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

Are the Good Times Back?

Wednesday, November 24th, 2010
By for Profit Confidential

The good times must be back.

Porsche SE, the luxury sports car maker, announced this morning that its profit went up sevenfold in its first fiscal quarter ended October 31, 2010. Porsche reported a profit of 526 million dollars in the quarter on a 63% increase in car deliveries. (Interestingly, one-third of Porsche’s car deliveries in its last quarter were made in its home-base, Germany.)

I never was a Porsche fan because those “bubble” looking “911s” really haven’t changed much since they first went into production in 1964. But with the introduction of the company’s “Panamera” four-seat sports roadster this year, I’m converted.

But it’s not just Porsche that is doing well. Mercedes, BMW and other luxury brands are doing very, very well. Demand for these luxury cars is very, very strong now.

Just look at companies like Goldman Sachs Group Inc. (NYSE/GS). Goldman announced 110 new “partners” for 2010. The partners reportedly get a $600,000 salary and participate in a compensation pool. Goldman has set aside $13.0 billion this year for employee compensations. (I’ll bet Porsche will find lots of buyers in the Goldman group alone!)

Tiffany & Co. (NYSE/TIF), a well-known luxury retail brand, announced this morning that its latest quarterly profits surged 27% on quarterly sales of 682 million dollars. Tiffany took the step of increasing its total 2011 earnings forecast.

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So the good times are back for the luxury market, my dear friend.

At the depth of the Great Recession, Washington decided to bail out Wall Street. But the little guy, the blue-collar worker, he got practically nothing from the government. Just do a Google search on U.S. home evictions and you’ll read many a sad story of Americans being forced out of their homes because they can’t afford their mortgages. These people are not buying Porsches or shopping at Tiffany stores. They are trying to put food on the table. (Thirty million Americans are receiving food stamps.)

So, Wall Street conjured up the idea of syndicating mortgages to investors. Banks were more than happy to give people (who really didn’t qualify) mortgages on homes they could not afford, because Wall Street would pool and syndicate those mortgages to investors.

Wall Street made a fortune peddling syndicated mortgages. Then, when it got into trouble, Washington came to the rescue. Now the good old times are back for Wall Street, as it just gets richer again. And where are the customers’ yachts? There aren’t any.

Michael’s Personal Notes:

There is so much news coming out of Europe about countries in financial trouble that it is hard to keep up with the developments.

Here is what I know: interest rates are rising in Ireland, as Standard & Poor’s has cut the country’s debt rating and Ireland seeks a bailout from other euro-linked countries:

Here’s what I think: bond traders will make their next targets Portugal, Spain and Italy. (This morning, Portugal’s 10-year government bond broke above a yield of seven percent!)

France has been smart to slash its government spending and to introduce austerity measures. England is happy that it never adopted the euro. And German Chancellor Angela Merkel is probably trying to figure out a way out of the euro. After all, German luxury cars are selling so well.

Where the Market Stands: Where it’s Headed:

The Dow Jones Industrial Average opens this morning up 5.8% for 2010.

Yesterday, we heard that the crisis is Ireland has caused stocks to sell off recently. That’s only half the story. The real story is that problems in Ireland (and Spain, and Portugal, and who knows what other country is next) are putting severe downward pressure on the euro. The euro goes down, the greenback goes up. But the stock market loves a weak U.S. dollar, not a stronger one.

And let’s not forget…after an incredible 70%-plus bounce from the March 2009 low, investors are game to take some stock market profits. You know, Christmas is coming and the line-ups at Porsche and Tiffany are starting to get long.

The bear market rally in stocks that started in March 2009 is alive and well in my humble opinion.

What He Said:

“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, PROFIT CONFIDENTIAL, August 23, 2007. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

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