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.

Stock Market Fake? Economic Growth Falls to Slowest Pace Since 2009

By for Profit Confidential

Eurozone Economic Growth PrecariousNot too long ago, I reported that Italy, the third-biggest economy in the eurozone, had fallen back into recession.

Now Germany’s economy is pulling back. In the second quarter of 2014, the largest economy in the eurozone witnessed a decline in its gross domestic product (GDP)—the first decline in Germany’s GDP since the first quarter of 2013. (Source: Destatis, August 14, 2014.)

And more difficult times could lie ahead…

In August, the ZEW Indicator of Economic Sentiment, a survey that asks analysts and investors where the German economy will go, posted a massive decline. The index collapsed 18.5 points to sit at 8.6 points. This indicator has been declining for eight consecutive months and now sits at its lowest level since December of 2012. (Source: ZEW, August 12, 2014.)

Not only does the ZEW indicator provide an idea about the business cycle in Germany, it also gives us an idea of where the eurozone will go, since Germany is the biggest economic hub in the region.

But there’s more…

France, the second-biggest economy in the eurozone, is also in a precarious position—and a recession may not be too far away for France.

After seeing its GDP grow by only 0.4% in 2013, France’s GDP came in at zero for the first two quarters of 2014. (Source: France’s National Institute of Statistics and Economic Studies, August 14, 2014.)

France’s problems don’t end there. This major eurozone country is experiencing rampant unemployment, which has remained elevated for a very long time.

While I understand North Americans may not be interested in knowing much about the economic slowdown in the eurozone, we … Read More

The Problem With Reality in 2014

By for Profit Confidential

U.S. Economy Halfway to a Recession AlreadyEarlier this month, Jeremy Siegal, a well-known “bull” on CNBC, took to the airwaves to predict the Dow Jones Industrial Average would go beyond 18,000 by the end of this year. Acknowledging overpriced valuations on the key stock indices are being ignored, he argued historical valuations should be taken with a grain of salt and nothing more. (Source: CNBC, July 2, 2014.)

Sadly, it’s not only Jeremy Siegal who has this point of view. Many other stock advisors who were previously bearish have thrown in the towel and turned bullish towards key stock indices—regardless of what the historical stock market valuation tools are saying.

We are getting to the point where today’s mentality about key stock indices—the sheer bullish belief stocks will only move higher—has surpassed the optimism that was prevalent in the stock market in 2007, before stocks crashed.

At the very core, when you pull away the stock buyback programs and the Fed’s tapering of the money supply and interest rates, there is one main factor that drives key stock indices higher or lower: corporate earnings. So, for key stock indices to continue to make new highs, corporate profits need to rise.

But there are two blatant threats to companies in the key stock indices and the profits they generate.

First, the U.S. economy is very, very weak. While we saw negative gross domestic product (GDP) growth in the first quarter of this year, the International Monetary Fund (IMF) just downgraded its U.S. economic projection. The IMF now expects the U.S. economy to grow by just 1.7% in 2014. (Source: International Monetary Fund, July 24, 2014.) One more … Read More

Investors Forgot Everything That Happened Just a Few Years Ago?

By for Profit Confidential

The Economy and the Stock MarketThere are two important charts I want my readers to see this morning.

The first is a chart that is an indirect measure of demand in the global economy. Right now, the Baltic Dry Index (BDI) sits at its lowest level of the year. Since the beginning of 2014, the BDI has fallen 60%.

The BDI measures the cost of moving major raw materials by sea in the global economy. The thinking is that the lower the cost to move goods by ship, the lesser the amount of goods to move (a strict demand/supply price situation).

BAtic Dry Index (EOD) INDX Chart Chart courtesy of www.StockCharts.com

What’s happening with the steep drop in the BDI can be seen in a corresponding slowdown in the global economy.

Germany, the fourth-biggest economy in the world, saw its industrial production decline by 1.8% in May after falling 0.3% in April. (Source: Destatis, July 7, 2014.)

Great Britain, the sixth-biggest market in the global economy, saw its production decline 0.7% in May, while its manufacturing decreased 1.3%. (Source: Office for National Statistics, July 8, 2014.)

France, the fifth-biggest economy, reports no gross domestic product (GDP) growth in the country in the first quarter of 2014. (Source: MarketWatch, July 8, 2014.)

In 2014, the Chinese economy will grow at its slowest pace in years. In Japan, the Bank of Japan (its equivalent to our Federal Reserve) has announced it will start buying exchange-traded funds (in specific, the Nikkei 400 ETF) to “boost the impact of (its) unprecedented easing.” (Source: “Bank of Japan Seen Buying Nikkei 400 ETF,” Financial Post, July 10, 2014.) Yes, the central bank of Japan is buying … Read More

What’s Up Three Times More Than Stocks So Far This Year?

By for Profit Confidential

Where Gold Will Trade in the Second Half of 2014Investors who bought gold bullion in early 2014 know it was a great decision. The precious metal has increased 10.2% in price between January and June, while the Dow Jones Industrial Average climbed by just three percent.

So far, so good—and as expected.

Going forward, it will not be surprising to me to see the precious metal outperform the stock market in the second half of the year as well.

Why will this happen?

As demand for gold bullion continues to rise and as supply declines (the exact situation we have today), gold bullion prices will have no option but to rise.

In the table below, I have plotted the production of gold bullion at U.S. mines for the first three months of the year compared to the first three months of 2013. Production at U.S. gold mines is declining month after month.

Production at U.S. Gold Mines, 1Q2013 vs. 1Q2014

Month 2013 Output (in Kg) 2014 Output (in Kg) % Change Year-over-Year
January 18600 18,500 -0.54%
February 17,300 17,100 -1.16%
March 18,700 18,200 -2.67%
Total 54,600 53,800 -1.47%

Data source: U.S. Geological Survey web site, last accessed July 1, 2014

While the chart above only details U.S. gold mining production, gold bullion production across the global economy is declining. Last year, as the yellow metal witnessed a massive sell-off in price, gold mining companies cut back on their exploration and capital expenditures budgets. This is now catching up and derailing production. And I see the situation for supply only getting worse.

Meanwhile, demand for gold bullion keeps rising.

We continue to see significant demand for the precious metal—and not … Read More

How to Create a Winning Portfolio in a Market at Its Highs

By for Profit Confidential

How to Build a Winning Portfolio in Four Simple StepsIt’s a difficult environment in which to be constructing new equity portfolios right now, mostly due to the very simple reason that the stock market is at an all-time record high and it’s likely that monetary policy will change soon.

But there is still a great deal of interest in equity securities and in a lot of cases, individuals require the income that they provide.

There are a lot of really good investment funds and money managers in the marketplace; but for those who wish to build and manage their own stock market portfolios, you want to approach the process methodically and with a great deal of care.

As a stockbroker, I learned a long time ago that financial products are typically sold not bought. Don’t let anyone sell you anything in this market—stocks are at all-time highs.

If you’re looking to the stock market to create a portfolio of companies, just remember that there is no rush to do so. Because of the financial crisis and subsequent recession, policy has been about the re-inflation of assets (mostly financial), and the stock market’s been going up based on the certainty that the Federal Reserve will be extremely accommodative.

Right or wrong, institutional investors used that certainty to buy equity securities.

Traders might like to buy high in order to sell higher, but momentum trading isn’t investing and as an investor, it’s tough buying stocks at their highs.

But the current environment is a good one in which to identify good businesses that can become core positions in a portfolio over time.

In terms of creating a new, risk-averse stock market … Read More

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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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