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

China

China is the country with the largest population in the world at over 1.3 billion people. The land covers approximately 3.7 million square miles. The country is governed as a communist country, although they have developed a quasi-capitalist sector for business. China has the second largest gross domestic product (GDP) at approximately $7.0 trillion; behind the U.S. at $15.0 trillion and ahead of Japan at $5.8 trillion. The leaders opened up the centrally planned economy in the late 1970s and early 1980s to allow economic growth through trade, which has allowed China to grow at an unprecedented rate for a country its size. From 2001 to 2011, China grew at an annualized rate of 10.5%.

About That Referendum in Switzerland…

By for Profit Confidential

Demand Shock for Gold Market Coming SoonOn November 30, Switzerland’s citizens will cast a very critical vote.

Through a referendum, they will vote for or against the Swiss National Bank increasing its gold bullion reserves to 20%, the central bank halting the selling of gold, and the storing of gold bullion in the country. (Source: Kitco News, September 30, 2014.)

If the results are in favor of the referendum, it will mean Switzerland’s central bank will be forced to buy a significant amount of gold bullion.

According to the most recent data from the World Gold Council, Switzerland has 1,040 tonnes of gold bullion in its reserves, equal to only 7.8% of its total reserves. (Source: “World Official Gold Holdings,” World Gold Council web site, last accessed October 16, 2014.) To bring its gold bullion holdings to 20% of total reserves, the central bank of Switzerland will have to buy 1,600 more tonnes of gold, or about 60% of all global mine output this year. Will the gold market be able to handle this kind of demand shock? I highly doubt it.

And if the central bank of Switzerland stops selling gold, a significant amount of gold will come off the market.

Finally, the vote on gold being stored in the country is just another example of the increasing appetite for the precious metal. We saw this phenomenon happen in Germany not too long ago when the country asked the U.S. for its gold back (the U.S. was “storing” it), but Germany was told it would have to wait seven years to get it.

The big picture: Since 2009, central banks around the world have bought … Read More

Why Stock Prices Will Continue to Fall

By for Profit Confidential

Stock Prices Will Continue to FallNow that the Dow Jones Industrial Average has fallen 1,035 points (six percent) from its mid-September peak, the question investors are asking is “how far will she go?” For small-cap investors, the drama is greater, as the Russell 2000 Index has fallen 12.5% from its July peak.

Since 2009, every market pullback presented investors with an opportunity to get back into stocks at discounted prices. Even some editors here at Lombardi Publishing Corporation see the recent pullback in stocks as an opportunity.

But what happens if it is different this time? How about if stocks just keep falling?

If you have been a long-term follower of my column, you know I have been adamant about an economic slowdown in the global economy.

And let’s face it: the American stock markets have been addicted to the easy money policies of the Federal Reserve, namely money printing and record-low interest rates. But that is all coming to an end now. The Fed will be out of the money printing business soon and it has warned us on several occasions that interest rates will need to rise.

The International Monetary Fund (IMF) is now (or should I say, is finally) warning about an economic slowdown in the global economy. In its most recent global growth forecast, the IMF said, “With weaker-than-expected global growth for the first half of 2014 and increased downside risks, the projected pickup in growth may again fail to materialize or fall short of expectation.” The IMF also said the global economy may never see the kind of expansion it experienced prior to the financial crisis. (Source: “IMF says economic … Read More

Gold Mining Companies Selling for Pennies on the Dollar

By for Profit Confidential

Gold Stocks The Most Beaten-Up Sector of the Market Finally Bottomed OutThe fundamentals for higher gold bullion prices continue to impress. The table below illustrates the output from U.S. mines in the first six months of 2014 compared to the first six months of 2013.

In the below chart, we quickly see that since March of 2014, production of the precious metal has been quickly declining. Meanwhile, on the demand side of the equation, we see increased demand for gold bullion from the East—especially from China.

China recently launched a gold bullion market on the Shanghai Gold Exchange (SGE) for international investors. The goal of this exchange is to gain more control over the price of the precious metal in yuan (the official currency of China). China wants to have price control over gold bullion, just like the West does with their daily settings in New York and London.

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U.S. Gold Mine Output, First Six Months of 2014 & 2013

Month 2014 Output (Kilograms) 2013 Output (Kilograms) % Change
January 17,800 18,500 -3.78%
February 16,400 17,200 -4.65%
March 17,500 18,700 -6.42%
April 16,500 17,900 -7.82%
May 17,200 18,800 -8.51%
June 17,700 19,400 -8.76%
Total 103,100 110,500 -6.70%

Data source: U.S. Geological Survey web site, last accessed October 7, 2014.

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For seven years in a row, the SGE has been the top spot for gold bullion trading in the global economy. In 2013, the volume at the exchange reached 11,600 tons.

Quality gold bullion mining companies continue to offer significant value. Some of the most well-known miners are selling for pennies on the dollar. Goldcorp Inc. (NYSE/GG), selling for $23.00 a share for a market cap of just over $18.5 … Read More

Strategies to Protect Your Capital While Investing in This Market

By for Profit Confidential

How Investors Can Deal with the Current MarketThere are no secrets to dealing with the current stock market malaise. The key is to simply understand, manage, and deal with the inherent risk. I’m not talking just about the domestic risk, but also the economic risk from Europe and China, along with the geopolitical risk in Syria and Ukraine.

As you probably all know, the stock market hates uncertainty and there’s plenty of it. Until the uncertainties dissipate, the stock market will be vulnerable to a correction.

This is not difficult to understand as the stock market, with the exception of the small-cap segment, has not recorded a correction of six percent or more for quite some time. The reality is that the key stock market indices are only down less than three percent from their highs, so we could see additional selling.

Given that the technical picture is bearish, with the key stock market indices trading below their respective 50-day moving averages (MAs), we could be in for more downside moves.

In fact, failure to attract support at the 200-day MA would be negative, based on my technical analysis.

The S&P 500 could trade down to below 1,900 should the stock market correction hold in place. At that point, I would be looking to add to positions if support surfaces.

The fact is that I want to see some chaos develop in the stock market as situations like this usually provide an excellent buying opportunity. Simply put, panic means opportunities.

While the near-term trend is down and the intermediate trend is fragile, as long as the long-term trends remain in place, I would be looking to buy … Read More

Top Growth Areas Heading into 2015

By for Profit Confidential

Growth Areas Heading into 2015The stock market is clearly struggling to stay afloat at this juncture, balancing the domestic economic renewal with the global risk coming from ISIS, Russia, the eurozone, and economic stalling in China.

A major catalyst or a reason to buy is what investors are searching for. The focus later next week will shift to the third-quarter earnings season, which is carefully monitored by investors.

The start of the third-quarter earnings season will officially begin with Alcoa Inc. (NYSE/AA) reporting next Wednesday. Alcoa is a decent barometer of the global economy. The company reported an excellent second-quarter earnings season, albeit the quarter was relatively average.

All eyes will focus not only on the ability of CEOs to control the expense side to drive revenues, but also on the actual revenue growth. The strong second-quarter gross domestic product (GDP) growth will help.

For the third-quarter earnings season, the earnings growth is estimated at 4.7%, well down from a much higher 8.9% as of June 30, according to a report from FactSet. (Source: “Earnings Insight: S&P 500,” FactSet web site, September 26, 2014.)

Worse yet, the report suggests that nine of the 10 sectors have reduced their earnings season expectations. This is not supportive of the recent record moves by the DOW and S&P 500.

Only the healthcare sector appears to have increased its expected earnings growth, bumping it up to 10.6% for the third-quarter earnings season, up from 9.4% as of June 30. Investors could consider buying an exchange-traded fund (ETF) to benefit, such as the SPDR S&P Health Care Equipment ETF (NYSEArca/XHE). On the small-cap stocks side, a healthcare ETF to … Read More

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