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Lombardi: Expert Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986
Welcome to Profit Confidential
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 Its an Index Traders Paradise No Comments
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 isnt much of a catalyst to do so. Institutional investors are buying, but theyre also playing on the markets volatility, accentuating the results. Reality is beginning to set in now and theres a realization that corporate earnings are actually going to be strong in the bottom half of the year. The employment situation isnt 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 its adding to existing positions or taking on new opportunities, institutional investors (and insiders) are buying blue-chip stocks in this market.
Theres been a lot of bad news lately thats 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 markets 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 isnt 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 its 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 isnt 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:
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
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 grounda 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 Americas 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 todaya 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.
Michaels Personal Notes:
I love the weekends, as they give me time to catch up on my much-needed reading. All week long, Im 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 Im finding quite fascinating is the number of analysts who are deeply bearish on America. Ive never quite seen anything like this beforeso 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, Im 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