For Thursday, December 22, the market forecast is for growth

If you choose to invest now 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 move up a fractional 0.2% on Wednesday.  Volume was very light, below Tuesday’s volume and below the 30-day moving average.  The S&P 500 would have to drop about 24 points (almost 2%) on Thursday to change our forecast to uncertain.

Subjective Comment:

US markets were mixed on Wednesday.  The Dow was barely up and the Nasdaq dropped 1%.  The light volume on the S&P 500 continues to be a concern.  Up-days continue to be light and down-days are stronger.  This past Tuesday was an exception with a very strong up-day for the S&P 500 index, but the “stronger” volume on Tuesday was still barely above the 30-day moving average.  The market data does not show signs that a strong bull market has begun.  It appears market participants continue to wait to see if recent efforts to address the European debt crisis will allow markets to rally or not.

The European Central Bank conducted its first LTRO (Long Term Refinancing Operation) today (Dec 21).  523 different banks participated in this backdoor bailout by taking these 3-year loans.  The headlines described a massive amount of money being lent, a total of €489 Billion Euros, the biggest ECB infusion of credit for the banking system since the inception of the Euro (13 years).  However, the European banks also reduced their use of Main Refinancing Operation (MRO) loans by €123 Billion yesterday.  They also reduced use of 3-month LTROs by €111 Billion today.  Additionally, several banks refinanced €46 Billion of recent (October) 12-month LTRO loans in exchange for new 3-year LTRO loans just issued.  This gives a net of €210 Billion of Euros lent to banks by the ECB in the past 2 days.  (The next 3-year LTRO loans will be made available on February 29th.)  We do not yet know if the ECB will sterilize the €210 Billion of Euros (net) lent today or not.  Only if the ECB monetizes (prints Euros) instead of sterilizes will these backdoor bailout LTRO loans provide fuel for a manipulated bubble-boom in the Eurozone economy and stock markets.  (The ECB publishes its balance sheet and money supply statistics at the end of each month for the prior month, so confirmation of monetization from today’s LTRO will not be available until late January.)

We have written about the burst of lending by US banks this past summer (June & July 2011).  Via the fractional reserve money multiplier, this lending grew the US Money Supply (M2, seasonally adjusted) by $470 Billion Dollars in just 9 weeks, which was equivalent to about 33% annualized growth.  For over a year prior to this burst of lending M2 growth was a little over 5%, and since July M2 growth has been a little over 4%.  Austrian Business Cycle Theory explains how an expansion of the money supply will first stimulate the capital goods sector, and eventually the consumer sector as well.  This is an artificial bubble-boom stimulus that does not last, but there is a lag in time between the money printing and the economic response.  More articles keep appearing describing signs of economic recovery in the US.  The consequence is price inflation and an eventual bust and recession (depression) when the money printing slows.  So far the US money supply data has not shown an increase in growth since slowing after the summer burst.  Any economic “recovery” (manipulated bubble-boom) in the US can only be sustained if the money printing accelerates.  The Federal Reserve’s weekly update on the money supply and banking reserves is due out tomorrow.  If the ECB LTRO backdoor bailout is going to ignite a bull market in Europe and the US, it must motivate US banks to resume aggressive lending to grow the US money supply.  In time data will show if this is happening.  Until then it is probably wise to maintain a cash position with your investment portfolio.  If you are a more aggressive investor and think the ECB will be monetizing the LTRO loans, and you think this will ignite the chain of events necessary to accelerate US Money Supply growth, consider investing a part of your portfolio now.  If you invest, remember to use leveraged index funds to stay ahead of the price inflation that will result from all of this insane money printing.

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