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

Central Bank

The central bank is an institution that manages a nation’s currency, money supply and interest rates. The central bank also oversees a nation’s banking system and is the lender of last resort in a time of crisis. The central bank is normally a separate body from the political establishment. The central bank’s goal is to create stability and low inflation in the system.

One-Third of S&P 500 Companies Report No Revenue Growth

By for Profit Confidential

Why This Is Such a Risky Stock MarketThose who follow the stock market closely know that on days when we hear the chairwoman of the Federal Reserve speak and she mentions something about “easing” or how the central bank will continue to use its “extraordinary measures” for a long period of time, the stock market jumps.

I’ve talked about this phenomenon many times in these pages. Another example of this happened on March 31, when the Fed chairwoman spoke in Chicago. Please see the chart below. It’s a minute stock chart of the S&P 500. I’ve circled a rough area around the time when Janet Yellen spoke.

 SPX S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

As she spoke more of that “easing” talk, the stock market jumped, as usual.

So it has come to the point where the stock market rises when it hears the Fed will keep interest rates artificially low for a prolonged period of time and when a poor jobs report comes out (like last Friday morning’s), saying jobs have been created in spite of the fact that there is a heavy concentration of jobs growth in low-paying sectors and millions of people have given up looking for work.

In other words, we have reached the point where the stock market takes any news as a reason to move higher; this is characteristic of a market top.

When we look at the fundamentals of the stock market, we see companies in the S&P 500 are using financial engineering to boost per-share earnings. These companies have bought back their shares and have been cutting costs to boost profits as revenue growth just isn’t there anymore.

The proof? In the … Read More

Will the U.S. Escape the Rapid Inflation That Usually Follows Massive Money Printing?

By for Profit Confidential

Proof Growth in Money Supply Not Spurring GDP GrowthIs the Federal Reserve ignoring the very basic law of economics…the law of diminishing marginal utility? You remember that term from economics in high school. The law of diminishing marginal utility states that the more of something you have, the lesser its impact on you.

The Fed has been printing money in hopes of stimulating growth in the U.S. economy. As the Fed printed more paper money, its balance sheet grew to over $4.0 trillion.

Below, I’ve made a table that looks at gross domestic product (GDP) growth in the U.S. each year since 2009, and where the balance sheet of our central bank stood at the end of each year.

In the table below, you will notice something interesting; aside from 2009, there is no real correlation between the increases in the assets (paper money printed) on the Fed’s balance sheet and GDP growth. In fact, after all the money the Fed has printed, the U.S. economy grew last year at its slowest pace since 2011.

U.S. GDP Growth vs. Growth in Size of Fed Balance Sheet

Year YOY Change
in GDP
Fed Balance Sheet (Trillions) YOY Change in Balance Sheet
2009 -2.80% $2.08 73.44%
2010 2.50% $2.31 11.21%
2011 1.84% $2.74 18.58%
2012 2.77% $2.86 4.36%
2013 1.87% $3.47 21.33%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed April 1, 2014.

The Federal Reserve predicts the U.S. GDP in 2014 will increase between 2.8% and three percent; that’s a jump of about 50% since 2013. (Source: Federal Reserve, March 19, 2014.) I believe this to be way too optimistic. (And as we … Read More

Even Iraq’s Central Bank Buying Gold Now?

By for Profit Confidential

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 the world of paper currencies—something they hold in their reserves.

Too many major world currencies are in a downtrend. The U.S. dollar has been on a decline since the beginning of 2014. The Canadian dollar is hitting multiyear lows. The Japanese yen has been plummeting.

Where do we go next with gold bullion?

At present, the amount of negativity towards gold bullion is immense. But the fundamentals paint a different … Read More

Time for Investors to Create an Exit Strategy?

By for Profit Confidential

Should You Be Considering an Exit Strategy at This TimeWe have Russia annexing Crimea from Ukraine and interest rates set to float higher sometime in early 2015, but the S&P 500 continued to edge up to another record-high on Friday.

Federal Reserve Chair Janet Yellen is continuing to pull back on the quantitative easing that the former chair, Ben Bernanke, put in place. By year-end, the bond buying will likely be eliminated as the central bank allows the economy to try to stand on its own two feet. Of course, if everything goes well, Yellen also plans to begin ratcheting up interest rates as soon as early 2015. This could impact the stock market.

The upward move in interest rates and the elimination of quantitative easing means the easy money that had been pumped into the economy by the Federal Reserve will come to an end. This is concerning for the stock market, as the easy money has largely been the key reason why we are in the fifth year of this superlative bull stock market.

While it’s enticing to sit on all of the gains achieved so far, you should also be conscious of the profits made and should look at several risk management strategies.

The most important lesson is to take some money off the table and avoid soaking a possible downdraft in the stock market that could severely reduce your gains.

Making sure you have an exit strategy is paramount at this time.

I fully expect another downside move in the stock market sometime in the upcoming quarters. (Read “Stock Market Setting Up for Its Next ‘Fire Sale’?”)

You can also set 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

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One-Third of S&P 500 Companies Report No Revenue Growth

By for Profit Confidential

Why This Is Such a Risky Stock MarketThose who follow the stock market closely know that on days when we hear the chairwoman of the Federal Reserve speak and she mentions something about “easing” or how the central bank will continue to use its “extraordinary measures” for a long period of time, the stock market jumps.

I’ve talked about this phenomenon many times in these pages. Another example of this happened on March 31, when the Fed chairwoman spoke in Chicago. Please see the chart below. It’s a minute stock chart of the S&P 500. I’ve circled a rough area around the time when Janet Yellen spoke.

 SPX S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

As she spoke more of that “easing” talk, the stock market jumped, as usual.

So it has come to the point where the stock market rises when it hears the Fed will keep interest rates artificially low for a prolonged period of time and when a poor jobs report comes out (like last Friday morning’s), saying jobs have been created in spite of the fact that there is a heavy concentration of jobs growth in low-paying sectors and millions of people have given up looking for work.

In other words, we have reached the point where the stock market takes any news as a reason to move higher; this is characteristic of a market top.

When we look at the fundamentals of the stock market, we see companies in the S&P 500 are using financial engineering to boost per-share earnings. These companies have bought back their shares and have been cutting costs to boost profits as revenue growth just isn’t there anymore.

The proof? In the … Read More

Will the U.S. Escape the Rapid Inflation That Usually Follows Massive Money Printing?

By for Profit Confidential

Proof Growth in Money Supply Not Spurring GDP GrowthIs the Federal Reserve ignoring the very basic law of economics…the law of diminishing marginal utility? You remember that term from economics in high school. The law of diminishing marginal utility states that the more of something you have, the lesser its impact on you.

The Fed has been printing money in hopes of stimulating growth in the U.S. economy. As the Fed printed more paper money, its balance sheet grew to over $4.0 trillion.

Below, I’ve made a table that looks at gross domestic product (GDP) growth in the U.S. each year since 2009, and where the balance sheet of our central bank stood at the end of each year.

In the table below, you will notice something interesting; aside from 2009, there is no real correlation between the increases in the assets (paper money printed) on the Fed’s balance sheet and GDP growth. In fact, after all the money the Fed has printed, the U.S. economy grew last year at its slowest pace since 2011.

U.S. GDP Growth vs. Growth in Size of Fed Balance Sheet

Year YOY Change
in GDP
Fed Balance Sheet (Trillions) YOY Change in Balance Sheet
2009 -2.80% $2.08 73.44%
2010 2.50% $2.31 11.21%
2011 1.84% $2.74 18.58%
2012 2.77% $2.86 4.36%
2013 1.87% $3.47 21.33%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed April 1, 2014.

The Federal Reserve predicts the U.S. GDP in 2014 will increase between 2.8% and three percent; that’s a jump of about 50% since 2013. (Source: Federal Reserve, March 19, 2014.) I believe this to be way too optimistic. (And as we … Read More

Even Iraq’s Central Bank Buying Gold Now?

By for Profit Confidential

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 the world of paper currencies—something they hold in their reserves.

Too many major world currencies are in a downtrend. The U.S. dollar has been on a decline since the beginning of 2014. The Canadian dollar is hitting multiyear lows. The Japanese yen has been plummeting.

Where do we go next with gold bullion?

At present, the amount of negativity towards gold bullion is immense. But the fundamentals paint a different … Read More

Time for Investors to Create an Exit Strategy?

By for Profit Confidential

Should You Be Considering an Exit Strategy at This TimeWe have Russia annexing Crimea from Ukraine and interest rates set to float higher sometime in early 2015, but the S&P 500 continued to edge up to another record-high on Friday.

Federal Reserve Chair Janet Yellen is continuing to pull back on the quantitative easing that the former chair, Ben Bernanke, put in place. By year-end, the bond buying will likely be eliminated as the central bank allows the economy to try to stand on its own two feet. Of course, if everything goes well, Yellen also plans to begin ratcheting up interest rates as soon as early 2015. This could impact the stock market.

The upward move in interest rates and the elimination of quantitative easing means the easy money that had been pumped into the economy by the Federal Reserve will come to an end. This is concerning for the stock market, as the easy money has largely been the key reason why we are in the fifth year of this superlative bull stock market.

While it’s enticing to sit on all of the gains achieved so far, you should also be conscious of the profits made and should look at several risk management strategies.

The most important lesson is to take some money off the table and avoid soaking a possible downdraft in the stock market that could severely reduce your gains.

Making sure you have an exit strategy is paramount at this time.

I fully expect another downside move in the stock market sometime in the upcoming quarters. (Read “Stock Market Setting Up for Its Next ‘Fire Sale’?”)

You can also set 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

Lessons Not Learned from the Japanese (At Least, Not Yet)

By for Profit Confidential

How Money Printing Devastated This CurrencyWhenever I got stuck solving a problem in elementary school, my teacher would say, “go back and see where you went wrong.” This lesson—“learn from your mistakes”—was taught again in high school, and then throughout my life. It’s very simple: you can’t do the same thing over and over again and expect different results. Albert Einstein called it “insanity.”

When I look at the Japanese economy, I see the most basic lesson you learn in business school being ignored. The Bank of Japan, and the government, in an effort to improve the Japanese economy has resorted to money printing (quantitative easing) over and over, failing each time to spur growth. One might call it an act of insanity.

Through quantitative easing, the central bank of Japan wanted to boost the Japanese economy. It hoped that pushing more exports to the global economy from its manufacturers would change the fate of the country. It wanted inflation as well.

The result: after years of quantitative easing, the government and the central bank have outright failed to revive the Japanese economy. In fact, the opposite of their original plan is happening.

In January, the trade deficit in the Japanese economy grew—the country’s imports were more than its exports. Imports amounted to 7.70 trillion yen and exports were only 5.88 trillion yen. The trade deficit was 3.5% greater compared to the previous month. (Source: Japanese Customers web site, last accessed February 20, 2014.) Mind you, January wasn’t the only month when imports were more than exports in the Japanese economy. This is something that has been happening for some time.

Inflation in the … Read More

Stock Prices and U.S. GDP; Historic Relationship Turns Bearish

By for Profit Confidential

Historic Relationship Tur​ns BearishIn the first five weeks of this year, investors bought $22.0 billion worth of long-term stock mutual funds. (Source: Investment Company Institute, February 12, 2014.)

But as investors poured money into the stock market, hoping to ride the 2013 wave of higher stock prices, stocks did the opposite and went down. The Dow Jones Industrial Average is down three percent so far this year.

Looking at the bigger picture, corporate earnings and key stock indices valuations are still stretched. The S&P 500’s 12-month forward price-to-earnings (P/E) ratio stands at 15.1. This ratio is currently overvalued by roughly nine percent when compared to its 10-year average, and 15% compared to its five-year average. (Source: FactSet, February 14, 2014.)

This isn’t the only indicator that says key stock indices have gotten too far ahead of themselves. In the chart below, I have plotted U.S. gross domestic product (GDP) against the S&P 500.

S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

The chart clearly shows a direct relationship between GDP and the S&P 500. When U.S. GDP increases, the S&P 500 follows in the same direction, and vice versa. When we look at the 2008–2009 period (which I’ve circled in the chart above), we see that when GDP plunged, the S&P 500 followed in the same direction.

Going into 2014, we saw production in the U.S. economy decline; consumer spending is pulling back, unemployment is still an issue, and the global economy is slowing. U.S. GDP is far from growing at the rate it did after the Credit Crisis. Take another look at the chart above. In 2011, you’ll see U.S. GDP was very strong; but after … Read More

The Best Investment You Can Make in 2014?

By for Profit Confidential

What Happened Last Time Gold Had a Bad YearTo say the very least, 2013 was an interesting year for gold bullion. The precious metal’s price surprised gold bugs and declined 24%.

As 2013 progressed, we heard calls for the yellow metal to fall even lower in price. The stocks of gold producers were slammed. Equity research departments at big banks like The Goldman Sachs Group, Inc. (NYSE/GS) called gold bullion a slam-dunk sell (and the last time I checked, their opinion hasn’t changed).

In the midst of all this, a very important phenomenon was forgotten: gold bullion prices are no stranger to price declines. In the table below, I’ve compiled a list of every period since 1974 when gold prices fell more than 20% and what happened after the decline.

Year, % Drop in Gold Prices Year, % Increase After Drop
1974-1976 declined by 45.67% 1976-1980 increased by 705%
1980-1982 declined by 63.84% 1982-1983 increased by 71.8%
1983-1985 declined by 45.17% 1985-1987 increased by 76.7%
1987-2001 declined by 48.88% 2001-2008 increased by 291.38%
Mar. 2008-Nov. 2008 declined by 28.8% Nov. 2008-2011 increased by 169.56%

Data source: www.StockCharts.com, last accessed February 6, 2014.

The table above illustrates that the bigger the decline in gold bullion prices, the greater the ensuing rebound.

Since gold bullion prices fell in 2013, gold miners have pulled back on operations at mines where $1,200-an-ounce gold no longer justifies production. This has resulted in a reduction in the supply of newly mined gold.

And while the supply of gold bullion is under pressure, demand for the precious metal keeps increasing. In China, both consumers and the country’s central bank have become gold hoarders over … Read More

What Happened on Yellen’s First Day on the Job

By for Profit Confidential

Why Stock Market Bulls Should Be WorriedFebruary 4 was a terrible day for key stock indices. The S&P 500 and the Dow Jones Industrial Average plummeted by more than two percent each and broke below important support levels.

That day was also Janet Yellen’s first day on the job as chief of the most important central bank in the world.

Was Wall Street giving Yellen a message? Was that message, “Think twice before pulling back on money printing”?

While the severity of the sell-off in the stock market in January and into February of this year has caught many by surprise, to us, it was one more of those “I told you so” moments. And it should have been of no surprise to our readers at all, since we’ve been “singing the blues” of an overpriced and overbought market for months.

Here are four important points my readers need to know about the stock market:

Looking at the bottom of the chart below, you will clearly see an increase in stock market trading volume. As the stock market went down in January and into February, volume increased. When volume rises sharply during a stock market downturn, it means panic selling is setting in. February 4, 2014, was the highest volume day on the Dow Jones Industrial Average in about five months.

Dow Jones Industrial Average Chart

Chart courtesy of www.StockCharts.com

Secondly, the Dow Jones Industrial Average has fallen below its 200-day and 50-day moving averages, as I’ve circled in the chart above. This move is considered bearish among technical analysts and suggests stock market sentiment is turning negative very quickly.

Thirdly, insiders continue to aggressively dump the stocks of the companies … Read More

Stock Market: The Great Collapse Back to Reality Begins

By for Profit Confidential

The Great Collapse Back to Reality Begins“The trade” was very easy to do not long ago. Anyone with the basic knowledge of how money flows could have done it and profited.

Of course, I’m talking about the Federal Reserve “trade.” The investment strategy was straightforward: borrow money at low interest rates in the U.S., then invest the money for higher returns in emerging markets and bank the difference. If you could borrow money at three percent per annum in the U.S. and invest it for a six-percent return in emerging markets like India, why wouldn’t you?

The “trade” created a rush to emerging markets. And if you didn’t like the emerging markets, you could have invested in the stock market right here in the good old U.S.A. Again, borrowing money at a low rate to buy stocks from companies that were buying back their own stocks at the same time the Fed flooded the system with cold hard cash…how could you go wrong? (No wonder the rich got richer during the Fed’s quantitative easing programs.)

But, as I have written so many times, parties can only last for so long. Eventually, someone takes away the punch bowl. And from the looks of it, the Federal Reserve has pulled its own punch bowl.

In its statement yesterday after its two-day meeting, the Federal Reserve said, “…the Committee (has) decided to make a further measured reduction in the pace of its asset purchases…” (Source: Federal Reserve, January 29, 2014.)

In summary, the Federal Reserve will be buying $65.0 billion worth of bonds in February following its reduced $75.0 billion in purchases in January following its $85.0 billion-a-month bond … Read More

Has the Stock Market Discounted Full Tapering by the Fed?

By for Profit Confidential

Stock Market Discounted Full Tapering by the FedWell, here we are with only a few days left for Ben Bernanke in his role as chairman of the Federal Reserve, which has also been aptly dubbed as America’s “money printing press.”

In his final meeting as the head of the most powerful central bank in the world, all eyes will be on Bernanke and whether he decides to initiate his second tranche by further reducing the Federal Reserve’s bond buying at the Federal Open Market Committee (FOMC) meeting that ends today.

It’s really anyone’s guess if the Federal Reserve Chairman will taper. Bernanke may want to continue to slowly taper to show market participants that he understands the economy is faring better now, lessening the need for easy money from the Federal Reserve.

Of course, Bernanke could also hold off on any further tapering due to the weak jobs creation numbers from December; albeit, the reading was likely an aberration that was due to the harsh winter conditions in the month.

Whatever he decides, my feeling is that the stock market is fine with the Federal Reserve’s tapering process as long as the reduction is steady and gradual. The market wants to see the economy and corporate profits/revenues grow, which is ultimately the bottom line for investors.

Should the Federal Reserve not decide to taper further today, it would add some support to the stock market and could drive stocks to another rally. It would also help add some support to the emerging markets, which have been under extreme pressure due to Bernanke’s first move to taper.

If the Federal Reserve does further taper its bond buying, … Read More

What Bernanke Cemented for Wall Street Yesterday

By for Profit Confidential

Why This Next Stock Market Bust Is Going to Be a DoozySomething very interesting happened yesterday.

The Federal Reserve said it would start “tapering” its quantitative easing program by $10.0 billion a month. In other words, the Fed will now print $75.0 trillion a month in new money instead of $85.0 trillion a month.

Firstly, the whole concept of the central bank printing money out of thin air never made sense to me because the money isn’t backed by anything. The Federal Reserve says that starting in January, it will print 11% less in new money. In 2014, instead of printing more than $1.0 trillion in new money, it will print (or “create,” if you prefer) $900 billion in new money.

But—and there is always a but—the Federal Reserve, through Bernanke’s press conference following yesterday’s meeting of the Federal Reserve governors, said it would adjust the amount of money it creates based on how the economy is faring. I take this to mean that if the economy slows again, the Federal Reserve could, and likely will, start printing even more money than it currently does.

And there is the question of the $4.0 trillion in new money the Federal Reserve’s balance sheet says it has created. How does the Fed get rid of the $4.0 trillion? I don’t think it can. I don’t think the Federal Reserve will find anyone out there who can take the $4.0 trillion, mostly in bonds, off its hands.

What really threw me for a loop yesterday was that when the Federal Reserve said it would start printing $10.0 billion less in new money each month, the Dow Jones Industrial Average rallied 300 points. Yes, we … Read More

Federal Reserve: 100 Years of Destroying the Purchase Power of Money?

By for Profit Confidential

100 Years of Destroying the Purchase Power of MoneyNearly 100 years ago, on December 23, 1913, the Federal Reserve was created. The central bank was created for many reasons, such as minimizing the impacts of panics, becoming a banker of last resort and “smoothing” economic cycles.

But along the way to keeping the monetary system stable, something happened: the value of money deteriorated.

What you could buy for $1.00 in 1913 costs $23.59 today. (Source: Bureau of Labor Statistics web site, last accessed December 11, 2013.) A simple calculation would show that prices have increased by 2,259% over the last 100 years.

Something else to ponder: there have been more erratic movements in inflation since the Federal Reserve was created than in the century prior to then, when the Fed didn’t exist! Since the Federal Reserve was born in 1913, there were 10 years when inflation in the U.S. economy came in at more than 10%. Between 1800 and 1912, there were only four years when inflation in the U.S. was greater than 10%. (Source: Federal Reserve Bank of Minneapolis web site, last accessed December 11, 2013.)

“What’s your point, Michael?”

The unprecedented amount of paper money the Fed has created (out of thin air) since the Credit Crisis of 2008 will come back to haunt us—that’s my fear.

The Federal Reserve’s balance sheet has grown to about $4.0 trillion. M2 money stock, that’s the supply of paper money in the U.S. economy, has gone up 27% since 2009. (Source: Federal Reserve Bank of St. Louis web site, last accessed December 11, 2013.)

And through its “quantitative easing” program, the Federal Reserve continues to print $85.0 billion per … Read More

Opportunity for Gold Today Same as It Was for Stocks in 2009

By for Profit Confidential

gold bullion pricesI turned bullish on gold bullion in 2002. At that point, gold bullion was trading around $300.00 an ounce. Now, it trades above $1,250. Simple math suggests this is an increase of about 260% in 11 years, or an average gain of about 23.6% a year.

Other asset classes, like stocks, haven’t performed this well. In 2002, the Dow Jones Industrial Average was trading near 10,000. Now, it hovers close to 16,000, up 60%, or an average of 5.45% per year, over the last 11 years.

The big question from my readers these days is “If I buy gold here at $1,250 an ounce, will it more than double again?” My answer to this is YES, because I see gold moving to $2,500, even $3,000, by the end of this decade, if not sooner.

You see, over the past few months, we have seen a significant amount of negativity in the gold bullion market. On some days, the precious metal’s price has fallen more than two percent in a matter of minutes (I will let authorities eventually decide if it was a case of manipulation). But when no one wants a particular type of investment, that is often the best time to buy. Go back to 2009, when the stock market was plunging. No one wanted to buy stocks. In the midst of it, in the spring of 2009, we saw one of the best buying opportunities for stocks ever. I believe gold bullion is in a very similar situation today.

At the center of the “gold story,” aside from the fact that central banks are buying gold again for … Read More

The Mother of All Bubbles?

By for Profit Confidential

real estate marketAs I often harp on about in these pages; economic growth occurs when the general standard of living in a country gets better. You can’t say an economy is improving when a significant portion of the population is suffering. You can’t claim there’s economic growth when the poverty rate is increasing. You can’t say the economy is improving when personal incomes and savings are declining.

Looking at this a little closer…

Food stamps usage in the U.S. economy has increased 68% since 2008, with 47.66 million people, or more than 15% of the entire U.S. population, now using food stamps. Going back to 2008, there were 28.22 million Americans using some form of food stamps then. (Source: United States Department of Agriculture, November 8, 2013.)

From 2000 to 2012, the poverty rate in the U.S. economy increased from 12.2% to 15.9%—a hike in the poverty rate of more than 30% in just 12 years. In 2000, there were 33.3 million Americans living in poverty; this number grew to 48.8 million people in 2012. (Source: United States Census Bureau, September 2013.)

In 2008, the median household income in the U.S. economy was $53,644. In 2012, it was almost five percent lower at $51,017. (Source: Federal Reserve Bank of St. Louis web site, last accessed December 2, 2013.)

And because incomes have fallen and prices have risen, people have no choice but to save less.

Back in November of 2008, Americans saved an average of 6.1% of their disposable income, meaning they saved $6.10 for every $100.00 they earned after taxes. In August of this year, personal savings as a percentage of … 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.

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