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

Take Out Social Security; One in
Four Americans Officially Poor

Friday, November 30th, 2012
By for Profit Confidential

Four Americans Officially PoorForget next year, or the year after; the financial crisis of 2008 has left wounds on the U.S. economy that will take generations to heal. While some may suggest the U.S. economy is on the path of economic recovery, today I’m going to spell out why I disagree with them wholeheartedly.

For there to be a real economic recovery in the U.S. economy—and not house prices increasing and the stock market rising—the general well-being of the people in America must improve. They should be able to feel comfortable spending money on items they purchase (even basic food) and they must feel secure in their employment.

I can’t put enough emphasis on this; American consumer confidence in the U.S. economy and in consumers’ personal futures must improve before the U.S. economy sees any economic recovery. Consumers are the fuel of economic growth, accounting for 70% of U.S. gross domestic product (GDP) yearly.

But Americans aren’t feeling better about their prospects in the U.S. economy. Some are suffering more than ever. According to the U.S. Census Bureau, poverty in the U.S. economy increased in 2011 for the third consecutive year. The report revealed that 46.2 million people in the U.S. economy live in poverty—or 15% of the entire U.S. population. (Source: U.S. Census Bureau, September 12, 2012.) Will you be surprised to see poverty increase even more in 2012? I won’t be.

Now, here’s what most people don’t realize:

The U.S. government is helping to keep the poverty rate low. If we took the government’s social security program out of the picture, the poverty rate in the U.S. would skyrocket to 24.4% of the U.S. population, as there would be an additional 27 million people in the U.S. economy suffering.

  • 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.

If it’s not enough to see how the way of life for the poor in America is crumbling, you should also know that the middle class are seeing their wealth deteriorate. Between 2007 and 2011, real median household income in the U.S. economy fell 8.1%! This means that if a family earned $100.00 in 2007, they now only earn $91.90. Add real inflation of five percent per annum, and U.S. consumers have really been set back.

In these pages, I have rigorously discussed how underemployment is a major issue currently facing the U.S. economy. If it doesn’t improve, expect further increases in poverty and say goodbye to any chances of economic recovery. The underemployment rate (which includes people who have given up looking for work and those with part-time jobs who can’t find full-time work) still stands at the alarming rate of just under 15%.

And of the jobs being created in the U.S. economy post-recession, the majority is in low wage-paying industries like retail and restaurants. Remember, when people don’t have jobs, or if they have jobs that don’t pay well, they can’t really rely on much other than their savings—if they have any.

It seems to me like all the talk about economic recovery in the U.S. economy is simply based on rising house prices and a rising stock market. The smart money realizes two important facts here.

First, the rise in house prices has been miniscule when compared to how much they have fallen. As soon as the “official” inflation rate rises, interest rates will rise, and U.S. housing will get a second nail in its coffin.

Next, since 2009, the stock market has risen on artificially low interest rates, record government spending, and a record expansion of the money supply—three events I call artificial, short-term bandages. Can you imagine what will happen to consumer confidence once the bear market rally in stocks we have been experiencing since 2009 ends?

Michael’s Personal Notes:

Where is S&P 500 headed? This question is being asked everywhere now days. Some mainstream stock advisors are saying that we are going to break the all-time high on the S&P 500 and the pullback in the market is temporary. They are chanting “Buy now or you will miss it.”

Sadly, I don’t think they are looking beyond the hype. There are more reasons to be worried than to cheer for a stock market rally. The S&P 500 and other key stock indices are missing the most basic ingredients that drive the markets to the upside: corporate earnings and business confidence.

So far, 468 of the S&P 500 companies have reported their third-quarter corporate earnings—that’s 93.6% of the constituents. Surprisingly, 71% have reported corporate earnings above what the markets were expecting, but only 40% of them beat the revenue expectations. The overall earnings for the third quarter for S&P 500 companies are down -0.2%. (Source: Factset, November 16, 2012.)

In addition to corporate earnings being dismal, businesses are also planning to scale back on spending and delay projects. They are worried about the uncertainties in the U.S. economy and the global economy—exports, a recession-infested eurozone, a slowing China, and the U.S. federal government’s budget plans. Business investments in equipment and software, a key indicator gauging the economic activity of corporate America, slowed down for the first time since early 2009 in the third quarter of 2012. (Source: Wall Street Journal, November 18, 2012.)

Some S&P 500 companies that are planning to cut capital spending include Texas Instruments Incorporated (NYSE/TXN), Harris Corporation (NYSE/HRS) and Apple Inc. (NASDAQ/AAPL). Similarly, Caterpillar Inc. (NYSE/CAT), another S&P 500 company, which expected to spend $4.0 billion in building and expanding this year, it is now retracting that target.

Looking forward, the corporate earnings pictures does not look like it will improve.

What we already know is that the S&P 500 companies are expecting their fourth-quarter corporate earnings growth to be worse than third-quarter earnings growth. I, for one, will not be surprised to see poor fourth-quarter 2012 earning growth from the S&P 500 companies.

For the stock market and key stock indices like S&P 500 to go up, corporate America needs to make money and spend. The stock market cannot run forever on artificially low interest rates, record government spending, and record money printing, just like a car can’t run on air. In the end, all stock markets rise or fall based on the corporate earnings growth of the companies that trade in the market. And I simply don’t see 2013 being a better year for corporate earnings growth in the U.S. than 2012.

What He Said:

“As for the stock market, it continues along its merry way oblivious to what is happening to homebuyers’ wealth. (Since 2005 I have been writing about how the real estate bust would be bigger than the boom.) In 1927, the real estate market crashed and the stock market, even back then, carried along its merry way for two more years until it eventually crashed. History has a way of repeating itself.” Michael Lombardi in Profit Confidential, November 21, 2007. A dire prediction that came true.

VN:F [1.9.22_1171]
Rating: 10.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)
Take Out Social Security; One in
Four Americans Officially Poor
, 10.0 out of 10 based on 1 rating
  • pw

    I hope you're right soon Mike, because I'm getting tired of shorting the market. If you read,"Currency Wars" you'll find that if the central banks are able to flood the world with cheap new money while slowly deleveraging the garbage that their scheme just might work.

    As long as its done VERY slowly and the general public doesn't catch on to the farce and panic, things MIGHT just turn out ok.

    That would SUCK because YOU and people like me who know whats going on would get fucked.

    Yes, ignorance is bliss!!!!!

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

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

Michael Lombardi - Economist, Financial AdvisorMichael 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. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. 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 or Add Michael Lombardi 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.