The Big Double Dipper
Monday, August 10th, 2009
By Michael Lombardi, MBA for Profit Confidential
— by Michael Lombardi, CFP, MBA
Quite convincing economic news coming out these days, one must admit. We have analysts telling us that the worst is behind us on the economic front. We experienced strong second-quarter earnings growth, with many companies surprising on the upside. And, of course, we have a rallying stock market.
The U.S. unemployment rate in July fell for the first time in a year, as the pace of job losses slows. The news on the July job numbers was so positive that even the President commented that the worst may be behind us for the recession.
So, that’s it? The biggest real estate boom in history went bust, the biggest bull market in stocks in history went bust, millions of Americans lost their jobs, the government throws billions at the economy to save it, the federal funds rate is brought to zero, and, presto, the recession is over? Well, it’s not that easy.
Ever hear of a “double-dip” recession? That’s when a recession looks like it is over because economic news turns positive, then all of a sudden the economic news gets poor again and, instead of coming out of a recession, the economy dips back into recession. (The Japanese are experts on double-dip recessions. Their economy has been going in and of a recession for almost 20 years.)
Yes, North American stock markets have been rising, but this advance has been doing so on very low volume. Bull markets are not born on light volume. I also believe that, economically, we are far from being out of the woods. All the monetary stimulus that the government has injected into the economy will eventually need to be paid for: Higher taxes? Higher interest rates? A weaker U.S. dollar? Maybe all three.
Michael’s Personal Notes:
At various parties this weekend with business people, I heard that “things” are getting better out there. Small business owners are saying that demand is picking up, while big business owners are telling me that fewer executives are crying about the economy on the golf course these days. Yes, there is no doubt that business is picking up. We even have people coming out and buying cars again. But my concern continues to be interest rates. At some point ahead, all the stimuli the government injected into the economy will have to be withdrawn via a tighter monetary policy (higher interest rates). And that’s when I believe that newfound consumer spending will have a problem maintaining itself.
Where the Market Stands:
The Dow Jones Industrial Average starts today at 593 points higher than it did at the beginning of the year, up 6.7% for 2009 so far. Valuations continue to be out-of-whack. According to bigcharts.com, the Dow Jones is trading at over 50 times earnings. Either corporate earnings will need to rise substantially in the months ahead or stock prices will need to come down in order for realistic valuations to set in. For now, all we can do is enjoy this rally while it lasts.
What He Said:
“The proof the party is over in the U.S. housing market could not be clearer to me. The price action of the new-homebuilder 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 in PROFIT CONFIDENTIAL, 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.
Next Post: Playing Wall Street’s Recovery Without Buying a BankPrevious Post: From a Well-played Prisoners’ Game to Double Standards to Moral Anarchy
Tags: best stocks, investment advice, Stock Market Advice, Stock Market News, stock market tips
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael 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. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, 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
