For Friday, Nov 11, 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 climbed on Thursday, closing up 0.9% on volume below Wednesday’s volume and below the 30-day moving average.  The increase on Thursday was sufficient to move our forecast back to growth.  If the S&P 500 drops on Friday by about 6 points (0.4%) our stop-loss trigger would be activated again and move our forecast back to uncertain.  If the market declines less than this amount or closes up for the day, our forecast will remain for growth.

Subjective Comment:

Our stop-loss algorithm is susceptible to giving erratic signals during periods of high market volatility.  The confluence of strong upward forces from the expanding US Dollar supply combined with the intensifying debt crisis in Europe is causing the US market volatility.  Should this continue to cause our forecast to flip between uncertain and growth, we will provide commentary to help you evaluate the technical signals along with the fundamental forces attempting to move the market.

The debt crisis in Europe has resulted in political shake-ups.  Lucas Papademos will become the Greek Prime Minister and it seems Mario Monti will become the Prime Minister of Italy.  Their backgrounds include experience economics and banking.  Unfortunately this background is not in Austrian economics, so it is likely this change in leadership will increase pressure on the European Central Bank to print Euros.  It will be a few weeks before updates to the ECB balance sheet are available.  That data will show if Mario Draghi, the new ECB President, has been printing new Euros or sterilizing the ECB’s bond purchases.  Printing can delay the bankruptcies that are necessary, but it will only delay the inevitable and bring price inflation and the associated social problems that goes with it.  Absent ECB Euro printing, there continues to be no source of money for the on-going bailouts that are needed to avoid defaults.

The Federal Reserve published their weekly money supply updates on Thursday.  The graph below shows the weekly change in the M2 money supply (seasonally adjusted).  The dotted line is a straight-line to show what a constant growth would have been had bank lending not increased starting the week of June 20th.

After an rapid period of growth the more recent growth seems to be parallel to the prior growth rate.  This expansion is more than enough to fuel the bubble-boom for a few months.  If the growth rate remains parallel to the prior rate the boom might be short.  We expect banks to continue to aggressively lend money.  As economic indicators improve more businesses and individuals will be willing to borrow, and US banks will be eager to originate new loans.  The US banking system continues to sit on $1.5 Trillion of excess reserves upon which they can continue fractional reserve lending.

We expect the ECB to eventually begin printing Euros to kick their debt can down the road.  We also expect US banks to originate many loans causing the US money supply to continue its growth rate, with the likely effect that M2 growth will accelerate.  Until these things happen, volatility in US markets will continue on top of an underlying growth trend.  When these events occur, volatility will subside and US market growth will be very strong.  Price inflation will eventually come along in a much more noticeable way.  US Price inflation is happening.  Anecdotally, rents in New York are up 7% and the cost of a turkey dinner are up 13%.  The official Consumer Price Index was growing at 3.9% from October 2010 to October 2011.  The next official update is due on November 16th.  Shadowstats.com publishes the CPI how the BLS did back in 1980, and by that measure price inflation is already over 10%.  Price inflation has not made it into the popular news coverage, probably because the official number is low.  As M2 increases, price inflation will become more and more obvious.

We strongly recommend investing in leveraged index funds (ETFs) to take advantage of the coming growth in US markets, and to stay ahead of the price inflation that will be getting worse.  The duration of this bubble-boom will be dictated by the money growth.  As long as the money supply continues to grow at faster rates, the boom and price inflation will continue.  When it slows, stops growing or begins shrinking, the bubble will burst.  The time lag between the money supply growth rate changes and the economic and stock market bubble-boom (and subsequent bust) is difficult to predict.  Our automatic forecast follows the stock market data to identify turning points.  By following both the money supply changes and our market timing forecast, you will be able to grow your investments during the boom and protect your wealth before the bust.