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Why My Coffee Is Costing So Much More This Year

Why Deflation is Out of the Question for the U.S. EconomyWe are told that in the month of January, inflation in the U.S. economy increased by one-tenth of a percent. In February, prices increased by a similar percentage. In the entire year of 2013, the “official” rate was only 1.5%. (Source: Bureau of Labor Statistics web site, last accessed April 8, 2014.)

Some economists are calling for even less inflation in 2014 and even outright deflation (a period when prices decline).

This is absurd! Anywhere you look, things are costing more each passing day.

Consider the chart of gas prices below. Since the beginning of the year, spot prices for gasoline have increased by eight percent.

Gasoline Unleaded - Spot Prices Chart Chart courtesy of www.StockCharts.com

Unfortunately, gas prices aren’t the only thing that has gone up. Basic food prices are skyrocketing, too!

Since the beginning of the year, corn prices have gone up 22%. Coffee prices are up more than 75% year-to-date. Why aren’t these price increases reflected in the “official” numbers? It’s because the government leaves out two very important consumer essentials when it calculates its official inflation rate: energy and food prices.

As we all know, over the past few years, food stamp usage in the U.S. economy has dramatically increased. In January … Read More


Should You Be Buying More Gold Ahead of the ECB’s Printing Decision?

The European Central Bank Presents Another Reason to Be Bullish on GoldFrom our recent reader survey, I see our readers are not that concerned about what happens in the eurozone. But there’s a phenomenon occurring there that I believe every investor who is interested in gold bullion should be aware of.

Let me explain…

It’s a known fact that when central banks print more of their paper money, it’s usually bullish for the yellow metal. We saw this after 2009, when the Federal Reserve started to print more paper money; gold bullion prices skyrocketed.

In the eurozone, there continues to be major economic problems in the region. Italy, the third-biggest economic hub in the eurozone, has reported its unemployment rate hit 13% in February—the highest unemployment rate ever recorded in the country. (Source: Reuters, April 1, 2014.)

To help countries like Italy, Greece, Spain, and Portugal with their economic woes, the European Central Bank (ECB) has lowered its benchmark interest rate—but that hasn’t spurred bank lending as bad debts on the books of major eurozone banks keep piling up. Even once-strong eurozone countries like France are under economic scrutiny.

Now, as no surprise, the ECB has started talk about following the same route the Federal Reserve has taken—printing paper … Read More


My Simple, Safe Investment Strategy for Playing Risky Stocks

Here's a Strategy to Play Momentum Stocks While Limiting RiskThere’s some hand-holding required out there in the stock market. We have seen destruction in the momentum biotech and Internet stocks that have corrected by more than 30%.

Now we are hearing some analysts on Wall Street saying to jump back in—but I’m hesitant at this juncture, as the downward risk is likely not over yet.

The reality is that, given the superlative gains recorded in 2013 by many of these biotech and technology momentum stocks, you shouldn’t be surprised to see the current malaise.

The fact that many of these highflying stocks in the stock market have more than doubled in a year should be a red flag. My simplest advice is to wait for the selling to subside in the stock market before you jump into these stocks.

You also need to be careful when hearing the bullish comments by Wall Street firms on these momentum stocks. Many of these firms have investment banking relationships with these stocks; it’s only natural to support your clients in the bad times.

Don’t get fooled by the stock market rhetoric. Instead, take a prudent approach to the stock market.

You don’t want to be caught exposed on this stock market … Read More


Stock Market Setting Up for Extended Break?

Soft Q1 Suggesting Market Set for Extended BreakThe S&P 500 index really hasn’t done much since the beginning of the year but churn…but then again, why shouldn’t it?

For stocks, 2013 was an exceptional year. If we get another positive year on top of dividends, then it’s total gravy.

The capital gains over the last several years have been highly unusual, representative of the gains often seen after a major financial crisis.

There are no bandwagons to jump on in this stock market. Investor sentiment finally had a bit of an awakening over the last several weeks. Big investors booked some profits after the big price recovery in February, which occurred because of verbal reassurances by the new Fed chair, Janet Yellen. If there wasn’t further hand-holding from the Fed, stocks likely would have continued January’s sell-off into a full-blown correction, helped by events in Ukraine.

I’m of the mind that the stock market may take an extended break over the next two quarters, as it’s so often done in the past—probably more of a price consolidation over a correction; top-line growth is still pretty modest.

I’m still a big fan of dividend income and also a higher weighting given to cash within a portfolio context. … Read More


Why the Fed Will Have to Get Back into the Paper Money Printing Business Soon

U.S. Economic GrowthIn the early days of the 2008 financial crisis, the Federal Reserve said, “Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment.” (Source: Federal Reserve, March 18, 2008.) As a result of this, the central bank came up with the idea of printing paper money to stimulate the economy; thus, “quantitative easing” was born.

Five years later, the Federal Reserve’s balance sheet has grown to $4.2 trillion. We also saw the U.S. government increase spending to stimulate the U.S. economy after the Credit Crisis of 2008. The U.S. national debt skyrocketed from around $9.0 trillion back then to over $17.0 trillion today.

With all this money being created (by the Fed) and borrowed (by the government), the logical assumption is that there’s finally economic growth in the U.S. economy.

Wrong!

Paper money printing by the Federal Reserve and out-of-control spending by the government hasn’t really given much of a boost to the U.S. economy (aside from the stock market bubble it has created). Problems still persist. The amount of paper money that … Read More


How to Play an Upside Breakout in Oil Prices

Oil Prices Are So Dependent on RussiaOil prices could be setting up for an upside break if the situation in Crimea intensifies and a military conflict emerges between Russia and Ukraine over the rights to Crimea.

Since the price of West Texas Intermediate (WTI) crude broke out to over $100.00 a barrel in early 2011, oil prices have done very little, trading largely in a sideways channel with support in the $80.00 level and resistance around $110.00.

The global economic renewal has helped to support oil prices in spite of the continued stalling in China. Return to growth in the eurozone is also adding some support, but for oil prices to shoot higher, there really needs to be a geopolitical event, such as what we are seeing in Crimea. Of course, don’t forget the Middle East, which still has its major issues, especially with the speculation that Iran is building nuclear-enabled weaponry.

Light Crude Oil ChartChart courtesy of www.StockCharts.com

There’s also the crazy dictator of North Korea, Kim Jong-il, who has continued on the same path his father was on, isolating the country. His testing of several missiles earlier this week into South Korea was just another signal that he craves attention.

At the end of the day, to … Read More


Even Iraq’s Central Bank Buying Gold Now?

As Pressure Mounts on Paper Currencies, World Central Banks Opt for GoldCentral banks are still adding gold bullion to their reserves and the smaller countries are getting into the act big-time.

According to the International Monetary Fund (IMF), in the month of March, Iraq’s central bank added 36 tonnes of gold bullion to its reserves—worth about $1.5 billion. This is the first purchase by the central bank since August of 2012, when it bought 23.9 tonnes of gold. (Source: Reuters, March 25, 2014.)

Sure, you could say, “Michael, 36 tonnes of gold bullion is nothing for a central bank.”

I agree. But looking at the bigger picture, it is very significant for a small country like Iraq—a country whose annual gross domestic product (GDP) is smaller than Amazon.com’s sales for 2013—to be getting into gold bullion in a big way. The official announcement from the central bank of Iraq sent the message that it bought the gold bullion to stabilize the country’s currency and add insurance to their reserves.

Since 2009, central banks around the global economy have become net buyers of gold bullion, and I don’t think they will stop anytime soon. The main reason for this is that the central banks see a significant amount of volatility coming to … Read More


Why Is the U.S. Dollar Collapsing in Value All of a Sudden?

Whey the Fed May Need to Reverse its Decision to Cut Back on Money PrintingWhen news first broke from the Federal Reserve that it would slow down the pace of its quantitative easing program, the consensus was that the U.S. dollar would start to rise in value as the Fed would be printing fewer new dollars and actually eliminating all new paper money printing by the end of 2014.

But the opposite has happened.

Below, I present the chart of the U.S. Dollar Index, an index that compares the value of the dollar to other major world currencies.

US Dollar Index - Cash Settle (EOD) Ice ChartChart courtesy of www.StockCharts.com

As the chart clearly shows, the dollar started on a strong downtrend in July of 2013. When I look at the dollar compared to individual currencies like the euro and British pound, the picture looks even worse.

The common belief since the Credit Crisis of 2008: when there’s uncertainty, investors run towards the safety of the U.S. dollar. But something started to happen in mid-2013. Despite China’s economic slowdown, despite the situation with Russia and Ukraine, and with the Federal Reserve cutting back substantially on its money printing program, one would think the U.S. dollar would rally in value—but the opposite is happening.

Two reasons why the greenback is falling in value … Read More


What the Breakout in the Gold-to-Copper Ratio Is Telling Us

Copper Flashing a Buy Signal for GoldCopper is considered an industrial metal, used in industries across the board. When copper prices fall, it’s usually an indicator of a slowdown in the global economy. On the contrary, gold bullion isn’t much of an industrial metal; rather, it is used as a hedge against uncertainty in the global economy.

When you look at these two metals together, often referred to as the gold-to-copper ratio, they tell us something very important: the ratio of how many pounds of copper it takes to buy one ounce of gold bullion has long been an indicator of sentiment in the global economy.

If the gold-to-copper ratio is in a downtrend, it means investors are betting on the global economy to grow. In contrast, if it is increasing (if the number of pounds of copper it costs to buy an ounce of gold is rising), it tells us investors are concerned about protecting their wealth in a slowing global economy.

Below, you’ll find a chart of the gold-to-copper ratio.

GOLD - Spot (EOD) Copeer ChartChart courtesy of www.StockCharts.com

Looking at the chart above, it is clear something happened at the beginning of 2014. Investors became very worried. Since the beginning of the year, the gold-to-copper ratio has increased … Read More


Chinese Stocks Promise Higher Potential Gains?

Three Keys to Profiting from China-Based StocksIf you think Chinese stocks are too speculative to consider and buy, then you need to read what I’m going to say over the next few paragraphs.

Yes, it’s true that China-based companies have subjected U.S. capital markets to erroneous results and reporting in the past and that it is likely continuing to some degree, but that does not mean you should bypass Chinese stocks. You just need to be extra careful.

With the recent moves by the U.S. Securities and Exchange Commission (SEC) to force Chinese companies looking to list in the United States to use approved auditors along with other tighter reporting requirements, we have seen the flow of China-based initial public offerings (IPOs) dry up. There were only about two Chinese IPOs setting up shop on U.S. exchanges in 2013; so far, this year has proven to be no different.

Yet the reality is that Chinese IPOs continue to attract frenzy when they list here, perhaps due to the limited issues. The biggest coup was the recent decision by China-based e-commerce giant Alibaba Group Holding Ltd., which decided to list in the United States and bypass Hong Kong. The IPO is estimated to be at around … Read More


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