Bear Market

The roots of America’s economic malaise can be traced back to 2006 when the U.S. housing bubble burst. This sent the dominos tumbling, and the United States into an economic meltdown in 2008. In spite of government intervention, the economy has sputtered and slipped into recession. The U.S. could be heading back that way in 2013.

The Federal Reserve has kept the economy alive the past four years by keeping the printing presses running overtime. The Fed can’t lower interest rates below zero. And, the more money the Fed prints, the greater the risk of inflation and the higher long-term interest rates will eventually move, stifling the economy.

The U.S. government has no money left to bail us out during the next recession. The government is over-extended—if it was a business, it would be bankrupt right now. The after-effects of the next leg of the bear market could be much worse than the Great Recession.

Since 2001, readers have turned to Michael Lombardi’s famous daily economic newsletter Profit Confidential for stock market guidance. Determining the overall direction of the stock market is very important—whether it’s a bear market or a bull market—is first and foremost in our analysis.

Profit Confidential is our free daily e-letter that goes to all our Lombardi Financial customers and to any investor who wishes to opt-in to receive it. Written by Lombardi Financial editors who have been offering stock market guidance to Lombardi customers for years, Profit Confidential provides a macro-picture on where the stock market is headed.

We start by determining if we are in a bear market or a bull market; based on that analysis, we look at what sectors are hot and what sectors to avoid.

Profit Confidential also famously warned its readers to bail from stocks in 2007 (the bull market was over, and a bear market was setting in), telling investors to jump back into the stock market in March of 2009 (a bear market rally began).

Michael was one of the first to predict the U.S. economy would be in a recession by late 2007. On March 22, 2007, he warned, “Over the past few weeks, I’ve written about subprime lenders, and how their demise will hurt the U.S. housing market, the economy, and the stock market. There’s no escaping the carnage headed our way because the housing market and subprime business are falling apart. The worst of our problems, because of the easy money made available to borrowers, which fuelled the housing boom that peaked in 2005, has yet to arrive.”

At the same time Michael wrote that former Federal Reserve Chairman Alan Greenspan said, “The worst is over for the U.S. housing market, and there will be no economic spillover effects from the poor housing market.”

Michael also warned his readers in advance of the crash in the stock market of 2008. On November 29, 2007, Michael predicted, “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 reality 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 America.”

The Dow Jones 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. One year later, the Dow Jones Industrial Average was at 8,726.

Profit Confidential turned bullish on stocks in March of 2009 and rode the bear market rally from a Dow Jones Industrial Average of 6,440 on March 9, 2009 to 12,876 on May 2, 2011, a gain of 99%.

The two-year stock market rally is coming to an end. The start of a bear market doesn’t mean investors should run to the sidelines. In fact, the bear market will present investors with an unprecedented opportunity.

In 2013, Michael predicts that the devaluation of the U.S. dollar that started in early 2009 will accelerate as the U.S. economy deteriorates, that gold prices will continue to rise, and that the euro is done. Michael also predicts that inflation will be a big, big problem for the U.S.; probably for the rest of the decade. Finally, Michael believes that 2013 will be a poor year for stocks.

It’s not all doom and gloom, though. He also has ways investors can protect their holdings and even make money off the weak economy.


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