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

From Financial Crisis to Bubble, Is the Next Cycle Now in Play?

Wednesday, March 20th, 2013
By for Profit Confidential

From Financial Crisis to BubbleWhat if the powerful breakout in the Dow Jones Transportation Average in December of 2012 was the beginning of a new, multiyear upcycle for the stock market?

The stock market has clawed its way upward since the financial crisis hit in 2008. Recent trading volume has been mediocre, accentuating the move, but the majority of companies on the Dow reported solid fourth-quarter earnings.

Corporations are buying back shares, increasing their dividends, and for a lot of blue chips, balance sheets are in excellent shape—way better than before the financial crisis. Valuations are below historical norms.

Bull markets typically start in a stealthy manner. All of a sudden, institutional sentiment changes on a dime. At the beginning of a new upcycle in the stock market, it’s corporate profitability that leads all other metrics. Regrettably, it’s not about Main Street.

Current aggregated data by FactSet on earnings are calling for a solid advance in the bottom half of 2013 and 2014. It may not be believable yet, but many corporations are expecting this.

There is a tremendous amount of cynicism and doubt among individual investors (and rightly so). Many people have been sidelined since the financial crisis and throughout the recession. Since the financial crisis, individual investor sentiment has grown worse. A contrarian indicator? Maybe. Overperformance in the Dow Jones Industrials produced two significant periods of underperformance within the last 12 years. But the normalized trend of the Dow Jones Industrials is good.

  • The Two Most Important Pictures Investors Will See This Year

    Within the next 90 days, a new economic catastrophe will be headed our way.

    It will blindside most Americans. And this time, the government and the Federal Reserve will not be able to help.

    It will cause a surge in personal bankruptcies and massive layoffs. It will make the recession of 2008 pale in comparison.

    It will crash retirement plans: I'm talking stocks, bonds, maybe even your own bank account.

    To get a firsthand look at what we're so worried about now, a catastrophe that has already been set in motion, I urge you to...

    See the two most important pictures investors will see this year FREE when you click here.

$INDU Dow Jones Industrial Average stock market chart

Chart courtesy of www.StockCharts.com

The Federal Reserve is absolutely committed to re-inflating assets and keeping interest rates low. U.S. national debt is growing significantly (along with the money supply), but the burden of interest rates on this debt is still well within historical norms, though less so now than in the 80s and 90s. (Source: USGovernmentSpending.com, last accessed March 18, 2013.) Of course, the cost of money is a lot cheaper these days. Perhaps this is the real purpose of the Federal Reserve—to keep inflation-adjusted interest costs affordable for a perpetually rising U.S. gross national debt. (See “The Fed’s Running the Show and Risk Keeps Going Up.”)

Jobs growth is very important in the Main Street economy, but not for corporations. The important metric for corporations is productivity (employee output per hour). U.S. productivity grew by one percent in 2012, 0.7% in 2011, and 3.1% in 2010. I think productivity will be on the upswing this year on the back of improving business conditions for large corporations that don’t need to hire.

The stock market can begin a long-term uptrend in the face of stagnant incomes and minimal jobs growth. Profitability and institutional investor sentiment are what drive share prices. This stock market is due for a major correction, but it’s fairly priced going into first-quarter earnings season.

Stock market action, from the recent financial crisis to now, reminds me a lot of the late 80s and early 90s. After the crash, the stock market recovered strongly, followed by another recession, financial crisis, and then a correction. Then there was a sustained period of rising prices, a rising stock market, a rising money supply, and rising government debt, while productivity and innovation thrived.

This is not conventional thinking right now, and the U.S. economy still needs more time to balance out after the recent financial crisis. U.S. employment growth and Main Street incomes are stagnant, and that’s tough on a huge number of people.

I’m just considering the stock market’s recovery since the financial crisis, its powerful breakout last December, recent economic news, and the business cycle—the stock market isn’t done yet, not by a long shot.

VN:D [1.9.22_1171]
Rating: 1.0/10 (1 vote cast)
VN:D [1.9.22_1171]
Rating: +1 (from 1 vote)
From Financial Crisis to Bubble, Is the Next Cycle Now in Play?, 1.0 out of 10 based on 1 rating

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

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

Mitchell Clark - Equity Markets Specialist, Financial AdvisorMitchell Clark, B. Comm. is a Senior Editor at Lombardi Financial specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Income for Life and Micro-Cap Reporter. Mitchell, who has been with Lombardi Financial for 17 years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. Add Mitchell Clark to your Google+ circles

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.