Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘eurozone’

Should You Be Buying More Gold Ahead of the ECB’s Printing Decision?

By for Profit Confidential

The European Central Bank Presents Another Reason to Be Bullish on GoldFrom our recent reader survey, I see our readers are not that concerned about what happens in the eurozone. But there’s a phenomenon occurring there that I believe every investor who is interested in gold bullion should be aware of.

Let me explain…

It’s a known fact that when central banks print more of their paper money, it’s usually bullish for the yellow metal. We saw this after 2009, when the Federal Reserve started to print more paper money; gold bullion prices skyrocketed.

In the eurozone, there continues to be major economic problems in the region. Italy, the third-biggest economic hub in the eurozone, has reported its unemployment rate hit 13% in February—the highest unemployment rate ever recorded in the country. (Source: Reuters, April 1, 2014.)

To help countries like Italy, Greece, Spain, and Portugal with their economic woes, the European Central Bank (ECB) has lowered its benchmark interest rate—but that hasn’t spurred bank lending as bad debts on the books of major eurozone banks keep piling up. Even once-strong eurozone countries like France are under economic scrutiny.

Now, as no surprise, the ECB has started talk about following the same route the Federal Reserve has taken—printing paper money.

At a conference last week, one of the ECB’s Executive Board members, Yves Mersch, said the ECB is ready to turn on its printing presses. The president of the ECB, Mario Draghi, has also said quantitative easing in the region may be needed if inflation in the eurozone continues to remain subdued. (Source: Reuters, April 7, 2014.)

Hence, to the printing presses of the Federal Reserve, the Central Bank … Read More

How to Play an Upside Breakout in Oil Prices

By for Profit Confidential

Oil Prices Are So Dependent on RussiaOil prices could be setting up for an upside break if the situation in Crimea intensifies and a military conflict emerges between Russia and Ukraine over the rights to Crimea.

Since the price of West Texas Intermediate (WTI) crude broke out to over $100.00 a barrel in early 2011, oil prices have done very little, trading largely in a sideways channel with support in the $80.00 level and resistance around $110.00.

The global economic renewal has helped to support oil prices in spite of the continued stalling in China. Return to growth in the eurozone is also adding some support, but for oil prices to shoot higher, there really needs to be a geopolitical event, such as what we are seeing in Crimea. Of course, don’t forget the Middle East, which still has its major issues, especially with the speculation that Iran is building nuclear-enabled weaponry.

Light Crude Oil ChartChart courtesy of www.StockCharts.com

There’s also the crazy dictator of North Korea, Kim Jong-il, who has continued on the same path his father was on, isolating the country. His testing of several missiles earlier this week into South Korea was just another signal that he craves attention.

At the end of the day, to make money in oil will largely be dependent on the hot spots of the world.

While I doubt Russia will launch a military assault on Ukraine, you never know with President Putin. If this should happen, oil prices would vault higher to above $110.00 a barrel, and likely maybe even higher toward the $150.00 level, last reached in 2008 prior to the subprime crisis.

So while oil prices could ratchet … Read More

How to Profit from the Crimea Conflict

By for Profit Confidential

What the Crimea Tensions Mean for U.S. InvestorsThe eurozone and Europe are showing progress in finally getting out of their dismal multiyear double-dip recession; however, the uncertainties and hostilities unfolding in the Crimea region of Ukraine, which are threatening to escalate, could put a damper on the economic renewal in Europe.

With the recent vote in Crimea, whether legal or not, Russia has quickly passed a resolution and signed a treaty to annex Crimea to the Kremlin. The current buildup of Russian troops inside Crimea is a big concern, especially if a military conformation breaks out.

We are already seeing rising economic sanctions against Russia from the United States and countries in Europe. This is worrisome, as it could easily derail the economic renewal in Europe at this most critical time, stalling the region’s growth due to the major trading between Russia and Europe. A big impact could be the staggered flow of oil from Russia into Europe, which currently accounts for about 40% of the oil imports from Russia.

While I don’t think Russia will immediately cut the oil flow into Europe, as Russia also needs the oil revenues, I do expect Europe will look for alternative oil sources if the sanctions increase and tighten against Russia. If this were to occur, it could really hurt the country’s oil companies and the Russian economy overall.

Moreover, there’s also the retaliation from Russia, which would likely have an impact on Europe and potentially the global economy. The crisis comes at a critical time, as the eurozone is looking at gross domestic product (GDP) growth of 0.5% in the first quarter—a three-year high.

It’s clear something bigger may … Read More

Why I Can’t Help but Be Bullish on Gold

By for Profit Confidential

Gold Presenting Same Opportunity Today That Stocks Offered in 2009The U.S. national debt has skyrocketed from $9.2 trillion in the beginning of 2008 to $17.3 trillion today. This represents an increase of more than 88% in just a matter of a few years. (Source: Treasury Direct web site, last accessed March 11, 2014.) The national debt of the U.S. is higher than its gross domestic product (GDP).

Japan is in a very similar situation, if not worse. At the end of 2013, Japan’s national debt stood above one quadrillion yen. In U.S. dollar terms, this amounts to more than $10.0 trillion. (Source: Japan Ministry of Finance web site, last accessed March 11, 2014.) Japan’s national debt is more than 200% of the country’s GDP.

In its fiscal 2012–2013 year, the national debt of Great Britain stood at 1.18 trillion pounds; in U.S. dollar terms, that’s close to $2.0 trillion. (Source: Reuters, February 28, 2014.) Great Britain’s national debt represents 74% of its GDP, and that percentage is rising.

The U.S., Japan, and Great Britain are only three countries whose national debt continues to increase. Include troubled countries in the eurozone, and the picture in respect to out-of-control debt and money printing starts to take a really ugly form.

Rising national debt pretty much means there will be higher inflation ahead; that’s one of the reasons why I can’t help but be bullish on gold bullion, one of the best hedges against inflation.

And that’s where the opportunity for investors lies today. Gold mining shares are trading at historically low multiples. Because of the sell-off in gold bullion prices over the last two years, many gold mining companies were punished. … Read More

If You Think Our Stock Market Is Overpriced, Wait Until You See This

By for Profit Confidential

Why We Are Reaching a Stock Market TopThe stock market in France has been on a tear! Below, I present a chart of the French CAC 40 Index, the main stock market index in France.

Looking at the chart, we see the French stock market is trading at a five-year high. With such a strong stock market, one would expect France, the second-largest economy in the eurozone, to be doing well. But it’s the exact opposite!

As its stock market rallies, France’s economic slowdown is gaining steam. In January, the unemployment rate in France was unchanged; it has remained close to 11% for a year now. (Source: Eurostat, February 28, 2014.) Consumer spending in the French economy declined 2.1% in January after declining 0.1% in December. (Source: National Institute of Statistics and Economic Studies, February 28, 2014.) Other key indicators of the French economy are also pointing to an economic slowdown for the country.

CAC French CAC 40 Index (EOD) Chart

Chart courtesy of www.StockCharts.com

And France isn’t the only place in the eurozone still experiencing a severe economic slowdown. In January, the unemployment rate in Italy, the third-biggest nation in the eurozone, hit a record-high of 12.9%, compared to 11.8% a year ago.

I have not mentioned Greece, Spain, and Portugal because they have been discussed in these pages many times before; as my readers are well aware, they are in a state of outright depression.

Just like how investors have bought into the U.S. stock market again in hopes of U.S. economic growth, the same thing has happened in the eurozone. Investors have put money into France’s stock market in hopes of that economy recovering—but it hasn’t. We are dealing with a … Read More

On the Way to Higher Stock Prices, Something Suddenly Happened

By for Profit Confidential

Stock Investors Lose Touch with RealityOn February 24, the S&P 500 broke to a new all-time high. There was panic buying as soon as the markets opened that day, as the chart below depicts.

Looking at this, I can’t help but ask if investors have completely lost touch with reality. It seems the fundamentals that drive stock prices higher—corporate earnings—have been ignored.

And as investors are driving key stock indices higher, the state of the global economy is becoming worrisome. This can’t be stressed enough: the U.S. economy isn’t immune to a disturbance in the global economy. But this isn’t all; if the global economy sees an economic slowdown, the companies on U.S. key stock indices suffer as well.

S&P 500 Large Cap Index ChartChart courtesy of www.StockCharts.com

One clear example of this, as it stands, is Caterpillar Inc. (NYSE/CAT), a giant industrial goods manufacturer and component of the S&P 500. The company reported that annual sales declined 16% in 2013. Caterpillar’s revenues were $55.65 billion compared to $65.87 billion. The company’s corporate earnings per share were down more than 32% in 2013. The reason for this: a challenging business environment in the global economy. (Source: Caterpillar Inc., January 27, 2014.)

The global economy is going to disappoint in 2014.

First in line is Asia. Look anywhere on that continent, and you will see economic slowdown looming in the air. China, the biggest economic hub in the region and the second-biggest in the global economy, is outright slowing down. In February, the manufacturing activity in the country dropped to a seven-month low. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) registered at 48.3 in February compared to 49.5 in … Read More

First Cyprus, Then Poland, Now These Savings Accounts to Get Confiscated Next

By for Profit Confidential

What Happened in Cyprus, Then in Poland, to Happen Next in the EU CountriesThe savings of 500 million individuals living in the European Union are on the line.

Let me explain:

We all know Cyprus, one of the smallest countries in the eurozone and part of the European Union, went through what many feared. To save itself from default and pay down its out-of-control national debt, the government imposed a one-off capital levy on the bank accounts of individuals in that country. If you had more than a certain amount of money in your savings account, the government outright confiscated a portion of it.

Poland, another European Union country, did something very similar. In an effort to reduce its national debt, the government took assets from private pensions and made them public. (This incident never even made the big mainstream headlines.)

When these events took place, I started writing how this would be a new trend—governments would find new and crafty ways to take money from savers in their efforts to make the governments’ dire conditions better, be it for paying off their national debt or bailing out banks.

Now, we learn of documents from a European Union official stating more of the same is on the way. The savings of the individuals in those countries will be used to fund the countries’ long-term investments and reduce the gap that the region’s banks have created by pulling back on their lending.

The document, revealed by Reuters, said, “The Commission will ask the bloc’s insurance watchdog in the second half of this year for advice on a possible draft law to mobilize more personal pension savings for long-term financing.” (Source: “EU executive sees personal … Read More

Is This the Correction Investors Have Been Waiting For?

By for Profit Confidential

Stock Market Turmoil MountingSome prolonged downside is exactly what this stock market needs—a market that’s been looking for a catalyst to sell for quite some time.

While there has been pressure on long-term interest rates, we still have virtual monetary certainty this year with the Fed funds rate staying where it is. Weakness abroad in China is still a story of overcapacity, but there has been some refreshing economic data out of the eurozone.

What’s clear in Western economies is that positive economic data is sporadic and mostly without trend. The lack of consistency in mature economies has equity investors in a bit of a loop. Ten percent downside across the main stock market indices would be a healthy development for the long-term trend. We never did get a stock market correction last year, only consolidation, as investors were only too happy to keep buying.

Fourth-quarter earnings season has been modest so far, with outperformance (according to Wall Street) mostly coming in at the bottom-line, meaning that genuine sales growth is still a very tough thing to accomplish. Furthermore, a lot of corporations aren’t guiding 2014 above previous outlooks, and this makes it very difficult to be a new buyer.

Global capital markets are gyrating on a reassessment of investment risk and the prospect for real economic growth. Add in currency volatility, and there are the makings of a flight to the U.S. dollar and a sell-off in the stock market.

Still, the most important data now is what corporations actually say about their businesses. Beating the Street is less important than a true assessment of business conditions and expectations for the future. … Read More

If Gold’s a Bad Investment, Why Is This Country Buying 150% More of It?

By for Profit Confidential

150114_PC_lombardiI see more negativity towards gold bullion these days than ever before. And the more pessimism I hear and see, the more bullish I get on the precious metal.

After a bull market in gold bullion that lasted 12 straight years, 2013 was the correction year for gold bullion. It was the year that “separated the men from boys,” the investors from the speculators, when it came to gold bullion.

Consumer demand for gold coins continues to accelerate, and central banks around the world continue to be net buyers of the precious metal. Even small countries are getting in on the action. In 2013, Turkey imported 150% more gold bullion than it did in 2012! Turkey imported 302.3 tons of gold bullion in 2013, compared to 120.78 tons in 2012. (Source: Hurriyet Daily, January 3, 2014.)

The mainstream argument against gold bullion is that since there’s economic growth now, you don’t really need the precious metal…there’s no “crisis,” uncertainty, or inflation to send gold bullion prices higher. I don’t buy this argument for a New York minute.

The global economy is in a very fragile state. Major economic hubs are facing issues. China, India, Australia, the eurozone, and the U.S. economy show bleak economic performance. Just look at how bad the U.S. December jobs numbers were. (See “Pathetic December Jobs Numbers Proof 2014 to Be Challenging Year.”)

The third-biggest economy in the world, Japan, after years of money printing, reported an account deficit of 592 billion yen in November 2013—the country’s imports were more than its exports, as imports were up 230% over the same period a … Read More

Time to Start Shifting Your Investment Strategy Overseas?

By for Profit Confidential

Time for Investors to Take Another Look at EuropeFrom what I’m seeing, Europe and the eurozone appear to be in play once again, following years of torment and two recessions.

While there’s still a ways to go, you should put Europe on your radar, since a buying opportunity appears to be here. Now don’t go full-tilt and empty your capital into Europe. Instead, with the U.S. stock market facing some upside resistance, you may want to shift some of your investable capital to other regions of the world, including Europe and China. (See “China’s Macau Gambling Region: The Growth Opportunity” to learn about a small region in China that has high hopes.)

Now, I have been negative on Europe for years, but I saw some encouraging signs in 2013 after the eurozone emerged from its second recession.

The big attraction in Europe is the 800 million people living in the region who are armed with money to spend, similar to our domestic economy. For companies, Europe is a region that appears set to rally and may be a buying opportunity.

Some may question the slow growth in this region, but I say it’s better to buy at a time of misfortune than when everyone wants in—and that time of misfortune appears to be now.

OK, we still have unemployment in the double digits in the eurozone, but the confidence levels of its citizens are also on the rise, and this is good news; this means consumers will start to spend more, helping to drive economic renewal and gross domestic product (GDP) growth.

Just take a look at the region’s recent economic readings.

The GDP in the … Read More

The Only Way I’d Invest in Gold in 2014

By for Profit Confidential

Why I’m Not a Gold Bug in 2014Despite all of the talk about China and India buying lots of gold (high demand) and how the precious metal is a limited resource (limited supply), I still do not like the commodity as a buy-and-hold investment at this time.

Yes, China and India love their gold, which is used for jewelry and prestige. But unless the speculators and traders jump aboard, I just don’t see why anyone would want to buy right now.

As I said in previous commentaries (see “Should Investors Hold Out for $1,300-an-Ounce Gold Before Investing?”), gold, in my view, isn’t an attractive buy-and-hold investment at its current levels around $1,235 an ounce; to me, the yellow metal looks interesting as a buy on a decline to the $1,200-an-ounce level or below, when traders can enter and sell on rallies.

The key driver of prices—inflation—is not an issue at this point, so this precious metal becomes a less interesting buy with no real reason to hedge.

Global inflation continues to be benign. In China, inflation is hovering around the three-percent level. India is experiencing inflation above seven percent, but its impact on the global economy is minimal. In the eurozone, inflation came in at 0.8% in December, according to Eurostat, which is well below the two-percent target.

The volatile Middle East is also absent of any major geopolitical risk at this time, which drives down the demand for safe haven assets such as gold.

Until we see a rise in global risk and inflation, I doubt any upside moves in the yellow metal will be sustainable.

Even with the low relative value of the … Read More

The Catastrophe Called Collapsing Corporate Earnings Growth

By for Profit Confidential

89 of SP 500 Companies Issuing Negative Earnings GuidanceI keep telling you about my suspicion that the backbone of any stock market—corporate earnings growth—is disappearing. Now, we see it in the numbers…

Of the 106 companies in the S&P 500 that have issued corporate earnings guidance for the fourth quarter, an astounding 94 of them have issued negative guidance—that’s 89% of the companies issuing guidance, warning it will be negative, which is well above the five-year average rate of 63%. (Source: FactSet, December 13, 2013.)

And analysts continue to drop their expectations for corporate earnings growth for the fourth quarter. As of September 30, analysts expected fourth-quarter corporate earnings growth in the current quarter would be 9.5%. By last week, that rate had come down to 6.5%. (Source: Ibid.) I expect corporate earnings growth for the fourth quarter will continue to disappear.

So we have 2013 ending with the smallest increase in corporate earnings since 2009. How can 2014 be any better?

The risks that disappearing corporate earnings growth creates for the key stock indices continue to be ignored. And problems in the global economy are mounting, not improving, with each passing day.

Economic growth in China, the second-biggest economic hub in the global economy, is declining rapidly. The country is expected to post a growth rate this year that is “embarrassingly” low compared to China’s historical economic growth rate. Manufacturing activity in the country is rapidly declining. The HSBS Flash China Manufacturing Purchasing Managers’ Index (PMI) dropped to a three-month low in December. (Source: Markit, December 16, 2013.)

We are seeing an economic slowdown in the stronger eurozone nations like France. In December, manufacturing activity in this … Read More

What Happens to the Market When Stock Buyback Programs Stop

By for Profit Confidential

Stock Buyback ProgramsThe International Monetary Fund (IMF) expects the global economy to increase by 2.9% this year and 3.6% in 2014—forecasts which I believe are too optimistic. Why?

First of all, we have the Japanese economy, the third-biggest in the global economy, suffering an economic slowdown. Tertiary industry activity (activity in the service businesses) slowed in September from a month ago. (Source: Japan Ministry of Economy, Trade and Industry, November 12, 2013.)

Then there’s Germany, the fourth-biggest economy in the global economy. Once believed to be immune to the economic slowdown in the eurozone, seasonally adjusted manufacturing output in the country declined 0.8% in September from August. As of September, year-to-date manufacturing output in the German economy has increased only 1.2%—a much slower growth rate than in the same period of 2012. (Source: Destatis, November 8, 2013.)

Earlier this month, in a statement about its monetary policy decision, the central bank of Australia said, “In Australia, the economy has been growing a bit below trend over the past year and the unemployment rate has edged higher. This is likely to persist in the near term… Public spending is forecast to be quite weak.” (Source: “Statement by Glenn Stevens, Governor: Monetary Policy Decision,” Reserve Bank of Australia, November 5, 2013.)

To fight the economic slowdown in the country, the Reserve Bank of Australia is using easy monetary policy measures. The central bank has reduced its benchmark interest rate in the country by more than 40% since the beginning of 2012. The cash rate, the overnight money market interest rate, sits at 2.50% compared to 4.25% in early 2012. (Source: Reserve Bank of Australia … Read More

Warning: Stock Market Margin (Borrowing) Reaches All-Time High

By for Profit Confidential

key stock indicesI’ve been writing in these pages how more and more time-proven stock market indicators are starting to scream “Danger!” for the stock market.

Investors are getting too bullish on stocks (an omen of lower stock prices ahead), as seen in the American Association of Individual Investors (AAII) Investor Sentiment Survey. It shows 48% of investors were bullish towards key stock indices on November 7. Going back to just June of this year, the number of bullish investors stood at 32.97%. (Source: American Association of Individual Investors web site, last accessed November 11, 2013.)

Investors are flocking towards key stock indices, buying stocks in hopes they will go up in value. According to the Investment Company Institute, long-term equity mutual funds have been seeing inflows since the beginning of this year. (Source: Investment Company Institute, November 6, 2013.)

To me, this sounds all too familiar. I don’t have to go very far back to see what happened when the majority of investors turned so bullish. Remember 2007? Or the Tech Boom? In both of those situations, the common notion was that key stock indices would continue to soar and those who talked against it were ridiculed.

The reality is that the risks on key stock indices continue to increase. And the higher this market gets, I question how bad the market sell-off is going to be when it finally hits.

I’d say the “bubble” in the stock market has become the biggest I’ve seen in years, as evidenced by the amount of money investors are borrowing to buy stocks, which is often referred to as margin debt.

Leverage is a double-edged … Read More

Mario Draghi Bullish on Gold?

By for Profit Confidential

It’s “fairly good protection against fluctuation of the Dollar and risk diversification,” said the President of the European Central Bank (ECB), Mario Draghi, about gold bullion recently at Harvard University. He added, “Central banks which had started a program of selling gold a few years ago substantially stopped; by and large they are not selling any longer. Also the experience of some central banks that have liquidated the whole stock about ten years ago was not considered to be terribly successful from a purely money viewpoint.” (Source: “Central banks are unwise to sell their gold: ECB president Mario Draghi,” Mining.com, October 17, 2013.)

At the very core, the President of the ECB reiterated the point I have been trying to make in these pages for some time now: central banks are in dire need of gold bullion because the fiat currency they have created provides them with nothing but uncertainty. Gold bullion, on the other hand, keeps central banks’ reserves in check.

Dear reader, it’s a fact: central banks around the global economy are in a race to devalue their currencies to the bottom. They are printing money and keeping easy monetary policies in place to make sure that their currency value is suppressed. They think this act brings prosperity in the form of export demand. The central banks are wrong.

Our own central bank, the Federal Reserve, is printing $85.0 billion a month to bring economic growth to the U.S. economy. The Federal Reserve has also kept interest rates at artificially low levels for years. But if we take out the strengthening of big banks and the rally in … Read More

« Older Entries
Enter your e-mail address to subscribe to
Profit Confidential — IT'S FREE!
Enter e-mail:
ALSO RECEIVE A FREE COPY of our exclusive report:
"A Golden Opportunity for Stock Market Investors"