Back in 2002 the editors of Profit Confidential started telling their readers it was time to jump into gold investments. This gold guidance and analysis proved to be extremely timely. Yes, back in 2002 we started offering gold investments analysis to our readers and we still do it today. We have been recognized as one of the first investment letters to tell its audience to jump into gold investments, very early in the gold bull market. The gold guidance and analysis we provided resulted in many stocks we follow rising in price 100% or more in short periods of time. Today, you can regularly find our gold investments guidance and analysis in Profit Confidential. Each time gold prices moved higher, we told our readers to buy more gold related investments. See what we have to say about gold’s future dally in Profit Confidential.

This is the correction we’ve been expecting and it’s affecting stocks as well as commodities. The stock market has been due for a correction after a solid first-quarter earnings season and, because share prices moved so strongly since the beginning of the year. It doesn’t really matter what the catalyst is for the correction; it is well-deserved and a healthy development in my view.

I think the S&P 500 Index is vulnerable now to the 1,300 level and, if it gets there, this would be a meaningful correction and a good buying opportunity for higher dividend paying, large-cap companies. Generally speaking, I think we’re in a time now where the stock market will be more apt to reward income over growth. Large-cap, dividend paying stocks have been leading the stock market since last October and I think this trend will continue right into 2013.

Along with large-cap stocks, both smaller companies and commodities are also experiencing a pullback. Growth concerns in the global economy are real and whether it’s related to price inflation in China or sovereign debt problems in Europe, the new normal is slower economic growth rates, especially among mature economies.

I don’t see any reason why the U.S. stock market can’t reaccelerate this year, especially as we are likely to see sporadic improvement in the economic news. And, while the outlook for corporate earnings isn’t robust, it’s still solid and stock market valuations are reasonable. Investment risk remains high for all equities, but it’s been like this since the financial crisis.

I think that big corporations are keeping earnings expectations purposefully low, in order to outperform come earnings season. (See Earnings Reflect Expectations—the Stock Market Is Fairly Valued.) It’s a way of providing shareholders with “good news” in a slow growth environment. One thing we are getting though is increased dividends and this is great news if you like dividends income with the potential for capital gains. Intel Corporation (NASDAQ/INTC) was the latest brand-name company to up its dividends payment to shareholders and, with so much cash building up on corporate balance sheets, increasing dividends news should continue throughout the year.

As I’ve said, this stock market correction is healthy and well-deserved. The stock market is fairly valued and this gives us a lot of breathing room for a pullback. If I were an equity investor looking for new positions this year, I’d wait until the correction plays itself out and I’d be watching my favorite dividend paying stocks for a good entry point. I still like gold investments for speculators; but, to me, dividends are king in this kind of market.

It’s pretty difficult to get enthusiastic about the stock market with sentiment so focused on the sovereign debt situation inGreece. Even in the face of solid earnings expectations for the third quarter, investors are looking into the future and seeing slow economic growth, translating into slower earnings. It’s the perfect storm for equities and it makes choices for equity investors very limited.

The one sector that continues to stand out in my mind as offering the best risk-versus-reward scenario is precious metals, especially gold and silver. Both these commodities are experiencing a well-deserved correction and the fundamentals for higher spot prices remain intact. With investment risk very high in the equity market and so much uncertainty surrounding European banks and the euro currency, gold is going to be a key asset over the next several years.

And, even without all the turmoil surrounding sovereign debt in Europe, the fundamentals for gold are strong in the face of a huge increase in the U.S. money supply, inflationary pressures, and central bank demand for gold bars.

And don’t tell me that inflation isn’t an issue. The last time I checked, prices for things weren’t going down. Inflation jumped to three percent in the month of September in the 17 countries that use the euro currency, which was the highest inflation rate since October of 2008. And this is happening in a slow growth environment. I understand reduced expectations for global economic growth, but with the world awash in debt and countries stimulating their economies with increased money supplies, inflation is a very real threat and potential wealth destroyer over the next several years.

In any case, gold investments are one of the few asset classes that should outperform over the medium term and gold stocks should be on every investor’s radar screen.

The stock market is going through a tumultuous time right now, and has been doing so since the end of July. The S&P 500 Index just recently broke through its 25-day moving average and does not look healthy from a technical perspective. I wouldn’t be surprised at all if the Index hits 1,050 or even 1,000.

The saving grace over the near term should be third-quarter earnings, but any good news from corporations will be usurped by the debt crisis in Europe. Accordingly, equity investors will be well served by keeping a close eye on the spot price of gold and the opportunity for a new entry point. If everything comes apart in Europe, cash, gold and the U.S. dollar will be the marketplace’s only friends.

Gold prices rising for 10 years straight…the money supply greatly expanded…the printing press for dollars running overtime…am I the only one concerned about rapid inflation?

I rarely read or hear a report talking about today’s rising prices or the hyperinflation we may sustain in the years ahead. We all know prices are rising—only housing prices have remained low. Inflation is real and it is here now.

The U.S. consumer-price index (CPI) increased 0.4% in August. That’s an annual inflation rate of 4.8%! Why are we not hearing and reading more about this? The only vocal entity on inflation has been gold bullion. The rise in the price of gold is shouting, “Inflation ahead!”

By keeping interest rates so low, by increasing the money supply, the Fed is spurring inflation. And that’s what we all want: inflation, not deflation. So the Fed has us pointed in the right direction. The trick for the Fed will be eventually bringing interest rates up ever so gently when inflation starts to get out of control.

Unfortunately, consumers are suffering from inflation today. Retirees who will not accept risk with their investments are stuck with 10-year Treasuries paying a measly two percent. With inflation at 4.8%, consumers’ money is losing 2.8% of its value over 12 months.

Inflation is a problem today, my dear readers, and it will be a bigger problem tomorrow. Keep the gold investments. They’ll be even more valuable as time passes and inflation really takes hold in this country.

Michael’s Personal Notes:

Jobless claims rose by 11,000 to 428,000 last week—the highest level since June, according to the U.S. Labor Department. Wow! Jobs continue to be a big economic problem in this country. Bank of America (NYSE/BAC) is the latest large company to announce major layoffs plans.

Until employment in this country gets back on track, the housing market will not recover. And until the housing market recovers, the economy will continue to be anemic. That’s simple economic analysis.

I’ve been thinking more and more about Obama’s American Jobs Bill and I don’t believe it’s the answer. It will just add billions to our debt burden.

The answer, my dear reader, the answer to creating old-fashioned jobs in this country, is capitalism and entrepreneurship. That’s what created this great country in the first place.

Drastically lowering taxes will create jobs. A flat tax across the board—say 20% or 25%—with a valued-added sales tax on the purchase of items, like they have in countries such as Canada, is the only way to really get the economy going and to create jobs. Unfortunately, the Obama administration has never put forth any such proposal.

Where the Market Stands: Where it’s Headed:

We are in a bear market rally that started in March of 2009. While 30 months’ old and tired, this bear market rally has more life left in it. I believe that the rally will push stock prices even higher, as the bear lures more investors back into the stock market.

What He Said:

“As investors, we need to take a serious look at our investment portfolios and ask, ‘How will my investments be affected by an American-grown recession?’ You should take what precautionary steps you can right now to protect yourself from a recession in 2007. Maybe you need to cut your own spending or maybe you need to sell some stocks that will take a beating during a recession. You know what tidying up you need to do. Don’t procrastinate…get to it now. And please remember: Recessions can happen quickly, stock markets don’t go up during recessions, and the longer the boom before the recession, the longer the recession. Just based on my last point, we have plenty to worry about in 2007.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

It’s a bird. No, it’s a plane. Maybe it’s Superman! Sorry, it’s none of these things; it’s your friendly central banker to the rescue again!

Couldn’t believe the news yesterday morning…

To calm banking concerns in Europe, mostly centered around the repercussions of a default by Greece, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank and even our own Federal Reserve are providing three-month loans to euro-area banks.

Will this work? And where is the money coming from?

The markets loved the news that central banks are basically backstopping European banks. And why wouldn’t the stock market love the news? After all, bank stock prices rise on such news and, when the bank stocks go up, so does the general stock market.

However, I believe this is a short-term solution, similar to a bandage. The big question that members of the euro currency need to answer is: will they let Greece go under or will they support it? Until that question is answered, the lack of confidence in the euro-area banks will continue.

In respect to how they’ll pay for it, to lend billions to the troubled European banks, world central banks will need to print more money. You can’t lend money if you don’t have it. Sure, we’ll be told these are loans that will be repaid and that the central banks will actually make money on the loans. But, as I said, you can’t loan money you don’t have. You need to print it first.

The more money central that banks print worldwide, the higher gold bullion prices go, the more valuable gold investments become, and the great the chance of inflation. That’s simple economic analysis.

Michael’s Personal Notes:

After pulling back on their foreclosure activities, as lenders faced scrutiny from State governments over sloppy paperwork, it looks like lenders hit the ground running in August.

According to California-based data provider RealtyTrac Inc., default notices to delinquent U.S. homeowners jumped 33% in August from July. First-time default notices were sent to 78,880 properties in August—again, that’s only first-time default notices! Total foreclosure filing jumped seven percent in August to 228,098 filings.

The U.S. real estate market isn’t getting better, as some would have us believe. If we look at the numbers, lenders are getting serious again about foreclosing. This will glut the housing market with inventory and place more downward pressure on housing prices. Forget those new-homebuilding stocks for a while longer!

Where the Market Stands: Where it’s Headed:

What a difference a couple of days make! After yesterday’s big rally (which coincided with my article Thursday morning (“Huge Bearish Sentiment to Propel Stock Market Rally”), the market is close to breakeven for 2011.

With so much negativity in the marketplace, with so many stock advisors turning bullish, this bear market rally is picking up with some real life.

I continue to believe we are in a bear market rally that started in March of 2009. Stocks will continue to ride “the wall of worry” higher.

What He Said:

“You’ve been reading my articles over the past few months and have seen how negative I’ve become on the U.S. economy. Particularly, I believe it’s the ramifications of the faltering housing sector that are being underestimated by economists. A recession doesn’t take much to happen. It’s disappointing that more hasn’t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn’t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006.  Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

Loyal and long-term readers know I’m a contrarian investor at heart. When investors are selling in droves, I want to buy. Similarly, when investors are buying stocks as a herd, I’m selling.

And this brings me to today’s very important issue.

I follow several services that gauge the sentiment of consumers, investors, and stock advisors. And from 30 years of investing experience, I can tell you that the stock market usually does the opposite of what the consensus believes it will do.

As an example, in March of 2009, at the depth of market pessimism, when investors and stock market advisors were at their most negative consensus in years, the stock market took off. In October of 2007, when investors and advisors were at an extreme bullish level, stocks started to crash.

My news today is that, over the past couple of weeks, the number of stock advisors who have turned bearish on the stock market has reached a level not seen since the fall of 2010 (Source: Investors Intelligence).

Stock advisors have left the bullish camp in droves and have jumped onto the bearish bandwagon. Wherever I look, I see blatant negativity. The bears are aggressively outnumbering the bulls, and when I see this kind of action…the stock market usually rallies. Investors pulled big money out of the stock market in August. A recent CNN-sponsored poll says that almost half of all Americans expect a depression within the next 12 months. Negativity is at extreme levels.

What I’m saying today is that there is sufficient bearishness among investors and stock advisors for the stock market to give us a meaningful rally from here. If I were to short the stock market right now, I’d be covering my shorts.

Michael’s Personal Notes:

“Is silver still a good buy?” This is a question I regularly hear from precious metals investors these days.

The simple answer is that I believe silver prices have gotten a little ahead of themselves. Yes, I like the long-term prospects for most precious metals, but silver prices have already enjoyed a spectacular run-up and are due for a correction.

This morning, it takes 45 ounces of silver to buy one ounce of gold bullion—the high-end of the historic price relationship between the metals. At the end of 2008, it took 80 ounces of silver to buy one ounce of gold—silver prices have come a long way.

If we look over the past 12-month period, gold bullion prices have risen 42%, while silver prices have soared more than double that—silver has risen in price 96% in the past 12-month period.

I believe that, after spectacular run-ups, both gold and silver prices are headed for a correction. I won’t sell my gold—as prices move lower, I will use that opportunity to buy more gold investments. But to make silver a screaming buy for me once again, either the price of the metal has to decline or the price of gold has to rise to close the gold/silver price ratio gap.

Where the Market Stands: Where it’s Headed:

Stocks are closing the gap on their loss for 2011. After yesterday’s 140-point rally by the Dow Jones Industrial Average, stocks are down 2.7% for 2011.

The stock market continues to climb the proverbial “wall of worry.” I believe that the market will move higher from here, as the bear market rally that started back in March of 2009 continues its advance.

What He Said:

“What group of stocks are next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in PROFIT CONFIDENTIAL, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.