Going for Eight in a Row
Wednesday, April 11th, 2007
By Michael Lombardi, MBA for Profit Confidential
Today, the world’s most widely followed stock market average could easily post its eighth consecutive daily gain. Why not? Money seems to be everywhere… lots of capital chasing investments providing diminishing returns.
The rumor mill has Dow Chemical being bought, BCE being taken over, Chrysler being close to announcing a sale, mining companies being snapped up, Sam Zell getting into the newspaper business, and private equity funds building cash fast. Is any company, public or private, safe from a takeover?
As I have written before, there is no doubt that liquidity (in terms of cash available to invest) is readily available in large denominations. And that’s what is fueling the big stock market averages.
Money isn’t going into tech like it did in 1999 because the damaging effects of the tech boom can still be felt. Money is not going into real estate anymore because yields have gotten too low, and the residential property bubble has burst. Money is cautious about the stock market as well, because it’s overpriced. Capital is flowing into private equity funds that, in turn, have a mandate to invest in “good quality and stable” companies. Most of the time, that goal is achieved by taking a company off the stock market.
Corporate profit growth is declining. The housing market is in trouble. Auto sales are down. The economy is slowing. A recession in the U.S. within the next 12 months is expected. No, the big market averages like the Dow Jones Industrial Average should not be rising.
If there is one thing I’ve learned in the investment business it’s that the trend is your friend no matter what else is going on. At some point, we will face regression to the mean. But, for now, despite all the problems in the U.S. economy, the large amount of capital in the marketplace (in private equity funds, in mutual funds, in retirement funds, from inheritances) is fueling the general stock market higher and higher. Enjoy it while it lasts because the sun can set quicker than investors can imagine.
NEWSFLASH — American Home Mortgage shares plunged yesterday as the subprime lender reported it failed to find a buyer for the company. According to Bloomberg data, over 40 U.S. lenders have either now closed their doors or are looking for takeover offers because of soaring defaults on U.S. subprime mortgages. The carnage continues almost unnoticed by Wall Street. I believe the subprime lending bust will come back to haunt the U.S. economy.
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Tags: housing market, mortgage rates, stock market, U.S. economy
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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
