For Monday, February 6, 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:

Friday the S&P 500 moved up 1.46% on volume above Thursday and higher than the 30-day moving average volume.  On Monday the S&P 500 would have to decline about 38 points (2.8%) to change our forecast from growth to uncertain.

Subjective Comment:

The S&P 500 market data on Friday showed more strength with the index reaching a 6-month high on volume the largest it has been in 3 months.  The market strength during the first 3 days of February has been encouraging.  Volume on Friday was 4.6 Billion Shares.  We would consider it very bullish if the S&P 500 were to have an up-day like Friday with volume above 6 Billion Shares.

It appears the primary driver for the up-day in US markets on Friday was the news from the Bureau of Labor Statistics that US headline unemployment dropped to 8.3% with nonfarm jobs increasing 243,000 in January.  This information was published at 8:30 am (Eastern) before US markets opened.  Pre-market trading was up slightly before the BLS published this news.  Just after the press release embargo was lifted the pre-market trading saw the huge jump that persisted through the close of the trading session.  There was no other economic news of consequence.  It is a reasonable conclusion that market participants reacted to this employment news, causing the strong-volume up-day in US markets on Friday.

A lot of commentary is available regarding the accuracy of the unemployment numbers from the BLS.  Market participants are savvy enough to dig into the details regarding labor force participation, the number of people considered to have dropped out of the labor force, as well as other details.  The best unemployment statistics we are aware of are those published at shadowstats.com.  There you can see the official (U3) unemployment graphed back to 1994 which was the last time the BLS changed its methodology.  Flawed as it might be, the BLS has calculated U3 the same way for 18 years.  U6 unemployment (also calculated by the BLS) is at 15%.  Shadowstats.com calculates a more accurate unemployment number that is about 23%, and this shows the unemployment trend has been getting worse, not better as suggested by the trends in the BLS numbers.

Market participants are either savvy enough to deconstruct the details, or gullible enough to believe the BLS numbers without scrutiny.  Either way, they reacted to the employment news by investing a lot of money into US equity markets.  That is the key point.  They had the money available to invest, and they acted.  As more market participants become aware of the improving economy, they will invest more of their money.  Getting into a bull market rally before everyone else is how to profit.  We still see reasons to be concerned about how long this bull market might last as we discussed yesterday with our analysis of US M2 money supply.  Our concerns remain, but the market strength the past 3 days makes us think the current bull rally will persist a while longer and there are more gains to be made by investing now.  We recommend moving more of your portfolio into leveraged index funds to take advantage of this growth in US markets.  It is also important to keep watching the M2 money supply and daily market data for indications of when the current rally might end.

We see the employment situation as consistent with Austrian Business Cycle Theory and human action.  Most employers are likely unfamiliar with ABCT, but they can recognize an increase in demand for their goods and services.  After a protected period of depressed demand, employers are surely happy to see orders pick up but probably uncertain if the up-tick in business will last.  Hiring full-time employees is very expensive and runs the risk of having to lay them off again if the improved conditions fail to last.  If you were a business owner or manager, what would you do?  We think their reaction is to first offer overtime to current employees and hire temporary workers before hiring full-time employees.  Data supports this hypothesis:

Continued strength in manufacturing is consistent with ABCT as this is where the economy improves first as the business cycle begins its up-turn in response to money supply growth.  Recent improvements in the retail sector show the money is moving through to impact consumer goods.  As economic news continues to be published we expect additional up-side “surprises” to be reported.  Such news will motivate more and more investors to enter US equity markets.  This also means some investors will sell bonds to raise cash to buy into the stock rally, so there will be downward pressure on bond prices.

Remember, the consequence of money printing is price inflation.  Price inflation is coming.  Shadowstats.com also provides better information on the Consumer Price Index.  CPI is one measure of price inflation, and it will start moving up again as this bubble-boom continues.  EconomicPolicyJournal.com posted additional increases in commodity prices today.  ABCT and thousands of years of economic history clearly demonstrate the cause-and-effect of price inflation.  Money supply expansion causes price inflation.  The burst of summer lending that added almost $400 Billion to the US M2 money supply in June and July last year will cause prices to move higher.  This is why we recommend leveraged index funds when investing in US markets.  You will be taxed on your nominal gains and price inflation will erode the purchasing power of your dollars.  Leveraged investing with a reliable signal of when to get in and when to get out of the market is one strategy for growing your real wealth fast enough to stay ahead of inflation and taxes.

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