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

National Debt Rising 2.3 Times Faster than Budget Deficit?

By for Profit Confidential | October 29, 2014

National Debt Rising 2.3 Times Faster than Budget DeficitFor the U.S. government’s fiscal year ended September 30, 2014, the government registered a budget deficit of $483 billion—the lowest budget deficit since 2007. In fiscal 2013, the budget deficit was $680 billion. In each of the previous four fiscal years, it was more than $1.0 trillion per annum. (Source: U.S. Department of the Treasury, October 15, 2014.)

On the surface, this is great news.

And logically, one would think, the lower the budget deficit, the slower the growth of the national debt. If the budget deficit comes in at $100 billion, for example, the government will have to borrow money to pay for its budget deficit gap and raise the national debt by $100 billion.

But in fiscal year 2014, this wasn’t the case.

On October 1, 2013, the U.S. national debt stood at $16.74 trillion and on October 1, 2014, the national debt sat at $17.87 trillion—an increase of $1.13 trillion. Over a 12-month period, our national debt grew by 2.3 times the amount the budget deficit grew! (Source: U.S. Treasury Direct web site, last accessed October 23, 2014.)

No one is really questioning the sudden increase in the national debt compared to the budget deficit. Personally, I haven’t come across any articles on major news channels or heard of any explanation from government agencies about this.

How can this be happening? How can the national debt be rising 2.3 times faster than the budget deficit over the same period of time?

Dear reader, something doesn’t jive here. Either the government’s operating budget excludes some expenses, or there’s a problem somewhere in the numbers.

It just doesn’t make sense for our budget deficit to be $483 billion in the last fiscal year and for our national debt to increase $1.13 trillion over the same period.

In these pages, you’ve seen me predict a U.S. national debt of $34.0 trillion. While I may be the only economist out there with this prediction, we … Read More

Two Companies in the “Buy Zone” on Weaker Oil?

By for Profit Confidential | October 29, 2014

How Spot Prices Could Affect Your Oil PicksIt really is quite amazing the amount that spot oil prices have dropped. Naturally, in a lot of areas, the price of gasoline has not dropped the same percentage.

Lower oil prices help a lot of industries. The railroads and airlines, for instance, should show a material gain in earnings in the fourth quarter due to the drop in fuel costs.

It’s not a game-changer for oil producers just yet, but The Goldman Sachs Group, Inc. (GS), which is pretty good with its views on commodities, is now forecasting $75.00 West Texas Intermediate (WTI) oil for most of 2015—with oil prices maybe even hitting $70.00 a barrel. And all because of supply.

Anything to do with resources is higher-risk. And the higher investment risk is shared both by the capital (investors) and the explorers/producers whose business model changes with spot prices and derivative hedges.

But along with the higher risk comes the potential for higher rewards when prices are rosy.

A lot of junior energy producers, many of which were excellent wealth creators, got expensively priced on the stock market. And part of the reason why is that double-digit growth is such a difficult thing to come by these days. Therefore, when institutional investors find it, they bid it.

Volatility in commodity prices is a direct catalyst in resource stocks and this will never change. Even pipelines sold off with oil prices, even though many of them have long-term contracts that are not related to spot prices.

But in capital markets, swift price corrections often open the door to attractive opportunities. In many cases, really strong domestic oil producers just went on sale.

A lot of these growth stories would still be considered expensively priced compared to the rest of the stock market. But the production growth is still very real. Countless junior oil and gas companies are solid economic engines, even with $80.00 crude.

One large-cap that energy in… Read More

Strategies for Investing in These Chaotic Markets

By for Profit Confidential | October 24, 2014

Strategies for Investing

Here we go again. Just when the stock market is moving lower and forecasting a potential correction, we see buying emerging, driving the bears back to the woods.

The reality is that I was looking for the S&P 500 to potentially correct 10%, down to around 1,792, something that has not materialized in about two years. It would, in my view, represent a good buying opportunity to accumulate shares at a discount. Yet despite declining as much as seven percent, the S&P 500 just couldn’t give up, staging a bounce-back.

So here we are with the S&P 500 breaking back above its key 200-day moving average (MA) of around 1,906. This appears to be encouraging the market, making it somewhat optimistic.

The way I see it is the recovery of the 200-day MA by the S&P 500 was key, but I would be more impressed if the S&P 500 could retrace the 50-day MA of around 1,966. Of course, this move could easily occur, as the S&P 500 was a mere 20 points away on Wednesday.

What’s also interesting is the comeback in both the technology and small-cap areas.

Technology has been strong over the past several sessions with the NASDAQ bouncing back to above its 200-day MA and coming within 1.49% of its recent high. If technology can regain its luster and offer some leadership to the broader stock market, we could see the S&P 500 move back to above 1,700 in the best-case scenario; albeit, it will take some work for this to happen.

Small-caps have fared the best in October, largely due to some technically oversold buying and excessive selling capitulation of small-cap stocks.

The Russell 2000 is up 0.94% in the month, while the other key stock indices are negative. The Russell 2000 has also moved out of correction territory, which is encouraging.

Now, while the buying is positive, the key will be the sustainability of stocks, their ability to hold and move higher. My concern is that there has not been a signifi… Read More

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