Recognizing the Opportunity When It Presents Itself

Dow Jones IndustrialsTuesday, we were told that Bank America was being forced to repurchase mortgages bundled into a $47.0-billion bond issue of its Countrywide Financial Corp. division. All financial stocks got whacked on the news, and the Dow Jones Industrials fell 165.07 points.

Rubbish, I say.

Stocks fell for a simple reason: profit-taking. Since the beginning of September, the Dow Jones Industrials has risen 11.4%. After such a quick run-up in stock prices, profit-taking is the norm. In my world, we call it “taking some chips off the table.” Things are good. The media in picking up on the stock market’s best September since the 1930s and the rally that has continued into October. Why not take some profits?

In my opinion, one day doesn’t create a new trend. In this case, it actually presents an opportunity. The Federal Reserve is ready to jump into the financial market to save the economy again with QE2. Corporate earnings have been spectacular this quarter. What else can an investor ask for? Or, should I ask, does it get any better than this?


Same holds for gold bullion. The metal has been up 10 out of the last 11 trading weeks. Tuesday, gold collapsed $36.00. There’s not one investment, I don’t care what it is, that goes up or down in a straight line. Gold is no exception. The bear market in the U.S. dollar, which began back in 2002, pulled back early this week causing most precious metals to fall.

I see the recent weakness in gold bullion prices as an opportunity. The greatest bull market of this decade is taking a breather, and that spells opportunity for patient and prudent investors in gold-related investments.

I highly doubt we will see $1,000 gold again in our lifetime.

This morning, I’m calling my broker to buy more gold-related investments, because I see they are all down in price. The correction in gold bullion prices could bring the metal down another $50.00 to $70.00 an ounce, at which point I will be a buyer again, buying on price dips when I can.

I recognize an opportunity when I see one. Right now, investors are being dealt the rare hand of being presented with two deals at one time: Being able to buy both stocks and gold-related investments at discounted prices, as both correct from recent major price advances.

Michael’s Personal Notes:

It’s almost comical.

You read the popular financial web sites and the major business newspapers and it is all bad news. Stocks are down. Gold is down. The housing market can only get worse. Wall Street and Joe Investor seem to be in real trouble.

But all of a sudden, a news flash appears: Goldman Sachs has put aside $13.1 billion in the first nine months of 2010 for its employee “compensation and benefits.” That’s about $370,000 for each employee.

Yes, most retail investors missed out on the stock market rally that started in March 2009. The government bailed out AIG, which was then able to fulfill its obligations under Goldman-Sachs-related insurance policies. Millions of Americans from Miami to California are losing their homes. And you have Goldman Sachs paying those big bonuses again this year.

There’s a huge problem with this picture. And you just have to wonder: who is running Washington? Goldman Sachs?

Where the Market Stands:

The bear market rally in stocks that started in March 2009 continues intact. The Dow Jones Industrial Average starts this fine morning up 5.3% for 2010 and up an astounding 70.5% since its low on March 9, 2009.

What He Said:

“I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The U.S. could be headed for its first outright annual decline in home prices on record, adjusted for inflation. And I really believe this could be a catastrophe for the U.S. economy.” Michael Lombardi in PROFIT CONFIDENTIAL, August 2, 2006. Michael started talking about and predicting the financial catastrophe we started experiencing in 2008 long before anyone else