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

Bond Market

The bond market is the venue in which debt securities are traded prior to maturity. An investor in the bond market buys a debt instrument, which stems from what is essentially a loan to a corporation or government. In exchange for this money, the bond investor receives an interest rate. Debt instruments make interest payments at fixed intervals and for a fixed period of time; therefore, they are called fixed-income securities. The interest rate that the issuer pays is called a coupon. At maturity, the full amount of capital is returned to the investor. For investors in the bond market, two main criteria for buying a debt instrument is duration and credit quality. Duration for the bond market represents the length of the investment; credit quality refers to how strong the borrower is and how able they are to repay the full amount of debt.

If You Think Our Stock Market Is Overpriced, Wait Until You See This

By for Profit Confidential

Why We Are Reaching a Stock Market TopThe stock market in France has been on a tear! Below, I present a chart of the French CAC 40 Index, the main stock market index in France.

Looking at the chart, we see the French stock market is trading at a five-year high. With such a strong stock market, one would expect France, the second-largest economy in the eurozone, to be doing well. But it’s the exact opposite!

As its stock market rallies, France’s economic slowdown is gaining steam. In January, the unemployment rate in France was unchanged; it has remained close to 11% for a year now. (Source: Eurostat, February 28, 2014.) Consumer spending in the French economy declined 2.1% in January after declining 0.1% in December. (Source: National Institute of Statistics and Economic Studies, February 28, 2014.) Other key indicators of the French economy are also pointing to an economic slowdown for the country.

CAC French CAC 40 Index (EOD) Chart

Chart courtesy of www.StockCharts.com

And France isn’t the only place in the eurozone still experiencing a severe economic slowdown. In January, the unemployment rate in Italy, the third-biggest nation in the eurozone, hit a record-high of 12.9%, compared to 11.8% a year ago.

I have not mentioned Greece, Spain, and Portugal because they have been discussed in these pages many times before; as my readers are well aware, they are in a state of outright depression.

Just like how investors have bought into the U.S. stock market again in hopes of U.S. economic growth, the same thing has happened in the eurozone. Investors have put money into France’s stock market in hopes of that economy recovering—but it hasn’t. We are dealing with a … Read More

Bond Market: Something Wicked Cometh This Way

By for Profit Confidential

Bond Investors to Face Severe Losses in 2014The bond market is in trouble.

As we all know, the Federal Reserve has been the biggest driver of bonds since the financial crisis. The central bank lowered its benchmark interest rate to near zero, then started quantitative easing, all of which resulted in the bond market soaring as yields collapsed to multi-decade lows.

The chart below will show you what’s happened to the U.S. bond market since the mid-1970s.

As you can see from the chart, the declining yields on bonds stopped in the spring of 2013 and have increased sharply since then.

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

What’s next for bonds?

The Federal Reserve is slowly taking away the “steroids” that boosted the bond market. The central bank is now printing $65.0 billion of new money a month instead of the $85.0 billion it was printing just a few months back. And now we hear the Federal Reserve will be slowing its purchases by $10.0 billion a month throughout 2014.

Since May of last year alone, when speculation started that the Federal Reserve would cut back on its money printing program, bond yields skyrocketed and bond investors panicked.

According to the Investment Company Institute, investors sold $176 billion worth of long-term bond mutual funds between June and December of last year. (Source: Investment Company Institute web site, last accessed February 26, 2014.) I would not be surprised if withdrawals from bond mutual funds are even bigger this year.

And China is slowly exiting the U.S. bond market, too. According to the U.S. Department of the Treasury, in December, China sold the biggest amount of U.S. bonds since 2011. In … Read More

Why the Federal Reserve Can’t Stop Printing

By for Profit Confidential

The strong jobs market report last week started the chatter again that the Federal Reserve would start to reduce the pace of its quantitative easing program. Some have said the Fed will reduce the amount of its asset purchases as early as December, while others are saying the quantitative easing will start to diminish by March 2014.

I have a different opinion: I believe the Federal Reserve can’t stop quantitative easing, because the market has become so dependent on it. If the Fed does go ahead with a pullback on money printing, the consequences will not be pleasant.

I made a very similar prediction last time when we heard a significant amount of “noise” about the Federal Reserve pulling back on its asset purchases. My predictions were right, and nothing has changed since then. The Federal Reserve continues to buy $85.0 billion worth of U.S. bonds and mortgage-backed securities (MBS) a month.

Please see the chart below to see why I believe the Federal Reserve just can’t walk away from quantitative easing without causing massive damage.

TYX 30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

In May, when the Federal Reserve hinted it might be reducing the pace of its asset purchases, we saw a spike in bond yields with the 30-year U.S. Treasury rising from about 2.8% to as high as 3.9% in a very short period of time. Then we heard the Fed would not be tapering as was expected and bond yields settled and started trading in a range. Now, with the jobs market report perceived as good (first time we created over 200,000 new jobs in months), bond yields started rising … Read More

What Happens to the Market When Stock Buyback Programs Stop

By for Profit Confidential

Stock Buyback ProgramsThe International Monetary Fund (IMF) expects the global economy to increase by 2.9% this year and 3.6% in 2014—forecasts which I believe are too optimistic. Why?

First of all, we have the Japanese economy, the third-biggest in the global economy, suffering an economic slowdown. Tertiary industry activity (activity in the service businesses) slowed in September from a month ago. (Source: Japan Ministry of Economy, Trade and Industry, November 12, 2013.)

Then there’s Germany, the fourth-biggest economy in the global economy. Once believed to be immune to the economic slowdown in the eurozone, seasonally adjusted manufacturing output in the country declined 0.8% in September from August. As of September, year-to-date manufacturing output in the German economy has increased only 1.2%—a much slower growth rate than in the same period of 2012. (Source: Destatis, November 8, 2013.)

Earlier this month, in a statement about its monetary policy decision, the central bank of Australia said, “In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term… Public spending is forecast to be quite weak.” (Source: “Statement by Glenn Stevens, Governor: Monetary Policy Decision,” Reserve Bank of Australia, November 5, 2013.)

To fight the economic slowdown in the country, the Reserve Bank of Australia is using easy monetary policy measures. The central bank has reduced its benchmark interest rate in the country by more than 40% since the beginning of 2012. The cash rate, the overnight money market interest rate, sits at 2.50% compared to 4.25% in early 2012. (Source: Reserve Bank of Australia … Read More

Unpleasant After-Effects of Prolonged Low Interest Rates Starting to Show

By for Profit Confidential

interest ratesThere’s a notion among central banks of the global economy that goes like this: if you lower interest rates, you will get economic growth. On the surface, it makes sense; easy monetary policies by central banks are supposed to bring confidence to an economy—they’re supposed to encourage consumers and businesses to borrow, which should translate to more jobs created and an improvement in the standard of living.

This phenomenon of lowering interest rates to spur the economy has spread through the global economy like wild fire.

Interest rates at the central bank of Australia have been trending lower since the financial crisis. In December of 2007, the cash rate (the benchmark interest rate) there was 6.75%. Fast-forwarding to today, this rate is 2.5%. (Source: Reserve Bank of Australia web site, last accessed September 16, 2013.)

Brazil’s central bank has lowered its benchmark interest rate since the end of 2008. The interest rate dictated by the country’s central bank stood at 13.75% near the end of 2008; now it stands at nine percent. (Source: Banco Central do Brasil web site, last accessed September 16, 2013.)

The benchmark interest rate in South Africa is down almost 50%. The South African Benchmark Overnight Rate (SABOR) was above 10% near the end of 2007. Now it stands at 4.82% and has been hovering around this level for some time. (Source: South African Reserve Bank web site, last accessed September 16, 2013.)

While we’ve been watching this happen, no one is really asking the question how are interest rates being kept low? The answer: to keep the interest rates low central banks print more paper … Read More

« Older Entries

If You Think Our Stock Market Is Overpriced, Wait Until You See This

By for Profit Confidential

Why We Are Reaching a Stock Market TopThe stock market in France has been on a tear! Below, I present a chart of the French CAC 40 Index, the main stock market index in France.

Looking at the chart, we see the French stock market is trading at a five-year high. With such a strong stock market, one would expect France, the second-largest economy in the eurozone, to be doing well. But it’s the exact opposite!

As its stock market rallies, France’s economic slowdown is gaining steam. In January, the unemployment rate in France was unchanged; it has remained close to 11% for a year now. (Source: Eurostat, February 28, 2014.) Consumer spending in the French economy declined 2.1% in January after declining 0.1% in December. (Source: National Institute of Statistics and Economic Studies, February 28, 2014.) Other key indicators of the French economy are also pointing to an economic slowdown for the country.

CAC French CAC 40 Index (EOD) Chart

Chart courtesy of www.StockCharts.com

And France isn’t the only place in the eurozone still experiencing a severe economic slowdown. In January, the unemployment rate in Italy, the third-biggest nation in the eurozone, hit a record-high of 12.9%, compared to 11.8% a year ago.

I have not mentioned Greece, Spain, and Portugal because they have been discussed in these pages many times before; as my readers are well aware, they are in a state of outright depression.

Just like how investors have bought into the U.S. stock market again in hopes of U.S. economic growth, the same thing has happened in the eurozone. Investors have put money into France’s stock market in hopes of that economy recovering—but it hasn’t. We are dealing with a … Read More

Bond Market: Something Wicked Cometh This Way

By for Profit Confidential

Bond Investors to Face Severe Losses in 2014The bond market is in trouble.

As we all know, the Federal Reserve has been the biggest driver of bonds since the financial crisis. The central bank lowered its benchmark interest rate to near zero, then started quantitative easing, all of which resulted in the bond market soaring as yields collapsed to multi-decade lows.

The chart below will show you what’s happened to the U.S. bond market since the mid-1970s.

As you can see from the chart, the declining yields on bonds stopped in the spring of 2013 and have increased sharply since then.

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

What’s next for bonds?

The Federal Reserve is slowly taking away the “steroids” that boosted the bond market. The central bank is now printing $65.0 billion of new money a month instead of the $85.0 billion it was printing just a few months back. And now we hear the Federal Reserve will be slowing its purchases by $10.0 billion a month throughout 2014.

Since May of last year alone, when speculation started that the Federal Reserve would cut back on its money printing program, bond yields skyrocketed and bond investors panicked.

According to the Investment Company Institute, investors sold $176 billion worth of long-term bond mutual funds between June and December of last year. (Source: Investment Company Institute web site, last accessed February 26, 2014.) I would not be surprised if withdrawals from bond mutual funds are even bigger this year.

And China is slowly exiting the U.S. bond market, too. According to the U.S. Department of the Treasury, in December, China sold the biggest amount of U.S. bonds since 2011. In … Read More

Why the Federal Reserve Can’t Stop Printing

By for Profit Confidential

The strong jobs market report last week started the chatter again that the Federal Reserve would start to reduce the pace of its quantitative easing program. Some have said the Fed will reduce the amount of its asset purchases as early as December, while others are saying the quantitative easing will start to diminish by March 2014.

I have a different opinion: I believe the Federal Reserve can’t stop quantitative easing, because the market has become so dependent on it. If the Fed does go ahead with a pullback on money printing, the consequences will not be pleasant.

I made a very similar prediction last time when we heard a significant amount of “noise” about the Federal Reserve pulling back on its asset purchases. My predictions were right, and nothing has changed since then. The Federal Reserve continues to buy $85.0 billion worth of U.S. bonds and mortgage-backed securities (MBS) a month.

Please see the chart below to see why I believe the Federal Reserve just can’t walk away from quantitative easing without causing massive damage.

TYX 30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

In May, when the Federal Reserve hinted it might be reducing the pace of its asset purchases, we saw a spike in bond yields with the 30-year U.S. Treasury rising from about 2.8% to as high as 3.9% in a very short period of time. Then we heard the Fed would not be tapering as was expected and bond yields settled and started trading in a range. Now, with the jobs market report perceived as good (first time we created over 200,000 new jobs in months), bond yields started rising … Read More

What Happens to the Market When Stock Buyback Programs Stop

By for Profit Confidential

Stock Buyback ProgramsThe International Monetary Fund (IMF) expects the global economy to increase by 2.9% this year and 3.6% in 2014—forecasts which I believe are too optimistic. Why?

First of all, we have the Japanese economy, the third-biggest in the global economy, suffering an economic slowdown. Tertiary industry activity (activity in the service businesses) slowed in September from a month ago. (Source: Japan Ministry of Economy, Trade and Industry, November 12, 2013.)

Then there’s Germany, the fourth-biggest economy in the global economy. Once believed to be immune to the economic slowdown in the eurozone, seasonally adjusted manufacturing output in the country declined 0.8% in September from August. As of September, year-to-date manufacturing output in the German economy has increased only 1.2%—a much slower growth rate than in the same period of 2012. (Source: Destatis, November 8, 2013.)

Earlier this month, in a statement about its monetary policy decision, the central bank of Australia said, “In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term… Public spending is forecast to be quite weak.” (Source: “Statement by Glenn Stevens, Governor: Monetary Policy Decision,” Reserve Bank of Australia, November 5, 2013.)

To fight the economic slowdown in the country, the Reserve Bank of Australia is using easy monetary policy measures. The central bank has reduced its benchmark interest rate in the country by more than 40% since the beginning of 2012. The cash rate, the overnight money market interest rate, sits at 2.50% compared to 4.25% in early 2012. (Source: Reserve Bank of Australia … Read More

Unpleasant After-Effects of Prolonged Low Interest Rates Starting to Show

By for Profit Confidential

interest ratesThere’s a notion among central banks of the global economy that goes like this: if you lower interest rates, you will get economic growth. On the surface, it makes sense; easy monetary policies by central banks are supposed to bring confidence to an economy—they’re supposed to encourage consumers and businesses to borrow, which should translate to more jobs created and an improvement in the standard of living.

This phenomenon of lowering interest rates to spur the economy has spread through the global economy like wild fire.

Interest rates at the central bank of Australia have been trending lower since the financial crisis. In December of 2007, the cash rate (the benchmark interest rate) there was 6.75%. Fast-forwarding to today, this rate is 2.5%. (Source: Reserve Bank of Australia web site, last accessed September 16, 2013.)

Brazil’s central bank has lowered its benchmark interest rate since the end of 2008. The interest rate dictated by the country’s central bank stood at 13.75% near the end of 2008; now it stands at nine percent. (Source: Banco Central do Brasil web site, last accessed September 16, 2013.)

The benchmark interest rate in South Africa is down almost 50%. The South African Benchmark Overnight Rate (SABOR) was above 10% near the end of 2007. Now it stands at 4.82% and has been hovering around this level for some time. (Source: South African Reserve Bank web site, last accessed September 16, 2013.)

While we’ve been watching this happen, no one is really asking the question how are interest rates being kept low? The answer: to keep the interest rates low central banks print more paper … Read More

Why Investors Are Fleeing Both the Bond and Stock Markets

By for Profit Confidential

bond marketLate last year, the concept of the “Great Rotation” became popular. The idea behind the Great Rotation was simple: the theory was that once the bond prices started to decline, investors would take their money out of bonds and put them into the equity markets.

The logic behind the Great Rotation made sense. When one asset class becomes too risky, the bond market in this case, investors usually run towards other assets. But the Great Rotation isn’t happening?

Yes, the bond market has certainly come down from its peak. If we look at the 30-year U.S. bonds as an indicator of the bond market, the yields on those bonds are up roughly 24% since the beginning of the year. The 10-year U.S. notes are in a similar situation, if not worse. It’s the biggest bloodbath for the bond market we’ve seen in years.

But investors are not fleeing the bond market for the equity markets. In fact, we are seeing the opposite. Investors are leaving both the bond market and equity market.

The chart below illustrates the inflows/outflows from U.S. long-term bonds and stock mutual funds.

Long Term Mutual Funds Chart

While the chart above shows data from January to June of this year, in July, if you add the weekly outflow from the bonds mutual funds, they were upwards of $16.0 billion. In August, for the three weeks ended August 21, the long-term bonds mutual funds had an outflow of a little more than $17.0 billion. (Source: Investment Company Institute, August 29, 2013.)

If investors are not going to the equity markets as they run away from the bond market, where are they parking … Read More

Goldman Sachs Got Us on Gold; Why They Won’t Get Us on Stocks

By for Profit Confidential

big banksThis is a story of how the big banks pulled gold prices from under our feet, but why their plan for the stock market won’t pan out…

When gold bullion prices went into semi-crash mode in late spring of this year, some stories written by financial analysts suggest big banks colluding together to bring gold bullion prices crashing down. If you remember, The Goldman Sachs Group, Inc. (NYSE/GS) came out with a report saying gold bullion prices would go down…and magically, they did!

At about the same time Goldman Sachs gave a “sell” recommendation on gold bullion, JPMorgan Chase & Co. (NYSE/JPM) was selling gold bullion on the paper market. The plunge in gold bullion prices started in April—but JPMorgan was selling gold since the beginning of the year. From January to April, the big bank’s house account had a net short position of 14,749 100-ounce COMEX gold contracts—or about 1.47 million ounces of gold bullion. (Source: “Year to Date Delivery Notices,” CME Clearing, August 19, 2013.)

I’ll be the first to admit it: the gold bullion price takedown that started in April sure looks and smells fishy.

Once the sell-off in gold bullion began, no one cared about demand or supply (the reason why gold bullion prices increase or decline). The fundamentals were thrown out the window. Irrationality and emotions took over, and investors ran for the exit.

Gold bullion prices have started to climb back up. They are above $1,300 an ounce and marching towards the next big level at $1,400.

The gold “play” is over for the big banks; they’re onto something else—the stock market.

The … Read More

These CEOs Cry the Blues as Consumer Spending Pulls Back Again

By for Profit Confidential

Consumer Spending PullsConsumer spending in the U.S. economy is bleak. Until it picks up, you can’t expect the U.S. economy to see growth; after all, consumer spending does make up 60%-70% of U.S. gross domestic product (GDP).

Wal-Mart Stores, Inc. (NYSE/WMT), a bellwether stock for consumer spending, reported corporate earnings of $1.24 per share in its fiscal second quarter (ended on July 21). That’s an increase of 5.1% compared to last year—but just like other big public companies, Wal-Mart purchased $1.9 billion worth of its own shares in that quarter to prop up its earnings.

Here’s what the company’s CFO, Charles Holley, had to say about consumer spending in the U.S. economy: “…the retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending…” (Source: Wal-Mart Stores, Inc. press release, August 15, 2013.) With this, the retail giant lowered its net sales and corporate earnings expectations for the year.

Wal-Mart isn’t the only company complaining about poor consumer spending in the U.S. economy.

For its fiscal second quarter (ended August 3), Macy’s, Inc.’s (NYSE/M) sales declined 0.8% from the same period a year ago. Macy’s Chairman and CEO, Terry J. Lundgren, said, “…second quarter sales performance was softer than anticipated and we are disappointed with the results. Our performance in the period, in part, reflects consumers’ continuing uncertainty about spending on discretionary items in the current economic environment…” (Source: Macy’s, Inc. second-quarter earnings press release, August 14, 2013.)

If Wal-Mart and Macy’s are complaining about soft sales, this tells me two things: First, retail stocks might not be the best investment right now. The Dow … Read More

The Bond Market: Once a Good Investment, Now a Bad One

By for Profit Confidential

Risks in the bond market continue to pile up quickly. Bond investors need to be very careful. They need to be very vigilant about their next step.

June was the first month since August of 2011 that U.S. long-term bond mutual funds experienced a net outflow. A total of $60.4 billion was withdrawn from the bond mutual funds in June 2013. (Source: Investment Company Institute, August 14, 2013.) While I don’t have the exact numbers yet, bond investors continued to exit bond mutual funds in July.

Why are investors in the bond market exiting stage left? As yields continue to rise, the price of bonds are falling and investors are taking their losses and moving on. Just look at the chart below of the bellwether 30-year U.S. Treasury bond.

 TYX 30 year t bond yield chart

Chart courtesy of www.StockCharts.com

Since the beginning of May, yields on long-term U.S. bonds have skyrocketed, as the chart above so clearly shows. The yield on the 30-year U.S. bond has gone up from 2.8% in early May to over 3.8% today.

This is very significant, as yields on long-term U.S. bonds—such as the 30-year bonds—are benchmarks for yields across the bond market. If yields on U.S. bonds go higher, you can bet the same for other kinds of bonds in the bond market as well.

Since the beginning of the financial crisis, we saw investors rush to the bond market because it was considered to be a safe place and because they had bet (correctly) that the Federal Reserve would drop interest rates to help the economy. Bond prices increased significantly under the Federal Reserve’s easy monetary policy.

Now, with … Read More

Second-Quarter Corporate Earnings Are Revealing the Truth About the Market

By for Profit Confidential

Corporate EarningsIn the first quarter of 2013, we saw an interesting and unexpected development. While the corporate earnings of S&P 500 companies were better than expected, their revenues weren’t nearly as impressive.

Just 46% of S&P 500 companies reported revenues above estimates. (Source: FactSet, May 31, 2013.) And the second-quarter corporate earnings might be similar—if not worse.

As we are just entering the earnings season, many S&P 500 companies have yet to report their corporate earnings, but some of the big household names have already started to strengthen my opinion.

Take The Coca-Cola Company (NYSE/KO), for example. The S&P 500 company not only reported a decline in corporate earnings, but also showed a decline in revenues. For the second quarter, Coca-Cola’s net revenues declined three percent from a year ago. Similarly, the company’s corporate earnings also dropped three percent, registering at $0.59 per share in the second quarter, compared to $0.61 in the same period a year ago. (Source: The Coca-Cola Company web site, July 16, 2013.)

In much the same vein, Mattel, Inc. (NYSE/MAT)—the world’s largest toy maker and constituent of the S&P 500—reported corporate earnings that were 25% lower than a year ago, noting that sales missed analysts’ expectations. Revenues registered at $1.17 billion, while analysts had been expecting $1.22 billion. Corporate earnings for Mattel declined to $0.21 per share from $0.28 per share year-over-year. (Source: Reuters, July 17, 2013.)

Another big name that’s reporting negatively is Yahoo! Inc. (NASDAQ/YHOO). This S&P 500 company reported corporate earnings that were above the consensus, but revenues witnessed a slight decline—$1.071 billion compared to $1.081 billion in the second quarter of 2012. … Read More

Who the Federal Reserve Is Really Hurting

By for Profit Confidential

The Federal Reserve has made it very clear that it wants to stop quantitative easing. But it has also made it just as clear that it won’t begin to taper its quantitative easing program until certain conditions are met.

While speaking in front of the Committee on Financial Service, here’s what the chairman of the Federal Reserve, Ben Bernanke, said about ending quantitative easing: “I emphasize that, because our asset purchases depend on economic and financial developments, they are by no means on a preset course. On the one hand, if economic conditions were to improve faster than expected, and inflation appeared to be rising decisively back toward our objective, the pace of asset purchases could be reduced somewhat more quickly. On the other hand, if the outlook for employment were to become relatively less favorable, if inflation did not appear to be moving back toward 2 percent, or if financial conditions—which have tightened recently—were judged to be insufficiently accommodative to allow us to attain our mandated objectives, the current pace of purchases could be maintained for longer.” (Source: Board of Governors of the Federal Reserve System, July 17, 2013.)

But no matter when quantitative easing ends, one thing has become certain—it will have its victims. And the biggest victim of quantitative easing I see will be the bond market.

In its meeting in May, the Federal Reserve hinted that the quantitative easing will be slowing sometime later this year and ending completely next year. Since then, the bond market has seen selling. I have mentioned in these pages how the bond prices have declined and yields have soared … Read More

The Real Reason Investors Aren’t Afraid of Risk These Days

By for Profit Confidential

Investors RiskThe Chicago Board Options Exchange (CBOE) Market Volatility Index—better known as the “VIX” or even the “fear gauge”—sits just above 14. That means investors are continuing to ignore stock market risks and, in the process, are actually assuming even more risk.

All you have to do to see how much risk there is in the stock market is to take a look and see which areas are faring the best.

We are seeing some rotation into higher-risk assets like small-cap, growth, and technology issues. As long as the potential return is high, investors appear willing to assume the risk.

The NASDAQ 100, for instance, closed at a multiyear high of 3,530.76 last Wednesday, easily surpassing its previous multiyear high of 3,502.12 nearly two months ago.

Small-cap stocks have been the life of the party this year, with the Russell 2000 up by more than 20% and achieving three consecutive record-highs at over 1,000.

It’s becoming evident that investors just aren’t scared of risk right now. Even the warning from the Federal Reserve at its June meeting failed to sour the mood, although the stock market did correct by about four percent after the news of an upcoming reduction in bond buying.

When I look at the current situation, I see even greater risk in China and Europe. I also view the future of the U.S. economy as lackluster. And that means the Fed may hold off cutting back on its asset-purchase program for now.

The reality is that this stock market is obsessed with assuming risk in hopes of making some great returns. Investors don’t appear to be able to … Read More

See for Yourself, There’s No Real Economic Growth

By for Profit Confidential

Real Economic GrowthQuantitative easing was supposed to bring economic growth to the U.S. economy, but it is failing at its job. Just look at the chart below to see how badly things have turned out.

The chart shows the velocity of money in the U.S. economy. For the uninitiated, velocity is a measure of how many times each dollar must be used to buy specific goods and services. It’s a strong indicator of economic growth. When velocity increases, it suggests there’s heightened activity in the economy.

Clearly, the velocity of money shows the U.S. is going through severe tumult, and at the very best, economic growth has been questionable. It is continuously plunging and currently stands at historically low levels.

Velocity of M2 Money Stock(M2V)

The primary goal of quantitative easing was to print money to buy bad assets from the banks so they could start lending again, which should lead to increased consumer spending and, eventually, economic growth. But if quantitative easing was actually working, the velocity chart wouldn’t look like it’s taking a nosedive.

Don’t get me wrong; I don’t disagree that the first round of quantitative easing was needed. If not for QE1, the financial system would still be in great jeopardy. However, continuing it is not leading to any real economic growth.

But the quantitative easing goes on anyway. The Federal Reserve continues to print $85.0 billion a month. Even now that there’s speculation that it will start to taper off, you need to realize that it will still be printing more money—“taper” doesn’t mean stop; it means to slow the rate.

If there was any real economic growth in this nation, then … Read More

Are Institutional Investors Making the Housing Market More Vulnerable?

By for Profit Confidential

The mainstream media continues to report that the housing market in the U.S. economy is hot again, but I don’t share their optimism for a second. The fact of the matter is that the U.S. housing market may be headed toward a period of decline after just a few months of glory.

As I have mentioned before in these pages, the housing market will only improve when real home buyers buy homes. That hasn’t been happening in the U.S. economy. Real home buyers—those who plan to live in their homes—are shying away from the housing market.

For the week ended June 28, the number of completed mortgage applications in the U.S. economy plummeted 12% from a week earlier—the biggest drop in two years. The applications filed for refinancing a home decreased 64%—the lowest since May of 2011. (Source: Wall Street Journal, July 3, 2013.) Regular Americans just can’t afford to buy a house.

So who is actually buying homes in the U.S. economy and driving the housing market higher?

It’s the institutional investors who are buying homes, because this real estate provides them with a greater return than many other investments. It shouldn’t be too surprising—yields on stocks are low and the bond market is in a dangerous territory, edging toward a collapse.

Institutional investors have spent $17.0 billion on more than 100,000 homes in the housing market over the last two years, and they’ve become the biggest buyers in some parts of the U.S. economy. (Source: Bloomberg, July 8, 2013.)

Here’s how institutional investors work the housing market: Say they have $10.0 million. To keep things simple, if … Read More

How to Take Advantage of the Panic in the Bond Market

By for Profit Confidential

Bond MarketInvestors beware: the bond market is treading in very rough waters. The sell-off we have seen of U.S. bonds might just lead to more troubles ahead for the bond market. Just take a look at the chart below.

Thirty-year U.S. bonds look to be in a freefall. They have declined a little more than nine percent since the beginning of May—plunging from around $148.50 to below $135.00 now. As I have said before, the sell-off might just pick up speed as the losses of bond investors start to accumulate.

USB 30-Year US Treasury Bond Price (EOD) INDX

Chart courtesy of www.StockCharts.com

Keep in mind that long-term U.S. bonds are used as a benchmark on how other bonds (such as corporate bonds) will be priced. If the U.S. bonds decline in value, other types of bonds in the bond market follow suit.

Central banks, which normally buy U.S. bonds to protect their reserves, are selling them. Holdings of U.S. bonds held by the Federal Reserve fell by $32.4 billion to $2.93 trillion for the week ended June 26. That was the steepest reduction in their U.S. bonds holdings since August of 2007. And central banks have been reducing their U.S. bonds holdings for three out of the last four weeks. (Source: CNBC, June 28, 2013.)

That’s not all. Individual bond investors are running for the door as well. According to the Investment Company Institute, the long-term bond mutual funds have been witnessing a continuous outflow. For the week ended on June 5, bond mutual funds had an outflow of $10.9 billion; for the week ended on June 12, the outflow was $13.4 billion; and for the week ended on … Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.