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

The New Shining Light in the U.S. Economy

Wednesday, October 24th, 2007
By for Profit Confidential

One part of the U.S. economy is in obvious big trouble: The housing market and all industries related to it. New home builders, contractors, home improvement stores, mortgage brokers and lenders — they are all feeling the pinch.

All we read about in the newspapers today is negativity on housing. Home foreclosure rates are jumping at triple-digit percentage rates, the mortgage lenders have tightened their lending criteria and, for the first time since the Great Depression, the median price of a house in the U.S. will decline this year.

Yesterday, as the Dow Jones Industrial Average put in a good performance, gaining 109 points for the session, the Dow Jones U.S. Home Construction Index got quietly pummeled again — 2.75% in one day! I wrote an article only a couple of weeks ago entitled “Housing Prices Headed to 2003 Level.” I may need to update that in the weeks to come again to “Housing Prices Headed to 2002 Level.”

Three years ago, I became bearish on the U.S. housing stocks. I’d still avoid them like the plague today. By the time the housing bust is over in the U.S., we will see some major American homebuilders declare bankruptcy.

So what’s the shining light in the U.S. economy?

It’s the manufacturing sector. Yes, after decades of seeing manufacturing plants close in the U.S. as American companies shifted production to lower wage countries like China, India, Mexico (and Canada to a degree), the jobs are coming back home.

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Big American manufacturers are reassessing their foreign operations in light of a drastically falling U.S. dollar. And that’s where I see the bright light in the economy — companies with foreign operations that can get their American manufacturing plants running again, thus reducing their cost base.

As an economy, we all gain when manufacturing opens up again as jobs are created. As an investor, the silver lining is in finding those companies that suffered when the American dollar was highly valued and the fortunes of which return as the greenback continues to fall against other world currencies, making American manufacturing costs cheap again.

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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

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