Lombardi: Expert Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Welcome to Profit Confidential •

Stock Market

Lombardi Publishing was originally established in 1986 as an investment newsletter

publisher offering stock market analysis to its readers. Today, we publish 26 paid-for

investment letters most of which provide stock market direction and individual stock picking

analysis. Profit Confidential is our daily free e-letter that goes to all our Lombardi Financial

customers and to any investor who wishes to opt-in in to receive it. Written by Lombardi

Financial editors who have been offering stock market guidance for year to Lombardi

customers, Profit Confidential provides a macro-picture on where the stock market is headed,

what sectors are hot, what sectors to avoid. Our two most recent and popular calls were

telling investors to bail from stocks in 2007 and telling investors to jump back into the stock

market in March of 2009.

Choppy Trading Action Here to Stay —It’s an Index Trader’s Paradise

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Posted by Mitchell Clark, B.Comm. in blue chips, corporate earnings, economic analysis,

large-cap stocks, micro cap stocks, real estate market, small cap stocks, stock market on

August 15th, 2011

I think investors really want to be buyers of stock at this

time, but there isn’t much of a catalyst to do so.

Institutional investors are buying, but they’re also

playing on the market’s volatility, accentuating the

results. Reality is beginning to set in now and there’s a

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

deliver solid earnings growth and this makes the

current stock market look very reasonably priced.

Big, long-term investors relish the opportunity to buy

stocks when the indices convulse on the news of the

day. Whether it’s adding to existing positions or taking on new opportunities, institutional

investors (and insiders) are buying blue-chip stocks in this market.

There’s been a lot of bad news lately that’s taken a toll on investor sentiment, but I view the

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

investment risk, there continues to be an attitude of wariness about the domestic equity

market.

Along with the S&P 500 Index, a lot of large-cap stocks that were the market’s leaders have

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

quite well.

What everyone wants to know is what the future holds for the economy and stocks and it’s fair

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.

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

individual investors are sitting on the sidelines; there isn’t much in the way of definitive

economic analysis to take any bold, new action in this market.

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.

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

to stay for a while.

 

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PROFIT CONFIDENTIAL Forecasts

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

ounce since we first recommended it in 2002 and we are still

bullish on the metal.

Short-to-medium term outlook: National debt increasing at the rate of $125 billion per month will

eventual ly debase the U.S. dol lar . Our concern is future

deterioration of the greenback, an expansive money supply and

rising U.S. national debt will eventually push domestic inflation

and interest rates higher, negatively impacting the American

economy and equities.

PROFIT CONFIDENTIAL Estimates

Total 2011 per share earnings for 30 stocks in the Dow

Jones Industrial Average:$900

Dow Jones Industrial Average Price/earnings multiple: 13.4

Dow Jones Industrial Average Dividend Yield: 2.6%

3-month day U.S. T-bill Yield: 0.01%

10-year U.S. Treasury Yield: 2.0%

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U.S. Dollar and Gold: An Anniversary

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Posted by Michael Lombardi, MBA in bear market rally, gold standard, inflation, price of gold

bullion, research reports, reserve currency, stock market, Stock Market Advice, U.S. dollar on

August 15th, 2011

Forty years ago today, U.S. President Richard Nixon

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

bullion at the rate of $35.00 U.S. for one ounce of

gold for the central banks of foreign countries.

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

and gold, at Bretton Woods, the central bankers of foreign countries agreed to adopt the U.S.

dollar as their official reserve currency. In a nut shell, the U.S. backed its fiat money with gold

bullion and foreign central banks backed their currency with U.S. dollars. All the currencies

had a link to gold.

Thirty-three years after the Bretton Woods agreement, on August 15, 1977, Nixon took to the

airways to tell the world and in specific to tell the central banks of the foreign countries that the

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.

There have been very stark critics of America’s action in abandoning the concept that fiat

money should be backed by gold. Some say lack of the gold standard has caused global

economic instability since 1977.

But since 2002, another phenomenon has occurred. The price of gold bullion has boomed.

Gold has risen in price from $300.00 U.S. per ounce in 2002 to almost $1,800 today—a gain

of 500%. And some economists, like me, are calling for gold to hit $3,000 per ounce.

There are many reasons why the price of gold bullion is skyrocketing. (I have written about

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

value of the U.S. dollar somehow tied back to gold bullion.

Michael’s Personal Notes:

I love the weekends, as they give me time to catch up on my much-needed reading. All week

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

the market, the economy, and precious metals, to individual stock sectors and other forms of

investment.

What I’m finding quite fascinating is the number of analysts who are deeply bearish on

America. I’ve never quite seen anything like this before…so many people calling for the

demise of America.

On the one hand, these are smart analysts who bring up very good facts to back up their

solidly bearish views. On the other hand, I’m wondering if all this bearishness is getting

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

right now.

Well-known investor Jim Rogers, who is highly critical of specific people in Washington,

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.

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

analysts predict?

Where the Market Stands; Where it’s Headed:

The Next Step for the Stock Market

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 stocks, which was fueled by a 25-year decline in interest rates and a period of great financial leveraging that accompanied collapsing interest rates, a Phase I bear market (often referred to as the first down-leg) brought stock prices down sharply.  From its high of 14,164 ...

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What We Can’t Forget About in the Stock Market Today

By Mitchell Clark, B.Comm.

Street analysts are saying that, because of higher oil prices, the Dow Jones Transportation Average is showing a real divergence from the rest of the stock market. According to Dow Theory, confirmation from this index is required in order to uphold the 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 prices have been stronger lately because of geopolitical concerns, but a lot of the stocks ...

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The Thorn in the PC Market Leader’s Side

By George Leong, B.Comm.

My kid hardly ever works on his desktop personal computer (PC) anymore, instead favoring a laptop. In fact, I often see him surfing the Internet and doing research using my “iPad” or his “iTouch.” This market shift is not only with my kid, but with millions who are also abandoning their computers in favor of tablets. The result of this is proving quite difficult for PC makers, who are fighting to come up with a defense. The market leader in PCs, ...

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Platinum Surges 15% in Seven Weeks; Now Where Does it Go?

By Sasha Cekerevac

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 investing in precious metals like platinum before, the last being on January 11, 2012, in the article Investors—Should You Consider Platinum? At the time I wrote the article, platinum was trading approximately $1,497; as of today, the market for platinum is trading around $1,723, a move of approximately 15% in less than seven weeks. In fact, ...

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Extra

A Study You Should Know About

By Michael Lombardi, MBA

While most other economists tell us otherwise, I’ve been writing this year about how the numbers so far do not point to a U.S.

http://www.profitconfidential.com/stock-market/ Page 2 / 18

I continue to hold the belief that a bear market rally that started in March of 2009 presides.

According to a report from EPFR Global, a Massachusetts-based research firms, investors

pulled more money out from global stock funds last week than any other week since 2008.

And we all know what happened after 2008; stocks rallied big time.

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

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:

“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,

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

on gold since 2002.

The Only Asset Worth Betting on—You Guessed It! This Story’s Just Getting Started

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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

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

in cash, while spot prices and physical demand for

precious metals remain strong. Gold, silver and copper

have been holding up exceedingly well, as the rest of the

stock market corrects. And it isn’t just the store of value

argument or the so-called haven status of gold; the fact of

the matter is that the global supply of the commodity is

relatively unchanged, while demand (particularly from

India and China) is going up.

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

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

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

consistently reporting record financial results.

It can be difficult stock picking in the mining universe. There’s nowhere near the number of fly-

by-night gold miners as there used to be. Standards for drilling results and feasibility studies

are now quite stringent and I would argue that a Street analyst is likely to be more accurate in

predicting the cash flow from a modern mining operation than just about any other kind of

business.

There are basically two kinds of mining opportunities for equity speculators. There’s picking

an established producer with a forecast of cash costs and expected production. Then there’s

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

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

and the stock market in the doldrums, gold mining is one of the few booming industries with

strong expectations.

The Stock Market Is Big; This Is Bigger and More Important to You

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economic recovery, but rather to a continued economic slowdown, with the threat of recession. I’ve been focused on the average damaged consumer, who has lost value in his/her home and has been restrained by no income growth…if he/she is lucky enough to have a job. With over 47 million Americans on food stamps, I’m at a loss ...

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Why Oil Prices, Gold and Silver Are Looking Good Again

By Mitchell Clark, B.Comm.

With the recent strength in the euro currency, the spot prices of 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 portfolio this decade. The fundamentals are there to support higher prices for gold and silver. We have ...

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Stocks at Multi-year Highs, But Watch for Some Near-term Topping

By George Leong, B.Comm.

The DOW broke above 13,000 on February 21 for the first time since May 2008, while 14,000 has not been touched since October 2007. My market view is that the upside break at 13,000 is bullish if it can hold, but the light trading volume suggests a minor bearish divergence between price and volume. My market view is positive and suggests that more gains may be coming, albeit stocks are technically overbought on the charts and are subject to resistance selling ...

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Is this the End for Netflix?

By Sasha Cekerevac

At this point, almost everyone knows about Netflix, Inc. (NASDAQ/NFLX). The online streaming company offering movies and TV shows on demand was a pioneer in this field, which drove corporate earnings for the firm. Such innovation and profitability in 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 cloudy. Recent news that cable giant Comcast Corporation (NASDAQ/CMCSA) is entering the online streaming market ...

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http://www.profitconfidential.com/stock-market/ Page 3 / 18

Posted by Michael Lombardi, MBA in bond market, federal reserve, interest rates, real estate

market, stock market, Stock Market Advice, U.S. dollar, U.S. Treasuries on August 12th, 2011

The bond market dwarfs the size of the stock market.

I know what some of my readers are thinking right

now, “If I don’t invest in U.S. Treasuries, it doesn’t matter to me if they go up or down.” This is wrong.

The price direction of  U.S. Treasuries is based on interest rate expectations. If bonds are rising or

decreasing in price, it means that future interest

rates will either rise or fall. The entire economy is

based on interest rates. Higher interest rates would

be catastrophic for the stock market, real estate

market, consumers, and businesses.

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-

term interest rates near zero into mid-2013.

The Fed cut short-term interest rates to between zero and 0.25% in December of 2008 and

short-term rates have remained that low since. Now we are told that the Fed will hold rates at

those levels for another two years.

But there is trouble in paradise…

Three of the 10 members of the Fed interest-rate-setting committee dissented from the

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.

There are two schools of thought on how this story will end.

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

for months.

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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?

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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

moving averages.

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

commodities.

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

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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

look competitive.

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

trend.

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.

http://www.profitconfidential.com/stock-market/ Page 6 / 18

Stock Picking: Time Horizons Change, But the Environment Just Got Better

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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

10th, 2011

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

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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

growth.

http://www.profitconfidential.com/stock-market/ Page 7 / 18

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

exploration.

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

of $1,451.

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

applications.

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

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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

8th, 2011

My commentary today is dedicated solely to the

stock market. Many of my readers are obviously

invested in stocks and are concerned over last

week’s volatility.

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.

http://www.profitconfidential.com/stock-market/ Page 8 / 18

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

to spend.

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-

term memories.

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,

8.5%!

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

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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

http://www.profitconfidential.com/stock-market/ Page 9 / 18

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

corporations.

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

news alone.

How Stocks Are Reflecting the Structural Excesses of the World

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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

http://www.profitconfidential.com/stock-market/ Page 10 / 18

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

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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 think.

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

not pretty.

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

1930s.

http://www.profitconfidential.com/stock-market/ Page 11 / 18

Trading Action Repeating Itself—What the Stock Market’s Setting Itself up for

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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

theirs.

Stock Market: What’s Really Going on Now

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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

first!

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

market down!

http://www.profitconfidential.com/stock-market/ Page 12 / 18

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

wants.

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 Improving Fundamentals

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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

rally around.

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

forward.

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

assured.

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?

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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

sets in.

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

limited.

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

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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

second half.

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

dividends.

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?

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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

http://www.profitconfidential.com/stock-market/ Page 16 / 18

in earnings results that are just plain excellent in relation to Gross Domestic Product (GDP)

growth.

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

with confidence.

A Stock Market That Just Wants to Move Higher

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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

move ahead.

Yesterday was another big upside day for stocks despite

a series of what I believe were negative economic news

reports.

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

Finance Agency).

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

limited.

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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