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

Global Economy

Taking together all of the countries, one would have a view of the global economy. Understanding the global economy and the shifts among countries, businesses can better allocate capital to the areas of the world that are growing. The U.S. currently is the largest economy in the world, now followed by China. Shifts among countries in their global economic ranking are the result of many criteria, including population growth and fiscal and monetary policies. Knowing which part of the world is growing economically and which part is shrinking is extremely important for businesses.

What the Breakout in the Gold-to-Copper Ratio Is Telling Us

By for Profit Confidential

Copper Flashing a Buy Signal for GoldCopper is considered an industrial metal, used in industries across the board. When copper prices fall, it’s usually an indicator of a slowdown in the global economy. On the contrary, gold bullion isn’t much of an industrial metal; rather, it is used as a hedge against uncertainty in the global economy.

When you look at these two metals together, often referred to as the gold-to-copper ratio, they tell us something very important: the ratio of how many pounds of copper it takes to buy one ounce of gold bullion has long been an indicator of sentiment in the global economy.

If the gold-to-copper ratio is in a downtrend, it means investors are betting on the global economy to grow. In contrast, if it is increasing (if the number of pounds of copper it costs to buy an ounce of gold is rising), it tells us investors are concerned about protecting their wealth in a slowing global economy.

Below, you’ll find a chart of the gold-to-copper ratio.

GOLD - Spot (EOD) Copeer ChartChart courtesy of www.StockCharts.com

Looking at the chart above, it is clear something happened at the beginning of 2014. Investors became very worried. Since the beginning of the year, the gold-to-copper ratio has increased more than 28%—the steepest increase in more than two years.

And the weekly chart of copper prices looks terrible too:

Copper - Spot Proce (EOD) CME ChartChart courtesy of www.StockCharts.com

Copper prices have been trending downward since 2011. In 2013, these prices broke below their 200-day moving average and recently, they broke below a very critical support level at $3.00. While all of this was happening, on the chart, there was also a formation of a … Read More

How to Profit from the Crimea Conflict

By for Profit Confidential

What the Crimea Tensions Mean for U.S. InvestorsThe eurozone and Europe are showing progress in finally getting out of their dismal multiyear double-dip recession; however, the uncertainties and hostilities unfolding in the Crimea region of Ukraine, which are threatening to escalate, could put a damper on the economic renewal in Europe.

With the recent vote in Crimea, whether legal or not, Russia has quickly passed a resolution and signed a treaty to annex Crimea to the Kremlin. The current buildup of Russian troops inside Crimea is a big concern, especially if a military conformation breaks out.

We are already seeing rising economic sanctions against Russia from the United States and countries in Europe. This is worrisome, as it could easily derail the economic renewal in Europe at this most critical time, stalling the region’s growth due to the major trading between Russia and Europe. A big impact could be the staggered flow of oil from Russia into Europe, which currently accounts for about 40% of the oil imports from Russia.

While I don’t think Russia will immediately cut the oil flow into Europe, as Russia also needs the oil revenues, I do expect Europe will look for alternative oil sources if the sanctions increase and tighten against Russia. If this were to occur, it could really hurt the country’s oil companies and the Russian economy overall.

Moreover, there’s also the retaliation from Russia, which would likely have an impact on Europe and potentially the global economy. The crisis comes at a critical time, as the eurozone is looking at gross domestic product (GDP) growth of 0.5% in the first quarter—a three-year high.

It’s clear something bigger may … Read More

How Gold Has Caught Me by Surprise

By for Profit Confidential

How Tensions in Crimea Are Changing My Gold Investment StrategyI must admit that I’ve been somewhat caught off guard by the strong rally in gold so far in 2014. The yellow ore has been on a nice upward push towards the $1,400-an-ounce level; it could even take out this level and head towards some tough resistance around $1,425–$1,450.

While the rally appears to be holding, I still only view the yellow precious metal as a trade, and not a buy-and-hold for investors at this time. I would be selling into further weakness if you are holding gold or any related stocks.

What I think is driving the upward move in gold prices is the associated cautious moves in the stock market and the geopolitical tensions triggered by the situation in Crimea. If stocks can regain their enthusiasm, I would expect a retrenchment in the precious metal as money is shifted out. (Read why I feel stocks are heading higher in “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”)

My past contention was that gold was a trading opportunity. Back in late 2013, I saw a bearish “head and shoulders” formation on the chart, after which prices fell towards support at $1,200. The oversold nature was supportive of a bounce on the charts, but the gains so far this year have been much more than I would have expected, largely due to the uneasiness in equities so far.

The precious metal could see more buying should the tense situation in Ukraine and Crimea escalate following the vote on Sunday that could lead to Crimea separating and joining Russia. While there has yet … Read More

Why the Chinese Economic Slowdown Matters

By for Profit Confidential

Chinese Economy to See Black Swan Type EventUnderstanding the economic slowdown in the Chinese economy is very important because not only does it impact American companies doing business there, but what happens in the Chinese economy—now the second-largest economy in the world—affects the global economy.

While media outlets tell us the Chinese economy will grow by about seven percent this year (30% below the 10% the economy has been growing annually over the past few years), the statistics I see point to much slower growth.

In February, manufacturing activity in the Chinese economy contracted and hit an eight-month low. The final readings on the HSBC Purchasing Managers’ Index (PMI) for February showed manufacturing output and new orders declined for the first time since July of 2013. (Source: Markit, March 3, 2014.)

And there are other troubles. The shadow banking sector in the Chinese economy shows signs of deep stress, but we don’t know how much money is really on the line here. China keeps much of its real economic news to itself, but we do hear how firms that are involved in the sector are defaulting on their payments.

And the Chinese currency, the yuan, keeps declining in value compared to other major world currencies. The Wisdom Tree Chinese Yuan Strategy (NYSEArca/CYB) is an exchange-traded fund (ETF) that tracks the performance of Chinese money market instruments and the yuan compared to the U.S. dollar. Look at the chart below:

WisdomTree Dreyfus chinese Yuan fund ChartChart courtesy of www.StockCharts.com

Since the beginning of February, the Chinese yuan and Chinese money market instruments have been showing signs of severe stress, largely unnoticed by mainstream media and economists.

There is no doubt in my mind … Read More

My Top Three “Sin” Stocks

By for Profit Confidential

Stocks with the Potential to Award Significant Capital GainsThere’s a big push on buying green stocks, a move that has the ability to make investors feel good and make money at the same time. Here, we are talking about alternative energy stocks and companies that have mandated that their impact on the environment be one of their core values. (Read “My Top Stock Pick in the Innovative Alternative Energy Sector.”)

Then there are the stocks on the other end of the spectrum. Here I’m talking about the defense, gun, and military stocks that produce weapons and technology to defend and harm. These companies have made investors a lot of money, despite the fact that not everyone might agree with their line of business.

There are also those companies that are sought out due to their use of cheap and exploited labor. Of course, since so many goods are now made in China and other cheap labor markets in Asia and Latin America, it would be safe to say that many companies are pursuing this practice of seeking really cheap labor in order to maximize profits for investors. This is also the major reason why there are so many people looking for work across America; because companies cannot return strong margins while they’re paying the much-higher American wages or those of other Westernized countries, compared to the obscenely low wages found in places like China and Mexico and other low-wage countries.

While I’m not here to favor or condemn one group of companies, the reality is that nothing is perfect when you are operating in an extremely capitalistic global economy that needs to satisfy investors.

There’s … Read More

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What the Breakout in the Gold-to-Copper Ratio Is Telling Us

By for Profit Confidential

Copper Flashing a Buy Signal for GoldCopper is considered an industrial metal, used in industries across the board. When copper prices fall, it’s usually an indicator of a slowdown in the global economy. On the contrary, gold bullion isn’t much of an industrial metal; rather, it is used as a hedge against uncertainty in the global economy.

When you look at these two metals together, often referred to as the gold-to-copper ratio, they tell us something very important: the ratio of how many pounds of copper it takes to buy one ounce of gold bullion has long been an indicator of sentiment in the global economy.

If the gold-to-copper ratio is in a downtrend, it means investors are betting on the global economy to grow. In contrast, if it is increasing (if the number of pounds of copper it costs to buy an ounce of gold is rising), it tells us investors are concerned about protecting their wealth in a slowing global economy.

Below, you’ll find a chart of the gold-to-copper ratio.

GOLD - Spot (EOD) Copeer ChartChart courtesy of www.StockCharts.com

Looking at the chart above, it is clear something happened at the beginning of 2014. Investors became very worried. Since the beginning of the year, the gold-to-copper ratio has increased more than 28%—the steepest increase in more than two years.

And the weekly chart of copper prices looks terrible too:

Copper - Spot Proce (EOD) CME ChartChart courtesy of www.StockCharts.com

Copper prices have been trending downward since 2011. In 2013, these prices broke below their 200-day moving average and recently, they broke below a very critical support level at $3.00. While all of this was happening, on the chart, there was also a formation of a … Read More

How to Profit from the Crimea Conflict

By for Profit Confidential

What the Crimea Tensions Mean for U.S. InvestorsThe eurozone and Europe are showing progress in finally getting out of their dismal multiyear double-dip recession; however, the uncertainties and hostilities unfolding in the Crimea region of Ukraine, which are threatening to escalate, could put a damper on the economic renewal in Europe.

With the recent vote in Crimea, whether legal or not, Russia has quickly passed a resolution and signed a treaty to annex Crimea to the Kremlin. The current buildup of Russian troops inside Crimea is a big concern, especially if a military conformation breaks out.

We are already seeing rising economic sanctions against Russia from the United States and countries in Europe. This is worrisome, as it could easily derail the economic renewal in Europe at this most critical time, stalling the region’s growth due to the major trading between Russia and Europe. A big impact could be the staggered flow of oil from Russia into Europe, which currently accounts for about 40% of the oil imports from Russia.

While I don’t think Russia will immediately cut the oil flow into Europe, as Russia also needs the oil revenues, I do expect Europe will look for alternative oil sources if the sanctions increase and tighten against Russia. If this were to occur, it could really hurt the country’s oil companies and the Russian economy overall.

Moreover, there’s also the retaliation from Russia, which would likely have an impact on Europe and potentially the global economy. The crisis comes at a critical time, as the eurozone is looking at gross domestic product (GDP) growth of 0.5% in the first quarter—a three-year high.

It’s clear something bigger may … Read More

How Gold Has Caught Me by Surprise

By for Profit Confidential

How Tensions in Crimea Are Changing My Gold Investment StrategyI must admit that I’ve been somewhat caught off guard by the strong rally in gold so far in 2014. The yellow ore has been on a nice upward push towards the $1,400-an-ounce level; it could even take out this level and head towards some tough resistance around $1,425–$1,450.

While the rally appears to be holding, I still only view the yellow precious metal as a trade, and not a buy-and-hold for investors at this time. I would be selling into further weakness if you are holding gold or any related stocks.

What I think is driving the upward move in gold prices is the associated cautious moves in the stock market and the geopolitical tensions triggered by the situation in Crimea. If stocks can regain their enthusiasm, I would expect a retrenchment in the precious metal as money is shifted out. (Read why I feel stocks are heading higher in “Why I Believe the S&P 500 Could Easily Reach 2,000 in the Upcoming Months.”)

My past contention was that gold was a trading opportunity. Back in late 2013, I saw a bearish “head and shoulders” formation on the chart, after which prices fell towards support at $1,200. The oversold nature was supportive of a bounce on the charts, but the gains so far this year have been much more than I would have expected, largely due to the uneasiness in equities so far.

The precious metal could see more buying should the tense situation in Ukraine and Crimea escalate following the vote on Sunday that could lead to Crimea separating and joining Russia. While there has yet … Read More

Why the Chinese Economic Slowdown Matters

By for Profit Confidential

Chinese Economy to See Black Swan Type EventUnderstanding the economic slowdown in the Chinese economy is very important because not only does it impact American companies doing business there, but what happens in the Chinese economy—now the second-largest economy in the world—affects the global economy.

While media outlets tell us the Chinese economy will grow by about seven percent this year (30% below the 10% the economy has been growing annually over the past few years), the statistics I see point to much slower growth.

In February, manufacturing activity in the Chinese economy contracted and hit an eight-month low. The final readings on the HSBC Purchasing Managers’ Index (PMI) for February showed manufacturing output and new orders declined for the first time since July of 2013. (Source: Markit, March 3, 2014.)

And there are other troubles. The shadow banking sector in the Chinese economy shows signs of deep stress, but we don’t know how much money is really on the line here. China keeps much of its real economic news to itself, but we do hear how firms that are involved in the sector are defaulting on their payments.

And the Chinese currency, the yuan, keeps declining in value compared to other major world currencies. The Wisdom Tree Chinese Yuan Strategy (NYSEArca/CYB) is an exchange-traded fund (ETF) that tracks the performance of Chinese money market instruments and the yuan compared to the U.S. dollar. Look at the chart below:

WisdomTree Dreyfus chinese Yuan fund ChartChart courtesy of www.StockCharts.com

Since the beginning of February, the Chinese yuan and Chinese money market instruments have been showing signs of severe stress, largely unnoticed by mainstream media and economists.

There is no doubt in my mind … Read More

My Top Three “Sin” Stocks

By for Profit Confidential

Stocks with the Potential to Award Significant Capital GainsThere’s a big push on buying green stocks, a move that has the ability to make investors feel good and make money at the same time. Here, we are talking about alternative energy stocks and companies that have mandated that their impact on the environment be one of their core values. (Read “My Top Stock Pick in the Innovative Alternative Energy Sector.”)

Then there are the stocks on the other end of the spectrum. Here I’m talking about the defense, gun, and military stocks that produce weapons and technology to defend and harm. These companies have made investors a lot of money, despite the fact that not everyone might agree with their line of business.

There are also those companies that are sought out due to their use of cheap and exploited labor. Of course, since so many goods are now made in China and other cheap labor markets in Asia and Latin America, it would be safe to say that many companies are pursuing this practice of seeking really cheap labor in order to maximize profits for investors. This is also the major reason why there are so many people looking for work across America; because companies cannot return strong margins while they’re paying the much-higher American wages or those of other Westernized countries, compared to the obscenely low wages found in places like China and Mexico and other low-wage countries.

While I’m not here to favor or condemn one group of companies, the reality is that nothing is perfect when you are operating in an extremely capitalistic global economy that needs to satisfy investors.

There’s … Read More

On the Way to Higher Stock Prices, Something Suddenly Happened

By for Profit Confidential

Stock Investors Lose Touch with RealityOn February 24, the S&P 500 broke to a new all-time high. There was panic buying as soon as the markets opened that day, as the chart below depicts.

Looking at this, I can’t help but ask if investors have completely lost touch with reality. It seems the fundamentals that drive stock prices higher—corporate earnings—have been ignored.

And as investors are driving key stock indices higher, the state of the global economy is becoming worrisome. This can’t be stressed enough: the U.S. economy isn’t immune to a disturbance in the global economy. But this isn’t all; if the global economy sees an economic slowdown, the companies on U.S. key stock indices suffer as well.

S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

One clear example of this, as it stands, is Caterpillar Inc. (NYSE/CAT), a giant industrial goods manufacturer and component of the S&P 500. The company reported that annual sales declined 16% in 2013. Caterpillar’s revenues were $55.65 billion compared to $65.87 billion. The company’s corporate earnings per share were down more than 32% in 2013. The reason for this: a challenging business environment in the global economy. (Source: Caterpillar Inc., January 27, 2014.)

The global economy is going to disappoint in 2014.

First in line is Asia. Look anywhere on that continent, and you will see economic slowdown looming in the air. China, the biggest economic hub in the region and the second-biggest in the global economy, is outright slowing down. In February, the manufacturing activity in the country dropped to a seven-month low. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) registered at 48.3 in February compared to 49.5 in … Read More

Lessons Not Learned from the Japanese (At Least, Not Yet)

By for Profit Confidential

How Money Printing Devastated This CurrencyWhenever I got stuck solving a problem in elementary school, my teacher would say, “go back and see where you went wrong.” This lesson—“learn from your mistakes”—was taught again in high school, and then throughout my life. It’s very simple: you can’t do the same thing over and over again and expect different results. Albert Einstein called it “insanity.”

When I look at the Japanese economy, I see the most basic lesson you learn in business school being ignored. The Bank of Japan, and the government, in an effort to improve the Japanese economy has resorted to money printing (quantitative easing) over and over, failing each time to spur growth. One might call it an act of insanity.

Through quantitative easing, the central bank of Japan wanted to boost the Japanese economy. It hoped that pushing more exports to the global economy from its manufacturers would change the fate of the country. It wanted inflation as well.

The result: after years of quantitative easing, the government and the central bank have outright failed to revive the Japanese economy. In fact, the opposite of their original plan is happening.

In January, the trade deficit in the Japanese economy grew—the country’s imports were more than its exports. Imports amounted to 7.70 trillion yen and exports were only 5.88 trillion yen. The trade deficit was 3.5% greater compared to the previous month. (Source: Japanese Customers web site, last accessed February 20, 2014.) Mind you, January wasn’t the only month when imports were more than exports in the Japanese economy. This is something that has been happening for some time.

Inflation in the … Read More

Stock Prices and U.S. GDP; Historic Relationship Turns Bearish

By for Profit Confidential

Historic Relationship Tur​ns BearishIn the first five weeks of this year, investors bought $22.0 billion worth of long-term stock mutual funds. (Source: Investment Company Institute, February 12, 2014.)

But as investors poured money into the stock market, hoping to ride the 2013 wave of higher stock prices, stocks did the opposite and went down. The Dow Jones Industrial Average is down three percent so far this year.

Looking at the bigger picture, corporate earnings and key stock indices valuations are still stretched. The S&P 500’s 12-month forward price-to-earnings (P/E) ratio stands at 15.1. This ratio is currently overvalued by roughly nine percent when compared to its 10-year average, and 15% compared to its five-year average. (Source: FactSet, February 14, 2014.)

This isn’t the only indicator that says key stock indices have gotten too far ahead of themselves. In the chart below, I have plotted U.S. gross domestic product (GDP) against the S&P 500.

S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

The chart clearly shows a direct relationship between GDP and the S&P 500. When U.S. GDP increases, the S&P 500 follows in the same direction, and vice versa. When we look at the 2008–2009 period (which I’ve circled in the chart above), we see that when GDP plunged, the S&P 500 followed in the same direction.

Going into 2014, we saw production in the U.S. economy decline; consumer spending is pulling back, unemployment is still an issue, and the global economy is slowing. U.S. GDP is far from growing at the rate it did after the Credit Crisis. Take another look at the chart above. In 2011, you’ll see U.S. GDP was very strong; but after … Read More

These Two Indicators Say U.S. GDP is Already Declining in 2014

By for Profit Confidential

2014 Worst Growth Year for World Economies Since 2009In 2013, the U.S. economy, as measured by gross domestic product (GDP), rose at an average rate of 1.9% compared to 2.8% in 2012. And as it stands, GDP may slow further in 2014.

What makes me think this?

In January, U.S. industrial production declined by 0.3% from the previous month. This was the first decline in production since August of 2013. Production of automotive products in the U.S. economy declined by 5.15%, and appliances, furniture, and carpeting production declined by 0.6% in the month. (Source: Federal Reserve, February 14, 2014.)

And factories in the U.S. economy just aren’t as busy as they used to be. The capacity utilization rate, a measure of companies using their potential production, was 78.5% in January. The average rate between 1979 and 2013 has been 80.1%. While a difference of two percent in factory utilization isn’t a big number, because overhead is often fixed in factories, a two-percent decline in production is a big deal.

Then there’s the inventory problem; inventories in the U.S. economy continue to increase. In December, inventories at manufacturers increased by another 0.5% to $1.7 trillion. From December 2012, they have increased by 4.4%. (Source: U.S. Census Bureau, February 14, 2014.)

We have a situation in the U.S. economy today where factories are working at lower capacity than they have historically, while business inventories are rising—two bad omens for the economy; hence, you can see why I’m concerned about economic growth in 2014.

It’s a domino effect…

Inventories increasing suggest consumer demand is stalling. Examples of consumer spending declining in the U.S. economy are many. As I have … Read More

Uncertainty in Emerging Markets Creating Certainty in Only One Market

By for Profit Confidential

This Is the Only Play that Will RewardFasten your seatbelt, dear reader. We’re in for a global financial crisis, a currency fiasco, and a stock market collapse all in the same year!

I’m being too bearish? Not after you read this…

In their search for economic growth in 2009, the Federal Reserve and other major central banks in the global economy started lowering interest rates and printing paper money.

While the central banks of the world wanted economic growth, they inadvertently created the “trade” for big investors like financial institutions and banks. I talked about this last Friday. (See “Stock Market: The Great Collapse Back to Reality Begins.”)

The “trade” had investors borrowing money from low interest rate countries and buying bonds in high interest rate countries, pocketing the spread. In the world of finance, this is often referred to as the “carry trade.” It works as long as the currencies of the low interest rate country and the higher interest rate country stay stable.

But now, the “trade” is backfiring as the currencies of emerging markets go into free fall.

China, the biggest economy in the emerging markets and second-biggest in the global economy, got most of the “trade” money. According to the Bank for International Settlements, in 2013, foreign currency loans and borrowing by Chinese companies from other countries was close to a trillion dollars. In 2009, it was only $270 billion. (Source: Telegraph, February 1, 2014.)

European banks have the biggest exposure to emerging markets, having lent them $3.0 trillion. Breaking down this number even further, British banks have loaned $518 billion to the emerging markets; Spanish banks come in second … Read More

Why Copper Prices Are Collapsing

By for Profit Confidential

Economic Growth Falls to 2009 LevelCopper prices are collapsing, a sign that manufacturing activity in the global economy is slowing.

The chart below shows copper prices are down more than five percent so far this year. Notice the steep decline in copper prices starting this January.

Copper is a major commodity used as a material ingredient in a wide variety of manufactured goods. If copper prices are declining, which means demand is falling, we get an early indication that manufacturers are producing less because customer demand is soft.

At the same time, in another startling development, the Baltic Dry Index (BDI), the next chart below, has collapsed 50% from the beginning of the year.

Copper - Spot Price (EOD) Chart

Chart courtesy of www.StockCharts.com

The BDI basically tracks shipping prices of raw materials in the global economy. When the BDI declines, it means fewer goods are being shipped in the global economy, a sign that the worldwide economy is slowing.

Baltic Dry Index (EOD) Chart

Chart courtesy of www.StockCharts.com

Last but not least, as we have been hearing in the news, the emerging markets in the global economy are in trouble.

Manufacturers in the global economy, not being able to sell enough to developed countries like the U.S. and Europe, were hoping to sell more of their goods to once “fast”-growing emerging markets. But now, economic growth in these countries is slowing, too.

Russia, one of the major emerging markets in the global economy, reported its 2013 economic growth rate was the lowest since 2009! The Russian Federal Statistics Service said the economy grew by 1.3% in 2013 compared to 3.4% in 2012. (Source: Bloomberg, January 31, 2014.)

Other emerging markets like India and China have … Read More

Emerging Market Chaos an Opportunity for Investors?

By for Profit Confidential

Opportunities Left for Investors in These MarketsIt’s amazing how investors here are nervous the Federal Reserve will eventually need to ratchet up interest rates from their current near-zero level.

Turkey’s central bank jacked up its interest rates to a whopping 12% from 7.75% in an effort to fight inflation and avoid a currency meltdown driven by our own Fed’s policies.

Years ago, there was distress in the global stock markets after currencies in the emerging markets began to tank. Of course, this is not good, as a weaker currency means less buying power by these emerging economies, which translates into less demand for goods made in industrial countries such as the United States and Europe. (Read “Time to Start Shifting Your Investment Strategy Overseas?”)

Now we are seeing some excessive selling in some emerging market currencies on concerns of further tapering by the Fed. The reason is that cheap money pumped by the Fed means lower U.S. bond yields, which forces American investors to look globally for higher yields and growth found in the emerging markets.

We are hearing about the vortex that will engulf the emerging markets and suck out the capital, creating a mass exit from these regions and driving chaos in the global markets.

While I agree the risk in the emerging markets is there, I doubt we will see a financial Armageddon surface. In fact, my feeling is I would be looking at buying the emerging markets on extreme weakness. These regions are becoming wealthier and have money to spend. For growth investors, I see a potential buying opportunity rather than a scramble for the exits.

As many of you … Read More

Stocks Off to the Worst Start for the Year Since 2005

By for Profit Confidential

Major Risks for Key Stock Indices in 2014The stock market has just put in its worst first-seven-days-of-the-year trading action since 2005, as concern over where key stock indices will head this year rises. Can the stellar year the stock market had in 2013 continue?

Among those who try to predict where key stock indices will go, Wall Street industry analysts believe that the S&P 500 will rise 4.8% this year, while market strategists believe the S&P 500 will see a decline of 2.3% this year. (Source: FactSet, January 6, 2013.) This tells me that even the professionals can’t figure out which way the market is headed.

On a valuation basis, key stock indices are reaching some dangerous levels. Based on the closing price of the S&P 500 on December 31, the forward 12-month price-to-earnings multiple (P/E) was 15.4. This is the highest forward P/E ratio since May of 2007…and we all know 2007 was the peak for the stock market for five years!

And optimism among stock advisors towards the key stock indices is getting into dangerous territory, too. The indicators I follow suggest the optimism towards key stock indices is at the same level as it was in 2007, while the number of those who are bearish (like me) is at a multi-decade low.

As we move into 2014, I am one of the very few left who are saying key stock indices are dangerously overbought and overpriced.

And if I turn to the economy, the situation looks worse. Four major global economies are in trouble:

In December, China’s manufacturing activity witnessed a shakedown. The HSBC China Manufacturing Purchasing Managers’ Index (PMI) declined to a three-month … Read More

The Only Way I’d Invest in Gold in 2014

By for Profit Confidential

Why I’m Not a Gold Bug in 2014Despite all of the talk about China and India buying lots of gold (high demand) and how the precious metal is a limited resource (limited supply), I still do not like the commodity as a buy-and-hold investment at this time.

Yes, China and India love their gold, which is used for jewelry and prestige. But unless the speculators and traders jump aboard, I just don’t see why anyone would want to buy right now.

As I said in previous commentaries (see “Should Investors Hold Out for $1,300-an-Ounce Gold Before Investing?”), gold, in my view, isn’t an attractive buy-and-hold investment at its current levels around $1,235 an ounce; to me, the yellow metal looks interesting as a buy on a decline to the $1,200-an-ounce level or below, when traders can enter and sell on rallies.

The key driver of prices—inflation—is not an issue at this point, so this precious metal becomes a less interesting buy with no real reason to hedge.

Global inflation continues to be benign. In China, inflation is hovering around the three-percent level. India is experiencing inflation above seven percent, but its impact on the global economy is minimal. In the eurozone, inflation came in at 0.8% in December, according to Eurostat, which is well below the two-percent target.

The volatile Middle East is also absent of any major geopolitical risk at this time, which drives down the demand for safe haven assets such as gold.

Until we see a rise in global risk and inflation, I doubt any upside moves in the yellow metal will be sustainable.

Even with the low relative value of the … Read More

My Early Insights on the Big Stock Market Winners in 2014

By for Profit Confidential

Reviewing the Year in StocksThis past year will be forgettable for those investors who stayed loyal to the metals: gold, silver, and copper.

Gold lost its luster with very little as far as global inflation, no major uprising in the Middle East, and the stock market delivering impressive returns. At this juncture, despite gold’s recent bounce to the $1,240-an-ounce range, I continue to advise looking elsewhere at this time, as I doubt gains will be sustainable. Traders could buy on weakness down to $1,200 and sell on rallies towards $1,240. That’s the only way you’re going to make money in gold at this time. (Read “Should Investors Hold Out for $1,300-an-Ounce Gold Before Investing?”)

Silver followed gold lower, but could rally should the economic renewal continue to pick up steam. Trade silver if you feel the global economy is recovering. The same goes for copper.

In contrast, the big winner in the stock market this year was the solar sector, which surged about 164%, according to data from Barchart.com. Yet while the gains have been impressive, you don’t want to be chasing the gains higher, due to the extreme volatility of solar stocks in the stock market at this time.

If you are looking for solar opportunities in the stock market, stick with companies in the United States and Canada. The “Best of Breed” in this sector is probably large-cap First Solar, Inc. (NASDAQ/FSLR), a developer of solar hardware that converts the sun’s rays into electricity. But if you are searching for smaller companies, consider checking out SunPower Corporation (NASDAQ/SPWR) on the mid-cap side and Canadian Solar Inc. (NASDAQ/CSIQ) on the small-cap … Read More

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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