I feel so strongly about investing in gold and silver that I keep writing about the precious metal sector, even though it goes against my usual philosophy of trying to buy low and sell high. No doubt, the vast majority of the stocks worth owning within the industry have already gone up in value tremendously. This is no big surprise; however, considering the run-up we’ve had in spot prices.

Yet, there really isn’t another industry in the global economy that’s got such rosy fundamentals. And not only that, but if you’re an equity speculator, you typically have to play the market that’s in front of you. If the action is in gold stocks, then that’s where you go. It’s the same as the Internet craze (but not yet as pronounced) on the stock market. Every experienced investor knew the valuations were off the charts, but it didn’t really matter until the sentiment turned. A lot of individual investors made a lot of money during those times.

Now we have an industry that’s awash in cash, has relative high barriers to entry, is benefitting from huge macro forces (a weaker dollar, money-supply-induced inflation, safe-haven status, and a recovering global economy), and is still under-owned by institutional and individual investors. You’ve got to spread your bets in this sector—but make no mistake; the action in gold and silver stocks is going to be good for quite a while.

Both stocks and commodities are due for market corrections, but this won’t be a major shock. When it happens, I’d seriously consider some new stock picking in the best gold and silver companies. Not only is consolidation within the industry accelerating, but also there really isn’t a lot of new production coming on stream, which means that the fundamentals for spot prices will remain strong.

Giving general investment advice is just that—musings about broad market trends. Nobody can predict the future and I don’t try to do so. What I’ve learned over the years, however, is that the trend in capital markets is usually your friend and, for commodities specifically, the price cycle can be decades long. Accordingly, I think both gold and silver prices have a lot further to advance. And that’s without any new potential shocks to the global economy. It’s just with the status quo.

With large amounts of money greasing the balance sheets of established precious metal producers, you know that mergers and acquisitions will take place. You also can bet that a lot of new junior mining companies will try to come to market in the form of new initial public offerings (IPOs). Wall Street types are exceedingly good at feeding a marketplace exactly what it wants, without any care to what happens next. Personally, I think it’s wise to work with a broker that is knowledgeable and does deals in the mining industry. There’s an expertise required in mining (geology, engineering, and finance) that’s unique from other businesses and a good Street analyst can make you money from the sector. Regardless, the global investment business is slowly migrating to the mining sector. This play has a lot more life left in it.

If you are a stock market investor or a gold investor, or both, today’s PROFIT CONFIDENTIAL is a must-read. Why? Because, by the time you are finished reading this issue, you could very well be convinced long-term that the stock market is going down and gold is going up. And you can make a lot of money from these moves.

Let’s start with the important numbers all investors should be aware of:

Stock history first: The Dow Jones Industrial Average opened the year 2000 at 10,786. The same index ended 2010 at 11,577.50. In a nutshell, if you were an investor in the Dow Jones Industrial Average, your capital gain appreciation over the past 11 years would have been a paltry 7.3%. (No wonder we have always preferred micro-cap stocks, penny stocks and small-cap stocks!)

Gold history now: At the beginning of the year 2000, gold bullion was trading at $280.00 per ounce. Gold bullion closed out 2010 at $1,422 per ounce—a gain of 407% in 11 years.

Now, let’s pretend you can’t buy the stocks that comprise the Dow Jones Industrial Average in U.S. dollars, but you can only buy them with gold bullion. Taking the numbers above, in 2000, it would have taken 38.5 ounces of gold to buy the Dow Jones Industrial Average. At the end of 2010, it would have taken only 8.2 ounces of gold to buy the Dow Jones Industrial Average. In other words, when measured in gold and not dollars, the value of the 30 big stocks that make up the Dow Jones Industrials has plummeted over the past decade.

Now, when we look back at almost a century of data in respect to the relationship between gold bullion and the Dow Jones Industrials (often referred to as the Dow Jones Gold Ratio), it gets really interesting.

In the period from 1930 to 1949, a 19-year span, the price of the Dow Jones Industrial Average measured in gold bullion was under 5.0 (during that 19-year period it would have taken less than five ounces of gold to figuratively buy the Dow Jones Industrial Averages’ index).

In the period from 1974 to 1989, a 15-year span, the price of the Dow Jones Industrial Average measured in gold bullion was under 5.0 again.

As I started writing years ago, with the sharp rise in the price of gold since the year 2000, I believe we are entering another multi-year period where it will cost less than five ounces of gold to buy the Dow Jones Industrial Average. To see that happen, the price of gold needs to rise sharply, or the stock market has to come down, or both events need to occur.

Now the scary part: over the last century there have been three times when only one ounce of gold could buy the Dow Jones Industrial Average. If we are headed close to that level again (which I believe we are), fortunes will be made over the next few years on the long side of gold and short side of stocks.

Michael’s Personal Notes:

Words of wisdom from our esteemed technical analyst, Anthony Jasansky, P. Eng., on President Obama inadvertently putting the brakes on the stock market rally:

“Money talks and it has been talking very loud after Uncle Ben started the money printing presses at the old Fed in late 2008. He was so impressed by the results of the magical out-of-thin air creation of $1.75 trillion—dubbed ingeniously as ‘quantitative easing (QE)’—that, in the fall of 2010, he cranked up the printing presses again, launching the $600-billion QE2.

“Though these two huge money injections have been credited with reversing financial and economic calamity, they still fell short on some important fronts. Among the notable failings of QE are the anemic recovery in GDP, lack of growth in employment, continued weakness in residential and commercial real estate, the battered U.S. dollar, and unexpectedly higher yields of long-term treasuries and bonds.

“When recently questioned on the effectiveness of QE, the Fed’s chairman has pointed to the strong stock market as one important benefit. Without missing a beat, the U.S. President in his January 25 State of the Union speech mentioned the recovery in the stock market as being the result of government actions to prevent a depression. Knowing how perverse the market can be, Obama’s bullish assertion may turn out be a timely signal for the stocks to take a deep breather.”

Where the Market Stands; Where it’s Headed:

Could the bear market rally in stocks be over? After all, the Dow Jones Industrials suddenly fell 166 points on Friday. Last Friday was a wake-up call for investors and traders getting too cocky with this market. Stocks do not go up in a straight line week after week (as has been the case for most of December 2010 and this January).

While I need to see more action from the stock market before I throw in the towel on the bear market rally that started in March of 2009, I doubt the rally is over. This week opens with the Dow Jones Industrial Average up 2.1% for 2011.

What He Said:

“‘Home sales down 8.4%, could be the bottom,’ read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in PROFIT CONFIDENTIAL, January 31, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for the worst of times ahead.

I continue to see a lot of good news hitting the wires and I hope this momentum lasts. We’re getting positive results from big companies and small companies and across a range of industries. This is a strong signal that the economic recovery might be stronger than economists currently estimate.

The one industry that continues to be a standout in my view is mining. I know it’s an industry that very few people see as exciting, but as a business model, the cash tumbles in when conditions are right—and, you guessed it, conditions are exactly right now.

At this time, the mining industry has almost perfect conditions in which to grow. Precious metal prices have been and should continue to be strong. The stock market is on solid footing, so there’s lots of equity capital around to finance expansion. The cost of cash is also cheap, which is always helpful. And, we have a global economic recovery in mature economies, with continued high growth in large, emerging economies like Brazil, China and India. In my view, global events have somehow conspired to create the perfect environment in which to be in the mining business. It’s no wonder that so many mining companies are overflowing with cash.

What you want in a mining investment is a well-managed company that’s run by known industry veterans. You want a company with the right assets (properties that are producing, along with exploration potential), growing production for the next several years and a rising commodity price environment.

If you have the chance, pull up a list of recent press releases on a company called Yamana Gold Inc. (NYSE/AUY; TSX/YRI). This well-known, established producer just issued an operational update that I would say represents the “perfect world” for a mining business.

The company announced increased gold production in the fourth quarter and a major reduction in cost per ounce. The company previously estimated that its cash costs would be $175.00 per gold equivalent ounce (GEO) in 2010, but now says that this number will be less than $125.00 per GEO. That’s a big deal and should produce a major gain in earnings.

The company also said that it expects 2012 total production to grow about 27% over 2010, to between 1.2 and 1.32 million ounces of gold. In addition, 2013 total production is expected to keep growing to between 1.46 and 1.68 million ounces, and 2014 is targeted at over 1.7 million ounces of gold, representing growth of about 65% over 2010. That’s impressive, and the price of gold doesn’t even have to go up for this company to grow its earnings. It’s the kind of growth you might associate with a high-flying technology stock.

I don’t own Yamana Gold, but it’s a great example of the outstanding business conditions that are now present in the mining industry. It is difficult to get excited about financing big holes in the ground, but this year and next, I think this industry will really pay off.

The end of this year will make the ninth consecutive December 31 when the price of gold bullion was higher than the previous December 31. Gold has risen from approximately $300.00 in 2002 to $1,380 per ounce today—a gain of 360%.

At this point of the gold bull market, we are at what I call phase two. Phase one is when the very smart money starts accumulating an asset because it is so depressed that no one wants it. For gold bullion, this can be classified as the period between 2001 and 2009, a period that saw gold rise from $275.00 to $1,000 per ounce.

So, today, we are in phase two of the gold bull market. At this junction, serious investors start to take note about the rise in price of the commodity. Many investors are concerned about the future of the U.S. dollar given the debt that backs it; others have given-up on the euro. If I were to ask 100 investors today, I would guess only five percent to 10% would have gold investments in their portfolio.

What I particularly like about this phase two of the current bull market in gold is that we have so many reporters, analysts and advisors saying it’s a “bubble” already! These people do not understand the strength of a bull market in any asset once it starts—bull markets end in euphoria and speculation. We are far from that in gold.

Two years ago, we couldn’t give away subscriptions to our gold stock newsletter. Today, it is selling well, “but not flying off the shelf” as they say. Hence, I see people starting to notice what’s happening with gold bullion and I see investors interested in getting their feet wet with the metal.

If you were to ask me for an educated guess as to when phase three of the bull market in gold would start, I would have to say when gold hits $2,000 an ounce. Now here’s the important part: phase three of a bull market can go until the asset under question goes up 50% from when phase three started.

What I’m saying is that, if phase three of the gold bull market starts when gold hits $2,000 an ounce, which is still some distance away, the metal can rise another 50% to $3,000 from there, just based on speculators and the novice public getting into the metal.

If you’ve ever played baccarat at the casinos, you know the cardinal rule is to not bet against the trend. Who am I to bet against a nine-year winning streak? Gold prices will end 2011 higher than they end 2010, that’s my bet. And that makes quality gold stocks still very attractive for investors.

Michael’s Personal Notes:

I know this is somewhat off-the-wall, but I want to share it with my thought-provocative PROFIT CONFIDENTIAL readers. The following is from my colleague and co-editor Robert Appel:

“Early in 2011, no later than May, we expect a world economic crisis similar to 2008, most likely involving currency pegs and the pricing of key commodities.

Many will refer to it, with hindsight, as a ‘perfect storm’ in that different aspects of the crisis will co-mingle seemingly unrelated challenges involving growing social unrest in many countries in response to the expanding feeling of powerlessness and disenfranchisement among the middle class.

Inflation and deflation will co-exist, which will be unsettling to consumers and academics both. Interest rates will creep up, slow and steady, but nonetheless unstoppable. There will be many unsettling incidents of international brinkmanship, especially between ancient enemies, but no major war that spans borders.

Two of the biggest business surprises will be a well-coordinated attempt by the Western governments to control/choke Internet traffic and the revelation that Hollywood’s delicate business model, essentially unchanged for over a century, is no longer working, and a new one is desperately needed. Yet another former film star will run for office. Headlines will be made when scientists disclose how common cancer has become. 

Gold will touch $2,200 an ounce during the worst of the crisis, but close the year just under $2,000. The broad market in December 2011 will be where it was, approximately, in December 2010.”

Where the Market Stands; Where it’s Headed:

Not much of day for the markets yesterday, just more of the same: The Dow Jones Industrial Average trades around a high not seen in 22 months, U.S. bond yields rose again, with the 10-year U.S. Treasury now yielding over 3.5%. Gold eased off, but not enough for me to jump in and buy more.

The bear market in stocks that started in March 9, 2009, continues. I’m getting increasingly concerned about rising long-term interest rates and their impact on the stock market for 2011, but in the immediate term, I believe this rally has more leg left.

What He Said:

“I’ve been pushing gold bullion and gold shares for over a year now. Bank in January 2002, I personally started buying gold shares.” Michael Lombardi in PROFIT CONFIDENTIAL, December 13, 2002. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended in Michael’s advisories gained in excess of 100%.

Gold has edged higher in each of the past nine years, and it is set to close off its decade-long bull market. Buying has been driven by a combination of speculative trading in physical gold, gold ETFs, and buying as a safe-haven investment.

Lombardi Financial first turned bullish in 2002-2003 and has remained so ever since. Although at times the bullion has had a rough ride, metal prices have turned around significantly after first breaking above $400.00. I believe the spot price of gold can easily creep up to $1,500 in the near term; as early as in the first quarter of 2011.

There are some bullish pundits who are even suggesting a $2,000 longer-term target for gold based on rising demand out of China and India.

For starters, world governments have committed trillions of dollars to various bailout packages. Those bailouts will have also left a debt trail of gigantic proportions.

In the U.S. only, about $2.0 trillion of the bailout money has been procured through auctioning government debt instruments. In turn, the budget deficit is going to be enormous and, as a result, the U.S. dollar is continuing to be weak in 2010. This could continue into 2011, as the government’s financial situation moves deeper into the red. Note that, the lower the dollar goes, the better it is for gold prices.

In addition, the Federal Reserve has pumped hundreds of millions of dollars into the U.S. financial sector in an effort to create liquidity, encourage lending, and entice consumers to start spending again. It sure is taking time, but all this money is bound to reverse the effects of deflation and result in inflation, which has always been the best thing there is for gold prices.

The February 2011 Gold on the COMEX recently broke to a record high of $1,432.50, well above both its 50-day moving average (MA) of $1,3650 and 200-day MA of $1,243. We are seeing a bullish golden cross on the chart, with the 50-day MA above the 200-day MA.

The near-term technical view is moderately bullish, but the Relative Strength has been weakening, which has resulted in the failure to hold above $1,400.

The simple truth is that gold is a trustworthy and realistic investment instrument that should be in every investor’s portfolio. Gold’s traditional role as a safe haven has made it the underdog in the world markets. It is an investment that people turn to only when stock or bond markets aren’t performing well, or when monetary policies are running amok. Yet there is a sense that gold may be increasingly seen as a credible and realistic investment vehicle and not just as a safe-haven instrument for parking capital.

What a month December has been so far for the stock market. The Dow Jones Industrial Average is up 3.5% in the first two days of December—its biggest two-day rally since July.

What’s fueling the rise in stock prices? Several factors.

First and foremost, investors have nowhere else to park their cash. Who wants to buy bonds paying mediocre returns? Investors are staying away from real estate because it’s still considered to have the plague. Hence, stocks and gold are the only game in town for investors.

This morning, news comes that banks in one of my favorite countries in the world to visit, Italy, are seeing borrowing costs jump on concerns about Italy’s finances and debt situation. Problems persist in other euro countries like Greece, Ireland, Portugal and Spain.

All of a sudden, the stocks of major American corporations, some of which generate more sales each year than Greece’s or Ireland’s annual GDP, look attractive.

I’ve been telling my readers to buy stocks for months (actually, 20 months). And I still think it’s not too late.

This morning, the Dow Jones Industrial Average opens only 89 points below its post-crash high of 11,451. Do I think the Dow Jones will march onto a new 52-week high? Yes. And we could see that action sooner than the majority of analysts expect.

Michael’s Personal Notes:

The Goldman Sachs Group, Inc. (NYSE/GS) said yesterday that bank stocks are a “buy,” singling out JPMorgan Chase & Co. (NYSE/JPM), Citigroup, Inc. (NYSE/C), and Bank of America Corporation (NYSE/BAC) as the top picks. The Dow Jones U.S. Bank Index jumped 3.3% on the news.

I disagree with Goldman. New, more stringent rules make investment banking profits harder to come by these days. The Dow Jones U.S. Bank Index is down 63% since the boom days of 2007, a big laggard compared to other sectors like retail that have rebounded nicely from their recession low.

The government still has plenty of stock in Citigroup to sell and the mortgage fiasco continues. Imagine being Bank of America and having a slew of defaulted mortgages you want to foreclose on, but you can’t because state governments say that you didn’t cross the t’s in your paperwork.

The banks still face real problems in the U.S. As for Canadian banks, their stock prices have risen too high, while their profits have not kept up with their rising stock prices.

I’d stay away from the banks for now. But who am I compared to Goldman Sachs to say?

Where the Market Stands:

The Dow Jones Industrial Average starts this morning up 8.9% for 2011. The bear market rally in stocks that started in March of 2009 continues.

What He Said:

“When I look around today, I see falling stock prices…I see falling house prices…and prices for retail goods stores declining. The media has it all wrong blaming (worrying about) inflation. In my opinion, the single biggest threat to the U.S. economy and to the Fed in 2008 is deflation. You can bet the Fed will expand the money supply and drop interest rates aggressively, as deflation starts to rear its ugly head.” Michael Lombardi in PROFIT CONFIDENTIAL, December 17, 2007. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in their worst state of deflation since the Great Depression.

Gold and silver stocks are hitting records all over the place. Some large-caps are hitting new 52-week highs. In a fragmented, yet positively inclined equity market, trying to find the next big trade is tough.

I feel pretty confident in the gold trade. Gold prices are likely to keep on trending higher, as there really is no reason why they shouldn’t. But gold now is a trade and less of an investment. The big money’s already been made here over the last couple of years. It’s a trade that represents the buy-high-and-sell-higher investment philosophy. Right now, I want to find some value for my investment dollars.

The one sector that keeps jumping out at me continues to be Chinese equities, which have been in the doldrums for quite a while. There are all kinds of good businesses out there that are trading on U.S. stock exchanges at very reasonable prices. The problem with this equity group is that domestic Chinese equities continue to be in the doldrums and investors just aren’t interested at this time. This presents ideal conditions for the value investor.

China has a lot of problems in terms of its economic development, but its appetite for growth isn’t going away anytime soon. In fact, if the global economy continues on its path to recovery, China’s export position will only get stronger. The domestic Chinese equity market did tremendously well in 2006 and 2007. Then it corrected significantly in 2008 and, after a decent recovery last year, has been trading sideways. The Chinese marketplace is uncertain about economic stimulus plans and a bubbling housing market. Yet the growth is still there. Eventually, the stock market will be playing some catch up, and this is why I like this sector now.

There are a lot of U.S.-listed Chinese companies that are speculative and high-risk. But, an investor can also consider owning an exchange-traded fund (ETF) representing the biggest large-caps. What’s clear to me now is the value that’s developed in these stocks as a group. There will always be a risk premium associated with Chinese equities, but now is the time to put this group on your radar screen. I don’t expect a bull market to develop in Chinese shares just yet, but, like I say, eventually the equity market will play some catch up.

Ever since the gold standard was removed, central banks have been selling off gold from their treasuries. They thought gold was not valuable enough to justify storage costs; they thought that gold was a dead asset. Many investors, financial planners and stockbrokers, who are now in their 30s and 40s, still think of gold as a dead asset. This is hardly a surprise, considering that all they have ever known were boom years fuelled by unprecedented credit expansion.

But then came the crash of 2008, precipitated by the subprime mortgage and credit bubbles bursting in August 2007. What came out of it was the credit and financial crisis of 2008/2009, when the world economies were thrown into a whirlwind of recession that has forced governments around the globe to spend trillions of dollars trying to prevent a total meltdown of the global monetary systems. While the rescue operation may have been successful, it has only been successful to an extent. You see, in the end, someone, somehow, will have to pay for this monetary expansion.

At the same time, that also means that lean times are likely ahead, probably years. More than ever, it is of paramount importance to protect one’s wealth. The only way to do that today is to buy gold. Shape or form matters little; gold bars, jewelry, futures contracts, gold stocks, anything, as long as it is gold or gold’s proxy.

Some will argue that there is safety in government debt, too, particularly the U.S. Treasuries. On the face value, that is true, too; debt issued and guaranteed by U.S. government is indeed a safe place. However, most Treasury bonds today are issued in the environment of interest rates at record lows, which is pushing prices up and yields down. For example, the 30-year Treasury bond now has a yield of 3.77%, while the 10-year T-bond barely produces a yield of 2.63%.

At the same time, the U.S. national debt is closing in on $14.0 trillion, while government debt-to-GDP ratio is likely to pass the 100% mark. According to IMF, in 2009, gross U.S. government debt was at 85% of GDP. In 2014, it is expected to hit 108%. Things are not any better in the U.K. In 2009, the country’s gross government debt versus GDP was 69%, while it is expected to hit 98% by 2013.

U.S. GDP growth is bound to be slow in the next few years, while unemployment is likely to remain high. This will mean less money in tax revenues and, thus, less money to either maintain or pay off debt. As a consequence, the money supply will have to keep on increasing, debasing the value of fiat currencies even further, and causing the value of gold to rise. To put things into perspective, as already mentioned, since 2001, the U.S. dollar has lost over 30% of its value. During the same period, the price of gold futures has increased more than four times.

Global sovereign debt problems, little to no economic growth, stagnating corporate earnings, high unemployment rates, interest rates that are low, devaluation of major currencies, and less and less gold held in government treasuries could mean only one thing — another disaster of global proportions in the making.

While the total collapse of the U.S. dollar beyond salvation is not likely, the current economic landscape and the dollar’s role in it is truly frightening. I would not recommend ignoring it. The way I see it, the only way to protect your portfolios is to hold at least some real assets, including commodity monies, such as gold and silver.

It is estimated that the foreign exchange market trades about $4.0 trillion daily. Furthermore, in spite of the euro entering the global stage in 1999, up until recently, the U.S. dollar was considered the world’s premier reserve currency. The flip side of this statement is that, since 2001, the greenback has shed quite a bit off its value, declining over 30%. Actually, since the Federal Reserve was created in 1913, the dollar has lost over 96% of its value. It may not feel that way to some, but that is only because so few investors truly understand what determines the value of any currency.

In order to trade internationally, and pay for goods and services domestically, every country in the world has its own currency. However, when President Nixon stripped the gold standard in 1971, what was also stripped was any intrinsic value of the U.S. dollar. The International Monetary Fund (IMF) delivered the final blow to gold’s monetary status in 1973, permanently removing gold from the monetary system.

The primary reason for removing the gold standard is that, when a currency is backed by gold, it can expand only as much as the gold backing will allow it to expand. Consequently, the economic growth is inherently restricted, because the money supply is restricted to how much gold a country holds in its treasury.

On the other hand, when currencies are no longer constricted by gold or silver held in treasury vaults, what they morph into are fiat currencies. The simplest definition of a fiat currency is that it is a medium of exchange (for goods and services); only its intrinsic value is not determined by something tangible and valuable, such as gold, for example.

Instead, fiat currencies are based on something intangible and essentially valueless, because whoever has printed the money does not promise to either redeem it through a commodity or through any other fiduciary monetary form. As a result, since no fiat currency has any direct and/or legally binding connection to a tangible asset (the “commodity money” placed in the redemption context), no fiat currency has any real economic costs and, thus, there is no self-limit in terms of its supply.

How else can fiat currencies be valued? The only way fiat currencies can have value is when they are issued in a country that is economically healthy and politically stable. As these two major factors fluctuate, so does the value of fiat currencies. This why and how the value of currencies have such a huge impact on governments, businesses, financial systems and, ultimately, every man, woman and child on the planet.

Compared to stocks and bonds, which are typically traded in local markets during business hours in their respective time zones, currencies trade virtually around the clock, 24/7. It may sound as if global currency markets exist in their own world. On some level, that is true. But, in this day and age, no market is isolated from global financial systems. For example, U.S. Treasuries impact the value of the U.S. dollar, which in turn impacts trading in FX markets, which in turn impact the trading of stocks and commodities.

The U.S. dollar is still considered the world’s reserve currency. Therefore, if something is amiss with the dollar, it resonates deeply within the global monetary system. Of course, such interconnectedness cannot work in one direction only, as changes in the global monetary system also have significant impact on the dollar. In this loop are often factors such as changes in interest rates, corporate earnings, equity prices, currency prices, bond yields, inflationary pressures, deflationary pressures, unemployment, moneysupply, a credit crunch, debt levels, international trade…and the list goes on and on.

(To be continued in Friday’s issue)

Wherever I travel in the U.S. these days, I see business picking up. There is less discussion about the possibility of a double-dip recession. The businesses that did survive the recession are slowly turning the corner.

The banks, while they may not be lending to small business, are posting strong profits. The tech companies, from Apple to Google, and it seems everything in between, continue to roll out the profits. Even the industrial companies are coming back. And, yes, the car companies are making money again.

But we are left with many serious problems in the economy. The jobless rate is high, national debt is out of control, and the economy continues to move so pathetically along that the Fed cannot raise interest rates.

It is becoming more and more apparent to me, as the days and years pass, that the U.S. is following the route of the old European countries. With our manufacturing base all but gone, the U.S. is slowly joining the ranks of European countries that saw their factories fade so many years ago.

Fewer jobs. Higher debt. The poor stay poor. The rich get richer. The middle class slowly deteriorates. Government gets bigger. That seems to be the fate of the United States.

I travel to Europe each year and I see America’s future. The talk of Great Depression II persists with some people in the U.S., especially those without jobs and those who lived through the Great Depression. But something more profound, something life-changing that will change the way the U.S. operates in the decades ahead is happening.

The great American dream of opening a business up to manufacture a product, like the widget business we were taught about in that economic class we took in high school, has passed future American generations by. We have moved from being a country that manufactures goods to becoming a service-oriented economy, very similar to so many European countries like Great Britain, Italy, and France.

And, with that, the U.S. has gone from being a creditor nation (a country that is owed money) to a debtor nation (a country that owes money to other countries) all in less than 50 years. The future does not look good for America.

But it is important for investors like us to remember that the major old countries of Europe still offer profit opportunities to investors. Investor opportunities do not disappear as an economy goes from being a producer of goods to a provider of services. They are just fewer and further between.

Michael’s Personal Notes:

The most common question this past July to me: “Michael, is it too late to buy into gold?”

There is a simple answer to that question, because I have answered it so many times before: It was not too late to get into gold when it was $600.00 an ounce and people were asking the same question. It was not too late to get into gold when it hit $1,000 an ounce. And, in my opinion, it is not too late to get into gold at $1,200 an ounce.

For those who say that gold is at a speculative top, that deflation will ravage gold, I strongly disagree. In my many years of studying market trends, I have never seen a chart look as beautiful as a gold price chart from 2002. The rise in gold prices, I remind the pundits, has been a slow, steady rise. Not a rise to match the NASDAQ euphoria of 1999 or the housing market of 2005.

Markets do not top when the majority of investors do not realize it is a bull market. And that is the present case with gold. Of the many investment newsletters we sell, our gold-stock-picking newsletter is the hardest sell. This experience tells me that the majority of retail investors do not believe in the gold bull market.

In 1999, with our NASDAQ stock-picking newsletter, we couldn’t print copies fast enough for investors. The opposite is true for our gold-stock-picking newsletter today. Investors do not want advice on picking gold stocks. This is a strong indication to me that the retail investor is out of the gold market — that means this gold bull market has a long, long way to go.

I’m sure when gold hits $1,500 an ounce, I will be asked the same question: “Michael, is it too late to buy gold?”

Where the Market Stands:

The Dow Jones Industrial Average opens this week up 2.2% for the year. In my opinion, the bear market rally that started in March 2009, while getting tired, continues.\

What He Said:

“Starting two years ago, I was writing how the housing boom would go bust and cause the U.S. economy to suffer sharply. That’s exactly what is happening today. From what I see happening in the U.S. economy, I’m keeping with the prediction I made earlier this year: By late 2007/early 2008, the U.S. will be in a homemade recession. Hence, I expect housing prices to continue declining, soft auto sales, soft consumer spending, and a lower stock market.” Michael Lombardi in PROFIT CONFIDENTIAL, August 15, 2007. You would have been hard-pressed to find another analyst predicting a U.S. recession in the summer of 2007. At the time, the stock market was roaring, with the Dow Jones Industrial Average hitting its all-time high of 14,164 in October 2007.