— “Profit Confidential” Column, by Michael Lombardi, CFP, MBA
(While I’m continuing my financial predictions for 2010, today focusing on precious metals, I want all my readers to read my “Personal Notes” section below for some important thoughts I have going into 2010 about stocks in general.)
Okay, so this is the year; 2010 ends with a “10” and it, I believe, will be the 10th consecutive year gold bullion prices close higher at year-end than they started.
As I’m writing this column this morning, and thousands of people are reading it, I know the truth. Only a small portion of investors, including my readers, have taken an interest in gold-related investments.
How do I know this?
Each time Lombardi Publishing advertises its only gold newsletter, we get very few orders, no matter how appealing the offer is. In fact, it is one of our hardest newsletters to sell. This tells me that very few investors have taken a position in gold simply because they are not interested yet. This is a classic case of contrarian investing.
The numbers don’t lie.
Below, please find an updated list of how gold bullion prices have closed on the last trading day of each year noted. We have now gone through nine consecutive years where the price of gold closes each year-end above the previous year-end price.
While many market analysts have reasons why gold will either go up or go down in price in the year ahead, those predicting higher gold prices either see higher inflation ahead (caused by such expansive monetary stimulus) or the declining U.S. dollar as the causes behind why gold bullion will continue its rise in price.
My studies of the gold bullion are focused on two different areas:
- The U.S. is facing a debt crisis. The current national debt is over $12.0 trillion and is rising daily. By the year 2019, interest on our national debt could reach $1.0 trillion per annum. This is unsustainable. Raising taxes, cutting social programs or halting government stimulus for the economy would be a political catastrophe, regardless of whether it is the Democrats or Republicans that are in power.
- The great majority of money on the sidelines — I’m talking about the mutual funds, the institutions — has not yet taken major positions in gold bullion. The gold bullion market is only a fraction of the size of the stock market. Once gold prices move closer to the $1,500 to $2,000 level, this is when I believe major buying for the metal from the mutual funds and institutions will come in. They will not want to be too late to the party.
There you have it; my reasons why 2010 will be another banner year for gold-related investments.
Michael’s Personal Notes:
Good morning and happy New Year to all my beloved subscribers. The year 2009 was a banner year for PROFIT CONFIDENTIAL. Thanks to you, our readership is at its highest level ever. As for Lombardi Publishing, 2009 will go down as one of our best years ever for picking winning stocks. Hopefully, you benefited from our guidance in 2009.
Going into 2010, I’m not as enthusiastic as I was in March 2009. We have to remember that, on March 9, 2009, the Dow Jones Industrial Average got to as low as 6,440. The market was severely oversold and, while it took guts to go against the trend and buy stocks, history has shown that markets always rebound after severe sell-offs.
Starting the first trading day of this year, with the Dow Jones at 10,428, it is a very different story for the stock market. We’ve had a huge rebound from the March 2009 low. The S&P 500 is trading at 25 times last year’s earnings (which is rich) and higher interest rates are just around the corner.
While I don’t want to scare my readers about 2010 (I still believe we have a good shot at Dow Jones 11,000 before this rally is over), while well-researched, individually selected stocks will always outperform the general market, and while many feel more optimistic about 2010, I’m the reverse. I’m more cautious for the markets going into 2010 than I was going into 2009.
Where the Market Stands:
The numbers for 2009 are in and they are quite surprising. Here are the 2009 gains on the various indices/commodities I regularly track:
Dow Jones Industrial Average, up 19% for 2009
NASDAQ, up 44% for 2009
S&P 500, up 23.5% for 2009
S&P/TSX, up 15% for 2009
Gold bullion, up 24% for 2009
Crude oil, up 86% for 2009
No matter where you invested in 2009, you couldn’t go wrong. The big surprise, though, for the year was the 44% rise in the NASDAQ and the 86% rise in the price of crude oil. The Dow Jones Industrial Average starts the first trading day of this year at 10,428.
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-home-builder 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, 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.