibrium, this would erode the purchasing power of existing Dollars 61%!  Imagine losing 61% of your net worth.  That’s the equilibrium estimate of the potential money growth without QE-3, and inflation never moves smoothly nor ends at the equilibrium estimate.  This is why it is necessary to invest in LEVERAGED index funds.  You have to grow your investments faster than inflation will erode your purchasing power.  Additionally, if you’re investing outside of retirement accounts, remember you will be taxed on your nominal gains.  You don’t get to adjust your tax bill for inflation.

The G-20 summit is still planned for the weekend of October 22nd & 23rd with an anticipated bailout announcement for the Eurozone expected Sunday.  Greece will eventually default and bondholders will be forced to take a write-down (haircut) of the principal, probably in excess of 60%.  The bailout specifics are not known, but there are plenty of rumors about the details.  Ignore the rumors and announcements.  The details change too frequently to keep track.  The new President of the European Central Bank begins his term in November and it is possible he will lower interest rates by printing Euros to fund the bailouts that are needed.  If this happens, which we guess is likely, it will reduce the downward pressure the Eurozone has been exerting on US markets.  Reduced Eurozone pressure combined with the expanding Dollar supply means US markets and price inflation are going to grow strongly.  Even if the announcement from Europe causes US markets to decline on Monday, we still recommend investing.  A decline should be considered a short-term sale giving you a little more growth over the longer term.  The markets in China and Europe have been crashing because of the tightening money supply in both those economies.  If they drop further, they will not continue to drag down US markets much longer.  The growing US Dollar supply will simply be too strong.