For Friday, March 16, 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 advanced 0.6% on Thursday with volume below Wednesday but above the 30-day moving average volume.  If the S&P 500 drops about 23 points on Friday (-1.6%), our forecast could change to an uncertain trend.

Subjective Comment:

With volume above the 30-day moving average it is a positive sign that US markets continue to advance after the strong-volume up-day two days ago.  The pattern that recently formed in the daily market data predicts future growth.

The Federal Reserve published the weekly money supply statistics and biweekly reserves of the US banking system.  US M2 (Not Seasonally Adjusted) continues its steady straight-line growth of 7% annualized as it has since early August last year (7 months).  Eventually this steady growth will fail to keep the current bubble-boom in the US economy and stock markets growing.  We have not reached that point and there remains over $1.5 Trillion of excess reserves in the US banking system.  Any time US banks should choose they can resume originating new loans rapidly.  Last summer during June and July, after QE2 was complete, US banks originated new loans (net) fast enough to grow US M2 (NSA) at a 26% annualized rate, over 3 times faster than the current money supply growth rate.  That spurt of lending and the continued 7% growth rate of the money supply is why the economy and stock market are currently booming.  We had been concerned the duration of the current bubble-boom could be limited after 7 months of non-accelerating money supply growth.  The pattern observed two days ago in the daily market data suggests there is still plenty of up-side bubble-growth yet to come given the current circumstances.

All of the money created by QE1 and QE2 along with the on-going Zero Interest Rate Program (ZIRP) by the Fed has created not only the current bubble-boom but the price inflation we are experiencing.  Price inflation lags inflation of the money supply, but when people realize the accelerating prices are not temporary they begin making purchases before prices go up further.  This is the psychological impact that causes a sudden acceleration in price inflation.  It typically catches people off-guard, but only because so many people do not understand that printing money causes price inflation.  We strongly recommend this column by Amity Shlaes (hat tip EconomicPolicyJournal.com).  She explains how price inflation can accelerate suddenly.  We hope you will take the time to read it because she reinforces what we have been saying.

Our recommendation for your investment portfolio remains unchanged.  Sell all of your bond positions as fast as you can, including TIPS bonds.  Invest in real assets as a hedge against price inflation, and invest in leveraged index funds to take advantage of the current bull-market bubble-boom rally in the US stock market.  Use leveraged index funds to grow your portfolio faster and stay ahead of price inflation.

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