Buckle up for the Ride Ahead
Thursday, January 17th, 2008
By Mitchell Clark, B.Comm. for Profit Confidential
Well, I don’t see how you can look at the situation any other way. The news isn’t good. Similar to the situation in 1990-1991, inflation is on the increase and the economy is slowing. This makes it difficult for the Federal Reserve to stimulate economic growth without making the inflation situation worse.
According to the recent numbers from the Labor Department, consumer prices grew a substantial 4.1% in 2007, representing a significant increase from a consumer price increase of 2.5% in 2006. The only good news in this report was that core inflation, which excludes food and energy costs, came in around 2.4% last year.
Now, there is some moderation in oil prices and the world is fretting about the U.S. economy. This could turn out to be very beneficial to the central bank, as it wants to bring down interest rates aggressively in the near term.
So, what we’re getting is a lot of bad news in a short period of time. That’s fine with me. Let’s get all the bad news out in the first quarter or two; let’s get some new monetary and fiscal policy action quick; and let’s try to turn this thing around as soon as possible.
Naturally, the stock market will take a beating in the near term. If you’re a long-term investor with a lot of money, the near term is a most opportune time to add large-cap positions to your portfolio. Deere & Company (NYSE/DE) continues to be a favorite of mine in this category because the commodity price cycle will affect the farming industry disproportionately. Add in the fact that people still need to eat, and you’ve got the makings of a relatively strong sectoral economy in agriculture.
Other industries aren’t looking so good. If you’re in the technology business — watch out. At the first sign of economic weakness, businesses cut back on IT spending. IBM got lucky with its latest earnings preview, but that situation is somewhat unique — and let’s not forget that the stock is already down 20% from its recent high.
So, it’s time to buckle your seatbelt. It’s going to get worse before it gets better.
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Tags: inflation, interest rates, oil prices, stock market, U.S. economy
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Mitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen 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. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.



