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

Stock Market & Gold: An Opportunity
Like We’ve Never Seen Before?

Friday, September 23rd, 2011
By for Profit Confidential

Why Michael sees yesterday’s sell-off in most investment categories as presenting investors with huge opportunities for profit. I’m so excited this morning; I can hardly control my excitement.

Being the type of person who looks at the glass half-full as opposed to half-empty, I see yesterday’s sell-off in most investment categories as presenting investors with huge opportunities for profit.

Let’s start with the stock market: Since August, there have been five breakdowns by the Dow Jones Industrial Average to the 10,500 level. Subsequent to each of the downside moves, the stock market has rallied. As of last night’s close, the Dow Jones Industrials are selling at only 12.2 times this year’s earnings! The Dow Jones Industrials offer a dividend yield today of 2.9%—trumping most other forms of investment in respect to income.

The stock market is severely oversold; there is great value in stocks.

Moving to precious metals, the big correction in gold and silver I have been predicting and warning about is on! Finally, gold’s back under $1,700 an ounce. Finally, silver is back under $33.00 an ounce.

If you believe that the world’s financial problems will go away, if you believe that the U.S. will get out from under its mountain of debt, sell your gold.

On the other hand, if you recognize that gold bullion has risen $397.00 an ounce in the past 12 months (31%) and investors are finally taking some profits off the table, if you believe that the world’s economic problems will only get worse, that the U.S. will continue piling on the debt, that U.S. dollars will continue to be printed at a rate that spurs inflation (all the stuff I believe), then you might want to take this opportunity to buy more gold investments (like I am).

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“Global Stocks Enter Bear Market,” said the headline on a Bloomberg news story yesterday. Investors are panicking again and stock advisors are at the most bearish level in months. When you see this amount of negativity, stocks usually go the other way and climb the wall of worry higher. Stock market rallies end when investors are most optimistic, not when they are as pessimistic as they are today.

Michael’s Personal Notes:

Shares of Warren Buffett’s Berkshire Hathaway Inc. (NYSE/BRK-A) are trading at $100,000 for the first time since the beginning of 2010. I believe there are two reasons this is happening and I don’t believe the price action of Berkshire stock is indicative of the future of general stock prices.

First of all, the company’s reinsurance units have taken a hit. Japan’s earthquake in March and the U.S. windstorms this year have resulted in Berkshire Hathaway Reinsurance Group taking a loss in the first half of 2011.

Secondly, as the company has grown so much, it’s just getting tougher to make deals with big returns. Most of Buffett’s bets have been secure ones: buying preferred shares of big companies and getting a small of amount of warrants as a bonus. The bigger Berkshire has become, the more difficult it has become to make deals where the eventual returns are substantial. Berkshire will be hard pressed to find a deal like Coca-Cola again.

Where the Market Stands; Where it’s Headed:

Despite yesterday’s sell-off in stocks, I believe we continue to be in a bear market rally in stocks that started in March of 2009. Yes, the rally has been long and is getting tired, but I believe the bear market rally has more upside potential left.

What He Said:

“Partying Like a Drunken Sailor: The party continues. Stocks are making new highs and people are spending like there is no tomorrow. Why? I really don’t know. Big (cap) stocks, they just continue going up. Wall Street bonuses are at record levels. Popular consumer goods are flying off the shelves. Designer clothes, fast and expensive cars, restaurants with one-hour waits…people are spending in America today at an unbelievable clip. 1932, 1933…who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007…welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.” Michael Lombardi in PROFIT CONFIDENTIAL, February 7, 2007. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

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Michael Lombardi - Economist, Financial AdvisorMichael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Some of the stock recommendations in Michael's various financial newsletters have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter or Add Michael Lombardi to your Google+ circles