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

Posts Tagged ‘Sovereign Debt’

This Stock’s 24% Year-to-Date Gain Signaling a Buy Opportunity?

By for Profit Confidential

This Stock’s 24% Year-to-Date Gain Signaling a Buy Opportunity“Opportunity cost”—it’s a phrase used in microeconomic theory to denote the costs that are forgone by not having your resources in the highest returning assets.

It is a phrase that’s pertinent to the stock market.

Without question, I remain completely taken aback by what has transpired with the stock market since the beginning of the year.

Looking at the numbers, not being invested in many corporations has been costly.

Excluding the reasons why, the simple fact is that the Dow Jones Industrial Average is up 16% since the beginning of the year (not including dividends).

The S&P 500 is up 15.7%. The NASDAQ Composite is up 14.8% and the Russell 2000, an index of small-caps, is up 16.6% (not including dividends).

I think this stock market can smell the end of quantitative easing.

More meaningful, however, is the Federal Reserve’s policy regarding interest rates, which are going to continue to be low for the near future, as it has been made very clear.

This is a huge, perhaps neglected, certainty for the stock market and corporations.

Making the case for being a buyer in this market is extremely difficult. Institutional investors have already placed their bets and a lot of corporations—good companies with real staying power and solid prospects for earnings growth going forward—are fully priced.

Johnson & Johnson (NYSE/JNJ) is a benchmark stock. Like many large corporations, Johnson & Johnson does everything it can to squeeze every penny out of its bottom line. The company lays off employees, closes plants, and does everything to minimize taxes. Johnson & Johnson’s 10-year stock chart is featured below:

Johnson & Johnson Chart

Chart courtesy … Read More

Growing American Business Inventories Paint Worrisome Picture

By for Profit Confidential

Growing American Business InventoriesThe biggest economic center in the global economy, the U.S., showed dismal growth in the last quarter of 2012. Sadly, the first quarter of 2013 is looking to be the same. Demand in the country is anemic at best as consumers are struggling.

New durable goods orders in the U.S. economy plunged 5.7% in March—the second decline in the first three months of 2013. (Source: United States Census Bureau, April 24, 2013.) Inventories of manufactured goods have been continuously increasing, seeing an increase in 17 of the last 18 months!

The HSBC Flash Manufacturing Purchasing Managers’ Index (PMI) for China indicated a slowdown in manufacturing output for the second-biggest economy in the global economy. The index plummeted to a two-month low in April, registering 50.5 in April compared to 51.6 in March. (Source: HSBC, April 23, 2013.) Any reading below 50 indicates a contraction in the manufacturing business.

Germany, the fourth-biggest economic hub in the global economy, is seeing its economic slowdown quicken. The Flash Manufacturing PMI for Germany dropped to a four-month low this month. The index stood at 47.9 in April, compared to 49 in March. (Source: Markit Economics, April 2013, 2013.) Yes, the manufacturing sector in Germany is experiencing a contraction. In Germany, exports orders to the global economy in April declined the most in 2013.

The “worsening” statistics I just gave you are of the main economic hubs in the global economy; others are in worse shape. France’s unemployment rate is becoming worrisome, and the country is bordering on a recession. Japan is already back in a recession; Italy is begging for growth.

Dear reader, … Read More

Why a Downgrade in the Credit Rating of U.S. Debt Is Imminent

By for Profit Confidential

A report from Standard & Poor’s (S&P), the credit rating agency, indicates there is more than a one-third chance that Japanese sovereign debt could face a downgrade. The report stated, “…the continuing prospect arises from risks associated with recent government initiatives and uncertainty of their success.” (Source: Janowski, T., “S&P says more than one-third chance of Japan downgrade, cites risks to Abenomics,” Reuters, April 22, 2013.)

In an effort to spur economic growth in the country, the Bank of Japan is printing money “like mad.” But we already know this concept hasn’t worked very well for the Japanese economy in the past. Japan is in an outright recession, with exports in a slump and the value of its currency in a freefall when compared to other major currencies in the global economy.

Why does it really matter to North Americans what happens in Japan? Even though S&P kept the credit rating on Japan’s sovereign debt at AA- (or investment grade), the concern is how vulnerable the U.S. debt really is to its own credit rating downgrade.

Just like the Japanese economy, the Federal Reserve is using quantitative easing to print $85.0 billion a month in new paper money and has thus far increased its balance sheet assets to over $3.0 trillion. Similarly, the U.S. government has been “spending with two hands, while borrowing with a third.” Why? It’s all in the name of economic growth.

As the readers of Profit Confidential know, I have been very critical of quantitative easing. It may have been needed back when the financial system was on the cusp of bankruptcy in 2008. But continuing … Read More

Investor’s Manifesto: Five Motivations for Beating Market Chaos and Risk

By for Profit Confidential

Five Motivations for Beating MarketThe stock market is close to double-digit growth so far this year, as corporations continue to report modest earnings results.

Playing a market at an all-time high is tough. It makes me think a lot more about risk, portfolio strategy, and how to consider new positions—if any at all.

As a stock market investor/speculator, here are five motivations to keep in mind:

1. Business

When you buy one share of common stock in a corporation, you are officially a businessperson. You are the CEO of your own investment corporation—the pinnacle of capitalism. In order for any business to be successful over time, it must do what works. You can have a view, you can be totally outraged, but doing what works is what makes money. Buying, selling, and speculating in the stock market is business. Approach it as such.

2. Risk and Control

Investment risk is more important than potential return in any transaction. There is no rush to get in—ever. Be deliberate, cautious, diversified, informed, and skeptical. Most people would not go out and purchase a home or a company in an unfamiliar jurisdiction without doing a lot of research. The stock market is a secondary market. The founders of a listed corporation have already sold. As a businessperson, think constantly about how all the fundamentals in the world can hurt each one of your holdings. Risk in your portfolio is always something you wished you had spent a lot more time on after a shock.

3. Stock Market Action

Doing what works makes money. Being an individual investor, everything in the marketplace is beyond your control: the money … 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"