For Wednesday, December 28, 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 closed the first trading day after Christmas pretty much where it started, up a scan 0.01% on volume lighter than last Friday and far below the 30-day moving average volume.  For our forecast to flip back to uncertain, the S&P 500 would have to drop about 31 points on Wednesday, or about 2.4%.

Subjective Comment:

The very light volume is not unusual at the end of the year.  There continues to be no clear indication from available data if US markets will rally or decline going forward.  Our best guess is that most market participants will continue to enjoy the holidays and wait to see how financial conditions around the world unfold heading into early January.  Heading into 2012 we see the potential for very turbulent times based on conditions in China, Europe and Japan.  Eventually there will be a serious financial crisis in each of these economies, but trying to guess when is difficult.  Each economy has not yet fully liquidated the mal-investments from years of money printing.  Austrian Business Cycle Theory describes what is going to happen and why, but we are left to do our best to guess when.

China’s monetary policy is to peg the Yuan to the US Dollar, and as a result they have been printing money to keep up with the Federal Reserve and US Banking system.  Unlike the US the Chinese economy is not as developed, so expanding costs of production get passed to consumers more quickly.  Additionally, China has been directing investment into massive housing and infrastructure projects that will crash in price as there are no buyers.  (For details, search the internet for videos and articles about China’s ghost cities.)  Price inflation has been very high and has caused serious social problems in China for months.  This caused the People’s Bank of China (PBOC) to slow the growth of money printing.  After a very long time of expanding the money supply in excess of 30% per year, the growth rates have been brought down to the mid to low teens.  ABCT explains how this will eventually crash their economy.  When it happens, there will be immense social upheaval and possibly financial consequences in other countries that trade with China, including the US.  Last week on December 20th the PBOC has banned nearly all gold exchanges in China, excluding the Shanghai Gold Exchange and the Shanghai Futures Exchange.  This is a type of capital control not uncommon in historical examples of serious price inflation.  The situation in China will get worse.  The timing of the coming crash and the magnitude of the impact on US markets is uncertain.

The Eurozone continues to hang on the precipice of a complete Euro collapse as the most recent efforts to delay the day of reckoning are watched for signs a little more time might be purchased.  ABCT clearly explains why the bust must come after the boom, so the European Central Bank (ECB) will be unable to avoid the crash.  Their Long Term Refinancing Operations (LTRO) giving 1% loans for 3 years is the latest attempt to “solve” the problem.  There is still no clear indication if the ECB will print Euros to fund these 3-year LTROs or if they will sterilize.  If the ECB sterilizes, the Eurozone will crash soon.  If the ECB prints money very rapidly, a delay of the crash might be possible.  If the ECB does not print enough, or print money fast enough, a crash is still possible.  Last week we discussed the €210 Billion (net) of Euros lent to banks by the ECB.  Today we learned that in the past two days European Banks have deposited €167 Billion Euros back into the ECB where it yields 0.25%.  This is astounding.  Last week European banks took out €210 Billion of 3-year LTRO loans from the ECB at 1%, and nearly all of it has been re-deposited at the ECB where it will earn 0.25%.  There are a few possible interpretations of this action.  Perhaps European banks fear other banks are near bankruptcy and are afraid to lend to anyone, so they’re parking their funds at the ECB and accepting the -0.75% net interest.  Perhaps they are hoarding their cash as contingencies against a feared crash.  Perhaps they are simply waiting for the next round of bond auctions.  Whatever the reasons, if the money is parked at the ECB then it will not ignite a bubble-boom, meaning the crash will happen soon.  The money on deposit at the ECB can be withdrawn anytime, so this situation can change suddenly.  The Eurozone crash, when it happens, will have a much stronger spill-over impact to US markets than China.

We mentioned Japan earlier in this post.  We have not been following Japan closely enough to offer much commentary.  Instead we’ll provide this link with the recommendation consider the information it provides.  Japan is also struggling with too much debt and the money printing there will have the same consequences it has everywhere.  ABCT does not care about national boarders nor political ideologies.  Money printing always creates an inflationary bubble-boom followed by a bust.  Should a major debt crisis develop in Japan we think it is rather obvious there would be spill-over effects in the US.

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