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

Monetary Stimulus

Monetary policy is the mechanism through which the supply of money is controlled by monetary authorities. Monetary stimulus is the attempt by the monetary authority to manipulate money supply and generate growth. This can come in the form of lower interest rates, as well by lowering the reserve ration. The reserve ratio is the amount of assets that banks need to have on deposit with a central bank.

Why Economic Growth Doesn’t Guarantee Rising Share Prices

By for Profit Confidential

Why Today's Earnings Are for Yesterday's Stock PricesTrading action in stocks has been all over the map so far this year, while investor sentiment remained generally positive. The fact that there was a bunch of profit-taking after the solid recovery in February and March is neither a surprise nor unnatural for a market at a high.

The Federal Reserve continues to be more than accommodative to Wall Street with its words of comfort and its willingness to provide continued monetary stimulus past previously stated benchmarks.

Near-term, geopolitical events in Ukraine are likely the biggest risk for stocks. It’s been a slow start this earnings season with unremarkable results, but the numbers aren’t that bad. Growth is growth.

The NASDAQ Biotechnology Index has just now crossed its 200-day simple moving average, if that’s meaningful. It’s done so several times over the last five years and recovered after a period of consolidation.

Biotechnology stocks aren’t worth paying a lot of attention to in terms of portfolio strategy. These risk-capital stocks trade on their own unique set of business fundamentals. They’ve been powerhouse wealth creators for sure over the last few years. They are due for an extended break.

I think the best plays in this market are still with dividend-paying blue chips as they experience price retrenchments. These stocks continue to have a tremendous amount of favor with big investors in a slow-growth environment. Dividend income is very important when top-line growth is in the single digits.

For those equity investors wanting to take on positions in this market, I’m still a fan of existing winners, particularly among the brand-name stocks that have distinguished themselves with long track records … Read More

Four Companies to Watch as Stock Prices Reset

By for Profit Confidential

Resetting of Equity Assets Next Leg in Stock Market's CourseThe significant price reversal in biotechnology stocks is very meaningful and appropriate, considering the massive capital appreciation the sector provided over the last three years.

There’s a reset going on with stocks, even with the Fed still onside. Earnings are not expected to grow that much in the first quarter of 2014, and big investors are booking profits as investment risk for both new and existing positions is going up.

This has been a very tough market for buyers, as stocks have already gone up in anticipation of decent earnings and revenue growth. There is very little in the way of value for investors, and there hasn’t been for a while.

This choppy action is a good reason not to get complacent when stock market indices are hitting new records. As prices go up, so does investment risk. Portfolio risk management is more important than the expectation for potential returns with stocks. Price trends easily last beyond reasonableness, but as history proves, the bubbles do eventually burst.

Right now is a great time to be reevaluating portfolio risk and identifying great stocks that you’d like to own if they were much better priced. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) There’s no reason to be a buyer in a market right near its highs with slowing expectations for growth.

One company that I think is worth having on your radar now is NIKE, Inc. (NKE); a position appropriate for long-term portfolios.

This stock experienced a substantive run up over the last five years, but with this in mind, the stock is … Read More

The One Place New Money Can Go to in This Stock Market Right Now

By for Profit Confidential

This Hot Stock Proof You Shouldn’t Buy This MarketThere are so many esoteric good businesses out there, but very few attractive investment opportunities for new money right now.

In equities, I search for consistency from a company—consistency of corporate operating performance, diligent management in good times and bad, and a good track record of return on investment on the stock market. A stock’s past performance isn’t directly indicative of its future performance, but I find it goes a long way to improving your odds.

One company that provided the kind of consistency I’m referring to, and which I reviewed at the beginning of the year and again in October, is A. O. Smith Corporation (AOS). This is a Milwaukee-based water heater company. This stock has proven to be an exceptional moneymaker as of late. (See “How This Solid Old Economy Company Keeps Beating Tech Stocks.”)

But while the company’s business is growing, it’s not growing exceptionally; it’s not some highflying new technology company or some 3D printer manufacturer. A. O. Smith simply manufactures and sells water heaters, and while I really like this business, I don’t think it’s worth 23-times its forward earnings.

The Fed’s unprecedented monetary stimulus has boosted the share price performance of the most mature enterprises to the point that they’ve significantly outperformed their historical track records. This company is one of those enterprises. A. O. Smith’s 20-year long-term stock chart is featured below:

Smith AO Corp. Chart

Chart courtesy of www.StockCharts.com

While shareholder return in a company like A. O. Smith has been great over the last few years, there is seemingly little value in accumulating the stock now. Price momentum can always surprise with … Read More

Why a Serious Stock Market Correction is Overdue

By for Profit Confidential

Serious Stock Market Correction is OverdueThere is going to be considerable pressure on interest rates and the Federal Reserve very soon, and it’s very likely that we’re going to get some choppy trading action in stocks. The reason for this is, of course, positive economic news, which is increasing the likelihood of a decrease in monetary stimulus. As contradictory as it may seem, good economic news is actually bad news for stocks; that’s just the way the counterintuitive system of the stock market works—buy on rumor, sell on news. But what’s transpired recently goes more like buy on expectations, sell on hints of growth.

While economic recovery is inconsistent, regional, and industry-specific, there is considerable evidence from many corporations that business conditions are improving.

Conns, Inc. (CONN) is a Texas-based company selling appliances, electronics, furniture, and mattresses. The company’s share price has been soaring on genuine operational growth. On the day of its recent earnings report, the company’s shares jumped 15% to $67.00 a share. The stock was trading around $11.00 a share at the beginning of 2012.

According to the company, its fiscal third quarter of 2013 produced record financial results: quarterly revenues accelerated a whopping 51% to $311 million; its retail gross margin jumped 460 basis points to 40.1%; diluted earnings per share grew to $0.66, way up from earnings of $0.35 per diluted share last year; and company management said November retail sales jumped 49% comparatively, while same-store sales grew 32%.

The company said that its biggest comparative gain in sales was in appliances, with growth improving 96%, followed by home offices with sales growth of 77%, consumer electronics at 45% sales … Read More

Making Sense of the U.S. Economy in 10 Short Points

By for Profit Confidential

monetary policyWith the stock market at an all-time high on mediocre growth, I keep trying to remind myself that equity prices are a leading indicator as investors bet on future corporate earnings.

Recently, I revisited J. Anthony Boeckh’s book The Great Reflation, which was written in 2010 and is a thorough, well-written analysis of the long-run cycles experienced by the U.S. economy and the affects of financial crises and monetary policy on the stock market.

Back in June, I presented a summary of Boeckh’s conclusions in this column. Many of his points, based on a non-political historical analysis of business and stock market cycles, have come to fruition. (See “Breakdown: U.S. Economy and Its Cycles in 18 Brief Points.”)

Here are Boeckh’s key top-10 conclusions:

1. The global financial system will always remain flawed and subject to price inflation and bubbles, so long as it is based on fiat paper money. All anchorless fiat money systems are destined to suffer inflation and instability.

2. Stock market investors will be playing a cat-and-mouse game with the Federal Reserve for years to come, a problem caused by excessive private and public debt.

3. Deleveraging of the private sector bodes well for the transition process to the next long-wave cycle (2015 or later).

4. In the short term, deficits and extreme monetary expansion help the private sector repair balance sheets, but they cannot raise the standard of living for the average person.

5. Gold is a crowded trade (in the context of 2010), but is useful as an insurance/inflation hedge in portfolios. Gold is an emotional purchase. Financial/investment demand for gold … Read More

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Why Economic Growth Doesn’t Guarantee Rising Share Prices

By for Profit Confidential

Why Today's Earnings Are for Yesterday's Stock PricesTrading action in stocks has been all over the map so far this year, while investor sentiment remained generally positive. The fact that there was a bunch of profit-taking after the solid recovery in February and March is neither a surprise nor unnatural for a market at a high.

The Federal Reserve continues to be more than accommodative to Wall Street with its words of comfort and its willingness to provide continued monetary stimulus past previously stated benchmarks.

Near-term, geopolitical events in Ukraine are likely the biggest risk for stocks. It’s been a slow start this earnings season with unremarkable results, but the numbers aren’t that bad. Growth is growth.

The NASDAQ Biotechnology Index has just now crossed its 200-day simple moving average, if that’s meaningful. It’s done so several times over the last five years and recovered after a period of consolidation.

Biotechnology stocks aren’t worth paying a lot of attention to in terms of portfolio strategy. These risk-capital stocks trade on their own unique set of business fundamentals. They’ve been powerhouse wealth creators for sure over the last few years. They are due for an extended break.

I think the best plays in this market are still with dividend-paying blue chips as they experience price retrenchments. These stocks continue to have a tremendous amount of favor with big investors in a slow-growth environment. Dividend income is very important when top-line growth is in the single digits.

For those equity investors wanting to take on positions in this market, I’m still a fan of existing winners, particularly among the brand-name stocks that have distinguished themselves with long track records … Read More

Four Companies to Watch as Stock Prices Reset

By for Profit Confidential

Resetting of Equity Assets Next Leg in Stock Market's CourseThe significant price reversal in biotechnology stocks is very meaningful and appropriate, considering the massive capital appreciation the sector provided over the last three years.

There’s a reset going on with stocks, even with the Fed still onside. Earnings are not expected to grow that much in the first quarter of 2014, and big investors are booking profits as investment risk for both new and existing positions is going up.

This has been a very tough market for buyers, as stocks have already gone up in anticipation of decent earnings and revenue growth. There is very little in the way of value for investors, and there hasn’t been for a while.

This choppy action is a good reason not to get complacent when stock market indices are hitting new records. As prices go up, so does investment risk. Portfolio risk management is more important than the expectation for potential returns with stocks. Price trends easily last beyond reasonableness, but as history proves, the bubbles do eventually burst.

Right now is a great time to be reevaluating portfolio risk and identifying great stocks that you’d like to own if they were much better priced. (See “Risk vs. Reward: Is It Time to Cash Out of This Bull Market?”) There’s no reason to be a buyer in a market right near its highs with slowing expectations for growth.

One company that I think is worth having on your radar now is NIKE, Inc. (NKE); a position appropriate for long-term portfolios.

This stock experienced a substantive run up over the last five years, but with this in mind, the stock is … Read More

The One Place New Money Can Go to in This Stock Market Right Now

By for Profit Confidential

This Hot Stock Proof You Shouldn’t Buy This MarketThere are so many esoteric good businesses out there, but very few attractive investment opportunities for new money right now.

In equities, I search for consistency from a company—consistency of corporate operating performance, diligent management in good times and bad, and a good track record of return on investment on the stock market. A stock’s past performance isn’t directly indicative of its future performance, but I find it goes a long way to improving your odds.

One company that provided the kind of consistency I’m referring to, and which I reviewed at the beginning of the year and again in October, is A. O. Smith Corporation (AOS). This is a Milwaukee-based water heater company. This stock has proven to be an exceptional moneymaker as of late. (See “How This Solid Old Economy Company Keeps Beating Tech Stocks.”)

But while the company’s business is growing, it’s not growing exceptionally; it’s not some highflying new technology company or some 3D printer manufacturer. A. O. Smith simply manufactures and sells water heaters, and while I really like this business, I don’t think it’s worth 23-times its forward earnings.

The Fed’s unprecedented monetary stimulus has boosted the share price performance of the most mature enterprises to the point that they’ve significantly outperformed their historical track records. This company is one of those enterprises. A. O. Smith’s 20-year long-term stock chart is featured below:

Smith AO Corp. Chart

Chart courtesy of www.StockCharts.com

While shareholder return in a company like A. O. Smith has been great over the last few years, there is seemingly little value in accumulating the stock now. Price momentum can always surprise with … Read More

Why a Serious Stock Market Correction is Overdue

By for Profit Confidential

Serious Stock Market Correction is OverdueThere is going to be considerable pressure on interest rates and the Federal Reserve very soon, and it’s very likely that we’re going to get some choppy trading action in stocks. The reason for this is, of course, positive economic news, which is increasing the likelihood of a decrease in monetary stimulus. As contradictory as it may seem, good economic news is actually bad news for stocks; that’s just the way the counterintuitive system of the stock market works—buy on rumor, sell on news. But what’s transpired recently goes more like buy on expectations, sell on hints of growth.

While economic recovery is inconsistent, regional, and industry-specific, there is considerable evidence from many corporations that business conditions are improving.

Conns, Inc. (CONN) is a Texas-based company selling appliances, electronics, furniture, and mattresses. The company’s share price has been soaring on genuine operational growth. On the day of its recent earnings report, the company’s shares jumped 15% to $67.00 a share. The stock was trading around $11.00 a share at the beginning of 2012.

According to the company, its fiscal third quarter of 2013 produced record financial results: quarterly revenues accelerated a whopping 51% to $311 million; its retail gross margin jumped 460 basis points to 40.1%; diluted earnings per share grew to $0.66, way up from earnings of $0.35 per diluted share last year; and company management said November retail sales jumped 49% comparatively, while same-store sales grew 32%.

The company said that its biggest comparative gain in sales was in appliances, with growth improving 96%, followed by home offices with sales growth of 77%, consumer electronics at 45% sales … Read More

Making Sense of the U.S. Economy in 10 Short Points

By for Profit Confidential

monetary policyWith the stock market at an all-time high on mediocre growth, I keep trying to remind myself that equity prices are a leading indicator as investors bet on future corporate earnings.

Recently, I revisited J. Anthony Boeckh’s book The Great Reflation, which was written in 2010 and is a thorough, well-written analysis of the long-run cycles experienced by the U.S. economy and the affects of financial crises and monetary policy on the stock market.

Back in June, I presented a summary of Boeckh’s conclusions in this column. Many of his points, based on a non-political historical analysis of business and stock market cycles, have come to fruition. (See “Breakdown: U.S. Economy and Its Cycles in 18 Brief Points.”)

Here are Boeckh’s key top-10 conclusions:

1. The global financial system will always remain flawed and subject to price inflation and bubbles, so long as it is based on fiat paper money. All anchorless fiat money systems are destined to suffer inflation and instability.

2. Stock market investors will be playing a cat-and-mouse game with the Federal Reserve for years to come, a problem caused by excessive private and public debt.

3. Deleveraging of the private sector bodes well for the transition process to the next long-wave cycle (2015 or later).

4. In the short term, deficits and extreme monetary expansion help the private sector repair balance sheets, but they cannot raise the standard of living for the average person.

5. Gold is a crowded trade (in the context of 2010), but is useful as an insurance/inflation hedge in portfolios. Gold is an emotional purchase. Financial/investment demand for gold … Read More

How Easy Money Is Hiding the Real Problems in Corporate America

By for Profit Confidential

stock marketThe stock market surged on Monday, but it wasn’t due to the report of any major positive economic data.

The S&P 500 surged on news that stimulus-friendly Fed Vice Chairman Janet Yellen may become the next leader of the Federal Reserve after front-runner Lawrence Summers announced his withdrawal. The boost to the stock market was due to the assumption that Summers was a supporter of tapering and less monetary stimulus.

Yet while the upward move was welcomed by Wall Street, it’s not what the U.S. economy needs. What the stock market and America really need are stronger economic numbers that support the rise in the stock market.

We need to see the jobs market picking up instead of losing steam, as was the case in August. After spending trillions of dollars on stimulus, we still need more growth in the economy.

Also, with the third quarter coming to an end in a few weeks, we need to see a boost in earnings in corporate America as a result of revenue growth, not because of aggressive cost-cutting and income manipulation. Revenues are estimated to grow 2.6% in the third quarter, according to FactSet. (Source: “Earnings Insight,” FactSet Research Systems Inc., September 13, 2013.) The estimate has already been revised downward from the three percent in June, so I’m skeptical.

If the economy was truly healthy, we should be seeing consistent jobs growth, better manufacturing data, higher consumer spending, and rising corporate revenues.

These are the reasons why the stock market should advance higher, and not simply because the easy money is allowed to flow unabated into the economy. When this happens, … Read More

Two Important Factors Now Working Against Stocks

By for Profit Confidential

stock marketGeopolitical events are overtaking the stock market’s near-term trading action, which was all about speculation over the Federal Reserve and what Chairman Ben Bernanke will do regarding quantitative easing.

Based on what transpires in Syria, the equity market is ripe for more declines; realistically, the stock market has been extremely lofty this year, considering the economic news and the prospects of reduced monetary stimulus.

Confirming the overly positive disposition of the stock market has been the performance of the NASDAQ Composite Index, which previously lagged behind the Dow Jones Industrial Average until it recently confirmed the market’s uptrend.

Over the last 12 months, the Russell 2000 index has been the strongest of the main stock market indices. This is a classic secular bull market indicator, but everything’s been turning downward this week.

Obviously, geopolitical events skew the certainty the capital markets crave. Second-quarter earnings season was underwhelming, with the exception of balance sheets, which continue to be top-notch for most Dow Jones components.

Looking at the equity market constructively, many of its leading blue chips were very strong until the beginning of August. Then speculation about the potential reduction in quantitative easing and monetary stimulus, in general, took the froth out of some of these leading positions, including Johnson & Johnson (JNJ) and PepsiCo, Inc. (PEP).

I repeat my view that there is very little action to take in this market, particularly as it pertains to long-term blue-chip investors. The stock market has come off a very large uptrend in a short period of time, and it’s been due for a full-blown, material correction for a number of months … Read More

Choppy Market Action Exposes Attractive Entry Point for This Bellwether Leader

By for Profit Confidential

Attractive Entry Point for This Bellwether LeaderThe best companies the stock market has to offer rarely go on sale. But when they do, you have to make a determination as to whether there’s been a fundamental change in the long-run prospects of an enterprise. If there hasn’t been a change, then that company is worthy of serious consideration.

One such company that’s been an excellent wealth creator on the stock market and has recently pulled back from its high is Visa Inc. (V). The position crossed below its 50-day simple moving average (MA) at the end of July and is just a few points away from hitting its 200-day simple MA.

Prospects for Visa haven’t diminished. Wall Street has been consistently increasing its earnings outlook on the company for this year and next.

Both Visa and MasterCard Incorporated (MA) trade similarly on the stock market. While Visa is the larger company by market capitalization, both positions are off their highs.

Now is a good time to put Visa on your radar for a number of reasons. The position isn’t down from its high very often—let alone being down to this degree. Business prospects for the company haven’t changed. It’s the lull between earnings seasons, and the marketplace is worried about a reduction in monetary stimulus. For long-term portfolios, Visa is a good pick to consider.

The business of credit cards is a good one. In its fiscal third quarter of 2013 (which just ended), Visa’s revenues were $3.0 billion, up markedly from $2.57 billion in the comparable quarter. Plus, the company is highly profitable, generating earnings of $1.23 billion last quarter, compared to a loss due … Read More

Why Corporate Earnings Are Taking a Back Seat to the Fed

By for Profit Confidential

blue chipsThe second-quarter earnings season is considered over, but there are still a number of companies reporting. And the same trend continues—the numbers are anemic.

Making the case for a rising stock market in the face of little sales growth and earnings results that are basically just meeting expectations is difficult. The stock market’s performance for the last few years has been very much due to the monetary expansion, followed by a slight improvement in general business conditions.

What is clear is that corporate balance sheets continue to be extremely healthy. However, the lack of investment in new plants, equipment, and employees remains a big problem. There is more certainty in the marketplace, but corporations just aren’t making much in the way of bold new investments.

Despite the mediocrity, there are still a number of blue chips whose earnings estimates are being increased by Wall Street. In a lot of the earnings results from blue chips over the last several quarters, sales increases have mostly been due to rising prices, not necessarily rising volumes. This is emblematic of the very slow growth environment the U.S. economy continues to experience, as well as the economic misnomer that price inflation is tame.

The velocity of money, which is the willingness of both corporations and individuals to spend cash, continues to be faint. Improving balance sheets is an excellent development for the long run, but cash hoarding means no growth near term. It’s a trend that’s likely to continue.

While not much of an advocate for buying in the stock market today, I do think that it’s wise for investors to stick with the … Read More

Economic Data Support Taking Some Profits Off the Table

By for Profit Confidential

Economic Data Support Taking Some Profits Off the TableA stock market strategist who I trust and respect is advocating that investors take some money off the table and book profits from U.S. equities.

His view is that, with declining earnings expectations for the bottom half of the year combined with mostly zero top-line growth, the likelihood of reduced monetary stimulus and lackluster global growth do not warrant a rising stock market. The market’s expectation for an improving U.S. economy is already priced into share prices.

But while this market strategist makes a very good case for taking profits in U.S. blue chips, there still isn’t anywhere else for most investors to go other than the stock market. This gentleman thinks that a rising cash position is warranted and that the cash can then be put to work in the next correction and/or recession.

Cash in the bank is always a good thing, but there is an “opportunity cost” to not being in the stock market’s best positions. (See “This Star Pharma Company Delivers the Goods Once Again.”)

From my own perspective, I find it difficult taking profits in blue chips like Johnson & Johnson (JNJ) with a current price-to-earnings ratio of around 20 and a 2.9% dividend yield. With an earnings plus dividend growth rate of approximately 10% over the next 12 months, JNJ to me is a big “Hold.”

And there are many other blue chips that I wouldn’t sell either, even though they have done extremely well on the stock market recently.

Realistically, I come back to the old adage that it usually doesn’t pay to fight the Fed. With a change in monetary … Read More

Probability of Cyclical Recession Increases

By for Profit Confidential

Probability of Cyclical Recession IncreasesThis is a big week for capital markets, with the Federal Reserve meeting and July’s unemployment numbers to be released on Friday.

One thing that’s been clear with the stock market is that it has been staying lofty, mostly due to the expectation that the Fed will continue quantitative easing. But under this continued monetary stimulus, financial results are showing mediocrity.

And while capital markets are mostly influenced by Fed policy, the mediocrity in revenue and earnings cannot be ignored. Earnings are holding up because of cost containment and share buybacks. This is not a recipe for lasting financial health.

I look at capital markets constructively and through the lens of the investor. It’s all about the action and how institutional investors react to economic news.

While there’s been a significant stock market breakout this year, I’m thinking that the possibility of a cyclical recession is becoming more probable. Historically, the U.S. economy is due for one; expectations for economic growth are falling, and expectations regarding earnings are quietly being reduced by Wall Street for this year and next.

It just might be that the end of quantitative easing will coincide with a technical recession.

With this scenario, stock market investors can expect little in the way of further capital gains. The outlook for dividends remains strong as corporations are healthy and have huge cash positions. I remain very reticent about buying this market. Capital markets are due for a cyclical change.

Exploring the possibility of the next U.S. recession, it’s quite normal to experience two quarters of declining gross domestic product (GDP) growth in a secular bull market … Read More

Earnings Reports Masking the Rest of the Equation: Risk Remains High

By for Profit Confidential

Earnings Reports Masking the Rest of the EquationIt is earnings season and corporate numbers are plentiful. Blue chips are mostly reporting decent financial metrics, but I want to address the other side of the equation.

Investment risk in many capital market assets is still very high. And the reason why it’s very high is the fiscal and monetary experiments taking place around the world.

PepsiCo, Inc. (PEP) announced another good quarter that beat expectations, and while the outlook for the beverage and snack market is decent, this is only part of the picture facing equity market investors.

It is still important for investors to be extremely cautious (and conservative) in this environment. The sovereign debt crisis has not abated in the eurozone. U.S. monetary stimulus through artificially low interest rates and quantitative easing is not re-inflating assets to the degree wished for by the Federal Reserve. The U.S. fiscal situation remains a mess at all levels of government.

I’m the biggest believer in enterprise and taking a constructive view of equity market trading action. But there is this whole other universe out there of unquantifiable risk precipitated by undercapitalized banks, no fiscal flexibility, and exponential money supply stimulus that, so far, hasn’t created real, unassisted economic growth.

I’m not a “doom-and-gloomer,” but investment risk is equally, if not more important than potential returns with paper assets. And the world (including regulators) still can’t quantify the risk exposure within the global derivatives market.

This is still very much a perilous environment, as private economic deleveraging butts heads with public economic re-leveraging. Risk hasn’t gone away; it’s only being masked by the equity market. (See “The Only Way Read More

The Few Sectors That Will Continue to Gain in This Unpredictable Market

By for Profit Confidential

Unpredictable MarketThere is still a solid resilience to the stock market; and it’s based on global monetary stimulus combined with a sprinkling of economic news that institutional investors like.

The willingness that institutional investors have to be buyers is still quite remarkable. But then again, with bond yields creeping up, there really isn’t anywhere else to go. Investors know there’s no reason to keep money in cash.

The pronounced stock market breakout at the beginning of the year has shown very little willingness to experience a meaningful correction and, historically, that bodes well for the rest of the year.

Institutional investors don’t need a lot of motivation to buy in this market, aside from the certainty that things aren’t coming apart.

There is a Wall Street expectation that the bottom half of the year will be stronger economically, and institutional investors are buying this with the continued expectation of quantitative easing going into 2014.

The doom-and-gloomers certainly have some valid points, but they haven’t proved to be profitable in relation to the stock market or gold recently.

The Dow Jones Transportation Average looks to be experiencing a mini head-and-shoulders technical trading pattern, balancing itself out after a run of more than 6,500. There still remains a potential for rising share prices if earnings can be maintained or bettered.

It’s far too early into second-quarter earnings season to draw conclusions. It’s been a mixed bag of overperformance and underperformance.

This stock market continues to be a big hold from my perspective. There’s no particular reason to buy or sell. There continues to be difficulty in precious metal stocks as miners are experiencing … Read More

Who Wins in an Artificially Monetized World?

By for Profit Confidential

Who Wins in an Artificially Monetized WorldIf there is going to be genuine economic growth in mature economies, the leadership will have to come from the U.S. economy.

The convulsions taking place in the Japanese capital markets are emblematic of the monetary exuberance that both captivates investor sentiment and distorts its reality.

It’s a trader’s paradise with such volatility, based not on Main Street fundamentals, but on the ability and willingness of policymakers to puppeteer capital markets.

While liquidity and certainty are hugely important to investor sentiment, all the financial engineering should soon produce its own blowback. Investment risk in capital markets remains high.

Investor sentiment among institutional investors in U.S. equities still has strength to carry this market higher if corporations perform.

Corporate earnings are managed, but that’s how the system works. There’s been a paring down of earnings estimates for the second quarter.

E. I. du Pont de Nemours and Company (NYSE/DD), or simply DuPont, reduced its expectations for its first half of operating profits due to the weather (the wettest spring in almost 120 years in the farmbelt states). The company said full-year earnings per share will be at the low end of its forecast, between $3.85 and $4.05. Agriculture is the company’s most important operating division. (See “Why DuPont’s Earnings Results Are So Typical for This Stock Market.”)

Capital markets, especially the equity market, are looking for catalysts. From what I read, there are still great expectations for the Japanese equity market. Unscientific investor sentiment among fund managers maintains an outlook of perpetual volatility in that market.

Getting back to the U.S. market, economic news is not robust, but there … Read More

Crash, Down Quarter, Major Correction—It’s All in the Cards

By for Profit Confidential

Crash, Down Quarter, Major Correction—It’s All in the CardsThe appetite that institutional investors have had to bid the stock market is diminishing.

Earnings estimates for the second quarter are actually being trimmed by corporations and Wall Street. It makes for a genuinely peculiar environment for the stock market—share prices at their highs on declining expectations for corporate earnings.

The lesson is clear: it doesn’t pay to fight the Fed.

Being a leading indicator, the stock market went up after employment numbers came in just slightly below consensus last week. Share prices going up on bad or weaker-than-expected economic news is powerful.

This has been going on for a number of months now. Even on days when equities open lower based on weak economic data or on technical metrics, the market has often fought its way back up.

The powerful stock market action since the beginning of the year has been a combination of renewed confidence, relative monetary certainty, the slow investment of new cash inflows, and good corporate health (strong balance sheets and solid earnings maintenance). (See “Stock Market Fake-Out: Where Is the Retrenchment?”)

But with the stock market now gyrating on the end of quantitative easing, it is distracted until second-quarter earnings season begins.

A massive stock market pullback is due anytime. Expect it. Be prepared for it. Equities have been due for a significant retrenchment for months.

The fact that stocks didn’t sell off during first-quarter earnings season really surprised me. It increases the likelihood that institutional investors will use this as the catalyst to book profits during or right after second-quarter earnings season.

Monetary policy will always be the great arbiter for the … 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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