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Stock Market Commentary & Forecasts, Financial & Economic Analysis

Welcome to Profit Confidential • Monday, May 21, 2012

Enough with the Bad News

Thursday, December 18th, 2008
By Michael Lombardi, MBA for Profit Confidential

Everywhere we look to today, we either hear or see bad news on the economy. In the same way smart investors jumped ship from the real estate market in 2005 and from the stock market in 2007, smart investors today are using the “bad news” to their advantage.

Dear reader, if there is one thing you learn from me, it is this: What we read in the newspaper or see on the news about the economy has already been discounted (taken into account) by the world’s smartest investor, the stock market. For example, the stock market predicted the future in the real estate market in 2005, when the Dow Jones U.S. construction index (an index comprising the world’s biggest new homebuilders) topped out.

 Today, economic news is extremely negative. In fact, news is so negative that consumers have put the brakes on spending and the U.S. Federal Reserve has opened the floodgate of liquidity to get the economy going again. But, in certain sectors, the stock market is telling a different story.

 This morning, Lennar Corp., the largest U.S. Homebuilder, reported its sixth consecutive quarterly loss. The company lost eight hundred and eleven million dollars in the last quarter. But Lennar stock is up today. Sure, no one wants to touch real estate these days. But the stock market sees it differently. The Dow Jones U.S. Construction Index is up a whopping 71% from its 2008 low and (guess what?) no one in the media is picking up this positive news.

 I’m not saying this is a good time to go out and buy real estate. In fact, because real estate moves much slower than stocks do, for buyers, next year will present a better opportunity for investors than this year in the real estate sector. At least that’s what the main stock real estate index is telling us.

 Depending on which stock market index you look at, stocks in general are down anywhere from 30% to 40% this year. And some stocks have become screaming buys. A recent study by Bloomberg showed that over 2,000 stocks in the world are now selling at prices that are less than their combined cash and debt. About 50 large corporations (with market capitalization of over $1.0 billion) hold more cash in the bank than the combined value of their debt and outstanding stock! When will we ever see this kind of opportunity again?

 Back in 2002, at the last bear market bottom, when the Dow Jones Industrial Average traded close to 7,000 (today at 8,824), 276 companies around the world had more cash in the bank than the combined value of their outstanding stock and debt. According to Bloomberg, by the following year, those 276 companies saw their stocks double in price on the stock market.

My message today is quite simple: Don’t be carried away with the negative news and move into the herd mentality. Use the negative news as your opportunity to invest in depressed areas before the major efforts of the Federal Reserve to jumpstart the economy kick in and lift the economy.

 

 

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Profit Confidential AuthorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter

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