All the Bear’s Plans Falling into Place

by Michael Lombardi, CFP, MBA

If I were a bear (in the context of the markets), I could not have things falling into place better than they are.

First, I brought stock markets around the world down to a 12-year low in March 2009. I made people sell their stocks because of the fear I instilled in them and, in doing so, investors lost a lot of money. And, just when it only looked like the economy could have gotten worse, I started moving the stock market back up.

I’ve brought most world stock market indices back up about 50% from when I dropped the shoe in March. Most investors missed this rally. But they are slowly getting back into stocks, as I move the Dow Jones Industrial Average closer to the 10,000 level.

Analysts, economists and even the head of the Federal Reserve are coming out and saying that the recession is over. Yesterday, responding to questions at the Brookings Institute in Washington, Ben Bernanke said, “…from a technical perspective the recession is very likely over at this point.” And a report yesterday released by the U.S. Commerce Department said that retail sales had jumped 2.7% in August — the largest jump in three years. Things are looking very good, just like I want them.

By the time I get the Dow Jones over the 10,000 level, I figure I will have suckered more and more investors back into the stock market. Those mutual fund managers, most of whom have underperformed the general market since March of this year, will the throw in the towel and jump back into stocks.

At that point, I will have to decide when to pull the rug out from under investors again and drop stocks like a rock for the final act of my bear market performance. Now that pesky metal called gold bullion…if it would just stop rising in price, then less sophisticated investors would know about my big plans.

Michael’s Personal Notes:

I’m very impressed that the price of gold bullion has been able to stay above the $1,000-per-ounce level for several days now. As time passes and the metal stays above this very important psychological price level, anytime gold gets below $1,000, it will be seen as a bargain, so buyers will come in, and the $1,000 level will be proven as a major support price for gold bullion. Unlike the never-ending number of public company stock listings throughout the world, the ways to invest in gold (i.e. the bullion itself, gold-producing stocks and ETFs) are very limited. Please keep in mind that 98% of the population does not own any gold investments. Imagine what will happen if even the smallest number of mutual fund managers jump on the gold bandwagon.

Where the Market Stands:

Up, up and away! The Dow Jones Industrial Average is only a shrinking 317 points away from the 10,000 level I had predicted on these pages two months ago. The Dow Jones, which closed at a new high for 2009 yesterday, has now hit the double-digit return mark for the year — the Dow Jones is up 10.3% for 2009. Two cardinal rules my dear reader, for investing in the stock market: firstly, the trend is always your friend. And, in this case, since March 9, 2009, the trend has clearly been up. So why fight it or bet against it? Secondly, the market always does the opposite of what is expected of it. Who else, but yours truly, expected the Dow Jones to march onto Dow 10,000? Everyone was too busy being so negative. And the market delivered the opposite of what investors and analysts had been thinking or expecting.

What He Said:

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