For Thursday, March 15, 2012, the market forecast is a growth-trend

We recommend any leveraged Exchange Traded Fund (ETF) that grows with the US market.

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 declined 0.1% on Wednesday with volume above Tuesday and higher than the 30-day moving average volume.  If the S&P 500 drops about 20 points on Thursday (-1.4%) our forecast could change to an uncertain trend.

Subjective Comment:

The slight decline in the S&P 500 index combined with the stronger volume qualifies Wednesday as a strong-volume down-day.  While this is usually associated with market weakness, several such days need to accumulate before a pattern develops.  Yesterday a pattern that predicts future market strength completed its formation, so the weakness on Wednesday can be ignored for now.  Despite Wednesday’s decline it is a positive sign to see the market hold its gains following a strong up-day.

We have been advising our readers to sell their bond holdings because of accelerating US price inflation.  Price inflation will cause lenders to demand higher interest rates, and this is why bond prices will fall.  Yesterday we wrote “Sell your bond positions, all of them, as fast as you can”.  Today US Treasury bonds declined quite a bit.  The 10-year yield jumped above its 200-day moving average for the first time in 8 months.  This will continue as price inflation gets worse.  Sell your bond holdings.  If you want to diversify your portfolio, move your bond holdings into hedges against price inflation.  TIPS are US bonds that are indexed to protect against price inflation.  Sell those too!  TIPS are indexed to the official Consumer Price Index (CPI) which is grossly understated.  The official CPI causes the US Federal Government to adjust TIPS as well as many other benefit payments such as Social Security.  The government has an incentive to keep costs down by understating CPI, not to mention the negative news headlines when inflation gets bad.  Do not believe official CPI.  Do not believe the Federal Reserve and other Keynesian economists who predict mild or “transitory” price inflation.  The massive money printing by the Federal Reserve will turn into huge price inflation.  Price inflation has not kept up with the money supply growth because the Fed now offers interest to banks on the excess reserves.  All price inflations follow a pattern that start with money printing faster than the rate of price increase.  That is the first phase.  Price inflation always catches up.  Take action to prepare and preserve your wealth by owning real assets as part of your investment strategy.

US banks are now holding over $1.5 Trillion Dollars of excess reserves.  When US banks decide to start lending to businesses instead of keeping this money at the Fed, that’s when price inflation is going to accelerate dramatically.  We can only speculate what is keeping US banks from accelerating the pace of new loan originations.  We thought the Eurozone debt crisis with the Greek default could be part of the reason banks are reluctant to lend.  It could also be uncertainty that the current US economic upturn will persist.  Every bubble-boom eventually goes bust, but the current upturn could persist long enough that banks will eventually think it is sustainable.

We were disheartened to learn Greece got another bailout.  The best thing for Greece is bankruptcy and debt repudiation.  Defaulting and winding up deeper in debt is not a solution.  Bailouts are not the solution for insolvency.  No organization is too big to fail.  Iceland provides the most recent example of how an economy can recover if insolvent institutions, including banks, are allowed to go bankrupt and debt is written off.  For an insolvent nation the options are either outright default or default via inflation.  Outright default is the better option.  It is unfortunate that many other counties are on the same path as Greece, including the US.

We remained concerned about the US money supply growth rate and will continue to monitor the weekly statistical updates and trend.  We will also watch the US banking system’s reserves for an indication of any change in the origination rate of new loans.  The daily market data is signaling strength so we advise investing in leveraged index funds to grow your equity investments faster than the rate of price inflation.

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