For Monday, February 27, 2012, the market forecast is a growth-trend

We recommend any leveraged Exchange Traded Fund (ETF) that grows with the US market.  Here are some options:

2-Times Leveraged ETFs

NASDAQ 100

Russell 2000

S&P 500

QLD

UWM

SSO

3-Times Leveraged ETFs

NASDAQ 100

Russell 2000

S&P 500

TQQQ

URTY

UPRO

Technical Comment:

The S&P 500 increased 0.2% on Friday with volume below Thursday and below the 30-day moving average volume.  If the S&P 500 drops about 7 points on Monday (-0.5%), our forecast could change to an uncertain trend.

Subjective Comment:

The market continues to grow and will continue to do so even though the past few days the rate of growth has slowed a little.  The volume on Friday was light and it would be more encouraging to see the market advance on stronger volumes.  However, Friday is historically a light volume day.  There are presently no patterns of weakness in the daily market data.

Oil and gasoline prices are going up.  This deserves some thought and discussion.  It is often said that increasing gasoline and oil prices can halt an economic expansion.  We have even said as much in the past, but we are rethinking this position.  The assumption of this statement is that consumers drive the economy and that if they spend more on gasoline they will have less to spend on everything else.  This reasoning is based on the fallacy of consumption, and it has been disproven.  Consumption cannot occur unless the things consumed are first produced.

Production requires savings for use in acquiring the means of production, including capital goods, labor and raw materials.  The money printing and rapid growth of the US money supply creates what appears to be savings, lowering interest rates and allowing businesses to get cheap loans.  Those loans are used to acquire the means of production.  If the savings were real, the loans to businesses would not cause general prices to inflate.  Since the money supply has been expanded this new money competes with the preexisting money and prices are bid upwards.  The first prices that move up are those associated with the means of production.  This is why oil and gasoline prices start moving higher before other consumer goods during a bubble-boom, and this is what is happening in the US economy now.  The increasing oil and gasoline prices are not going to slow economic growth; those prices are going up because of the money-inflation-induced growth in the production sectors of the economy.  What will eventually burst this bubble-boom is when the money growth rate slows, as explained by Austrian Business Cycle Theory.

The root cause of the current and soon-to-accelerate US price inflation is the expansion of the money supply.  It appears enough money has been added to fuel a bubble-boom for the foreseeable future.  The expanding reserves in the US banking system, including both the excess and required reserves, strongly suggest the money supply growth rate is about to accelerate from the steady up-trend since last August.  This will cause faster growth in the US economic indicators, faster expansion of businesses, larger gain in US stock markets and much higher price inflation.  It is theoretically possible that price inflation could be offset by expanding labor productivity, but we don’t see any major process or technology advancements of a sufficient magnitude to offset the inflationary forces associated with the staggering increase in the US money supply over the past several years.  This is why we keep stressing that price inflation is coming.

Invest aggressively to grow your portfolio faster than price inflation.  Dollars in your savings accounts are earning next to nothing thanks to the low interest rates from the money printing.  The current rate of price inflation is already over 3% (official CPI), so money in your savings accounts is losing purchasing power.  The CPI as calculated using the same methodology in place in 1980 is already over 10%.  Investing with leveraged index funds and following our market forecast is one technique we encourage you to incorporate into your strategy.  Price inflation will be very strong in the US as well as around the world as the Peoples Bank of China continues to print money and the European Central Bank is flooding European banks with liquidity via their LTRO program.  Keep checking our daily forecast and commentary, and please consider recommending us to your friends and family.  For a very good book on inflation, we recommend The Inflation Crisis and How to Resolve It¸ by Henry Hazlitt.  It is available for purchase in hard copy or as an e-publication, or you can download a free pdf file from the Ludwig von Mises Institute.