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Choppy Trading Action Here to Stay
PROFIT CONFIDENTIAL Forecasts
—It’s an Index Trader’s Paradise
Immediate term outlook:
The bear market rally in stocks that started March 9, 2009 remains
intact. Since March of 2009 we have been and continue to be
immediate term bullish on stocks. Gold bullion is up $1,300 an
Posted by Mitchell Clark, B.Comm. in blue chips, corporate earnings, economic analysis, ounce since we first recommended it in 2002 and we are still
large-cap stocks, micro cap stocks, real estate market, small cap stocks, stock market on bullish on the metal.
August 15th, 2011
Short-to-medium term outlook:
I think investors really want to be buyers of stock at this National debt increasing at the rate of $125 billion per month will
time, but there isn’t much of a catalyst to do so. eventually debase the U.S. dollar. Our concern is future
Institutional investors are buying, but they’re also deterioration of the greenback, an expansive money supply and
rising U.S. national debt will eventually push domestic inflation
playing on the market’s volatility, accentuating the
and interest rates higher, negatively impacting the American
results. Reality is beginning to set in now and there’s a
economy and equities.
realization that corporate earnings are actually going to
be strong in the bottom half of the year. The employment
situation isn’t great and neither is the real estate
market, but the corporate economy is well-positioned to
PROFIT CONFIDENTIAL Estimates
deliver solid earnings growth and this makes the Total 2011 per share earnings for 30 stocks in the Dow
current stock market look very reasonably priced. Jones Industrial Average:
Big, long-term investors relish the opportunity to buy Dow Jones Industrial Average Price/earnings multiple: 13.4
stocks when the indices convulse on the news of the
day. Whether it’s adding to existing positions or taking on new opportunities, institutional
Dow Jones Industrial Average Dividend Yield: 2.6%
investors (and insiders) are buying blue-chip stocks in this market.
3-month day U.S. T-bill Yield: 0.01%
There’s been a lot of bad news lately that’s taken a toll on investor sentiment, but I view the 10-year U.S. Treasury Yield: 2.0%
reduced expectations for the economy as now being built in to current share prices. The big,
remaining investment risk has to do with the sovereign debt issue inEuropeand the potential
for a cascading run on banks in European countries. Because of this very real and serious Search
investment risk, there continues to be an attitude of wariness about the domestic equity
Along with the S&P 500 Index, a lot of large-cap stocks that were the market’s leaders have Search
crossed their moving averages on the downside. Technically, the argument for a rising stock
market holds very little water. The only good news is that the stock market isn’t overvalued.
Because of strong earnings and a reasonable valuation, the market is actually holding up
What everyone wants to know is what the future holds for the economy and stocks and it’s fair
If you missed Apple, shame
to say that the question is unanswerable. In my mind, the case for the bulls and the bears is
about even. We could go into recession again. The stock market could go down some more.
on us. If you miss this...
Or, the interest rates that are artificially low might finally produce the catalyst for the economy
to accelerate in the fourth quarter, and so might the stock market. This is why a lot of
A rare situation could trigger triple-digit gains for
individual investors are sitting on the sidelines; there isn’t much in the way of definitive
this $7 stock...in the next 90 days. An opportunity
economic analysis to take any bold, new action in this market. so rare, we’ve only seen it happen a few times before.
In fact, this company is strikingly similar to Apple
before its stock price took off.
What I know is that investment risk for equities remains very high at this time. Large-cap,
higher-dividend-paying stocks should outperform small-cap stocks and micro-cap stocks.
Gold shares remain the most attractive for equity speculators. Learn all about the next Apple here!
In a market without any defined trend, the news of the day makes the trading action. Expect
more choppy trading action in the weeks to come. Pronounced stock market volatility is here Recent Articles
to stay for a while.
http://www.profitconfidential.com/stock-market/ Page 1 / 18
The Next Step for the Stock Market
U.S. Dollar and Gold: An Anniversary By Michael Lombardi, MBA
For the benefit of my new readers, and as an update for my long-
time readers, today I want to talk about exactly where I believe
we are in the stock market. After a 25-year bull market in
Posted by Michael Lombardi, MBA in bear market rally, gold standard, inflation, price of gold
stocks, which was fueled by a 25-year decline in interest rates
bullion, research reports, reserve currency, stock market, Stock Market Advice, U.S. dollar on
and a period of great financial leveraging that accompanied
August 15th, 2011 collapsing interest rates, a Phase I bear market (often referred to
as the first down-leg) brought stock prices down sharply. From
Forty years ago today, U.S. President Richard Nixon its high of 14,164 ...
appeared on television to tell the world that the
U.S.was severing the relationship between gold
bullion and the U.S. dollar.
Back in 1944, in a historic agreement reached in
Bretton Woods, New Hampshire, the U.S.
government agreed to redeem U.S. dollars for gold What We Can’t Forget About in the Stock
bullion at the rate of $35.00 U.S. for one ounce of Market Today
gold for the central banks of foreign countries.
By Mitchell Clark, B.Comm.
The relationship established between the U.S. dollar and gold bullion at Bretton Woods was
often referred to as the “gold standard.” Based upon the relationship between the greenback Street analysts are saying that, because of higher oil prices, the
and gold, at Bretton Woods, the central bankers of foreign countries agreed to adopt the U.S. Dow Jones Transportation Average is showing a real divergence
dollar as their official reserve currency. In a nut shell, the U.S. backed its fiat money with gold from the rest of the stock market. According to Dow Theory,
bullion and foreign central banks backed their currency with U.S. dollars. All the currencies confirmation from this index is required in order to uphold the
had a link to gold. primary trend in the stock market. It’s kind of an old-fashioned
way of predicting the stock market, but I do believe in it. Oil
Thirty-three years after the Bretton Woods agreement, on August 15, 1977, Nixon took to the prices have been stronger lately because of geopolitical
airways to tell the world and in specific to tell the central banks of the foreign countries that the concerns, but a lot of the stocks ...
U.S.was reneging on the gold standard deal established at Bretton Woods.
We all know what happened once the tie between the U.S. dollar and gold was eliminated:
The U.S. government was free to print money as needed, as it no longer had to worry if it had
enough gold in its vault to back all the money being printed. Since the abandonment of the
gold standard, the value of the U.S. dollar has lost considerable ground…a process called
“inflation.” It takes a lot more U.S. pennies to buy a cup of coffee today than it did in 1971. The Thorn in the PC Market Leader’s Side
There have been very stark critics of America’s action in abandoning the concept that fiat By George Leong, B.Comm.
money should be backed by gold. Some say lack of the gold standard has caused global
economic instability since 1977. My kid hardly ever works on his desktop personal computer (PC)
anymore, instead favoring a laptop. In fact, I often see him surfing
But since 2002, another phenomenon has occurred. The price of gold bullion has boomed. the Internet and doing research using my “iPad” or his “iTouch.”
Gold has risen in price from $300.00 U.S. per ounce in 2002 to almost $1,800 today—a gain This market shift is not only with my kid, but with millions who
of 500%. And some economists, like me, are calling for gold to hit $3,000 per ounce. are also abandoning their computers in favor of tablets. The result
of this is proving quite difficult for PC makers, who are fighting to
There are many reasons why the price of gold bullion is skyrocketing. (I have written about
come up with a defense. The market leader in PCs, ...
those reasons in PROFIT CONFIDENTIAL countless times and will continue to write about
why I believe the price of gold will rise.) Ultimately, I would not be surprised to one day see the Read More
value of the U.S. dollar somehow tied back to gold bullion.
Michael’s Personal Notes:
Platinum Surges 15% in Seven
I love the weekends, as they give me time to catch up on my much-needed reading. All week Weeks; Now Where Does it Go?
long, I’m inundated with research reports. Sunday afternoons is my time to open up a bottle of
Brunello and spend a solid four to five hours just reading financial reports on everything from
By Sasha Cekerevac
the market, the economy, and precious metals, to individual stock sectors and other forms of
Some of the toughest decisions an investor has to make occur
when you are up on a trade. I’ve highlighted some of the merits in
What I’m finding quite fascinating is the number of analysts who are deeply bearish on
investing in precious metals like platinum before, the last being
America. I’ve never quite seen anything like this before…so many people calling for the
on January 11, 2012, in the article Investors—Should You
demise of America.
Consider Platinum? At the time I wrote the article, platinum was
trading approximately $1,497; as of today, the market for
On the one hand, these are smart analysts who bring up very good facts to back up their
platinum is trading around $1,723, a move of approximately 15%
solidly bearish views. On the other hand, I’m wondering if all this bearishness is getting
in less than seven weeks. In fact, ...
overblown. After all, when does the market or economy do what is expected of it?
Here are just two reports from the weekend:
Elliot Wave expert Robert Prechter believes that the U.S. is in the early stages of a depression
Well-known investor Jim Rogers, who is highly critical of specific people in Washington, Extra
predicts that the U.S. will eventually default on its debt obligations. Rogers believes that the
U.S. economy never left the recession that started in 2008 and that we are still in a recession.
A Study You Should Know About
Yes, I’ve been very bearish on the economy as well. But, as a contrarian, one really has to
wonder: will the stock market and economy really roll over and perform as the majority of
By Michael Lombardi, MBA
While most other economists tell us otherwise, I’ve been writing
Where the Market Stands; Where it’s Headed:
this year about how the numbers so far do not point to a U.S.
http://www.profitconfidential.com/stock-market/ Page 2 / 18
economic recovery, but rather to a continued economic
I continue to hold the belief that a bear market rally that started in March of 2009 presides. slowdown, with the threat of recession. I’ve been focused on the
According to a report from EPFR Global, a Massachusetts-based research firms, investors average damaged consumer, who has lost value in his/her home
pulled more money out from global stock funds last week than any other week since 2008. and has been restrained by no income growth…if he/she is lucky
And we all know what happened after 2008; stocks rallied big time. enough to have a job. With over 47 million Americans on food
stamps, I’m at a loss ...
I’m going against the popular opinion, as usual, on this one. While many stock advisors are
saying that stocks are dead, the rally is over, I’m sticking with my belief that the bear market Read More
rally, in spite of it being “long in the tooth,” is still alive and well.
The Dow Jones Industrial Average opens this week down 2.5% for 2011.
What He Said:
Why Oil Prices, Gold and Silver
Are Looking Good Again
“I’ve been pushing gold bullion and gold shares for over a year now. Back in January 2002, I
personally started buying gold shares.” Michael Lombardi, PROFIT CONFIDENTIAL, By Mitchell Clark, B.Comm.
December 13, 2002. Gold bullion was trading under $300.00 an ounce when Michael first
started recommending gold-related investments. Michael has remained steadfastly bullish With the recent strength in the euro currency, the spot prices of
on gold since 2002. gold and silver have been stronger. Share price action in mining
stocks has a very high correlation to underlying commodity
prices and they’ve been moving up as well. I still believe in the
commodity price cycle and that exposure to precious metals and
other commodities should be a component of an investment
The Only Asset Worth Betting on—You portfolio this decade. The fundamentals are there to support
higher prices for gold and silver. We have ...
Guessed It! This Story’s Just Getting Started
Posted by Mitchell Clark, B.Comm. in gold shares, gold-related investments, investing in
gold, precious metals, stock market, stock picking on August 12th, 2011 Stocks at Multi-year Highs, But
Watch for Some Near-term Topping
If this is the decade of the commodity, then the single
most attractive area for equity speculators remains the
gold-mining business. The entire industry is swimming By George Leong, B.Comm.
in cash, while spot prices and physical demand for
precious metals remain strong. Gold, silver and copper The DOW broke above 13,000 on February 21 for the first time
have been holding up exceedingly well, as the rest of the since May 2008, while 14,000 has not been touched since
stock market corrects. And it isn’t just the store of value October 2007. My market view is that the upside break at 13,000
argument or the so-called haven status of gold; the fact of is bullish if it can hold, but the light trading volume suggests a
the matter is that the global supply of the commodity is minor bearish divergence between price and volume. My market
relatively unchanged, while demand (particularly from view is positive and suggests that more gains may be coming,
India and China) is going up. albeit stocks are technically overbought on the charts and are
subject to resistance selling ...
If I had to choose one stock market sector to focus on as an analyst and investor, it would be
precious metals—gold in particular. It’s one of the few global industries with improving Read More
fundamentals and, because there is always demand for physical precious metals (even if
economies are in recession), there are always companies out there worth speculating on.
Right now, the rest of the stock market is in significant turmoil and there’s a lot of fear driving Is this the End for Netflix?
the share price action. But gold shares have been outperforming the market not only because
the spot price is hitting new records, but also because gold-mining companies are now
By Sasha Cekerevac
consistently reporting record financial results.
At this point, almost everyone knows about Netflix, Inc.
It can be difficult stock picking in the mining universe. There’s nowhere near the number of fly-
(NASDAQ/NFLX). The online streaming company offering movies
by-night gold miners as there used to be. Standards for drilling results and feasibility studies
and TV shows on demand was a pioneer in this field, which drove
are now quite stringent and I would argue that a Street analyst is likely to be more accurate in
corporate earnings for the firm. Such innovation and profitability in
predicting the cash flow from a modern mining operation than just about any other kind of
corporate earnings was bound to attract attention from
competitors, many of them much larger than Netflix. Anytime
you get larger competitors, the earnings outlook starts to get
There are basically two kinds of mining opportunities for equity speculators. There’s picking
cloudy. Recent news that cable giant Comcast Corporation
an established producer with a forecast of cash costs and expected production. Then there’s
(NASDAQ/CMCSA) is entering the online streaming market ...
the pure-play venture capital opportunity, which is a company with a property and some cash
in the bank to go drilling for metal. Either way, you have to do your homework or you’re just
throwing darts at a board.
In the current environment, I would weight a speculative, pure risk-capital equity portfolio
somewhere close to 50% in gold-related investments. From my perspective, it’s the only
industry that’s generating meaningful growth and it’s the only way for speculators to beat the Popular Tags
current volatility in the broader stock market. Investing in gold is something that not all people
are comfortable with. The business is tied to a commodity and, by their very nature,
commodity prices are risky, unpredictable instruments. But with the general economy stalled
austerity measures best stocks blue chips China's GDP
and the stock market in the doldrums, gold mining is one of the few booming industries with
Growth consumer confidence consumer spending
corporate earnings corporate profits credit crisis debt
crisis dividend paying stocks dividends DOW Dow Jones Industrial
Average Dow Jones Industrials earnings season
The Stock Market Is Big; This Is economic slowdown euro Europe European Central Bank
European debt crisis european economy european union
Bigger and More Important to You eurozone financial crisis GDP growth gold bull
No Comments market gold investments gold prices gross domestic
product home prices inflation rate institutional investors investing
http://www.profitconfidential.com/stock-market/ Page 3 / 18
Posted by Michael Lombardi, MBA in bond market, federal reserve, interest rates, real estate in gold investing in real estate investing in stocks investment risk
market, stock market, Stock Market Advice, U.S. dollar, U.S. Treasuries on August 12th, 2011 investor sentiment IPOs job creation jobs market large-cap
companies large-cap stocks Market Veiw micro-cap stocks
The bond market dwarfs the size of the stock market.
I know what some of my readers are thinking right
mining stocks NASDAQ national debt NYSE oil stocks penny
now, “If I don’t invest in U.S. Treasuries, it doesn’t stocks price of gold quantitative easing retail sales retail
matter to me if they go up or down.” This is wrong. sector retail stocks rising interest rates silver silver stocks small-
cap stocks Sovereign Debt stock-picking stock
The price direction of U.S. Treasuries is based on
interest rate expectations. If bonds are rising or advisors Stock Market Condition Stock Market Picks stock
decreasing in price, it means that future interest market rally stock market risk stock market success Stock Market
rates will either rise or fall. The entire economy is Updates stocks Stocks Trading Tips technical analysis The
based on interest rates. Higher interest rates would Leong Side of the Market U.S. banks U.S. debt U.S. Deficit
be catastrophic for the stock market, real estate
U.S. home prices U.S. real estate market U.S. recession U.S.
market, consumers, and businesses.
Treasuries unemployment rate Wal Mart
Right now, 10-year U.S. Treasuries are near their
record low, yielding 2.28% this morning. Why so
low? Because, on Tuesday, the Federal Reserve
took the unusual step of saying it would keep short- Categories
term interest rates near zero into mid-2013.
Gold Stocks Real Estate Market
The Fed cut short-term interest rates to between zero and 0.25% in December of 2008 and Stock Market Gold Investments
short-term rates have remained that low since. Now we are told that the Fed will hold rates at Bear Market Debt Crisis
those levels for another two years. Bull Market Chinese Economy
U.S. Dollar Economic Analysis
But there is trouble in paradise… Euro Benchmark Stocks
Interest Rates Dow Jones Industrial Average
Three of the 10 members of the Fed interest-rate-setting committee dissented from the U.S. Deficit
decision to give specific dates on how long short-term rates would be held close to zero. The
last time this many of the committee members dissented was almost 20 years ago.
Receive the latest updates from our
There are two schools of thought on how this story will end. correspondents by subscribing to
our RSS Feed.
One camp believes that the U.S. is entering the same type of phase Japan went through in
the 1990s: a period of deflation, where interest rates remained low for more than a decade.
The second camp believes that the U.S. will need to raise interest rates, as its debt load
increases and foreign countries balk at buying more U.S. Treasuries.
China—the biggest holder of U.S. Treasuries—and Russia have been blasting the U.S. for
failing to rein in spending. We also have two other problems: the U.S. dollar has been falling
like a stone against other world currencies and the Fed has been a major buyer of U.S.
Treasuries. Some look at this as the government buying its own debt. How confusing is that?
I’m in the camp that believes a bubble is brewing in U.S. Treasuries. Just like a bubble
happened in hi-tech in the late 1990s, just like the housing bubble that peaked in 2005, just
like the stock market bubble that peaked in 2007.
Whenever the U.S. government auctions off U.S. Treasuries, the offering is oversubscribed.
Investors are lining up to buy securities paying 2.28% that are issued by a country that is
technically bankrupt. That story can’t have a good ending.
Michael’s Personal Notes:
There’s a tremendous amount of fear in the marketplace today. I’ve never really seen anything
quite like it before. One would believe that it’s 2008 all over again. Hence my belief that the
stock market will not just roll over and collapse at this point. The market rarely does what is
expected of it.
A recent CNN/Opinion Research Corporation poll reported that 48% of Americans believe that
another Great Depression is likely to start within the next 12 months. This is unheard of. If you
asked people in 1930 if a depression was headed their way, they would not know what you
were talking about. If history has taught us one thing, it’s that events happen when the great
majority of people do not expect them to happen.
We even have France, the second largest economy in Europe, now under attack by the bond
vigilantes. Rumors have it that France will lose its Triple-A credit rating, just like the U.S.
recently did. Yes, things are very difficult in Europe. Unemployment is high; jobs are hard to
come by. But I’m starting to get the feeling that the pessimists are painting the situation as
worse than it really is.
Where the Market Stands: Where It’s Headed:
The Dow Jones Industrial Average opens this last trading day of the week down 3.8% for the
year. Personally, I’m not letting the multi-100-point up and down days on the Dow Jones
bother me. I recognize that a lot of it has to do with automated computer buying and selling.
I’m focusing on my long-term beliefs about the market. And those views have not changed.
The first phase of the bear market brought stocks down to a 12-year low on March 9, 2009.
From there, the second phase of the bear market took hold. And that’s where we have been
http://www.profitconfidential.com/stock-market/ Page 4 / 18
The third phase of the bear market will have stocks fall below their March 9, 2009 low. It will
present a once-in-a-generation buying opportunity for investors. However, I don’t believe the
third phase of the bear market is ready to start quite yet. The bear hasn’t finished its job of
luring more investors back in before it takes prices down again.
What He Said:
“A Stock Market’s Obituary: It is with great sadness that we announce the passing of the Dow
Jones Industrial Average. After a strong and courageous battle, the Dow Jones fell victim to a
credit crisis and finally succumbed on Friday, October 3, 2008, when it fell decisively below
the mid-point between its 2002 low and its 2007 high.” Michael Lombardi, in PROFIT
CONFIDENTIAL, October 6, 2008. From October 6, 2008, to November 27, 2008, the Dow
Jones Industrial Average experienced one of its biggest two-month losses in history.
First Stocks, Then Real Estate—What’s
the Winner Going to Be This Decade?
Posted by Mitchell Clark, B.Comm. in commodity prices, Internet-related stock, investment
strategy, precious metals, real estate market, S&P 500, stock market, Stock Market Advice,
stocks, technology stocks on August 11th, 2011
I think it’s probable that the stock market will continue to
convulse for the rest of the third quarter and into the
fourth. The trend in economic news is down and so is
investor sentiment. We still have a lot of problems with
sovereign debt issues in Europe and this is an
investment risk that isn’t going away anytime soon.
Right now, investor expectations are being dramatically
reduced. The marketplace now expects little to no growth
in gross domestic product (GDP) and investors aren’t
expecting much, if anything, from the stock market. I still expect both the third and fourth
quarters to be very good in terms of corporate earnings, so my view is that the stock market
will undertake a prolonged period of consolidation around current levels, with chances of
rallying in the fourth quarter.
The old adage that investors should “sell in May and go away” perfectly illustrates a fitting
strategy this year. If you pull up a chart on the S&P 500 Index, you’ll see the market’s
substantial price appreciation from last September. Then in May, the market began to
consolidate; slowly deteriorating until its recent move, breaking both its 50-day and 200-day
The S&P 500 Index has actually been in a period of consolidation for the last 11 years. Pull up
a long-term chart on the Index and you can see it plainly. What you will also notice is the
current price action, which looks like a right shoulder formation from the head set in 2007. It’s
an ominous-looking pattern and, when looking at it, you can’t escape the feeling that the trend
is going to complete itself. If it does, it means the stock market could be in for a lot more pain.
Over the last decade, 800 on the S&P 500 stands out as the bottom support point.
Regardless, the buy-and-hold investment strategy has barely paid off over the last decade.
Without dividends, investment returns would now be negative, as the S&P 500 is currently
trading below its level in December of 2008.
Clearly, the best stock market advice would have been to buy technology stocks and Internet
stocks in the 1990s. Then, the best subsequent investment strategy would have been to cash
out of the stock market and buy real estate for most of the next decade. Now, it would seem,
precious metals and agricultural commodities are experiencing the best price action from the
global business cycle. First it was stocks, then it was real estate. Now the future belongs to
I think the commodity price cycle will keep running for a number of years and, in a period of
slow economic growth, investors need to have significant exposure to this sector. The
fundamentals haven’t favored stocks for quite a long time. The real estate cycle was strong
and highly profitable for those who got in and out at the right times. Now, all the debt in the
world and money supply growth is creating a sustained period of higher inflation. Going
forward, commodities and those assets that benefit from higher inflation will be the winners.
New Higher Margin Requirement
for Gold an Investor Opportunity
Posted by Michael Lombardi, MBA in gold stocks, how to invest in gold, investor confidence,
price of gold bullion, stock market, Stock Market Advice, stock prices on August 11th, 2011
http://www.profitconfidential.com/stock-market/ Page 5 / 18
After months of patient waiting, the gold stocks came to
life yesterday. Right across the board, whether it was
junior or senior gold producers, the stock prices of gold
companies were up sharply Wednesday.
Hopefully, my readers have been following my guidance
and seeking refuge in the gold-mining companies.
Since the spring of this year, gold bullion prices have
been rising sharply, while gold stocks stood pat. I have
been writing that the leaders of the gold bull market
would shift from the actual bullion to the gold stocks, and
that’s what started happening Wednesday.
Since the middle of June, the Dow Jones U.S. Gold
Mining Index (an index comprised of the largest U.S. gold-mining companies) is up 12%,
while the general stock market has gone down 11% in the same time period!
But, like all good things, as the price of gold bullion hits $1,800, there are forces that want to
put a wrench in the 10-year gold bull market, as many believe gold has become too
speculative. Hence, this morning, we learn that CME Group Inc. (CME), the world’s largest
futures market, changed the rules without advance warning and increased the minimum
amount of cash speculators and investors must deposit to trade a futures contract of gold.
In summary, margin requirements, with a flick-of-a-switch, have increased by 22% this
morning. You may remember, the CME did the same thing to silver (increased the margin
requirements for trading silver a few months ago) and silver fell sharply in price.
Well, I have news for the market, and better news for my readers. The bull market in gold is
too strong to have the metal fall in value by 30% as silver did after the CME increased the
margin requirement for trading silver futures.
For my readers, any pullback on the price of gold bullion caused by the CME’s newly imposed
margin requirements would present a perfect buying opportunity for the junior and senior
gold-producing stocks, once again. This is how to invest in gold now.
Michael’s Personal Notes:
On Tuesday of this week, the Federal Reserve made the unprecedented action of specifically
saying how long it would keep short-term interest rates low. I’m sure you have heard. The Fed
will keep rates low through mid-2013.
On the news of a prolonged period of interest rates that are low, U.S. Treasuries rallied. It
doesn’t matter if Standard & Poor’s has cut the credit rating of the U.S. It doesn’t matter if
Congress has just given the Obama Administration another $2.1 trillion to spend. Investors
want U.S. Treasuries.
Yesterday’s auction of $24.0 billion in 10-year U.S. Treasuries was the first offering of U.S.
debt since Standard & Poor’s cut the U.S.’s credit rating. There was a line up to buy these
bonds—and the buyers walked away with the lowest yields on record—2.14%.
At 2.14%, the dividend yield of the Dow Jones Industrial Average stocks of 2.8% sure does
Where the Market Stands; Where it’s Headed:
It’s up and down, down and up for the markets. My readers need to understand that, when we
have huge multi-100 point up and down days on the market, most of that trading is computer-
driven. Very little of it has to do with individual investors buying or selling. Since the advent of
index-traded funds, computer/automatic trading has become a big part of Wall Street.
What am I doing? I’m sitting back and waiting. The current situation could go one of two ways.
The market could move from here to test its March 2009 lows or the first real correction of
2011 could be close to ending, at which point the bear market rally would resume its upward
I’m in the camp that believes it is too early to test the March 2009 lows for a variety of reasons
I have written about over the past two weeks. Some of those reasons: stocks are a better
investment alternative today to 10-year U.S. Treasuries; monetary policy remains
accommodative; the great majority of investors are pessimistic; corporate profits are still
strong; and corporate insiders are buying stock at a pace not seen since the spring of 2009.
What He Said:
“Consumer confidence does not change overnight. In the U.S., 70% of GDP is based on
consumer spending. And, in my life, all the recessions I have seen or studied have only come
to an end when consumers started spending. With consumer sentiment getting worse, and
with the U.S.personal savings rate near record lows, it may take years for consumers to start
spending again.” Michael Lombardi in PROFIT CONFIDENTIAL, February 25, 2008. By the
end of 2008, the rest of the world was realizing that the recession would be much longer and
deeper than most had imagined.
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Stock Picking: Time Horizons Change,
But the Environment Just Got Better
Posted by Mitchell Clark, B.Comm. in economic analysis, investment opportunity, large cap
companies, small cap stocks, stock market, Stock Market Advice, stock picking on August
The economy might be lackluster and there is a risk of
another recession, but the stock market is fairly priced
and the outlook for corporate earnings continues to be
solid. The gyrations of the stock market are based on
fear—fear of a future without growth. Small-cap
companies are going to have a more difficult time
generating earnings growth over the coming quarters
because their operations are more closely tied to the
domestic economy. Large-cap companies, such as
those in the Dow Jones Industrial Average and many
within the S&P 500 Index, are going to keep growing their
earnings because of their international operations and a
weaker dollar that translates into a better bottom line.
The economy no doubt has a lot of structural problems to
overcome and it will take a few more years to do so. The
fiscal situation has to be addressed and a measured,
reasonable plan needs to be put in place to deal with deficits and debt. Excess inventory in
the housing market needs to be taken up for homeowners to feel more secure about the
valuation of their main assets. And, finally, the employment situation has to improve in order
for incomes and consumer spending to rise. These are big hurdles to overcome and it will
take more time to do so.
From the investor’s perspective, the fundamental backdrop of the economy is something we
have to live with. Corporations continue to be running very lean operations and, with interest
rates low and cash balances high, large companies can grow their earnings even if the
domestic economy is stuck in an age of austerity.
Right now, the most attractive new investment opportunities in the stock market are large-cap,
higher-dividend-paying companies with significant international operations. At the speculative
end, gold continues to be the best play.
I think it’s fair to expect the broader market to continue gyrating for the rest of the third quarter.
Technically, the main stock market averages aren’t looking good, but these significant
pullbacks have happened before and stocks recovered. As you know, the stock market is all
about betting on the future. Right now, the market is digesting an uncertain future with the
expectation of weaker economic growth (or a possible recession). Beyond this expectation is
a fundamental backdrop that looks pretty good from the investors’ perspective, as
policymakers begin to address their finances and the housing market has more time to
balance itself out.
Corporate balance sheets are in very good condition at this time. Insiders are buying their
own shares. An economic analysis of the current data suggests that a period of slow to
breakeven growth is likely in the bottom half of this year. In the not-too-distant future, the stock
market will look beyond this expectation and investors will be buyers.
Gold’s Burning up on the Chart;
My Gold Advice
Posted by George Leong, B.Comm. in BRIC countries, gold advice, gold prices, inflation,
investing in gold, national debt, PIGS, safe haven play, stock market, Stock Market Advice, U.S.
economy on August 8th, 2011
The precious yellow metal is sizzling on the price charts,
as traders shift capital from the higher-risk equities to the
safe-haven sanctuary of gold.
The U.S. is battling crippling debt levels and deficits.
Some cities across the nation are shutting down to save
money. The once powerful U.S. economic engine
continues to show breaks and is stalling at this most
critical time for the country.
Over in Europe, we have the PIGS (Portugal, Ireland, Greece, and Spain) sucking money from
the European Union and International Monetary Fund and taking away the ability to focus on
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We are also seeing some economic fragility in the BRICS grouping (Brazil, Russia, India,
China, and South Africa). Brazil, India, and China are seeing some stalling in their economies
and stock markets.
In China, you have inflation surging to 6.4% in June, the highest level in about three years.
The Chinese central bank has increased the bank reserve ratios in an effort to stall lending.
Slowing inChinahas an impact on the domestic and global economies that deal with China.
Domestically, you have a national debt of $14.5 trillion and this will grow to over $16.0 trillion
with the debt ceiling increasing.
Given all of this risk, you should have some capital working for you in gold.
Gold is considered a safe-haven play versus that of silver. Investing in gold is a safe haven
play when the overall market risk rises, as what we are currently witnessing.
On the demand side, China is a significant buyer of gold and this is expected to continue as
the country hoards physical gold in its reserves. India is also a major buyer.
The reality is that gold is a limited resource that needs to be found and mined. There is a
certain amount of global reserves in the ground, but, after that, there needs to be more
Gold has rallied in each of the last 10 years and shows a beautiful bullish price chart. My gold
advice would be to accumulate gold on weakness.
On the chart, the October Gold traded at a record high of $1,683.50 on August 4 before
retrenching. The current chart looks bullish on strong Relative Strength. There is a “golden
cross” on the chart, with the 50-day moving average (MA) of $1,558 well above the 200-day MA
Some pundits have come out and suggested a $2,000 target on gold over the next few years.
I even saw a staggering $5,000 price target on gold. Now the latter may be an extreme, but I
feel that gold prices will continue to edge higher, especially if the U.S. economy falters and
another recession surfaces.
In the current climate, gold represents the best bet, while silver continues to be a trading
commodity based on the economic recovery and demand for electronics and industrial
My advice to you is to buy a mixture of exploration-stage gold miners along with small to large
gold producers. In this scenario, you can play both the potential aggressive gains of
exploration stocks and the steady returns of the large gold producers.
Special Stock Market Report
Posted by Michael Lombardi, MBA in 10-year US Treasuries, bear market rally, best stock
advice, Dow Jones Industrial Average, S&P 500, stock market, Stock Market Advice on August
My commentary today is dedicated solely to the
stock market. Many of my readers are obviously
invested in stocks and are concerned over last
Let’s start with the general consensus…
Whatever I read this weekend, the message was
basically the same: “The stock market is in big
trouble.” Stock market advisors are turning
bearish in droves. You read a lot about the major
market indices breaking important 50-day and
200-day trend lines, hence even the market
technicians have turned bearish.
I have been in this business a long time; about 30 years. I have never seen a stock market
follow the direction of the consensus opinion. In other words, I doubt the stock market will
make everyone happy and just roll over, as the great majority of investors and analysts
believe it now will.
Let’s move to the companies that trade in the market…
Earnings in corporate America remain strong. The weak economy is not hitting the big public
companies. We have yet to see any of the big 30 Dow Jones Industrial companies report
downgrade revisions to their expected earnings this year. Corporate America sits on over
$1.0 trillion in cash.
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At a dividend yield of 2.65%, the Dow Jones Industrial Average is still a good alternative to the
approximate 2.5% yield on the now S&P-downgraded 10-year U.S. Treasury. Stocks are not
expensive in relation to their dividend yields and price/earnings multiples when compared to
alternatives in the marketplace, including Treasuries.
Moving to the Fed and the government…
The government got what Wall Street wanted: a big increase in its spending limit. The
government has been given permission by Congress to spend another $2.1 trillion of money
it doesn’t have—make no mistake, Wall Street loves when the government has more money
The Federal Reserve, it is my belief, is getting ready to come out with some new form of QE3.
Monetary and fiscal policy remains as accommodative as I have seen in three decades of
following the markets. Both the Fed and government stand ready to jump in and “save” the
economy again as needed. They will pull out all the stops…and that is exactly why this bear
market rally has lasted as long as it has.
Finally, let’s look at what happened last year in the stock market, as investors have very short-
As of this past Friday, the Dow Jones Industrial Average was down exactly one percent for the
year. Let’s take a quick look back at last year. The Dow Jones Industrial Average started 2010
at approximately the 10,500 level. Just like this year, the Dow Jones Industrial Average rallied
from the beginning of 2010 to the spring of 2010. In the summer of 2010, stock markets in
North America crashed. By July of 2010, the Dow Jones was down 8.5% for the year—yes,
We all know what happened after that. The Dow Jones rallied from a low of 9,500 in the
summer of 2010 to close at 11,500 by the end of 2010. The stock market actually gained
about 10% in 2010 despite a terrible summer for stocks.
My message to my readers…
Don’t panic. It is the worst thing you can do. Be realistic and look at the numbers. Stocks are
only down one percent this year. If we look back at 2010, stocks were down 8.5% for year by
the summer and they still came back to close a great year.
The majority of investors and analysts are bearish on stocks now—and we know from past
experience that the majority opinion, often referred to as the consensus, is usually wrong.
Corporate earnings are strong. The government has loaded its gun to spend more.
“Helicopter” Ben Bernanke and his crew at the Fed are ready to jump in and “save” the
economy again if needed.
By this point in this report, you can tell I am not ready to give up on my belief that we are still in
a bear market rally that started in March of 2009. I believe this bear market rally has more time
left in its life cycle. Yes, the bear market rally will eventually end and Phase III of the bear
market will eventually kick in—but it will not be that well-publicized.
If we were to look at this from a pure technical interpretation, the Dow Jones Industrial
Average would have to fall below 9,658 for the bear market rally to officially end (the mid-point
between the March 9, 2009 low and the May 2, 2011 high). We are far from 9,658 on the Dow
Jones Industrial Average.
That, my dear reader, is the best stock market advice I can give you.
The Most Important News to
Listen to—It’s the Real Deal
Posted by Mitchell Clark, B.Comm. in big corporations, corporate earnings, housing market,
most important news, stock market, U.S. dollar on August 4th, 2011
I still feel that the most important news investors
should be listening to is from corporations themselves.
They are the enterprises, not government, and therefore
they are the drivers of earnings growth. The fact of the
matter is that we are in the age of austerity, and we
deserve to be. All the excesses of the past have created
the slow economic environment of the present.
Investors’ concern about government cuts to spending
is a worry that’s misplaced. The economy shouldn’t be
based on government spending and stimulus; that’s up to individuals and entrepreneurs.
Just like last year, big corporations are saying that earnings are solid, and the expectation is
for further improvement in the bottom half of this year. Many Wall Street analysts are
increasing their earnings expectations for S&P 500 companies this year and next, and, based
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on those expectations, the stock market is looking very reasonably priced at this time.
No doubt, the sovereign debt issue in Europe and the debt-ceiling negotiations in
theU.S.were confidence killers. Add in some weaker economic news and you can easily see
why the stock market retreated. But I think this market has a real resiliency to it and there’s a
good chance that it won’t break down. If this were to happen, it would go against what
corporations are saying about their businesses.
There is one important factor that investors need to keep in the back of their minds. What
matters most in capital markets is the numbers. Unfortunately, people don’t particularly count.
What I’m getting at is that the stock market can tolerate persistently weak employment
numbers if corporate earnings are growing. If employment was improving and so was the
housing market, then I have no doubt we would be in a full-blown bull market right now. As
this is not the case, I think the market will hold together and tick higher modestly as long as
the earnings growth is there. All that really matters in the equity market are earnings and this
news so far is promising.
There is one big reason why I think corporate earnings can keep growing even if growth in the
domestic economy grinds to a halt. It’s the dollar—a weaker dollar that should persist for
several years to come. A weaker dollar is the biggest gift to domestic exporters and large-cap
multinationals, because the earnings abroad translate into bigger earnings at home as the
dollar falls relative to foreign currencies. The U.S. Dollar Index, which measures the value of
the U.S. dollar compared to a basket of the world’s main currencies, has bounced around
quite a bit over the last three years. However, since the beginning of 2010, it has been in a
significant decline. The near-term trend for this index looks intact and this is good news for
As I say, there are plenty of potential shocks out there and investor confidence is already low.
With a little bit of stability on the confidence front, I see corporate earnings swaying investor
sentiment going into the fourth quarter. Stocks should be able to advance based on earnings
How Stocks Are Reflecting the
Structural Excesses of the World
Posted by Mitchell Clark, B.Comm. in Stock Market Advice on August 3rd, 2011
Now that the S&P 500 Index is below 1,300 again, it’s
time to worry. This index has been trading in a tight range
ever since the beginning of the year and it hasn’t been
able to break out past 1,350 in any meaningful way. On
the support side, 1,250 looks like an important technical
barrier; if it’s broken, it would not be a healthy
development for stocks.
The S&P has already broken its 50-day moving average
and is poised to break its 200-day moving average at this time. Now, it’s important to
remember that these statistical indicators are just those—statistics. Last summer, the S&P
broke both moving averages, consolidated for three or four months, and then reaccelerated to
its current level. Just looking at the chart of the index; it does look like it’s rolling over a little bit.
At the very least, the trend shows that the market looks tired, which is a word I like to use to
describe a lackluster, trendless stock market.
Equities seem to be maintaining their trading correlation with the spot price of oil. That
remains a good, short-term indicator that really is reflecting the current state of investor
sentiment. One thing’s clear; it’s a difficult time to be stock picking in a marketplace that’s so
unsure of itself. Investors want to be buyers of stocks, but the economic data so far aren’t
playing ball. This is why higher-yielding, large-cap stocks should continue to outperform, as
institutional investors buy yield in order to generate some sort of return on investment.
As odd as it may seem, the stock market’s actually been in a “consolidation” for just over 10
years. We had a huge bull market in the 80s and 90s, culminating in the spectacular wealth
creation of Internet stocks, followed by an equally spectacular correction after the bubble.
Stocks recovered from the speculative excess in the technology sector, only to see the market
completely melt down again due to the excess created by subprime mortgages. Again, the
stock market recovered from this debacle, and it is now having to deal with the excess of
sovereign debt. All of these events contributed to today’s weak economic growth. Somehow, it
would seem that the stock market has just been a reflection of the structural excesses in the
world that we live in.
The biggest worry in global capital markets is always currencies. When currencies start to
experience big moves, entire countries can easily swing into major recessions. Right now,
the Japanese yen currency is trading right around its record high against the dollar. The high
valuation of that currency is hurting the very economic recovery that the country needs after the
recent earthquake disaster.
Unknowingly, big currency moves can wreak havoc on individual pocketbooks. High levels of
sovereign debt and debt ratings do matter to the marketplace and this is why investing in gold
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seems so attractive. As we all know, everything in financial markets involves risk. The key to
outperformance is to always be aware of it and manage it as the marketplace changes. Right
now, the equity market is not looking very healthy at all.
What These Food Stocks Are
Telling Me About the Future
Posted by Michael Lombardi, MBA in Stock Market Advice on August 3rd, 2011
— reporting from Florence, Italy
Something different for my readers today…
I’m going to talk about food. But don’t worry; in the end,
I’ll relate it back to the economy and the stock market, as
I eventually do with all my stories.
Okay, so I’m eating out every night here in Florence. And when I look around, I see few people
with a bottle of wine at their table. Wine, in Italy— isn’t it cheap here?
Yes, generally, good wine is less expensive in Italy than in America. But times are also
difficult, very difficult, in Europe.
It’s common to see a family of four people at a decent Italian restaurant having salads and
sharing (yes, sharing) a bottle of water and a pizza. And in Rome, fast food restaurants are
becoming more and more common.
Europeans are suffering, economically. Unemployment is sky-high in most countries. Wages
are low. Austerity measures have hit the pockets of citizens. For a young couple to get married
and move out of their parents’ home is not common. What is common is getting married and
living with the parents or in-laws.
And that got me thinking about back home, in America.
McDonald’s Corporation (NYSE/MCD) last week reported a whopping profit of $1.41 billion in
the second quarter of 2011—well above analyst expectations.
And McDonald’s stock price chart, it looks like a straight line up since the beginning of 2009.
(Stock market advice: I’d buy the stock; but, at 18.4 times earnings, it’s too rich for me. The
easy money has been made on this stock.)
Now let’s look at Morton’s Restaurant Group, Inc. (NYSE/MRT), the world’s largest operator of
company-owned upscale steakhouses (no, none in Italy). Morton’s has been posting some
great earnings as of late. But the stock is in the dumps. In 2007, the stock went for $20.00.
Today, it trades at $7.64.
What’s going on?
The stock market is a forecaster of future events. And right now the stock market is telling us
that the future for consumer dining dollars will go to cheap, fast-food companies like
McDonald’s, not fine-dining restaurants like Morton’s. In a nutshell, consumers will be cutting
back on spending.
The price action of the dining stocks is in line with my belief that we will experience difficult
economic times ahead in America. The way people live in Europe, their lack of income and
their decaying standard of life could travel to America quicker than most consumers care to
About 44 million Americans are using some form of food stamps. It’s downright scary. And
when you have the stock market giving companies like McDonald’s a major vote of
confidence in the form of a booming stock price, we need to take a step back and look at what
it forecasts for our future.
When I walk around the streets of Italy, be it Rome, Florence or Venice, and see how the well-
educated, middle-class people struggle, as sad as it sounds, I see America’s future. And it’s
What He Said:
“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market.
I’m bearish on the general stock market for three main reasons: Borrowing money in 2008
will be more difficult for consumers. Consumer spending in the U.S. is drying up, which will
push down corporate profits.” Michael Lombardi in PROFIT CONFIDENTIAL, January 10,
2008. The year 2008 ended up being one of the worst years for the stock market since the
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Trading Action Repeating Itself—What
the Stock Market’s Setting Itself up for
Posted by Mitchell Clark, B.Comm. in corporate earnings, gold stocks, price of gold, price of
silver, S&P 500, silver stocks, stock market on July 29th, 2011
While the price of gold and price of silver continue to be
very strong, a lot of gold stocks and silver stocks have
been pulling back in price. It’s a reflection of the current
state of things, with investor sentiment seemingly stuck in
a rut. We’re in a market with so much uncertainty that any
call is valid and all outcomes are plausible. The stock
market could completely fall apart, stay the same, or
advance. A market malaise has set in and it’s almost
entirely due to the sovereign debt situation.
Just last week, stocks were looking set for a decent run, as corporate earnings mostly
impressed the Street. That rally fizzled pretty quickly and now the S&P 500 Index is back down
at the 1,300 level, which I view as problematic in terms of the market’s overall health. What’s
happening is that investors are beginning to ignore good news and event-driven trades don’t
seem to have any legs. It’s a strong signal that the market is tired and very unsure of itself.
With this backdrop, there certainly is no rush to take action on the long side. Even if the
sovereign debt issue were to be settled right now and the market were to make a big
advance, there’s just as much probability that it would pull back a month from now on
lackluster economic news. The equity market sure isn’t making it easy for traders.
The S&P 500 Index has basically been trading range-bound since the beginning of the year
with declining volume. Oddly, it’s following a very similar trading pattern to the beginning of
last year where stocks advanced and then didn’t do anything for about 10 months before
breaking out. We could be in for a similar scenario this year where stocks might not
experience any material rally until sometime in the fourth quarter. That is my current figuring.
While corporate earnings are strong, economic data are not. Last year—and so far this year—
the stock market was held together by good corporate earnings, as investors were willing to
wait for the economy to recover. The pace of that recovery is most certainly unclear and the
marketplace is growing impatient. Couple this with all the problems associated with country
debt and deficits, and you could easily make the case for an S&P below 1,300.
I think we’re going to get continued range-bound trading for the next several months with the
potential for an end-of-year rally based on the expectation for good fourth-quarter numbers.
Corporations are doing their part; now it’s time for the economy and policymakers to do
Stock Market: What’s Really Going on Now
Posted by Michael Lombardi, MBA in bear market rally, debt ceiling, John Boehner, stock
market, Stock Market Advice, stock prices, U.S. economy on July 28th, 2011
What a day for the market yesterday. Wherever we looked,
we saw a sea of deep red. Stocks got chopped. Gold was
down. Bonds were down.
My dear reader, you’ll read opinions here in PROFIT
CONFIDENTIAL that you will not read elsewhere. (Maybe
that’s why 30,000 people a month are flocking to us!)
Here’s the bottom line as I see it…
Some investors, big investors, made a killing in the
markets yesterday. Why not? Why not play on investor
fears, use the “debt ceiling” scapegoat to send the
markets steeply lower…but let me get my shorts in place
In reality, increasing the debt ceiling does more harm to the American economy than good.
The higher the debt ceiling, the bigger the “carte blanche” we are giving Washington to spend
money it doesn’t have…a concept that is bad for the economy, but great for Wall Street.
Speaking of Wall Street, it’s giving a strong message to President Obama, John Boehner,
and Ben Bernanke. Wall Street’s message is this: Keep the government on a spending
binge, keep Bernanke increasing the money supply, or else we’ll huff, puff and take this stock
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Let’s use common sense. Wall Street makes its money by selling its wares. Investors are not
going to be buying stock, especially new issues, with the stock market nose-diving. The big
banks, which own most of the big brokerages, know the game.
Going back to that bear market rally I’ve been writing about since March of 2009—it’s not over
yet. No, it still has life left in it. Wall Street wants higher stock prices, the bear wants higher
stock prices, and all in an effort to lure investors back to the market.
I’m sure this morning that we have many people in the Obama Administration and Boehner’s
Congress saying, “Wow, the Dow Jones got hammered 200 points yesterday. We need to get
this debt ceiling lifted.” That’s exactly what Wall Street wants. It’s exactly what the bear market
The debt ceiling, my dear reader, will eventually get increased Stocks will boom again on the
news. But the rejoicing will be very short in nature. The bear…it has more unpleasant, long-
term plans for stock prices. That’s my stock market advice for the day.
Michael’s Personal Notes:
Cracks in theU.S.economy are starting to show almost daily now…
Yesterday morning, the U.S. Commerce Department reported that orders for durable orders
tumbled an unexpected 2.1% in June. Analysts had been expecting an increase.
Durable goods are classified as goods meant to last at least three years. Demand for
business equipment, machines and computers are dropping.
Consumers are pulling back on spending. Fears about the debt ceiling, a stubborn
unemployment rate, a depressed housing market, and even European concerns—these are
all concerns weighing on the shoulders of American consumers.
And as consumers tighten their wallets again, business will reduce capital spending…a
perfect scene for the recession’s Act II.
By yesterday afternoon, the Federal Reserve confirmed our fears about the economy when it
reported that growth has slowed in eight of the 12 regions the Fed follows.
What He Said:
“Even the most novice investor can now read the chart of the Dow Jones U.S. Home
Construction Index and see that it is trading at its lowest level in five years. If, like me, you
believe that stocks are on indication of what lies ahead, this important index is telling us
housing prices are headed to 2002 levels! What would that do to the economy? Such an
event would devastate the U.S.” Michael Lombardi in PROFIT CONFIDENTIAL, December 4,
2007. That devastation started happening the first quarter of 2008.
Gold: The Only Sector with
Posted by Mitchell Clark, B.Comm. in corporate earnings, gold investment, gold mining, gold
mining shares, investing in gold, large-cap stocks, micro cap stocks, spot price of gold, stock
market on July 28th, 2011
The stock market is facing some strong headwinds over
the short term and all the wrangling is a real shame
considering that we’re still getting great earnings results
from large-caps. It’s no wonder the spot price of gold
keeps ticking higher; there’s nothing else for investors to
I still view the current environment positively, but financial
markets do not like uncertainty and all these issues
regarding debt ceilings and sovereign debt inEuropeare
wreaking havoc on confidence. In my view, corporate
earnings are strong enough to support an S&P 500 Index
of 1,500 by the end of the year. A number of analysts and institutional investors feel similarly,
but there isn’t much buying of equities because of the uncertainty about sovereign debt.
Investing in gold is becoming a more viable strategy and, for most investors, the sector could
represent a larger part of their portfolios. I’m not usually a fan of buying high with the goal of
trying to sell higher; but, in this case, with all the global fundamentals we have going on right
now, gold investments are the best play.
The gold sector of the stock market is ideal for speculators and, because there’s little growth
to be had in the rest of the market, liquidity is great and it’s on the rise. This makes for more
trading opportunities and more pronounced moves in share prices when there’s news. For
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event-driven traders, I would focus a large part of my attention on gold mining shares going
There are a lot of micro-cap stocks in the gold sector, but less mid-cap and even fewer large
gold mining companies. Quite simply, a gold exchange-traded fund (ETF) is an easy way to
take on a position.
With the spot price of gold at record levels, the gold mining business is a highly profitable
business model. There are all kinds of small, junior gold producers that are making money
hand over fist with gold over $1,200 an ounce. Most of the established, producing junior
miners have tons of cash in the bank, so future exploration and development are virtually
All opportunities in the stock market occur in waves of enthusiasm. Right now, there’s not a
lot to be enthusiastic about. But, the one sector that stands out as the most attractive in my
view is precious metals; gold, in particular. There just isn’t the growth in the rest of the
economy and, frankly, investors aren’t willing to buy it even if they see it.
U.S. Debt Ceiling: The Least
of Our Real Problems?
Posted by Michael Lombardi, MBA in bear market, economic analysis, financial news, gold
prices, inflation, national debt, stock market, Stock Market Advice, U.S. debt ceiling, U.S.
dollar, U.S. economy on July 27th, 2011
As I read the financial newspapers and the popular
Internet sites this morning, I realize that if there is one
thing I hope I achieve in my own daily writings, it is to
make my readers wary, almost suspicious of what the
media is telling them.
Here’s what got me thinking like this…
Yesterday, the U.S. dollar hit a fresh, new three-year low against a basket of six other major
world currencies. The media was quick to point to the bickering amongst the Democrats and
the Republicans (over raising the U.S.debt ceiling) as the reason the dollar was falling to a
new record low. Wherever I looked this morning, the news sites were basically saying,
“Washington can’t agree on increasing the debt ceiling, the deadline is closing in, and the
dollar is falling because of all this concern.”
But that’s where reporters have it very wrong, as far as I’m concerned.
Let’s take the debt ceiling issue off the table for a moment and let’s assume Washington
passed a new debt ceiling limit of $16.0 trillion or $17.0 trillion. Would the greenback still be
falling off the cliff in value? Of course it would.
We are passing a law that says the government can borrow even more money. The greater
the debt of a nation, the weaker its currency. We are actually better off if the government
doesn’t pass a new debt ceiling and it starts spending within its means.
I don’t want my readers to buy the propaganda the media spits out. At the very least, I want my
readers to be aware of the fact that most people reporting the financial news today know very
little about finances or economic analysis.
The following are my five core beliefs. I hope my PROFIT CONFIDENTIAL family of readers
will benefit from them.
The devaluation of the U.S. dollar that started in late 2008, early 2009, will continue as: (1) the
U.S.economy deteriorates further; (2) the national debt level continues to rise; and (3) the Fed
prints more money.
Inflation will become a real problem in America thanks to years of monetary policy that
promoted artificially low short-term interest rates and the hyper-printing of U.S. dollars.
Gold prices will rise on the back of a weak greenback and too many dollars in the system and
as inflation comes back.
The euro is as done as the dollar. Either Germanywill eventually kick the weaker countries out
of the euro or it will adopt its own currency.
The stock market will eventually test its March 9, 2009, lows, as Phase III of the bear market
Where the Market Stands; Where it’s Headed:
The next couple of days will bring the close of July 2011. And with another month behind us,
the bear market rally in stocks that started in March of 2009 will have lasted 29 months. A
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tremendous feat? Not really. As I have written before, the 1934 to 1937 bear market rally
lasted 35 months.
I remain steadfast in my opinion. We are in phase II of a bear market. During this phase, the
bear brings stocks higher in an effort to lure investors back into them. The easy money in this
bear market rally has been made. But there still is upside potential for stocks, albeit it’s
While the media is obsessed with theU.S.debt ceiling limit, the Dow Jones could easily
continue to ride the “wall of worry” higher.
What He Said:
“The Dow Jones Industrial Average, the S&P 500 and the other major stock market indices
finished yesterday with the best two-day showing since 2002. I’m looking at the market rally of
the past two days as a classic stock market bear trap. As the economy gets closer to
contraction, 2008 will likely be a most challenging economic year for Americans.” Michael
Lombardi in PROFIT CONFIDENTIAL, November 29, 2007. The Dow Jones Industrial
peaked at 14,279 in October 2007. A “sucker’s rally” developed in November 2007, which
Michael quickly classified as a bear trap for his readers. By mid-November 2008, the Dow
Jones Industrial Average was at 8,726.
Record Results & Good Visibility for
Railroad Companies, But Nobody’s
Buying the Success
Posted by Mitchell Clark, B.Comm. in blue chips, Dow Jones, earnings reports, railroad
companies, railroad stocks, stock market, stock picking, technical trend on July 27th, 2011
The railroad companies have confirmed that the industrial
economy is on track for a solid second half. They are
buying more equipment to deal with increasing load
factors and most are planning to hire new workers to keep
up with rising demand for their transportation services.
This is a very good indicator for the future.
One of the big companies, CSX Corporation (NYSE/CSX),
reported record second-quarter results with earnings coming in at $506 million, or $0.46 per
share, compared to $414 million, or $0.36 per share, in the second quarter of 2010. This was
a 28% gain in an environment of rising costs for raw materials. Company revenues grew 13%
to $3.0 billion and management cited increased business activity in all major markets,
including merchandise, intermodal and coal. Revenues were driven by volume growth and
higher prices, which offset increased fuel prices.
If you read the earnings reports of all the major railroad companies (which I highly
recommend), you’ll notice that they are all saying the same thing.China’s appetite for coal is a
major contributor to business growth in rail transportation. Growth in utility demand at
domestic power plants is lackluster, but sending coal to Asiais a new bulkhead business
that’s keeping the industry solidly profitable.
Yet, for all the success that’s on the books, the stock market doesn’t seem to be celebrating
the good earnings (and visibility). It’s as if the market is just plain grumpy and unsure of itself.
The Dow Jones Transportation Average isn’t really saying anything with its recent
performance. The Index is trading at the same level it was in April and May. It bounces
around, of course, but there’s no technical trend that jumps out at you.
I suppose the stock market reflects the mood of the economy. Some parts are doing okay,
while others struggle. Stock picking in this kind of environment is much more difficult,
because there is no wind at your back. It is a very good sign that the railroad companies are
saying that things are good and they are shipping more coal and chemicals. Following this
specific industry is an excellent way to get a feel for the industrial economy and to develop
your market view.
My feeling is that we’re going to be stuck in a period of mediocrity for several more years as
the whole of the economy continues to balance itself out after a major period of excess and
correction. The stock market should reflect this mediocrity and continue with its trendless
price moves. This is why I like higher-dividend-paying blue-chips and some gold on the side
for protection. Not much else is paying in this market.
The Stock Market’s New Best
Friend—Buffett Will Be Pleased
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Posted by Mitchell Clark, B.Comm. in age of austerity, dividend payments, large cap
companies, large-cap stocks, Schlumberger, second-quarter earnings season, stock market,
Stock Market Advice, Union Pacific on July 25th, 2011
In the age of austerity, it’s workers who are going to get
squeezed. How else are so many large companies
reporting excellent earnings? While everyone would like
the economy to be at or near full employment, I think the
stock market is now settling into the reality of a sustained
higher jobless rate. At least right now, big companies
would rather return excess cash back to shareholders in
the form of dividends, as opposed to investing in new
plant, equipment and workers.
Not every big company is doing well right now, but a lot
are. The “Windows” sales of Microsoft Corporation (NASDAQ/MSFT) were a little soft, but
guess what? It’s a very mature business and not everybody wants to upgrade their PCs right
away. Consumers would rather invest in smartphones.
But if the retail technology sector is a little slow, the oil services business is booming.
Schlumberger Limited (NYSE/SLB), which is essentially an enormous technology company
serving the oil and gas industry, just announced a 64% increase in second-quarter profits
and a 62% increase in revenues. Then there’s the railroad company Union Pacific
Corporation (NYSE/UNP), which reported record second-quarter earnings of $785 million, up
13.6% on a per-share basis from last year (which is really good considering how mature the
railroad industry is). The company reported that five of its six business groups showed good
volume growth, with improvement in shipments of agricultural products and chemicals.
Quarterly operating revenues grew 16% to $4.9 billion and management expects a solid
One thing I’ve noticed is that the cash hoards of large corporations continue to grow and this
is a good sign that dividend payments to stockholders will be on the rise over the coming
quarters. In fact, I argue that the current environment is a very good time to be considering
new positions in large-cap, dividend-paying securities. We do have the sovereign debt issue
hanging over global capital markets. This is an investment risk that’s very serious and isn’t
going away. But investors, especially institutional investors, have to put their money
somewhere and, as we’ve seen recently, it’s going to go into big companies paying big
What this trend points to in my view is the continued success of those stocks that are already
trading around their price highs. The momentum in this market is with large-caps that have
previously gone up. This means that it’s more likely that a stock like International Business
Machines Corporation (NYSE/IBM) will appreciate another 20% from its current price high of
$185.00 per share than buying a value play and hoping for a 20% recovery.
This is the market we’re in. Good old-fashioned blue-chip investing with a dollop of
speculation in commodities should be a decent strategy for the next several years. Dividends
are now the stock market’s new best friend.
New Record Highs on the Stock
Market—Who’s Hitting Them?
Posted by Mitchell Clark, B.Comm. in corporate earnings, economic recovery, large-cap
stocks, record highs, share prices, sovereign debt, stock market on July 22nd, 2011
It would be so wonderful if the sovereign debt crisis in
Europe was not at hand. It never pays to live in a fantasy
world, but corporate earnings are coming in so good that
the market would be a lot higher if we didn’t have to worry
about country debt.
According to a report by Bloomberg, of the 98 S&P 500
companies that have reported earnings since July 11,
about 85% have exceeded analyst estimates. That’s a big
deal and it’s a testament to the jobless economic recovery we seem to be experiencing. A
lower dollar certainly is a big help to domestic corporate earnings and so are faster growing
economies in emerging markets. That’s the real power of American large-cap multinationals;
they have a strong ability to translate international operations into profits at home.
If you feel a certain stock market malaise right now, you have a lot of company. Investor
sentiment is positive, but only slightly so. Everyone is worried about the future with the
exception of large corporations. When subprime mortgages caused the recession, big
companies were shaken by the enormous erosion of their share prices. It really seemed that
the sky was falling. After the stock market reckoning, the recession really did cause
management at big companies to fundamentally change their view of the world. The age of
austerity took over as the new management credo and, subsequently, already-lean
enterprises honed their expenses to the max. Now we’re seeing the effort of all that austerity
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in earnings results that are just plain excellent in relation to Gross Domestic Product (GDP)
All kinds of large-cap companies are hitting record and new 52-weeks highs on the stock
market right now. Baxter International Inc. (NYSE/BAX) just reported very good financial results
that beat consensus and the company increased its guidance for the year. The stock is
trading right at a new 52-high and doesn’t look expensive. Colgate-Palmolive Company
(NYSE/CL) just hit a new record price on the stock market. This company hasn’t reported yet,
but the shares don’t look pricey, and the current yield on the stock is 2.6%. Then there’s
International Business Machines Corporation (NYSE/IBM), which reported strong second-
quarter results based on its services business. This stock is trading at a new all-time high of
$185.00 per share and is up a solid 50% since the beginning of September.
When a company like Bloomberg does a survey saying that 85% of S&P 500 companies have
so far beaten consensus estimates, I believe it. There is a lot of corporate strength out there,
but not retail strength. The trickledown effect will take much longer to pan out.
There’s no real momentum in the stock market, but earnings are on the right track. I see the
broader market ticking higher over the near term unless the sovereign debt issue messes
A Stock Market That Just
Wants to Move Higher
Posted by Michael Lombardi, MBA in bear market rally, Dow Jones, economic news, stock
prices, U.S. dollar on July 22nd, 2011
Throw bad news at this stock market…it doesn’t
matter…the assault on Dow Jones 13,000 continues its
Yesterday was another big upside day for stocks despite
a series of what I believe were negative economic news
Bloomberg ran a story saying that a deficit-reduction
plan gaining acceptance amongst members of the U.S.
Senate would result in the end of preferred tax treatment
of capital gains and dividends. This type of news would
usually rattle stocks.
The Conference Board reported that its U.S. leading
indicators rose in June at a pace of 60% below May. The
Labor Department said that initial jobless claims rose by 10,000 in its latest reading. All
negative economic news—that’s becoming the usual backdrop to rising stock prices.
Finally, the Atlantis ended the U.S. space shuttle’s 30-year history Wednesday. Where will the
9,000 people who worked for NASA get jobs now? House prices in Titusville, the closest town
to Kennedy Space Centre, have already fallen 47% in five years (Source: Federal Housing
In spite of how poor the economic news was yesterday, the stock market had only one
mandate and that was to move higher. And this is exactly how bear market rallies work: bring
stock prices higher, lure investors back into the stock market, and give them the false hope
that all is well with the economy.
My prediction is that, by the time this bear market is over, a great number of investors will have
been lured back into the stock market. As quickly as the bear brought stock prices up, it will
bring them back down.
Sure, it’s very enjoyable to see the Dow Jones jumping 100 or 200 points in a day to the
upside. But when we see drops of 100 to 200 on the downside, it gets very painful, as most
investors play the upside of stocks, not the downside (short selling).
As I have been saying, enjoy the rally while it lasts, as this bear market rally’s life span is
Where the Market Stands; Where it’s Headed:
There’s not much I can say that I haven’t said above. We are in a bear market rally in stocks
that started in March of 2009. The rally, although long and tired now, will likely take stocks
past Dow Jones 13,000.
In the immediate term, the dual forces of a government willing to go further in debt to spur the
economy and a Federal Reserve ready to expand the money supply are overwhelming strong
forces for the stock market.
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The ramifications of a devaluation of the U.S. dollar, spiraling U.S.national debt, rising long-
term interest rates, rapid inflation—the bear market will have us dealing with them on a date
soon to be announced.
What He Said:
“Starting two years ago, I was writing how the housing boom would go bust and cause the
U.S. economy to suffer sharply. That’s exactly what is happening today. From what I see
happening in the U.S. economy, I’m keeping with the prediction I made earlier this year: By
late 2007/early 2008, the U.S. will be in a homemade recession. Hence, I expect housing
prices to continue declining, soft auto sales, soft consumer spending and a lower stock
market.” Michael Lombardi in PROFIT CONFIDENTIAL, August 15, 2007. You would have
been hard-pressed to find another analyst predicting a U.S. recession in the summer of
2007. At the time, the stock market was roaring, with the Dow Jones Industrial Average hitting
its all-time high of 14,164 in October of 2007.
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