Predictions

What we predicted in Profit Confidential
and what actually happened:

“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, PC December 13, 2002.   Gold bullion was trading at under $300 an ounce when Michael first started recommending gold related investments.  Many gold stocks recommended in Michael’s advisories gained in excess of 100%.

“Interest rates at a 40-year low:  The Fed has made borrowing as easy as possible, resulting in a huge appetite for loans and mortgages.  We are nearing a debt crisis.”  Michael Lombardi, PC April 8, 2004.  “We will wish Greenspan never brought rates down so low as to entice so many consumers to have such big mortgages.”  Michael Lombardi, PC April 27, 2004.  Michael first started warning about the negative repercussions of Greenspan’s low interest rate policy when the Fed first dropped interest rates to 1% in 2004.

“Investors have been put into an unfair corner.  Those that invested in stocks because they got caught in the tech boom (1999) have seen their investments gone.  Now, those that have leveraged heavily to play the real estate game, because it is the place to be (2005), could see the same fate as the stock market investors.  Thanks again, Mr. Greenspan.”  Michael Lombardi, PC May 27, 2005.  Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

“The conversation at parties is no longer about the stock market, it’s about real estate.  “Our home has gone up this much or our country home has doubled in price.”  Looking around today it would be very difficult to find people who believe that one day it could be out of vogue to own real estate because properties would be such a bad investment.  Those investors who believe a dark day will never come for the property market are just fooling themselves.  Michael Lombardi, PC June 6, 2005.  Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

“Why Google stock will go higher: Most investors in Google, surprisingly, are retail investors.  And that’s why the stock can go higher—because only 20% of the stock is owned by institutions.  If the institutions jump in and buy Google, the stock will certainly move higher.”  Michael Lombardi, PC, June 2, 2005.  Michael recommended Google stock as a buy on June 2, 2005 when the stock was trading at $288.  On November 5, 2007, when Google reached $700 U.S. per share, Michael advised his readers to sell their Google stock and to put the proceeds into gold related investments.  Coincidently, gold bullion was also trading at about $700 per ounce in November, 2007.  Michael’s message was to trade each $700 share of Google into $700 of gold because he saw gold as a much better investment.

“The U.S. lowered interest rates in 2004 to their lowest level in 46 years.  And what did Americans do with their access to easy money?  They borrowed and borrowed some more, investing the borrowed money into real estate.  Looking ahead, perhaps the Fed’s actions (of lowering interest rates so low as to entice consumers to borrow more than they can afford) will one day be regarded as one of the most costly errors committed by it or any other banking system in the last 75 years.”  Michael Lombardi, PC July 21, 2005.  Long before anyone was thinking of a banking crisis, Michael was warning the coming real estate bust would cause the havoc with the banking system.

“When property prices start coming down in North America, it won’t be a pretty sight because consumers are too leveraged.  When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices.  It’s only a matter of logic, reality and time.”  Michael Lombardi, PC June 23, 2005.  Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

“Many of today’s consumers have purchased properties with very little down payment.  They’ve been enticed by nothing-down, interest-only, second and third mortgages.  Bottom line: The lower interest rate environment sucked consumers into the housing market big-time.  And that will eventually cause us all problems.  Michael Lombardi, PC June 22, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

“Recipe for Catastrophe: To me, the accelerated rate at which American consumers are spending, coupled with the drastic decline in the amount of their savings is a recipe for a financial catastrophe.”  Michael Lombardi, PC September 7, 2005.  Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

“Despite all my “yelling” and “screaming” about gold, I believe only a few of my readers and a small fraction of the general public haven taken a position in gold.  Why?  Because gold’s not trendy… buying condominiums for investment is!  If you are an investor, you need to seriously look at investing in gold stocks because gold bullion prices will likely continue to rise.”  Michael Lombardi, PC September, 21, 2005.  Gold bullion was trading at under $300 an ounce when Michael first started recommending gold related investments.  Many gold stocks recommended by Michael’s advisories gained in excess of 100%.

“The proof the party is over in the U.S. housing market could not be clearer to me.  The price action of the new-home builder stocks is telling the true story—these stocks are falling in price daily (and the media is not picking it up).  Those that will hurt most when the air is finally let out of the housing market balloon will be those buyers that bought in late 2005.  In fact, the latecomers to the U.S. housing market may end up looking like the latecomers to the tech-stock rally that ended so abruptly in 1999.”  Michael Lombardi, PC March 1, 2006. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

“As a reader, you’re aware I’m not a Greenspan fan.  In the years that lie ahead, I believe we (and our children) may pay dearly for the debt bubble Greenspan created during his tenure as head of the U.S. Federal Reserve.”  Michael Lombardi, PC March 20, 2006. “A low savings rate was eventually blamed for the length of the Great Depression.  Consumers just didn’t have enough money to spend their way of the Depression.  With today’s savings rate being so low, a recession could have a profoundly negative effect on over extended consumers.”  Michael Lombardi, PC March 26, 2006.  Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

“Bonds could now be a buy: Bonds rise in price when interest rates fall as their return makes them more valuable.  After a bear market in bonds that has lasted for months, the action in the bond market, as I read it, indicates the bear market in bonds could be over.  I’ve always preferred quality when buying bonds, going with government bonds over corporate bonds.  If you have some cash lying around, bonds could be a great deal.”  Michael Lombardi, PC July 24, 2006.  Government bonds were one of the best performing investments from mid-2006 to late 2008 as they rose in price sharply as the Fed lowered interest rates back to 1% in October, 2008.

“I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy.  The U.S. could be headed for its first outright annual decline in home prices on record, adjusted for inflation.  And I really believe this could be a catastrophe for the U.S. economy.”  Michael Lombardi, PC August 2, 2006.  “I see the coming recession being deep and difficult because U.S. consumers do not have the savings to spend their way out of the recession.  The same thing happened in Japan.  The Japan example proved that when consumer confidence is shattered, even zero percent interest won’t spur consumer spending.  The same thing could happen here.  Michael Lombardi, PC August 23, 2006.  Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

The year “2000 was a turning point of consumer confidence in high tech stocks.  2006 will be remembered as the turning point of consumer confidence in the housing market.  That means more for-sale signs going up, longer time periods to sell homes, bloated for-sale inventory and eventually lower prices for homes.  But this time, the turnaround in consumer confidence will have a bigger impact on the economy.  Hold onto your seats, this is going to be a nail biter.”  Michael Lombardi, PC August 24, 2006.  Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

“What group of stocks are next to fall in light of the softening U.S. housing market?  The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list.  Many retail stocks are already reporting soft sales.  In my opinion, they haven’t seen anything yet in respect to weaker sales.”  Michael Lombardi, PC August 30, 2006.  According to the Dow Jones Retail Index, retail stocks fell 35% from the summer of 2006 through November 2008.

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

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

“The Real Threat to the Economy: U.S. retail sales are falling, the producer price index is crashing, house prices, car prices are all falling—and no one is talking about deflation but me.  Fed governors are still talking about inflation—they’ve got it wrong.  There’s no need for me to get into the dangers of deflation as I’ve written about them (many times) before.  Let’s just put it this way: Deflation is about the worse economic state a country will experience.  The risks to the U.S. economy in 2007 are greater than I’ve seen in years.  Michael Lombardi, PC November 15, 2006.  Michael was one of the first to warn of deflation.  By late 2008, world economies were embedded in it’s their worst state of deflation since the Great Depression.

“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, PC January 31, 2007.  While the popular media was predicting a bottoming of the real estate market in 2007 Michael was preparing his readers for worst of times ahead.

“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, PC February 7, 2007.  Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

“If I had to pick one stock exchange that would rank as the best performer of 2007, it would be the TSX (Canada’s equivalent of the NYSE).  Interest rates in Canada remain very low and they are not expected to rise any time soon.  Americans looking to diversify their portfolios, both as a hedge against the U.S. dollar and a play on gold bullion’s price rise, should consider the TSX.  Most brokers in the U.S. can buy stock on this exchange.”  Michael Lombardi, PC February 8, 2007.  The TSX was one of the top performing stock markets in 2007, up just under 20% for the year.

“There is no mixed signal about this: Foreclosures in the U.S. will continue to rise, the real estate market will get weaker, and the U.S. economy will get weaker.  Smart investors should seriously consider unloading their stocks of consumer-products companies that produce nonessential goods.”  Michael Lombardi, PC March 12, 2007. According to the Dow Jones Retail Index, retail stocks fell 42% from the spring of 2007 through November 2008.

“I see a deal when it’s a deal.  And right now there’s a good “for sale” sign flashing on gold bullion and gold producer shares.  In fact, after peaking at the $690 an ounce level earlier this year, gold could be a bargain at its current price of around $650 per ounce.  As a reader, you are undoubtedly aware of my negative stance on the general stock market and the U.S. economy.  As the economic problems that continue to brew in the U.S., as these problems develop into others, and as they are finally exposed, what other investment but gold will worldwide investors turn to?”  Michael Lombardi, PC March 14, 2007.  Gold bullion was trading at under $300 an ounce when Michael first started recommending gold related investments.  Many gold stocks recommended in Michael’s advisories gained in excess of 100%.

“Over the past few weeks I’ve written about subprime lenders and how their demise will hurt the U.S. housing market, the economy and the stock market.  There’s no escaping the carnage headed out way because the housing market and subprime business are falling apart.  The worst of our problems, because of the easy money made available to borrowers, which fueled the housing boom the peaked in 2005, have yet to arrive.”  Michael Lombardi, PC March 22, 2007.  At the same time Michael wrote this former Fed Chief Alan Greenspan was quoted as saying “the worst is over for the U.S. housing market and there will be no economic spillover effects from the poor housing market.”

“Over-built, over-speculated, over-financed and over-done.  This is the Florida real estate market right now.  For those looking to buy for personal use or investment, hold off!  The best deals are yet to come.  I continue with my prediction that the hard landing in the U.S. housing market, which is now affecting lenders, will have significant negative effects on the U.S. economy.”  Michael Lombardi, PC April 3, 2007.  Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.

“If the U.S. housing market continues to fall apart, like I predict it will, the stock prices of major American banks that lend money to consumers to buy homes will come under pressure – these are the bank stocks I wouldn’t own.”  Michael Lombardi, PC May 2, 2007.  From May 2007 to November 2008 the Dow Jones U.S. Bank Index of the world’s largest bank stocks was down 65%.

“I’ve been writing to my readers for the past two years claiming the decline in the U.S. property market would not be the soft landing most analysts were expecting, rather a hard landing.  My view remains unchanged.  The U.S. housing bust will be cut deeper and harder than most can realize today.”  Michael Lombardi, PC June 13, 2007.  While the popular media was predicting a bottoming of the real estate market in 2007 Michael was preparing his readers for worst times ahead.

“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, PC August 15, 2007.  Who would have expected this in the summer of 2007 except for Michael?

“I personally expect the next couple of years to be terrible for U.S. housing sales, foreclosures and the construction market.  These events will dampen the U.S economic picture significantly in the months ahead, leading to the recession I am predicting for the U.S. economy later this year.”  Michael Lombardi, PC August 23, 2007.  Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists were even thought it a possibility.

“Anyway you look at it, the U.S. housing market is in for a real beating.  As I have written before, in the late 1920s, the real estate market crashed first, the stock market second and the economy third.  This is the exact sequence of events I believe we are witnessing 80 years later.”  Michael Lombardi, PC August 27, 2007.  “As for the stock market, it continues along its merry way oblivious to what is happening to homebuyers’ wealth.  (Since 2005 I have been writing about how the real estate bust would be bigger than the boom.) In 1927, the real estate market crashed and the stock market, even back then, carried along its merry way for two more years until it eventually crashed.  History has a way of repeating itself.”  Michael Lombardi, PC November 21, 2007.  Dire predictions that came true.

“The Dow Jones Industrial Average, the S&P 500 and the other major stock market indices finished yesterday with the best two-day showing since 2002.  I’m looking at the market rally of the past two days as a classic stock market bear trap.  As the economy gets closer to contraction, 2008 will likely be a most challenging economic year for American.”  Michael Lombardi, PC November 29, 2007.  The Dow Jones Industrial peaked at 14,279 in October 2007.  A “suckers” rally developed in November 2007 which Michael quickly classified as bear trap for his readers.”  By mid November 2008 the Dow Jones Industrial Average was at 8,726.

“Even the most novice investor can now read the chart of the Dow Jones U.S. Home Construction Index and see that it is trading at its lowest level in five years.  If, like me, you believe that stocks are on indication of what lies ahead, this important index is telling us housing prices are headed to 2002 levels!  What would that do to the economy?  Such an event would devastate the U.S.  Michael Lombardi, PC December 4, 2007.  That devastation started happening the first quarter of 2008.

“When I look around today, I see falling stock prices… I see falling house prices… and prices falling 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, PC, December 17, 2007.  Michael was one of the first to warn of deflation.  By late 2008, world economies were embedded in it’s their worst state of deflation since the Great Depression.

“In 2008, I believe investors will fare better invested in T-Bills as opposed to the stock market.  I’m bearish on the general stock market for three main reasons: Borrowing money in 2008 will be more difficult for consumers.  Consumer spending in the U.S. is drying up, which will push down corporate profits.”  Michael Lombardi, PC January 10, 2008.  The year 2008 ended up being one of the worst years for the stock market since the 1930s.

“Home-building in the U.S. will enter a quasi depression state in 2008 and the construction industry will make 2008 a record year for pink slips.  I predict a major homebuilder will go bankrupt in 2008.”  Michael Lombardi, PC January 10, 2008.  WCI Communities, the largest U.S. luxury home builder, filed for Chapter 11 protection on August 4, 2008.

“Prepare for the worst economic period ahead that we have seen in years, my dear reader, as that is what I see coming.  I written over the past three years how, in the late 1920s, real estate prices fell first before the stock market and how I felt the same would happen this time.  Home price in the U.S. peaked in 2005 and started falling in 2006.  The stock market is following suit here in 2008.  Is a depression coming?  No.  How about a severe deflationary recession?  Yes!”  Michael Lombardi, PC, January 21, 2008.  Michael started talking about and predicting the economic catastrophe we started experiencing in 2008 long before anyone else.

“For the economy the message from retail stocks is quite clear: Consumers spending, which accounts for roughly 70% of U.S. GDP, is in jeopardy.  After having spent like “drunkards” during the real estate boom years, consumer spending is taking the same trend as housing prices, slowing down faster than most analysts and economists had predicted.  As news of the recession continues to make headlines in the popular media, the psychological spending mood of consumers will continue to deteriorate, lowering earnings at most high-end retailers and bringing their stock prices down even further.”  Michael Lombardi, PC, January 28, 2008.  According to the Dow Jones Retail Index, retail stocks fell 32% from January 2008 through November 2008

“Consumer confidence does not change overnight.  In the U.S., 70% of GDP is based on consumer spending.  And in my life, all the recessions I have seen or studied have only come to an end when consumers started spending.  With consumer sentiment getting worse, and with the U.S. personal savings rate at near record lows, it may take two or three years for consumers to start spending again.”  Michael Lombardi, PC, February 25, 2008.  By the end of 2008 the rest of the world was realizing the recession would be much longer and deeper than most had realized.

“A Stock Market’s Obituary: It is with great sadness that we announce the passing of the Dow Jones Industrial Average.  After a strong and courageous battle, the Dow Jones fell victim to a credit crisis and finally succumbed on Friday, October 3, 2008, when it fell decisively below the mid-point between its 2002 low and its 2007 high.”  Michael Lombardi, PC October 6, 2008.  From October 6, 2008 to November 27, 2008 the Dow Jones Industrial Average experienced one of its biggest two-month losses in history.