For Monday, January 9, 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 down 0.25% on Friday with volume below Thursday and just barely above the 30-day moving average volume.  On Monday if the S&P 500 declines about 6 points (0.5%) our forecast might flip to uncertain.

Subjective Comment:

The daily S&P 500 market data and money supply statistics continue to leave an unclear picture regarding the future direction of the market from here.  The Eurozone debt crisis remains the primary concern as we have discussed for the past week.  The European Central Bank continues to do enough to prevent outright panic in European debt markets.  If the ECB is unsuccessful getting European banks to rapidly expand the Euro money supply soon the debt crisis will get worse and markets will react negatively.  The S&P 500 daily volume is very light and has been for months.  The light volume heavily implies most investment funds are remaining in risk-off positions waiting for a clear sign of future direction.

The burst of summer lending by US banks continues to have an impact on the economy.  The improved unemployment statistics released on Friday were a big topic in the news.  Partisan spin from both ends of the political spectrum attempt to paint the statistics as good or bad for purposes obviously tied to the election year campaigns.  Economically, the rapid expansion of the US money supply this past summer is working its way through the capital structure.  The profits it has produced for many businesses has finally encouraged an up-tick in hiring.  Certainly some of the December hiring was seasonal, but unemployment is a lagging indicator.  Over the past several months there have been multiple economic indicators that have shown improvement.  Now that the lagging indicator of unemployment is turning this can be economically interpreted two ways:

  • Bullish Interpretation: The money printing has fueled the beginning of another bubble-boom which will continue into the future.
  • Bearish Interpretation:  The burst of lending that lasted 2 months has been followed by 20 weeks of a slow 4.2% growth in the M2 money supply.  Now that lagging economic indicators are responding to the lending burst, the stimulating effects are nearing their end.

Our interpretation of the economic situation is one between the bullish and bearish extremes listed above.  If US M2 money growth accelerates soon, the mini-bubble-boom ignited last summer can be sustained.  If US M2 growth remains around the 4.2% level as it is now, the bubble-boom will sputter out and the US economy will resume its decline as there are still plenty of over-indebted business ventures that need to be liquidated before a genuine recovery can commence.  Time will tell which way it will be, and every week that goes by with US M2 remaining at 4.2% growth the more likely the US will fall back into a recession.

External factors are also a concern.  Should the Eurozone crisis turn into multiple bankruptcies of European banks, there will be an economic collapse with contagion effects in the US.  The Chinese economy and stock market is nearing a collapse.  Austrian Business Cycle Theory (ABCT) explains why China must experience a huge collapse after having printed enormous amounts of money.  The collapse in China, when it occurs, could put downward pressure on US markets.  We’re guessing the Chinese collapse will occur sometime this year, but we admit this is a guess.  The current US Federal policy towards Iran appears quite antagonistic and could spark hostilities.  Should that happen oil prices will spike.  Spiking oil prices would dampen economic activity worldwide and put downward pressure on markets.  The US Federal Reserve has been causing bubble booms and busts in the US for nearly a century with its ever expanding supply of US Dollars.  ABCT explains how this causes booms, and why a bust always happens when the growth rate of the money supply slows.  Any external shock right now would be very difficult to overcome as the 20 weeks of slow M2 growth is allowing the simulative boost from the summer lending to wear off.

Continue to be cautious with your investment portfolio.  Funds in a risk-off position should be in cash and not in money market funds due to exposure to European debt.  If you are speculating the ECB will rapidly expand the Euro money supply very soon, then some funds in a long position is a way to take advantage should US banks resume rapid loan originations.  If you have a long position in US equities, be prepared to sell quickly if things turn worse.  We will continue to monitor US money supply statistics and the S&P 500 data for indications of any change.

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