For Tuesday, January 24, 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 managed a very small gain (0.05%) on Monday with volume above the 30-day moving average but below Friday’s volume.  For our forecast to change to uncertain the S&P 500 would have to decline about 21 points on Tuesday, or 1.6%.

Subjective Comment:

Monday’s US market data has nothing of concern and nothing to be excited about.  It appears most market participants continue to wait cautiously to see if the most recent economic news and market up-trend will develop into a stronger rally.  We think it will because of the growth burst in the US M2 money supply last summer.  The bank lending that occurred caused the money supply growth that is driving the beginning of another bubble-boom in the US markets.  We think this bubble can last a little while longer, but it will take more money printing at a faster growth rate to sustain a longer boom.  Most recently we noted the up-tick in the US M2 growth rate that started at the same time as the European Central Bank’s 3-year 1% LTRO loans.  Every Thursday we will analyze the Federal Reserve’s money supply statistics to see if another growth burst is developing.  We think it is based on the limited data we’ve seen so far, and more data should confirm this conclusion.

A possible reason for the unimpressive market action on Monday could be the pending meeting of the Federal Reserve’s Open Market Committee (FOMC) which will happen Tuesday and Wednesday this week (Jan 24 & 25).  The FOMC will make their announcement at 12:30 PM Eastern on Wednesday followed by a press conference with Chairman Bernanke at 2:15 PM Eastern.  There is always speculation about what the Fed will do.  Bernanke has promised to provide more information regarding future rates and inflation targets similar to central bank practices across Europe.  Some commentators have speculated the Fed will initiate another round of Quantitative Easing (QE3) to buy mortgage backed securities.  Any QE3 announcement will likely cause stocks to shoot higher Wednesday afternoon.  QE3 is not necessary and we think there have been enough positive economic statistics lately that the Fed will probably hold off.  Of course it is very difficult to accurately guess what a small group of people will do.  With Austrian Business Cycle Theory, it is very easy to understand the consequences of their actions.

The results of QE1 and QE2 have been muted because US banks have been hoarding the cash produced.  This is why excess reserves are over $1.5 Trillion Dollars.  When US banks decide to accelerate the rate of new loan originations they will be able to rapidly expand the US money supply.  Over time the current level of excess reserves can more than double the current M2 money supply.  The result will be a booming stock market, increased economic activity in capital investment that will eventually fail to produce goods and services actually desired by consumers and very high levels of price inflation.  Such a massive bubble boom will be followed by a massive bust.  This is what happens when central banks engage in central planning by price-fixing interest rates very low.  This has nothing to do with the free market and everything to do with the economic chaos created by money printing.  We recommend taking action to protect your wealth.  One strategy is following our recommendations regarding when to invest, and then investing in leveraged index funds.  If you’re still feeling cautious about investing now, we advise moving your investable funds into your brokerage account so you are ready to invest as soon as this Friday.  After the FOMC announcement on Wednesday and the updated money supply analysis on Thursday, Friday will be your opportunity to invest with more certainty.  Aggressive investors should move money into US markets now.  Reduce your exposure to US treasuries (bonds) as these will lose value as interest rates climb in response to price inflation.

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