For Thursday, Nov 03, 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:

Wednesday the S&P 500 increased 1.6% on light volume.  Volume was below both Tuesday’s volume and the 30-day moving average.  The up-day was sufficient to reverse our forecast back to growth.  The market is now about 20 points (1.6%) above the stop-loss trigger in our algorithm.  Should the S&P 500 close down 20+ points on Thursday, our forecast could flip back to uncertain.  Wednesday’s bounce up shows the 1216 – 1226 level of the S&P 500 remains a technical level of support.

Subjective Comment:

From day to day the direction of US markets remains susceptible to movement in Europe.  The past expansion of the Euro money supply combined with the more recent tight money supply from the European Central Bank (ECB) is the root cause of their current problems.  The bailouts they are attempting might delay the crisis for a while, but eventually a crash is needed to readjust those economies to more sustainable production.  The wide-spread ignorance of Austrian Business Cycle Theory prevents politicians and bureaucrats from understanding how they have caused the problems and also how to solve them.  Bailouts are just more debt, and more debt is not the solution to problems caused by too much debt.  This is the reality, but the headline drama continues all the same.  German Chancellor Merkel and French President Sarkozy gave Greek Prime Minister Papandreou an ultimatum on Wednesday.  Greece was told to decide by mid-December if it wants to stay in the Eurozone.  To stay, Greece will have to accept the terms of the bailout.  This deadline gives Greece enough time to conduct a referendum on the issue.  This means another 6 to 7 weeks of uncertainty for Europe and the subsequent spillover uncertainty for US markets.

In the US the Federal Reserve’s Open Market Committee (FOMC) published their statement following their regular meeting.  There was nothing of note in the statement.  Current policy will continue unchanged.  There had been a few rumors that QE3 might be announced and we had previously noted such rumors existed.  We’re very glad there was no QE3 announcement.  Additional QE is not needed, no more than QE1 and QE2 which will only do more damage in the long run.  This quote was interesting:

The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate…

The Fed is acknowledging price inflation has been higher than what they expected.  The fact they said it will settle means they do not wish to acknowledge or do not understand how the money supply expansion they have caused will impact the economy and consumers.  Ignore what they say and watch what they do.  The M2 money supply has been rapidly expanding as banks make loans at a rapid pace.  The next weekly data release is scheduled for 4:30 PM Eastern time on Thursday.  We will be watching the growth rate of M2 as well as the size of required reserves and excess reserves in the banking system.  The growth rate has slowed recently but has remained above 10% for about 3 months.  This rapid expansion explains why US 3rd quarter numbers are turning positive.  74% of S&P 500 firms have reported Q3 earnings, and those earnings are up 20.7% versus Q3 last year.  The US is entering another Fed fueled bubble-boom.

US markets will be volatile thanks to the downward pressure from Europe and the expansionary upward pressure from the US money supply.  China will also continue to crash as they are in the same phase of the business cycle as Europe.  Shocks from China could also have spill-over effects in the US, but likely not as much as those from Europe.  High levels of volatility will persist until Europe implements an effective bailout, or completes their necessary crash.  Eventually the expanding Dollar supply will reduce the volatility and the growth trend will have fewer large down-days as experienced on Monday and Tuesday of this week.  The monetary expansion from QE1 and QE2 did not cause much price inflation because most of that money sat in the banks (see excess reserve data).  Now that banks are lending (see required reserve data) we expect price inflation to become a big problem in the not-to-distant future.  This is why leveraged investing is necessary.  It is one strategy to grow your investments faster than price inflation.  This strategy will cause wild fluctuations in your portfolio with the market volatility we have discussed.  Investing now will return large gains over the longer term.

If you’re interested in learning more about Austrian Business Cycle Theory (ABCT), here is a good article with a brief explanation.  The Ludwig von Mises Institute is a great source of information.  You can learn quite a bit at no cost from their website.  They also have books at reasonable prices that go much deeper into ABCT and Austrian Economics.  For $10 you can purchase “The Austrian Theory of the Trade Cycle” (ABCT by another name).  For $19 you can get “Austrian Economic – A Primer” as an introductory overview to this school of economic thought.  These are short books and well worth your time.  We hope you’ll consider them.  Please continue following our website and we’ll keep you updated with our automated forecast and commentary.

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