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

Inflation

Inflation is the rise in prices of goods and services in an economy over a certain set time period. When prices rise, for the same level of income, the consumer can purchase less, which means they have less purchasing power and are “poorer” compared to the previous time period. The inflation rate is the annualized level of price changes. Excessive growth of the money supply is one cause of inflation. When the government adds more money to an economy, it devalues each bill already in circulation, lowering the value, as it now will take more money to purchase the same good or service. Inflation is not a problem if it is very low; but, once it escalates, it causes severe economic problems.

Why My Coffee Is Costing So Much More This Year

By for Profit Confidential

Why Deflation is Out of the Question for the U.S. EconomyWe are told that in the month of January, inflation in the U.S. economy increased by one-tenth of a percent. In February, prices increased by a similar percentage. In the entire year of 2013, the “official” rate was only 1.5%. (Source: Bureau of Labor Statistics web site, last accessed April 8, 2014.)

Some economists are calling for even less inflation in 2014 and even outright deflation (a period when prices decline).

This is absurd! Anywhere you look, things are costing more each passing day.

Consider the chart of gas prices below. Since the beginning of the year, spot prices for gasoline have increased by eight percent.

Gasoline Unleaded - Spot Prices Chart Chart courtesy of www.StockCharts.com

Unfortunately, gas prices aren’t the only thing that has gone up. Basic food prices are skyrocketing, too!

Since the beginning of the year, corn prices have gone up 22%. Coffee prices are up more than 75% year-to-date. Why aren’t these price increases reflected in the “official” numbers? It’s because the government leaves out two very important consumer essentials when it calculates its official inflation rate: energy and food prices.

As we all know, over the past few years, food stamp usage in the U.S. economy has dramatically increased. In January of 2014, 46.5 million Americans were using food stamps. (Source: U.S. Department of Agriculture, April 4, 2014.) The use of food stamps in the U.S. economy is a well-known fact, but have you wondered why so many Americans can’t even afford to buy food? You can blame inflation. Food costs are rising quickly so it’s becoming increasingly difficult for people to keep up with rising food prices when their incomes … Read More

Will the U.S. Escape the Rapid Inflation That Usually Follows Massive Money Printing?

By for Profit Confidential

Proof Growth in Money Supply Not Spurring GDP GrowthIs the Federal Reserve ignoring the very basic law of economics…the law of diminishing marginal utility? You remember that term from economics in high school. The law of diminishing marginal utility states that the more of something you have, the lesser its impact on you.

The Fed has been printing money in hopes of stimulating growth in the U.S. economy. As the Fed printed more paper money, its balance sheet grew to over $4.0 trillion.

Below, I’ve made a table that looks at gross domestic product (GDP) growth in the U.S. each year since 2009, and where the balance sheet of our central bank stood at the end of each year.

In the table below, you will notice something interesting; aside from 2009, there is no real correlation between the increases in the assets (paper money printed) on the Fed’s balance sheet and GDP growth. In fact, after all the money the Fed has printed, the U.S. economy grew last year at its slowest pace since 2011.

U.S. GDP Growth vs. Growth in Size of Fed Balance Sheet

Year YOY Change
in GDP
Fed Balance Sheet (Trillions) YOY Change in Balance Sheet
2009 -2.80% $2.08 73.44%
2010 2.50% $2.31 11.21%
2011 1.84% $2.74 18.58%
2012 2.77% $2.86 4.36%
2013 1.87% $3.47 21.33%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed April 1, 2014.

The Federal Reserve predicts the U.S. GDP in 2014 will increase between 2.8% and three percent; that’s a jump of about 50% since 2013. (Source: Federal Reserve, March 19, 2014.) I believe this to be way too optimistic. (And as we … Read More

Are We Really Headed for Deflation?

By for Profit Confidential

Forget Deflation; Inflation Is Becoming a Big ProblemThe Bureau of Labor Statistics (BLS) reports inflation in the U.S. economy increased by 0.1% in February from the previous month. (Source: Bureau of Labor Statistics, March 18, 2014.) As usual, these numbers have again brought up the theory of deflation—a period when general prices decline.

Reasons for the deflation fear? In 2013, inflation for the entire year was 1.5%. In 2012, it was 1.9%. Going back further, in 2011, it was three percent. If we extrapolate the inflation numbers from January and February of this year and assume the increase will be the same (0.1%) throughout the year, we are looking at an inflation rate of 1.2% for 2014.

Wells Fargo Securities LLC has gone one step further. Economists at the firm believe there’s a 66% chance that deflation in the U.S. economy will prevail and these chances have been increasing since 2010. (Source: Bloomberg, February 21, 2014.)

To me, this is sheer nonsense!

The reality of the matter is that the inflation numbers reported by the BLS exclude changes in food and energy prices—the most important things consumers use on a daily basis. When you include food and energy, inflation is running at a much higher rate.

The prices of basic commodities are skyrocketing. Take corn prices, for example: since the beginning of the year, corn prices are up more than 15%. Wheat prices are up almost 20% year-to-date. When you look at meat prices, such as lean hogs, you will see they have increased by more than 45% since January.

As I see it, deflation is nothing but a farfetched idea for the U.S. economy. (In a … 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 I Can’t Help but Be Bullish on Gold

By for Profit Confidential

Gold Presenting Same Opportunity Today That Stocks Offered in 2009The U.S. national debt has skyrocketed from $9.2 trillion in the beginning of 2008 to $17.3 trillion today. This represents an increase of more than 88% in just a matter of a few years. (Source: Treasury Direct web site, last accessed March 11, 2014.) The national debt of the U.S. is higher than its gross domestic product (GDP).

Japan is in a very similar situation, if not worse. At the end of 2013, Japan’s national debt stood above one quadrillion yen. In U.S. dollar terms, this amounts to more than $10.0 trillion. (Source: Japan Ministry of Finance web site, last accessed March 11, 2014.) Japan’s national debt is more than 200% of the country’s GDP.

In its fiscal 2012–2013 year, the national debt of Great Britain stood at 1.18 trillion pounds; in U.S. dollar terms, that’s close to $2.0 trillion. (Source: Reuters, February 28, 2014.) Great Britain’s national debt represents 74% of its GDP, and that percentage is rising.

The U.S., Japan, and Great Britain are only three countries whose national debt continues to increase. Include troubled countries in the eurozone, and the picture in respect to out-of-control debt and money printing starts to take a really ugly form.

Rising national debt pretty much means there will be higher inflation ahead; that’s one of the reasons why I can’t help but be bullish on gold bullion, one of the best hedges against inflation.

And that’s where the opportunity for investors lies today. Gold mining shares are trading at historically low multiples. Because of the sell-off in gold bullion prices over the last two years, many gold mining companies were punished. … Read More

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Why My Coffee Is Costing So Much More This Year

By for Profit Confidential

Why Deflation is Out of the Question for the U.S. EconomyWe are told that in the month of January, inflation in the U.S. economy increased by one-tenth of a percent. In February, prices increased by a similar percentage. In the entire year of 2013, the “official” rate was only 1.5%. (Source: Bureau of Labor Statistics web site, last accessed April 8, 2014.)

Some economists are calling for even less inflation in 2014 and even outright deflation (a period when prices decline).

This is absurd! Anywhere you look, things are costing more each passing day.

Consider the chart of gas prices below. Since the beginning of the year, spot prices for gasoline have increased by eight percent.

Gasoline Unleaded - Spot Prices Chart Chart courtesy of www.StockCharts.com

Unfortunately, gas prices aren’t the only thing that has gone up. Basic food prices are skyrocketing, too!

Since the beginning of the year, corn prices have gone up 22%. Coffee prices are up more than 75% year-to-date. Why aren’t these price increases reflected in the “official” numbers? It’s because the government leaves out two very important consumer essentials when it calculates its official inflation rate: energy and food prices.

As we all know, over the past few years, food stamp usage in the U.S. economy has dramatically increased. In January of 2014, 46.5 million Americans were using food stamps. (Source: U.S. Department of Agriculture, April 4, 2014.) The use of food stamps in the U.S. economy is a well-known fact, but have you wondered why so many Americans can’t even afford to buy food? You can blame inflation. Food costs are rising quickly so it’s becoming increasingly difficult for people to keep up with rising food prices when their incomes … Read More

Will the U.S. Escape the Rapid Inflation That Usually Follows Massive Money Printing?

By for Profit Confidential

Proof Growth in Money Supply Not Spurring GDP GrowthIs the Federal Reserve ignoring the very basic law of economics…the law of diminishing marginal utility? You remember that term from economics in high school. The law of diminishing marginal utility states that the more of something you have, the lesser its impact on you.

The Fed has been printing money in hopes of stimulating growth in the U.S. economy. As the Fed printed more paper money, its balance sheet grew to over $4.0 trillion.

Below, I’ve made a table that looks at gross domestic product (GDP) growth in the U.S. each year since 2009, and where the balance sheet of our central bank stood at the end of each year.

In the table below, you will notice something interesting; aside from 2009, there is no real correlation between the increases in the assets (paper money printed) on the Fed’s balance sheet and GDP growth. In fact, after all the money the Fed has printed, the U.S. economy grew last year at its slowest pace since 2011.

U.S. GDP Growth vs. Growth in Size of Fed Balance Sheet

Year YOY Change
in GDP
Fed Balance Sheet (Trillions) YOY Change in Balance Sheet
2009 -2.80% $2.08 73.44%
2010 2.50% $2.31 11.21%
2011 1.84% $2.74 18.58%
2012 2.77% $2.86 4.36%
2013 1.87% $3.47 21.33%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed April 1, 2014.

The Federal Reserve predicts the U.S. GDP in 2014 will increase between 2.8% and three percent; that’s a jump of about 50% since 2013. (Source: Federal Reserve, March 19, 2014.) I believe this to be way too optimistic. (And as we … Read More

Are We Really Headed for Deflation?

By for Profit Confidential

Forget Deflation; Inflation Is Becoming a Big ProblemThe Bureau of Labor Statistics (BLS) reports inflation in the U.S. economy increased by 0.1% in February from the previous month. (Source: Bureau of Labor Statistics, March 18, 2014.) As usual, these numbers have again brought up the theory of deflation—a period when general prices decline.

Reasons for the deflation fear? In 2013, inflation for the entire year was 1.5%. In 2012, it was 1.9%. Going back further, in 2011, it was three percent. If we extrapolate the inflation numbers from January and February of this year and assume the increase will be the same (0.1%) throughout the year, we are looking at an inflation rate of 1.2% for 2014.

Wells Fargo Securities LLC has gone one step further. Economists at the firm believe there’s a 66% chance that deflation in the U.S. economy will prevail and these chances have been increasing since 2010. (Source: Bloomberg, February 21, 2014.)

To me, this is sheer nonsense!

The reality of the matter is that the inflation numbers reported by the BLS exclude changes in food and energy prices—the most important things consumers use on a daily basis. When you include food and energy, inflation is running at a much higher rate.

The prices of basic commodities are skyrocketing. Take corn prices, for example: since the beginning of the year, corn prices are up more than 15%. Wheat prices are up almost 20% year-to-date. When you look at meat prices, such as lean hogs, you will see they have increased by more than 45% since January.

As I see it, deflation is nothing but a farfetched idea for the U.S. economy. (In a … 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 I Can’t Help but Be Bullish on Gold

By for Profit Confidential

Gold Presenting Same Opportunity Today That Stocks Offered in 2009The U.S. national debt has skyrocketed from $9.2 trillion in the beginning of 2008 to $17.3 trillion today. This represents an increase of more than 88% in just a matter of a few years. (Source: Treasury Direct web site, last accessed March 11, 2014.) The national debt of the U.S. is higher than its gross domestic product (GDP).

Japan is in a very similar situation, if not worse. At the end of 2013, Japan’s national debt stood above one quadrillion yen. In U.S. dollar terms, this amounts to more than $10.0 trillion. (Source: Japan Ministry of Finance web site, last accessed March 11, 2014.) Japan’s national debt is more than 200% of the country’s GDP.

In its fiscal 2012–2013 year, the national debt of Great Britain stood at 1.18 trillion pounds; in U.S. dollar terms, that’s close to $2.0 trillion. (Source: Reuters, February 28, 2014.) Great Britain’s national debt represents 74% of its GDP, and that percentage is rising.

The U.S., Japan, and Great Britain are only three countries whose national debt continues to increase. Include troubled countries in the eurozone, and the picture in respect to out-of-control debt and money printing starts to take a really ugly form.

Rising national debt pretty much means there will be higher inflation ahead; that’s one of the reasons why I can’t help but be bullish on gold bullion, one of the best hedges against inflation.

And that’s where the opportunity for investors lies today. Gold mining shares are trading at historically low multiples. Because of the sell-off in gold bullion prices over the last two years, many gold mining companies were punished. … Read More

This Blue Chip Keeps Bouncing Back

By for Profit Confidential

This One Stock Keeps Bouncing BackAmong blue chips, Johnson & Johnson (JNJ) remains one of the most attractive enterprises for long-term investors.

As a benchmark stock within the entire equity universe and a conglomerate itself of healthcare businesses, it’s reasonable to expect a stock like this to provide a normalized annual return of approximately 10% including dividends.

Johnson & Johnson isn’t typically down for long on the stock market, and most recently, the stock popped higher after dropping to $86.00 a share.

The position’s been toying with $95.00 a share, and this is a ceiling for the stock, according to its recent trading action over the last couple of quarters. If the broader market holds firm, $100.00 a share by year-end would be a fair and attainable price target.

While not robust, earnings have caught up to share prices for many blue chips and countless positions are not overpriced.

Johnson & Johnson has a trailing price-to-earnings (P/E) ratio of approximately 19.5 and a forward P/E ratio of around 15. Because of the company’s stellar long-term returns to shareholders, it’s kind of like a golden blue chip, as very few companies have been able to produce such decent and consistent operational growth in their businesses.

Johnson & Johnson’s long-term, split-adjusted stock chart is featured below:

JNJ Johnson & Johnson NYSE Chart

Chart courtesy of www.StockCharts.com

All blue chips, even those with increasing dividends, experience periods of non-performance, but often to a lesser degree than the broader market. While not offering robust growth, the stability of an enterprise like this company provides peace of mind, in addition to the high likelihood that dividends will increase in the future and that demand for … Read More

The Dividend-Paying Blue Chips That Also Deliver Significant Capital Gains

By for Profit Confidential

Two Blue Chips to Snatch up When They're DownAmong the many lessons to be learned by 2013’s stunning stock market performance, one is that dividend-paying blue chips can also experience significant capital gains.

Portfolio strategy can be based on blue chips, but it can also include companies with varied market capitalizations; mixing it up is always useful.

The thing with blue chips is that they often experience long periods of underperformance, even if they are still paying their dividends. Periods like 2013 are pretty rare, but I do think there is enough momentum in this market to carry blue chips a little higher, with gains more likely towards the end of the year.

I still feel that existing winners, especially larger-cap companies that offer dividend income, are the way to go in a slow-growth environment. Top-notch balance sheets, including huge cash balances and the very low cost of capital are a boon to big companies.

The bears are always looking for reasons why stocks should go down, but blue chips have the pricing power and the economies of scale to keep earnings afloat.

Management teams are reticent to make bold investments in new plant and equipment, and the trend of keeping shareholders happy with increasing dividends and share repurchases shows no sign of abating. These are good markets for conservative investors.

The Walt Disney Company (DIS) is one of many blue chips that are worthy of consideration when they’re down. According to this stock’s historical track record, it isn’t down for long. The company’s recent stock chart is featured below:

DIS Walt Disney Co. NYSE Chart

Chart courtesy of www.StockCharts.com

Disney recently dipped to $70.00 a share when the broader stock market retrenched 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

Where to Find the Best Buying Opportunity in This Stock Market Going Forward

By for Profit Confidential

Buying Opportunity for Stock Investors Going ForwardAt the beginning of the year, I thought the technology sector would deliver some of the top potential for gains this year.

Nearly two months into the year, the technology sector has, so far, made the biggest strides in what has been a relatively cautious start to the year.

So far this February, the technology sector is leading the broader stock market with the NASDAQ closing higher for eight straight sessions as of the end of Tuesday. With the steady advance, the NASDAQ hit a new 13-year high, up 4.12% in February and 2.28% in 2014. The NASDAQ is the only major stock market index in the black this year.

And it looks like the NASDAQ could test its all-time nominal high of above 5,100 sometime in 2015 if everything pans out. We could even see a test later this year if the technology sector can maintain its positive sentiment and continue to edge higher, based on my technical analysis.

It has been nearly 14 years since that infamous period back then when the technology sector imploded.

The valuation and froth this time isn’t as bad, but we have been seeing some euphoric trading in the Internet services space and social media stocks. (Read my take on Facebook in the social media space in “My Top Stock Pick in the Internet Space.”)

A look at the long-term chart of the NASDAQ reveals that the relative steadiness of the current move towards 4,000 is not unlike what happened more than 13 years ago. Note that the index is now near its previous nominal high as indicated by the top … Read More

The Best Investment You Can Make in 2014?

By for Profit Confidential

What Happened Last Time Gold Had a Bad YearTo say the very least, 2013 was an interesting year for gold bullion. The precious metal’s price surprised gold bugs and declined 24%.

As 2013 progressed, we heard calls for the yellow metal to fall even lower in price. The stocks of gold producers were slammed. Equity research departments at big banks like The Goldman Sachs Group, Inc. (NYSE/GS) called gold bullion a slam-dunk sell (and the last time I checked, their opinion hasn’t changed).

In the midst of all this, a very important phenomenon was forgotten: gold bullion prices are no stranger to price declines. In the table below, I’ve compiled a list of every period since 1974 when gold prices fell more than 20% and what happened after the decline.

Year, % Drop in Gold Prices Year, % Increase After Drop
1974-1976 declined by 45.67% 1976-1980 increased by 705%
1980-1982 declined by 63.84% 1982-1983 increased by 71.8%
1983-1985 declined by 45.17% 1985-1987 increased by 76.7%
1987-2001 declined by 48.88% 2001-2008 increased by 291.38%
Mar. 2008-Nov. 2008 declined by 28.8% Nov. 2008-2011 increased by 169.56%

Data source: www.StockCharts.com, last accessed February 6, 2014.

The table above illustrates that the bigger the decline in gold bullion prices, the greater the ensuing rebound.

Since gold bullion prices fell in 2013, gold miners have pulled back on operations at mines where $1,200-an-ounce gold no longer justifies production. This has resulted in a reduction in the supply of newly mined gold.

And while the supply of gold bullion is under pressure, demand for the precious metal keeps increasing. In China, both consumers and the country’s central bank have become gold hoarders over … Read More

Exodus Away from U.S. Dollar On?

By for Profit Confidential

Fundamentals That Once Supported Greenback Damaged“Michael, you don’t know what you are talking about.” That’s pretty much what I was told back in 2005 and 2006 when I was warning extensively that the U.S. housing market would collapse.

When a boom in any form of investment is going on, and millions of people are participating in that boom, it’s hard to convince people the boom is about to bust. At a certain point, we start hearing that old saying “it’s different this time,” which means people simply don’t believe the boom will end. They try to legitimize it.

But like all booms, the bust did happen. The housing market went bust big-time, and we all know what happened after that.

Today, there’s another asset class that is booming, that investors large and small are literally running to. No, I’m not talking about the stock market (it’s already in bust mode). I’m talking about the greenback, the good old U.S. dollar.

In recent days, and despite trillions of dollars in new money created by the Federal Reserve, the U.S. dollar has gained traction as investors search for safety amid the collapsing emerging markets.

Personally, I think investors are wrong to find security in the U.S. dollar. In fact, I see its days as the leading currency of the world being numbered.

But the fundamentals that make the dollar a “safe haven” are damaged. Aside from the fact the Federal Reserve has printed trillions in new money and the government continues to take on never-to-be-repaid debt daily, central banks around the world are reducing the amount of the reserves they keep in U.S. dollars.

Please look … Read More

The Greatest Risk in Today’s Financial System

By for Profit Confidential

How a Portfolio Approach to Stocks Reduces RiskIf you have a serious commitment to the equity market, you know that it’s very easy to lose money with stocks. Even when market action is good, one wrong number or any small aberration has the potential to change investor sentiment on a dime. Today’s hottest stocks are easily tomorrow’s biggest losers; today’s financial engineering could lead to tomorrow’s market crash after a derivatives trade–gone-bad.

This is why it really is worthwhile to spend time thinking about investment risk and how a portfolio of stocks is vulnerable to the downside.

I firmly believe that capital preservation is just as important as the expectation of generating a return on investment from stocks at a rate that is greater than inflation. In today’s world, with artificially low interest rates and poor rates of return from bonds and cash, stocks are a huge asset class with tremendously higher risks.

Because of this, approaching equities from a portfolio perspective and building core positions in stable, dividend-paying businesses is a strategy that complements the more speculative approach of trying to achieve short-term capital gains.

Equity investors are well served by trying to “do it all” in the sense of having core positions in stocks that can be accumulated over time, along with a certain percentage allocated for risk-capital trades. (See “Two Steps to a Solid and Profitable Portfolio.”)

And for those less comfortable with the idea of selecting and managing a portfolio of individual stocks, there’s no reason why you can’t integrate active investing with passive investing. Index funds and exchange-traded funds (ETFs) are still great instruments in which to have exposure to … Read More

Why We’re Headed for a Period of Stagflation and What It Means for Investors

By for Profit Confidential

Argument for Inflation Lies in This One ChartThe Bureau of Labor Statistics just reported that inflation in the U.S. economy increased by 0.3% in the month of December and that the Consumer Price Index (CPI) for the entire year of 2013 increased by only 1.5%. (Source: Bureau of Labor Statistics, January 16, 2014.)

Is inflation in the U.S. economy really this low?

It sure doesn’t feel like it. Every time I buy groceries, go out for dinner, get my car fixed, pay utilities bills, or fill up my car’s gas tank, it feels like I am paying a lot more than I did last year or the year before.

Dear reader, inflation is higher than what the CPI figures say because of the way the CPI is calculated; food and energy prices are taken out because they tend to be more “volatile,” according to the government. That means key items consumers buy on a regular basis—food and gas—are excluded from the official inflation numbers!

While the mainstream fears deflation in the U.S. economy, I’m concerned about an unexpected bout of higher inflation hitting us. Why would I think this?

I can sum up my argument for inflation ahead with just this one chart:

St. Louis Adjusted Monetary Base Chart

The chart above shows the currency (coins and paper notes) in circulation and deposits of banks at the Federal Reserve.

As you can see, since the financial crisis, the Federal Reserve has injected trillions of dollars into the U.S. economy. This is dangerous, in my opinion, for the simple reason that the more there is of any item in supply, the less the demand, and the lower the price. In this particular case, the … Read More

If You Are in the Housing Market, You Need to Read This

By for Profit Confidential

Leading Indicator Flashes Red Warning Sign for HousingTo see where the U.S. housing market is headed, we really need to look at what real home buyers—those who are planning to stay in their home for the long term—are doing. Institutional investors, who came into the housing market in 2012 and bought massive amounts of homes, are speculators; they’ll quickly rush out of the housing market if they can get a profit or if they can get a better return on their money elsewhere.

Right now, real home buyers are not very active in the U.S. housing market, as they face challenges. In fact, it looks like the number of real home buyers in the housing market is declining.

Between January and December of 2013, the 30-year fixed mortgage rate tracked by Freddie Mac increased by 31%. The 30-year fixed mortgage rate stood at 3.41% in January, and it increased to 4.46% by December. (Source: Freddie Mac web site, last accessed January 15, 2014.) Higher interest costs are a real challenge for home buyers.

As we can see from the chart below, there was a sudden change in the direction of interest rates after the Federal Reserve hinted in the spring of 2013 that it would start to “taper” its quantitative easing (money printing) program. It is widely expected that the Fed will continue to taper throughout 2014 as it drastically pulls back on its massive money printing scheme.

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

Another challenge home buyers face is stagnant growth in their incomes. In 2013, average hourly earnings of production and nonsupervisory employees in the U.S. increased by only 1.85%—less than real inflation. (Source: Federal Reserve Bank … Read More

If Gold’s a Bad Investment, Why Is This Country Buying 150% More of It?

By for Profit Confidential

150114_PC_lombardiI see more negativity towards gold bullion these days than ever before. And the more pessimism I hear and see, the more bullish I get on the precious metal.

After a bull market in gold bullion that lasted 12 straight years, 2013 was the correction year for gold bullion. It was the year that “separated the men from boys,” the investors from the speculators, when it came to gold bullion.

Consumer demand for gold coins continues to accelerate, and central banks around the world continue to be net buyers of the precious metal. Even small countries are getting in on the action. In 2013, Turkey imported 150% more gold bullion than it did in 2012! Turkey imported 302.3 tons of gold bullion in 2013, compared to 120.78 tons in 2012. (Source: Hurriyet Daily, January 3, 2014.)

The mainstream argument against gold bullion is that since there’s economic growth now, you don’t really need the precious metal…there’s no “crisis,” uncertainty, or inflation to send gold bullion prices higher. I don’t buy this argument for a New York minute.

The global economy is in a very fragile state. Major economic hubs are facing issues. China, India, Australia, the eurozone, and the U.S. economy show bleak economic performance. Just look at how bad the U.S. December jobs numbers were. (See “Pathetic December Jobs Numbers Proof 2014 to Be Challenging Year.”)

The third-biggest economy in the world, Japan, after years of money printing, reported an account deficit of 592 billion yen in November 2013—the country’s imports were more than its exports, as imports were up 230% over the same period a … 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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