— by Michael Lombardi, CFP
Developing in the financial markets today are two profit opportunities that I believe investors can do quite well with in 2009. To start off, let’s look at how these profits have developed.
Avid readers are aware of my position in the stock market: We are in the middle of the bear market rally which will take stocks higher for 2009 before stocks turn around and test their March 9, 2009, lows. A big prediction. But my prediction is based on the fact that stocks never truly became undervalued at the March 2009 lows. Bull markets end in speculative euphoria. Bear markets end in exhaustion. Right now, we are simply witnessing a natural rally from severely oversold market conditions.
Hence, profit opportunity number one is making money when this bear market rally is over. Some stocks are getting ridiculously expensive again. And when the bear market rally is over, these stocks will come down like a rock.
Look at Whole Foods Market, Inc. (NASDAQ/WFMI). Is this high- end grocer worth $20.00 a share? I see the stock as expensive at 31 times earnings (the stock traded under $10.00 a share in November 2008). Once the current bear market rally is over, companies like Whole Foods, which have gotten ahead of themselves in this rally, are primed for a drop. There are plenty of stocks just like Whole Foods that are up 100% in this bear market rally, while their core fundamentals have not really changed.
Next, readers of this column are only too familiar with my fear of America having accumulated too much debt. The U.S. government is simply spending far more than it takes in and the situation is getting worse every day thanks to government bailouts and lower tax revenue. Just yesterday, I wrote about how interest on our debt is $500 billion alone each year.
The U.S. dollar has started its long-awaited decline in value against other world currencies. The bond market is declining, signaling that higher interest rates are not too far off. What currency will perform best in the economic environment I just described? Gold bullion. In my humble opinion, gold is poised to soon get back to $1,000 U.S. per ounce, as it did in March 2008. There are plenty of quality gold-producing stocks that are selling today at very attractive prices. Don’t let profit opportunity number two get away!
Michael’s Personal Notes:
All I can say is welcome and thank you. Since the beginning of this year, 36,236 people have signed up to receive this daily e-letter, PROFIT CONFIDENTIAL. We are obviously overwhelmed by the response. Hopefully we are making a difference in the lives of the people we write for each day.
Where the Market Stands:
Waiting. We are waiting for the Dow Jones Industrial Average to turn positive for 2009. All other major market indices are now up for 2009 except for the Dow Jones (which is down 3.4% for the year, as of this morning). We can’t have a bear market rally end without the Dow Jones giving consumers and investors the hope that the worst is behind us. Can we?
What He Said:
“Starting two years ago, I was writing how the housing boom would go bust and cause the U.S. economy to suffer sharply. That’s exactly what is happening today. From what I see happening in the U.S. economy, I’m keeping with the prediction I made earlier this year: By late 2007/early 2008, the U.S. will be in a homemade recession. Hence, I expect housing prices to continue declining, soft auto sales, soft consumer spending and a lower stock market.” Michael Lombardi in PROFIT CONFIDENTIAL, August 15, 2007. Who would have expected this in the summer of 2007 except for Michael?