— “Profit Confidential” Column, by Michael Lombardi, CFP, MBA
The year 2009 started out on what I call a “death knell.” By March of this year, when the stock market hit a 12-year low, there was nothing but gloom in the air. But, slowly, stocks started to rise from their March 9, 2009 low, with the S&P 500 actually up 22% so far for 2009.
Was the stock market seeing better times ahead, while investors dumped stocks like fools in March? Of course it was. With the government churning out trillions of dollars to save the economy, with interest rates at zero, with a Federal Reserve pulling tricks out of its hat like never before, with the most generous fiscal and monetary policy we had ever seen, was there any doubt that the U.S. economy would get better?
Well, we got the answer Friday, when the U.S. Labor Department reported that only 11,000 jobs were lost in the U.S. in November. By Sunday, Bloomberg was running a story that some economists are now predicting positive job growth for the U.S. for December.
So, we escaped the Great Depression Part II. Not so fast, I say.
Yes, the stock market looks six to 12 months ahead, as a leading indicator, and likes what it sees, namely higher corporate profits. But further out, we are far from out of the woods.
Look at the cost of the bailout. For starters, we have the biggest national debt load ever, with the White House predicting a $20.0-trillion national debt within less than 10 years. Inflation has become a real concern (just look at gold prices) and the only way I know to tame inflation is to raise interest rates.
Can our economy withstand a halt of government spending? No. Can our economy withstand higher interest rates? No.
In the immediate term, things are starting to look rosy again. Just ask the stock market. But in the short to longer term, the economic problems we encountered in 2008 and earlier this year may end up looking pale in comparison to what lies ahead.
Michael’s Personal Notes:
Newcomers to gold got a pinch on Friday, as gold bullion fell $48.80 in a single day. According to kitco.com, about $15.00 of the drop in the price of gold was from the increase in the value of the U.S. dollar, the balance from actual selling.
And why were investors selling gold on Friday? The “good news” job numbers were a perfect excuse for investors to take profits on gold bullion. After all, the metal has walked an almost straight line up this year in terms of price.
I’m still very bullish on gold bullion and actually see price weakness in the metal as an opportunity for longer-term investors.
Where the Market Stands:
There is no doubt that the stock market is choppy, up one day, down the next. But the trend has undoubtedly been upward this year and I will stick with that trend until the stock market tells us otherwise.
The Dow Jones Industrial Average starts this fine week up 18.4% from where it started 2009. Looks like 2009 will go down as one of the best years ever for stocks. Too bad you needed nerves of steel to trade it.
What He Said:
“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 in PROFIT CONFIDENTIAL, June 2, 2005. Michael recommended Google stock as a buy on June 2, 2005, when the stock was trading at $288.00. On November 5, 2007, when Google reached $700.00 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 $700.00 per ounce in November 2007. Michael’s message was to trade each $700.00 share of Google into $700.00 of gold, because he saw gold as a much better investment.