With the first half of 2010 behind us, here’s an update on where I see things headed for the remainder of 2010, and where I believe my readers can make some money:
The surprise in stocks for the immediate term is on the upside. People are still very worried about the economy. National debt is out of control. Employment is high. Retail investors are staying away from the stock market. But corporate earnings are beating analyst expectations.
If you were to ask me about the short term, which would include 2011, I would tell you I am very bearish. I’m bearish because our dollar cannot sustain its value on the great amount of debt we have accumulated. National debt of $20.0 trillion by the end of this decade (we’re at over $12.0 trillion today) will place immense pressure on the U.S. dollar, which will eventually result in higher interest rates.
Higher interest rates may also be required as a deterrent to rapid inflation, which has historically been a problem for America after a prolonged period of easy money. But, for the months ahead, the Fed cannot raise rates because the economy is fragile. A low-interest-rate environment combined with rising corporate earnings is what the stock market loves. So I’m bullish for the immediate term, bearish going into 2011.
Like I’ve said all along, the bear market rally will suck more investors in before its next leg downward. And the best way to suck investors in is to move the market higher so investors feel that all is well again.
I bought more gold last week, because I believe we are getting close to a bottom for the traditionally soft summer months for gold prices. If gold moves closer to $1,100 U.S. an ounce, I will buy more.
Because of my fears about the ramifications of ballooning U.S. debt, the concern about inflation and the longer-term worry about the status of the U.S. dollar as the world’s reserve currency, gold looks like an ideal investment to me for the years ahead. As absurd as it sounds, I’m expecting gold in the $2,000-to-$3,000-per-ounce range as time passes.
The period 2009 to 2011 will go down as the bottom for real estate prices in the U.S. Banks and sellers have caved in to accepting “what the market is” and are thus accepting the lower prices they would not accept in 2007 and 2008.
I’m visiting Florida this week to see where I can come up with some bargains. The states that got hit the hardest by the real estate crash (Florida, Nevada, pockets of California and Arizona) offer the best values. Just because prices have bottomed for real estate, don’t expect them to rise for years. But remember: in real estate investing, money is made on the buying, not the selling. What this means is that buying at depressed prices is most important.
The people from small- and medium-sized business I speak to are telling me that the demand for their products and services is slowly starting to come back. Through the innovation of America’s businessmen and businesswomen, costs have been cut, ingenuity is prevailing, and the “machine” is starting to work again.
Please don’t get me wrong. Many businesses are still having trouble. Our manufacturing base has been eroded for good. But most businesspeople will tell you that 2010 is looking better than 2008 or 2009. The light at the end of the tunnel is getting brighter, but, unfortunately, it has been at the cost of lost American jobs. Profits are returning more as an outcome of slashed costs rather than rising revenues.
What He Said:
“Overbuilt, over-speculated, over-financed and overdone. 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 in PROFIT CONFIDENTIAL, April 3, 2007. Michael began talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else.