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

Debt Crisis

The debt crisis has taken the world by storm; but few seem to be sounding the alarm. The U.S dollar, the go-to currency for global economic stability and growth, is imploding at an unprecedented rate.

Profit Confidential editors have been critics of the U.S.’s inability to rein-in government spending. Based on the White House’s own figures, the national debt will reach $20.0 trillion by the end of this decade—about 140% of our current gross domestic product (GDP).

Historically, countries that have incurred considerable debt and consistent national debt-to-GDP multiples of 120% or more have experienced currency devaluation. The U.S. dollar has been in a free-fall against other major world currencies since 2009.

Since November 2008, Federal Reserve Chairman Ben Bernanke has initiated three rounds of quantitative easing (QE) in an effort to create more economic activity and increase home prices.

Since 2008, the Federal Reserve has printed roughly $3.0 trillion. And, it’s climbing each month by an additional $85.0 billion.

What have three rounds of QE accomplished? It was supposed to increase lending, create more jobs, and lower the unemployment rate. Instead, banks are sitting on a pile of cash and remain tight-fisted, fewer jobs have been created, and the unemployment rate remains high.

What QE has done is flood the global markets with trillions of U.S dollars. It’s not as if this new-found money is backed by gold. It’s simply created out of thin air. It has done nothing to alleviate the debt crisis.

And, the debt crisis could get much worse. The Congressional Budget Office (CBO) expects the U.S. economy to remain moribund in 2013 and for the unemployment to remain high. What’s more, the official U6 unemployment rate (which includes people who have given up looking for work and people who have part-time jobs but want full-time jobs) has held steady around 15% for months.

The unofficial shadow statistic unemployment rate (which includes the long-term unemployed) sits at 22%!

Americans are out of work, and their dollar doesn’t go as far as it used to. Consumer spending might have once been the workhorse for economic growth, but not anymore. And, that could spell doom for the U.S. economy.

The meltdown of the U.S. housing market and economy, coupled with the reckless printing of U.S. dollars, will eventually result in higher inflation…and will hit the U.S. economy and consumers hard. The average American’s bank account is already stretched, paying more for basic necessities.

Unfortunately, personal incomes are not rising in step with higher prices for goods and services. To deal with inflation and higher prices, Americans will need more money to buy essential goods; but with the state of the U.S. economy, an increase in wages is not on the table. The debt crisis continues to deepen.

Nearly 47 million Americans rely on federal food assistance benefits, a 12-year high that is attributed to the weak U.S. economy and high rates of unemployment over the last five years.

For every one person added to jobs rolls since January 2009, 75 people have been added to the food stamp rolls. Or, put another way, since January 2009, food stamp growth is 75 times greater than jobs growth. (Source: ”Food Stamp Growth 75X Higher than Job Creation,” The Weekly Standard, November 2, 2012.)

Post-recession economic growth in 2010 was 2.40%, dropping to 1.80% in 2011. In 2012, it dropped again to 1.77%. Few, if any, net jobs will be created with growth of less than two percent.

This translates into an even greater shrinking of the American middle class…and more people teetering on the brink of poverty.

At Profit Confidential, we believe a home-grown debt crisis is brewing for America, and we believe other aspects our financial system will suffer because of it.

How Troubles in the Eurozone Will Eventually Affect Your Investments

By for Profit Confidential

I can’t say this often enough: the eurozone debt crisis is here to stay for a long time. The key stock indices might have given investors false hope, but we are still standing at square one of any economic recovery.

Greece, which was at the epicenter of the eurozone debt crisis, may be required to issue Treasury bills to stay solvent. The country has to convince the International Monetary Fund (IMF) and its eurozone peers that it has made the changes required by the bailout conditions it agreed to. If it fails to do so, Greece will not receive any aid from its eurozone partners for the next three months. (Source: MNI Deutche Borse Group, July 3, 2013.)

But Greece has actually failed to follow through on two conditions set by its creditors: cutting 12,500 jobs from the government sector and reducing a small but significant fiscal gap.

And Greece is hardly the only troublesome nation when it comes to the eurozone debt crisis. Look at Portugal—problems are emerging in that eurozone nation as both its finance minister and its foreign minister recently resigned. There are fears that the Portuguese government might collapse and put the 78-billion-euro bailout it received in 2011 in jeopardy. (Source: Reuters, July 3, 2013.) Those fears have caused the key stock index in Portugal to plummet and bond yields to soar.

And it doesn’t end here. The third-biggest economic hub in the eurozone, Italy, is facing troubles of its own. Antonio Guglielmi, an analyst at the second-biggest bank in the country, Mediobanca, in a confidential report to clients wrote, “The Italian macro situation has not … Read More

What the Worst Jobs Report of the Year Means to You

By for Profit Confidential

jobs marketOn the surface, today’s jobs market report looks good…

195,000 jobs were created in the U.S. economy during the month of June, with the “official” unemployment rate for the month sitting at 7.6%, unchanged from May. (Source: Bureau of Labor Statistics, July 5, 2013.)

But look a little closer and this jobs market report is a catastrophe…

Look at the underemployment rate, which includes people who have given up looking for work in the jobs market and those who are working part-time because they can’t get full-time work—based on this number, the picture looks drastically different. In June, the underemployment rate rose from 13.8% to 14.3%—the highest level since February! That means that one out of every seven Americans who want to work can’t get a job. (And the politicians keep telling me the economy is improving?)

And if that wasn’t bad enough…

Most of the jobs created in June were part-time jobs; the number of people working part-time in the U.S. jobs market rose by 322,000 to 8.2 million. These people aren’t working part-time because they want to—it’s because they can’t find full-time work.

And there’s still more…

Of the jobs created in June, 60% were in low-paying positions: 75,000 jobs were created in the leisure and hospitality sector, and 37,000 jobs were created in the retail sector! Low-paying jobs do not create economic growth.

The numbers don’t lie. The jobs market report today loudly screams, “Not a lot has changed in the U.S. economy.” Let’s get real, politicians; the way the government creates the unemployment rate is misleading. Millions of Americans are resorting to food stamps for one … Read More

Germany to Pull Back on ECB’s “Whatever It Takes” Position?

By for Profit Confidential

I can’t stress this enough: troubles in the eurozone are far from over.

First and most important, the strongest nations in the eurozone are experiencing an economic slowdown now too. As I have written before, France and Germany are seeing diminishing demand.

Finland, one of the financially strongest nations in the eurozone, fell into a recession in the first quarter of this year. Why? Exports from Finland are declining due to economic slowdown in the eurozone area, unemployment is increasing, and the government has introduced spending cuts. (Source: Wall Street Journal, June 5, 2013.)

The European Central Bank (ECB) expects the eurozone economy to shrink by 0.6% this year, lower than its previous estimate of 0.5%. In the first quarter of 2013, the eurozone experienced its sixth consecutive economic slowdown. (Source: Associated Press, June 6, 2013.)

Regardless of what you hear or don’t hear in the popular media, don’t believe for a second that the economic slowdown in the eurozone is going away anytime soon. The region is struggling with extreme levels of unemployment—the highest ever just recorded in April.

Some countries in the eurozone such as Ireland, Greece, and Portugal have now reached debt-to-income ratios (what the government spends compared to what the government brings in) above 300%. (Source: The Guardian, June 9, 2013.)

We have heard the head of the ECB say that the central bank will do “whatever it takes” to save the eurozone. But Germany is challenging this notion. The President of Germany’s central bank is expected to testify in front of the court and say it is illegal to bail out bankrupt eurozone … Read More

Number of S&P 500 Companies Reporting Negative Guidance a Red Flag

By for Profit Confidential

 Food Stamp Usage RisingStandard & Poor’s, the credit rating agency, believes the likelihood of the U.S. credit rating being downgraded in the near term is less than 33% (one in three) and it has decided to keep its credit rating on the U.S. economy at AA+, slightly lower than the best investment grade. (Source: Standards & Poor’s, June 10, 2013.)

This may be good news to the politicians who continue to believe there is an economic recovery in the U.S. economy, but it’s not enough to convince me.

In March, 47.7 million Americans, or 23.1 million households, were on some form of food stamps in the U.S. economy. (Source: United States Department of Agriculture, June 7, 2013.) This is more than 15% of the U.S. population.

And instead of people moving away from the government’s help, as would be the case during economic growth and a recovery, dependence on the government is actually increasing. Food stamp use in the U.S. economy was lower at 44.5 million in March of 2011.

Economic growth in the U.S. economy means job creation and consumers increasing spending—we have the exact opposite today.

After 2009, we had a sense of economic growth in the U.S. economy as demand in the global economy meant many multinational American companies were able to sell their goods for a profit outside the U.S. But as the global economy struggles now, it’s a different story.

For the second quarter of 2013, 116 companies in the S&P 500 have provided corporate earnings guidance; 93 of them have provided negative guidance. The ratio of companies providing negative guidance compared to companies providing positive guidance has … Read More

Next Tiny Country in the Eurozone to Bust

By for Profit Confidential

Eurozone to BustWhile cutting the growth outlook of the global economy, Chief Economist of the International Monetary Fund (IMF) Olivier Blanchard said yesterday, “…the main challenge is very much in Europe.” (Source: “IMF Cuts Global Growth Outlook as Europe Demand Urged,” Bloomberg, April 16, 2013.)

Blanchard showed further concerns regarding the economic slowdown in the eurozone, saying, “Europe should do everything it can to strengthen private demand. What this means is aggressive monetary policy and what this means is getting the financial system stronger…” (Source: Ibid.) In other words, print more paper money.

Greece, Spain, Italy, and Portugal are facing a staggering economic slowdown and are dragging the stronger eurozone nations down with them. The countries that were supposedly “immune” to the debt crisis in the region are now feeling the pressures.

Germany, the strongest nation in the eurozone and the fourth-largest economy in the world, is having troubles; demand is falling. German car sales plummeted 13% in the first quarter of 2013. (Source: Financial Times, April 17, 2013.) The Bundesbank, Germany’s central bank, expects the country’s gross domestic product (GDP) to increase by only 0.5% in 2013. (Source: MNI News, April 16, 2013.) But being so early in the year, this 0.5% GDP growth can easily turn into a 0.5% contraction, considering the problems in the eurozone.

As I have been writing since the beginning of 2012, the economic slowdown in the eurozone will spread to other parts of the world, rather than it being contained.

The events in Cyprus sent a significant amount of fear into the global economy. And the crisis there still isn’t over. The country … Read More

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