We witnessed a terrorist attack on American soil (Twin Towers, September 2001). We’ve experienced the biggest real estate boom market we’ve ever seen (2003-2005) and the bust of that market (2007 to today). It’s been a decade of interest rates at record lows. And we’re in the biggest bear market rally in stocks since 1937.
But, through it all…stocks have gone nowhere in value.
This morning, the S&P 500 opens the trading day at 1,328—the same level it traded at in March of 2001. The stock market is at the same level today that it was 10 years ago despite interest rates falling “like a rock” since 2001.
The majority of Americans who buy mutual funds in their retirement funds with the hope of seeing that money grow through the years have followed the worst possible strategy. “Buy and hold” for the long term, I’m not sure who made up that motto, but it was terrible advice to follow over the past 10 years.
My concern: if the stock market can’t rise during a decade of dropping interest rates, what happens to the stock market over the next 10 years as interest rates rise? Where will stocks be in 2021? Not a pretty thought.
Over the past decade, the price of gold bullion has increased 427%. Imagine the next 10 years, when we will see a collapsing U.S. dollar, rising inflation, rising interest rates, and China coming on par in economic strength to the U.S.
Where will gold bullion be in 2021? My bet: a lot higher in price than it trades at today.
Michael’s Personal Notes:
Politicians, they’re all the same.
You’ve undoubtedly heard that the government will reach its maximum borrowing limit of $14.29 trillion in the next five weeks. The U.S. is the only major industrialized country that limits its debt by law. Whenever the government needs to borrow more than it’s allowed to, it must approach Congress to increase that debt ceiling.
The Obama administration is now asking Congress to increase the maximum amount of money that the government can borrow, past the current $14.29-trillion limit. Congress is balking, saying that the government has to get spending under control. The Obama people are saying that it would be irresponsible for the government not to increase its borrowing limit.
Back in 1986, President Bush requested that Congress increase the borrowing limit of the government. A young senator at that time voted against the government increasing its debt limit. That senator’s name…Barack Obama.
Where the Market Stands:
The Dow Jones Industrial Average opens this week up 7.1% for 2011. I continue to believe that the bear market rally that started in March of 2009 is alive and well. In the immediate term, stocks could rise even more, maybe another five percent to 10%, but the rally is getting tired. Short-term, my outlook for stocks remains negative.
What He Said:
“As investors, we need to take a serious look at our investment portfolios and ask, ‘How will my investments be affected by an American-grown recession?’ You should take what precautionary steps you can right now to protect yourself from a recession in 2007. Maybe you need to cut your own spending or maybe you need to sell some stocks that will take a beating during a recession. You know what tidying up you need to do. Don’t procrastinate…get to it now. And please remember: Recessions can happen quickly, stock markets don’t go up during recessions, and the longer the boom before the recession, the longer the recession. Just based on my last point, we have plenty to worry about in 2007.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.