For Monday, Nov 14, 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 nearly 2% on Friday.  Volume was the lighter than Thursday, lighter than the 30-day moving average volume, and the lightest of the week.  After wide swings during the week, the S&P 500 closed up about 10 points from last Friday.  A drop of about 30 points (2.4%) would be necessary on Monday to trigger the stop-loss algorithm of our forecasting process.

Subjective Comment:

Light volume on a Friday is not unusual.  The light volume all this past week is interesting.  We expect to eventually see a strong market rally where up-days occur on strong volume.  Since that is not happening yet, we think continued high volatility with big up-days and down-days will occur in US markets while the Eurozone debt crisis sorts itself out.  We frequently reference Austrian Business Cycle Theory (ABCT) as the economic basis for most of our subjective commentary.  Here is a very good article that explains why the Eurozone debt crisis has occurred based on ABCT.  Many of the same debt problems that happened in the US occurred in Europe, as this article explains.  It will give you a good understanding of what happened in the US back in 2007 – 2008, and what is happening in Europe now.  If you’ve been reading our daily comments, much of this article will seem familiar.

It is unfortunate for the future of world economies and the wealth of the people that politicians, bureaucrats and bankers want to solve debt problems by printing more money and issuing more debt.  The correct solution is bankruptcy, but this was not allowed in the US in since the market crash in late 2008, and it looks like it will not be allowed in Europe either.  This benefits governments and the banks that buy government bonds as they work together.  Governments get loans from the banks, allowing them to keep taxes lower than would otherwise be required for excessive government spending.  Banks are able to use government bonds as collateral to make additional loans and know the governments will bail them out when the bubble-boom ends.  Money supply expansion (and the resulting price inflation) benefits those who get the newly printed money first at the expense of the most of us who get it later or last.  Henry Hazlitt published Economics in One Lesson in 1946.  It can be read for free on line.  Below are excerpts from this book relative to inflation with minor editing for brevity:

The more knowing inflationists recognize that any substantial increase in the quantity of money will reduce the purchasing power of each individual monetary unit… But this does not disturb them. On the contrary, it is precisely why they want the inflation…  An increased quantity of money comes into existence in a specific way. Let us say that it comes into existence because the government makes larger expenditures than it can or wishes to meet out of the proceeds of taxes…  Suppose, for example, that the government prints money to pay war contractors. Then the first effect of these expenditures will be to raise the prices of supplies used in war and to put additional money into the hands of the war contractors and their employees… The war contractors and their employees, then, will have higher money incomes. They will spend them for the particular goods and services they want. The sellers of these goods and services will be able to raise their prices because of this increased demand. Those who have the increased money income will be willing to pay these higher prices…

Let us call the war contractors and their employees group A, and those from whom they directly buy their added goods and services group B. Group B, as a result of higher sales and prices, will now in turn buy more goods and services from a still further group, C. Group C in turn will be able to raise its prices and will have more income to spend on group D, and so on, until the rise in prices and money incomes has covered virtually the whole nation. When the process has been completed, nearly everybody will have a higher income measured in terms of money. But prices of goods and services will have increased correspondingly (assuming that production of goods and services has not increased).  The nation will be no richer than before.

This does not mean, however, that everyone’s relative or absolute wealth and income will remain the same as before. On the contrary, the process of inflation is certain to affect the fortunes of one group differently from those of another. The first groups to receive the additional money will benefit the most. The money incomes of group A, for example, will have increased before prices have increased, so that they will be able to buy almost a proportionate increase in goods. The money incomes of group B will advance later, when prices have already increased somewhat; but group B will be better off in terms of goods. Meanwhile, however, the groups that have still had no advance whatever in their money incomes will find themselves compelled to pay higher prices for the things they buy, which means that they will be obliged to get along on a lower standard of living…

This was written 55 years ago.  This is how inflation secretly transfers purchasing power and wealth from those who get the new money last to those who get it first.  All of the nonsensical arguments in favor of inflation are merely propaganda to conceal this basic truth.  Inflation would not happen if it did not benefit those who cause it to happen.  Officials in Europe want the European Central Bank to print money to fund the bailouts of the over-indebted countries.  The same thing keeps happening over and over because not enough people understand money printing and inflation.  If enough of us did, we would not let our politicians get away with it.  All of this causes lots of changes and problems, including social unrest.

Newly created money comes from outright money printing (aka Quantitative Easing) or fractional reserve bank lending and benefits those who get the money first as described by Henry Hazlitt.  The increased money supply pushes down interest rates, causing more loans to be made than otherwise would.  These loans are used by many businesses and entrepreneurs to engage in new business projects that would be unprofitable at higher interest rates.  As price inflation occurs, those projects become less profitable.  The money printing does not cause real resources (land, labor, commodities, etc.) to increase, so eventually the high demand for these resources will exhaust the supply immediately available.  When this happens many of the business projects financed by the cheap loans will fail.  The economy has been misaligned with too many workers engaged in unsustainable lines of production.  Those projects that do finish will find less demand for their goods than expected.  This is how the bubble-boom born of money printing eventually goes bust.

The US banking system has $1.5 Trillion of excess reserves left over from the Fed’s QE1 & QE2 money printing binges.  This inflated money supply is growing now that banks are lending again, and the fractional reserve money multiplier will further grow the US money supply.  This will drive interest rates down and fuel another bubble-boom.  Everything will seem great for a while as business hire employees, economic indicators show growth, public companies report record earnings and stock markets rise.  Bubble-booms historically can endure for years, but not without the consequences of price inflation and overinvestments by businesses as cheap loans are made available.  The bubble-boom causes the crash.  Europe and China are at the end of their most recent bubble-booms and are crashing.  The US is beginning its next bubble-boom.  This will cause US markets to be very volatile for a while, but the underlying trend will be growth.  Eventually the US bubble-boom will overtake the European crash and markets will move much higher.

Now is the time to invest in leveraged index funds.  You will get ahead of price inflation as the leveraged funds will grow your money fast.  Keep following the US money supply statistics and our market timing forecast to know when the bubble-boom is nearing its end so you can avoid the crash.

3 Responses to For Monday, Nov 14, the market forecast is for growth

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