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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

How to Profit from the Crimea Conflict

What the Crimea Tensions Mean for U.S. InvestorsThe eurozone and Europe are showing progress in finally getting out of their dismal multiyear double-dip recession; however, the uncertainties and hostilities unfolding in the Crimea region of Ukraine, which are threatening to escalate, could put a damper on the economic renewal in Europe.

With the recent vote in Crimea, whether legal or not, Russia has quickly passed a resolution and signed a treaty to annex Crimea to the Kremlin. The current buildup of Russian troops inside Crimea is a big concern, especially if a military conformation breaks out.

We are already seeing rising economic sanctions against Russia from the United States and countries in Europe. This is worrisome, as it could easily derail the economic renewal in Europe at this most critical time, stalling the region’s growth due to the major trading between Russia and Europe. A big impact could be the staggered flow of oil from Russia into Europe, which currently accounts for about 40% of the oil imports from Russia.

While I don’t think Russia will immediately cut the oil flow into Europe, as Russia also needs the oil revenues, I do expect Europe will look for alternative oil sources if the sanctions increase and tighten against … Read More

Contrarian View: Is the Bull Market Really Just Beginning?

Did the Current Bull Market Really Start in 2013There is some resilience to this stock market, and it’s evidenced by the strength in many important indices.

The Dow Jones Transportation Average is a very important index, even if you don’t own—or aren’t interested in owning—any component companies. The reason for its importance is that it has a track record of leading the rest of the stock market. And it’s especially useful as an indicator of a bull market breakout.

Transportation stocks have a history of leading the economy and the stock market. Dow theory, in my view, is alive and well, and it’s worthwhile to track the index to help with your overall market view.

Lots of commentators view the stock market as having been in a bull market since the March low of 2009. I don’t see it that way.

I view the stock market’s performance since that low (no matter how it was induced) as a recovery market, not the beginning of a new secular bull market or cycle for stocks.

The breakout, from my perspective, was around the beginning of 2013, when institutional investors ignored all the risks (including the inability of policymakers to actually make policy) and decided to bid blue chips and … Read More

What the “Microsoft Indicator” Says Now

Microsoft the Best Market Indicator at This TimeEarnings estimates for Microsoft Corporation (MSFT) are going up and the stock, which recently accelerated, finally looks like it has broken out of a 13-year consolidation.

Microsoft has been an income play for quite a while. Currently yielding three percent, the company’s forward price-to-earnings ratio is around 12.5 and is not dissimilar from many other blue chips.

Then there’s Intel Corporation (INTC). This company has been struggling for capital gains, but it’s yielding 3.6% and isn’t expensively priced.

What these technology companies illustrate so well is the business cycle, both in terms of operational growth and also as equity securities. Getting the cycle correct (the right place/stock at the right time) is the toughest thing for any investor or businessperson.

Regarding stocks, both Microsoft and Intel’s long-term charts clearly show how extremely overpriced their share prices were during the bull market of the 90s. Intel’s long-term stock chart is featured below:

INTC Intel Corp. Nasdaq GS Chart

Chart courtesy of www.StockCharts.com

The benefit of the very long term is that it provides a normalized but still decent rate of return with these kinds of stocks. No enterprise or investor can escape the business cycle, whether it is industry-specific, a local reality, or the general economy…. Read More

Fiscal Cliff 2014 Forecast, Explained

What is Fiscal Cliff?

Over the past couple of years, you’ve doubtlessly heard the phrase “Fiscal Cliff” in the news. And while you may have a basic understanding, you still may ask yourself, “What is the fiscal cliff?” Because even though a fiscal cliff deal was reached, there is still concern that there could be a fiscal cliff in 2014.

The effects of the fiscal cliff were first felt in January of 2013, when a series of expiring tax cuts and government spending cuts first came into effect on December 31, 2012. The economy was still in the early stages of recovery at that point and there was concern that the two events might cause a “perfect storm” that would negatively impact the economy, causing it to spiral back into a recession. This would have caused consumers to lose confidence, unemployment rates would have skyrocketed again, and it would have cut the incomes of American citizens.

Another of the effects of the fiscal cliff was thought to be more benign; it would have caused a significant reduction of the federal budget deficit. It was widely believed that if President Barack Obama and Congress had not acted, America would have gone … Read More

What Cars and Stocks Have in Common These Days

All of a Sudden 2014 Looks a Lot Like 2007Mom and pop investors bought lots of stocks last year as the key stock indices reached all-time highs. By late 2013, the fear of “missing out” on future stock market gains was back. Sound similar to 2007?

According to the Investment Company Institute, investors bought $160.9 billion worth of stock mutual funds in 2013. This was the first time since 2007 when these types of mutual funds saw inflows. In 2007, investors bought $73.9 billion worth of long-term stock mutual funds. (Source: Investment Company Institute web site, last accessed February 11, 2014.)

And stock advisors are outright optimistic. For example, Birinyi Associates Inc.’s Laszlo Birinyi, a well-known money manager, is saying that the S&P 500 will hit 1,900 by the next quarter (it’s at 1,820 now). His argument: don’t bet against stocks because they have too much momentum. (Source: BusinessWeek, February 10, 2014.) Back in 2007, we heard many bullish calls for higher stock prices; we heard calls from well-known stock advisors saying key stock indices like the Dow Jones Industrial Average would hit 20,000 (seven years later, it’s stuck at 16,000).

One way I gauge optimism and complacency in the marketplace is by accessing auto sales. Car sales … Read More

The Price of Gold Bullion

Top 5 Best Reasons to Invest in Gold
Profit Confidential has been bullish on gold shares for a decade now. And our love for gold bullion has not lost its shine. Back in 2002, when the price of gold bullion was trading under $300.00 an ounce, we first started recommending gold-related investments.

There continues to be a lot of value in the stock market today, and it’s commodity-related. But with expectations for declining economic growth in the world’s major economies, it’s easy to see why oil prices are around $96.00 a barrel, not $125.00.

Like the broader stock market, the price of gold bullion is holding up extremely well, and a big reason for this is the sovereign debt crisis in the eurozone. The price of gold bullion should be trending a little lower than it is, but even if emerging economies continue to slow, we don’t expect to see the price of gold bullion dip much below $1,400 or $1,300 an ounce in the next recession.

The risks in the global economy certainly outweigh the current economic fundamentals. When the price of gold bullion was roaring higher, gold stocks were keeping pace. Gold mining companies were able to raise … Read More

Best Performing Stocks

Looking for the best performing stocks? You’re not alone.

The worst bear market since the Great Depression ended March 9, 2009. Since then, stocks have been on a roll, with the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 all up at least 100%.

As expected, some shares climbed in step with those indices, others soared and plunged, and some still continue to climb.

With Wall Street set to make another run at a four-year high, retail investors are increasingly on the lookout for today’s best performing stocks. More importantly, with investors’ hopes pinned to economic stimulus from the central banks, everyone is also looking to find tomorrow’s best performing stocks.

Finding the best performing stocks, before they climb into the best performing stocks category, is not an easy task. If it were easy, we would all be millionaires. But the truth of the matter is it’s difficult to find what we hope will become best performing stocks.

With an endless stream of economic data, earnings results, analyst reports, and technical trends to follow, it’s easy to see why so many investors are at a loss to figure out where the market is going at any given time…and … Read More

The Stocks to Own Right Now…

These Are the Stocks to Own Right NowWhy owning blue chips makes so much sense in a slow-growth environment: they have the cash and they are willing to spend it to keep shareholders happy—and that’s just one of the reasons.

Take Caterpillar Inc. (CAT), for example. This company is experiencing slow business conditions, because the mining industry is in its own recession.

The company can’t manufacture sales, but it can keep buying back its own shares. Management allocated $1.7 billion for share repurchases in this quarter alone. Last year, the company spent a total of $2.0 billion buying its own shares.

Caterpillar’s recent financial results surprised Wall Street. Even though sales were down comparatively, 2013 fourth-quarter revenues beat consensus by $1.0 billion and consensus earnings by $0.26 per share.

Caterpillar is a global benchmark and an enterprise worth following. The company offers a lot of industry and global economic information to investors. (See “A Must-Read for Long-Term Equity Investors.”)

Big corporations have the cash, and while capital expenditures on plant, equipment, and employees are restrained, shareholders are the beneficiaries of such strong balance sheets.

United Technologies Corporation (UTX) reported fourth-quarter revenues below Wall Street consensus, but earnings were better than expected. The company plans to … Read More

A Must-Read for Long-Term Equity Investors

7 Investment Themes to Watch for This DecadeThe business section of any bookstore is littered with leadership stories of big corporations, musings on personal finance, and countless how-to manuals.

However, there are very few books that deal specifically with capital markets and how to improve your skills in picking stocks and honing your market view. Jim Cramer’s latest book, Get Rich Carefully, is a worthwhile read, especially if you’re not a full-time investor/speculator and you’re either saving for retirement or you’re in retirement and looking to improve your portfolio.

Cramer always has a lot to say, and like his shows on CNBC, his latest book is wordy and somewhat laborious. But he offers a lot of tips that he’s garnered through his experiences in trading and picking stocks, with each chapter offering a summary of lessons learned—the dos and don’ts.

The first chapter offers what 99% of all business books do not—“What Moves a Stock.” Cramer examines the pricing mechanism for all securities—supply and demand—and demonstrates the power that buy-side institutional investors and professional Wall Street traders have over stocks. As evidenced in the stock market crash of 1987, index futures have now overwhelmed traditional share price movements. Cramer says that stocks now trade like commodities, … Read More

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