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

Economic Analysis

The rise of the Internet has created an abundance of easily accessible economic information. Unfortunately, this has made it difficult for investors to understand, digest, and even evaluate. Where, then, can investors turn for objective economic analysis, market research, and breaking fiscal news that affects both Wall Street and Main Street?

Economic analysis means looking at the interconnected effects of global economic events. These events can be as major as geopolitical tensions, elections, corporate earnings, housing markets, consumer sentiment, and rising unemployment rates—to seemingly innocuous news stories, including mergers and acquisitions, crude oil inventories, auto loans, birth rates, and retiring Baby Boomers.

In 2001, Michael Lombardi started his famous daily economic newsletter Profit Confidential. Written by Lombardi Financial editors who have been offering stock market guidance to Lombardi customers for years, Profit Confidential provides a macro-picture on where the stock market is headed, what sectors are hot, and what sectors to avoid.

Over the years, Michael’s financial commentary and the accuracy of his economic predictions have garnered him global attention and the confidence of over one million investors in more than 140 countries.

When the U.S. economy was on the verge of collapse after the financial crisis of 2008, the Federal Reserve came to the rescue. The central bank provided the financial system with quantitative easing (QE)—it printed money and bought bad debt from the big banks. As a result, the Federal Reserve’s balance sheet has grown by almost $2.0 trillion—200% in less than five years. Where did the money come from, and how does it affect the buying power of the average American?

The eurozone is struggling to get out of a debt crisis that has been helping weigh down the global economy. Germany and France, the go-to countries for economic growth and stability in the eurozone, are beginning to experience retractions and may not be able to prevent the region from slipping into a recession. The eurozone unemployment rate reached a record high of 11.7% in October 2012, up from 11.6% in September. There are 18.7 million people unemployed in the region, with Spain and Greece’s unemployment rates both exceeding 25%. (Source: Eurostat, November 30, 2012.)

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What does this mean for the eurozone? How will it impact the United States? Or, affect the Chinese economy?

At the same time, it’s important that economic analysis takes an ongoing look at domestic policies. For example, cities like Vallejo, Mammoth Lakes, Stockton, and San Bernardino have already defaulted on their municipal bonds. What caused them to declare bankruptcy, and how does it affect the everyday investor and the overall health of the U.S. economy?

The global economy is constantly going through changes. We currently live in a world where one country is connected with the other. It doesn’t really matter anymore how far or close economies are to each other.

That’s why in-depth macro- and micro-economic analysis is more important than ever. It helps investors see the world from different perspectives and helps uncover opportunities to balance, diversify, and grow stock portfolios.

China’s economic situation, the information age, an end to the 30-year down cycle in interest rates, the credit crisis , the coming debt crisis in America, the eurozone crisis—these are only a few of the economic events occurring in the global economy. That’s what drives Profit Confidential. We take the economic information churned out daily, analyze it, and deliver understandable, even fun-to-read, economic analysis to our readers each day.

Why U.S. GDP Contracted for First Time in 3.5 Years

By for Profit Confidential

U.S. GDP Contracted for First Time in 3.5 Years(Make sure to read my important comments today about the stock market in “Where the Market Stands; Where it’s Headed” below.)

The U.S. economy, as measured by gross domestic product (GDP), contracted in the fourth quarter of 2012 for the first time in three and a half years. According to the Bureau of Economic Analysis, U.S. GDP “unexpectedly” declined 0.1% in the fourth quarter of 2012 from the third quarter. (Source: Bureau of Economic Analysis, January 30, 2013.) Economists were estimating growth of one percent in the GDP for the fourth quarter of 2012.

If the first quarter of 2013 proves to be weak for GDP again, the U.S. will have technically entered a recession once more.

What’s behind the contraction in GDP? Defense spending took the biggest cut in 40 years. (Source: Associated Press, January 30, 2013.) But there are other troubles brewing.

Sure, government spending declined. In the fourth quarter of 2012, federal government spending declined 15% in the U.S. economy compared to an increase of 9.5% in the third quarter. Defense spending decreased 22.2% in the fourth quarter, compared to the 12.9% increase in the third quarter of 2012.

Looking deeper into the Bureau’s report, we discover:

• Exports of goods and services adjusted for price change from the U.S. economy fell 5.7% in the fourth quarter. In the third quarter of 2012, exports rose 1.7%.

• In the last quarter of 2012, businesses in the U.S. economy produced less than they did in third quarter of 2012. Inventories increased only by $20.0 billion in the fourth quarter, compared to a $60.3 billion increase in … Read More

Auto Sector Growth Slows in
China, but Market Still Massive

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China’s Auto SectorThe key to China’s economic progress will be the rapid growth of the country’s middle class. In a research finding, Credit Suisse predicted that the household wealth in the country will double to $35.0 trillion by around 2015, based on achieving sustainable GDP growth at or near the current growth rate.

The economic analysis is simple; the extra renminbi mean more cash to spend on non-essential goods and services. This includes furniture, real estate, vehicles, and travel. The mobile phone market is staggering at nearly 900 million users, which I discussed in “China’s Mobile Sector Still Sizzling.”

An area in China that I continue to believe has tremendous long-term potential is the auto sector, but the short term will pose hurdles.

I have been a big supporter of the Chinese auto sector, but sales have been slowing as the government eliminated credits for fuel-efficient cars in 2011 and, in trying to ease the traffic congestion on Chinese highways, set a quota on vehicles sold.

The slowing is quite evident. In the first quarter of 2012, auto sales fell 1.2% in China. In the 11 months to November 2011, auto sales increased a trepid 2.6% year-over-year to 16.8 million units, down from a staggering 30.0% and 50.0% growth in 2010 and 2009, respectively, according to the China Association of Automobile Manufacturers (CAAM). The growth in 2011 is the lowest since 1999 and clearly poses issues for carmakers.

Yet there are some positives for the foreign carmakers operating in China. Sales of foreign vehicles continue to top the charts, while the domestic brands fell 2.3% for the first 11 months … Read More

Headed Towards the Fifth Straight
Year of Trillion-dollar Deficits

By for Profit Confidential

Trillion-dollar DeficitsAs it stands, on January 1, 2013, tax benefits to consumers and businesses and government spending increases—which includes extended unemployment benefits—are set to expire.

These incentives that helped the economy “rebound” from the crisis add up to roughly $433 billion or approximately 2.9% of GDP (source: Bloomberg).

For the first quarter of 2012, Lombardi Financial believes that U.S. GDP growth is likely to come in well under two percent. For the remainder of 2012, I believe GDP growth in the one-percent range could be a best-case scenario.

The Congressional Budget Office (CBO) believes that GDP growth will be two percent in 2012. The optimistic economists believe that not only is two percent GDP growth attainable, but also higher levels can definitely be achieved.

For argument’s sake, dear reader, let’s assume a two-percent GDP growth rate for 2012. The CBO believes that, even after the tax benefits and spending increases expire, the U.S. economy will achieve GDP growth of 1.1% in 2013.

If the tax benefits and spending increases take away 2.9% of GDP growth in 2013, and GDP growth is to be 1.1% in 2013, then real GDP growth in the U.S. in 2013 would have to be four percent in order for these projections to materialize.

With the recession in Europe, the slowdown in China, and a U.S. consumer that is experiencing no real disposable income growth, the chances of this occurring are close to zero.

Even if these tax benefits and spending increases are extended another year, and GDP growth in 2013 is in the 3.0%-3.5% range, we know the economy is not growing on its own, but … Read More

Consumer Debt Growing Again;
This Time Not by Choice

By for Profit Confidential

michael lombardi economic analysisConsumers just can’t stop spending…

U.S. consumer debt levels increased by $19.3 billion in December, after November’s steep rise of $20.0 billion, bringing total consumer credit in 2011 in the U.S. to $2.5 trillion (source: Federal Reserve).

Some economists are hailing this as a sign that economic growth is on the rebound, due to the consumer exhibiting confidence by taking on more debt.

Normally, in times of economic growth, income levels rise, job growth is widespread, and consumer assets increase in value, which provides the consumer with wealth (or perceived wealth). In times of typical economic growth, increased consumer credit can be seen as a sign of confidence.

However, in this current environment, we are witnessing real personal incomes falling over the last few years. Wage growth has been stubbornly anemic. We’ve had a minor pickup in job growth, but nothing sustainable as of yet. In the meantime, consumer assets (real estate and stocks) have been flat to down over the last few years. No economic growth here!

Combine this with rising food and energy costs (see “Michael’s Personal Notes” below), and one can only conclude that the increase in credit is a result of people trying to maintain their standard of living and paying their current bills; this is not economic growth.

As I’ve written before, almost one-in-two American households receive some form of government assistance. With the underemployment rate—“U6”—still at 15.1% (the rate includes discouraged people who have stopped looking for work and those part-time that would like full-time work), 46 million people on food stamps and real personal incomes flat, credit expansion can only be the result … Read More

What They Didn’t Tell You in
Friday’s Job Numbers Report

By for Profit Confidential

economic slowdownGreat news on the unemployment numbers last week? That was the message from many politicians and the popular media on Friday. But let’s take our usual closer look…

The Bureau of Labor Statistics reported on Friday that the U.S. created 243,000 jobs in January 2012, causing the unemployment rate to fall to a level not seen since February 2009: 8.3%.

The job numbers came in better than estimates; the best one-month showing since April 2011.

The important part was that private sector job numbers jumped 257,000—this is where the job numbers need to come from for an economy to truly recover and grow. Government payrolls fell by 14,000 (more on that in my personal notes section today).

And the job numbers for the previous two months were revised higher, adding an additional 60,000 jobs to the U.S. economy…more good news.

In an economy that will take every bit of good news it can get, Friday’s job numbers report was obviously welcome. But—and there is always a “but”—we may not like what we see if we look closer at the job numbers.

Sure, job creation has helped the unemployment rate drop to 8.3%, but the drop is aided significantly by the fact that many Americans have simply given up looking for work. Those who have stopped looking for work are removed from the job numbers—and that’s 1.1 million people in January alone!

“U6,” as reported by the Bureau of Labor Statistics, is a broader measure of the unemployment rate, because it takes into account discouraged people as well as those working part-time who want full-time work. The U6, also more commonly … Read More

Top Five Reasons Why Gold Bullion Prices Will Move Even Higher

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Michael Lombardi’s top five reasons why gold bullion prices will move even higher.“Considering gold bullion has gone up about 500% since 2001, how can we be so sure gold bullion in not in a bubble?” This is a common question we hear from new PROFIT CONFIDENTIAL readers.

Here are our top five reasons why we believe gold bullion prices, far from being in a bubble, have much higher to move. (Also see: Answered: Can I Still Make Money Buying Gold Now?)

  1. Few investors are aware of the bull market in gold bullion that started in 2001. If we were to take a survey of retail investors, our best guess is that less than five percent at this point have purchased gold mining stocks or gold producing stocks. Few investors understand how the actions of the government and the Federal Reserve are resulting in the price of gold bullion rising.
  2. The U.S. dollar, a fiat currency once issued by a creditor country, is now issued by a debtor country. The U.S. dollar is the reserve currency of about 70% of world central banks. As the debt of U.S. has spiraled out of control, the currency of America, the dollar, has gone from a system where it was once partially backed by gold bullion reserves to a currency that is mired in debt.
  3. The monetary policy of the U.S. has been to expand the money supply, create more dollars, to keep monetary policy expansive. Economics 101 dictate that the more of anything there is in supply, the less the eventual demand. The U.S. dollar is not exempt from supply/demand rules. Too many dollars in circulation? What other currency can investors run to when
  4. Read More

The Strongest Indication Yet That
Stocks Are Short-term Oversold

By for Profit Confidential

Without getting too technical, investors have two ways to bet on the price direction of stocks. They can go “long” the market, which means they believe that stock prices will rise. Or they can go “short” the market, which means they are betting that stock prices will fall. Going “long” is easy; all investors need to do is buy stocks. And usually, when investors have a strong general consensus that the stock market will move higher, like they last did in October of 2007, stock prices go the opposite way and fall.

Stock Market, Housing Market, GDP Growth: It’s All About Consumer Confidence

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Christmas is still three months away, but you know retailers are nervous about the ability of consumers to want to spend. How consumers spend will likely tell us how the economy will fare in 2012 and will help to drive the stock market. With consumer spending accounting for about 70% of the gross domestic product (GDP) growth in this country, it will be critical for consumers to spend. And let's not forget the housing market.Christmas is still three months away, but you know retailers are nervous about the ability of consumers to want to spend. How consumers spend will likely tell us how the economy will fare in 2012 and will help to drive the stock market. With consumer spending accounting for about 70% of the gross domestic product (GDP) growth in this country, it will be critical for consumers to spend.

When consumer confidence is low, you know consumers will likely be more hesitant to spend and hold back on major purchases such as homes, vehicles, furniture, appliances, and travel, to list a few. This will impact spending, GDP growth, and the ability of companies to expand their businesses and hire. This continues to be my concern.

Consumer Confidence continues to be weak. September was another disappointment, with a dismal reading of 45.4, below the estimate of 46.6 and the revised 45.2 in August. The reading is near the lowest level in April 2009 and clearly indicates nervous consumers.

To tell you how bad the readings are, economists say a reading of 90 indicates a healthy economy, something that has not happened since December 2007 when the recession began. It looks like it will be some time until the confidence reading heads back towards the pre-recession readings of 90. In my economic analysis, the situation is not good.

Moreover, add in the fact that the U.S. housing market remains a mess after prices declined below the lows of 2006 and you’ll understand my concerns going forward.

To drive the economy, consumers need to spend. We have historically low interest rates and quantitative easing. … Read More

Spending Remains an Issue;
My Advice on Retail Investing

By for Profit Confidential

The fact that consumer spending has not tanked in spite of unemployment being at over nine percent and expected to stay around this level through 2012, and continued weakness in housing is encouraging.

Inflation at Almost 5%…Is It Any Wonder
Dollars Buy Less and Less?

By for Profit Confidential

Gold prices rising for 10 years straight…the money supply greatly expanded…the printing press for dollars running overtime…am I the only one concerned about rapid inflation? I rarely read or hear a report talking about today’s rising prices or the hyperinflation we may sustain in the years ahead. We all know prices are rising—only housing prices have remained low. Inflation is real and it is here now.

Great…Just What We Need…
More Money Printing

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It’s a bird. No, it’s a plane. Maybe it’s Superman! Sorry, it’s none of these things; it’s your friendly central banker to the rescue again! Couldn’t believe the news yesterday morning… To calm banking concerns in Europe, mostly centered around the repercussions of a default by Greece, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank and even our own Federal Reserve are providing three-month loans to euro-area banks.

Low Consumer Confidence
and the Spending Cycle

By for Profit Confidential

We all know that consumer spending accounts for about 70% of the gross domestic product (GDP) growth in this country. And when confidence is low, you also know consumers may be more hesitant to spend, holding back on any major purchases, such as homes, vehicles, furniture, appliances and travel, to list a few. This will impact spending and GDP growth and the ability of companies to expand their businesses and hire. This is my concern; I feel that continued nervousness among consumers will impact GDP.

U.S. Treasuries: A Once-in-50-year Event

By for Profit Confidential

There is no doubt we live in unchartered times for the various markets. The Internet has changed the world. Instantaneous communication has resulted in the global economy moving faster than ever. The stock market can jump or fall 400 to 500 points in a single day. The bond market can wipe billions of dollars off the value of bonds in minutes.

Another Recession? Stagnant Growth
May Drive Europe into One

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While the European Union deals with austerity measures and debt relief for Greece, Ireland, and Portugal, the region has not been able to focus on turning its economic engine around. Germany, the top country in the European Union, managed only a tiny 0.1% rise in its second-quarter gross domestic product (GDP). The results followed on the heels of disappointing flat results from France, another key European country. The reason you should be concerned is that Germany and France are the two strongest countries in the European Union and the eurozone, so weak growth here is bearish.

Four Stocks: One Economic Story

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Last night, two of the biggest retailers in theU.S.increased their estimates of how much money they would make this year. Wal-Mart Stores, Inc. (NYSE/WMT), the world’s largest retailer, has reported that revenue at stores open at least one-year has increased by 4.3%. Interestingly, Wal-Mart’s CEO Charles Holley was quoted as saying that customer surveys show that Wal-Mart’s customers are now more concerned with employment than fuel and food costs.

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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