This Stockbroker Advice Too Late for the Times
Monday, March 10th, 2008
By Michael Lombardi, MBA for Profit Confidential
News that the U.S. economy lost 63,000 jobs in February, the biggest drop in five years, has more than just Americans concerned.
Earlier this week, Canada reduced its key interest rate by an unexpected 50 basis points over concerns that weakness in the world’s largest economy would have global consequences. Australia, which is the world’s biggest exporter of coal and iron ore, saw its economy grow at the slowest pace in a year during the fourth quarter of 2007.
And after having collectively raised interest rates at one time or another over the past two years, the European Central Bank, Bank of England and Bank of Japan are now likely to stop raising interest rates. All world central bankers have their eyes focused on the U.S. recession.
The fact of the matter is that America is such a large part of the global economy that it solely accounts for about 25% of the world’s Gross Domestic Product (GDP). So, when the U.S. catches a cold, the remainder of the world eventually gets sick, too.
I’d like to warn my dear readers about some popular advice stock brokers are currently dispensing to their customers. At this point, if your stockbroker is recommending that you invest a portion of your portfolio in foreign stocks, you should be wary. With world economies slowing down, it may be too late to look at foreign stock markets or global funds now. As for your stockbroker, if he or she was a good one, they would have been recommending this strategy two to three years ago when it made sense.
Today, the only world economy that continues to soar is China. As for specific industries, quality gold producing stocks outside the U.S. are still my favorite play.
The S&P 500 now trades at the lowest level since the summer of 2006. Yes, the major markets are due for a rally after being so oversold.
But the fact that the S&P 500 is down to an 18-month low means two things: Companies in the S&P 500 are making less money and investors are becoming more reluctant to buy stocks. Yes, China is growing fast, but the U.S. is still the elephant among world economies. And when things are getting “soft” in the U.S., they are getting soft all over the world.
(Long-time readers of my column know I have repeatedly stated that, back in 1927, the speculative real estate boom started falling apart before the stock market. Of course the stock market crashed in 1929. Another speculative U.S. property market topped out in 2005 and started to fall in 2006. As I predicted, 80 years later, the same thing would happen again with stocks starting to decline in price since the beginning of 2008.)
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Tags: global economy, interest rates, S&P 500, U.S. economy
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Michael 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
