Lombardi Publishing was originally established in 1986 as an investment newsletter publisher offering stock market analysis to its readers. Today, we publish 26 paid-for investment letters most of which provide stock market direction and individual stock picking analysis. Profit Confidential is our daily free e-letter that goes to all our Lombardi Financial customers and to any investor who wishes to opt-in in to receive it. Written by Lombardi Financial editors who have been offering stock market guidance for year to Lombardi customers, Profit Confidential provides a macro-picture on where the stock market is headed, what sectors are hot, what sectors to avoid. Our two most recent and popular calls were telling investors to bail from stocks in 2007 and telling investors to jump back into the stock market in March of 2009.
The S&P 500 may be entering bubble-like territory: that’s what I’ve been writing for the past few months.
Now, it appears as though I’m not the only one who’s worried about asset classes beginning to form bubbles from the excess money printing. 2013 Nobel Prize-winner Robert Shiller also recently stated that he is concerned that prices have risen far too quickly across many asset classes, from real estate to stocks.
As I’ve written several times over the past couple of months, investing in stocks at these elevated levels is quite risky. My belief is that much of the upward move in the S&P 500 has been primarily based on the liquidity (money printing) being pumped by the Federal Reserve.
Investing in stocks with this premise can only work for the very short-term trader who’s quick enough to get out when the tide begins to turn.
Because people are not investing in stocks based on actual fundamentals right now, one can’t expect the value in the S&P 500 to remain elevated once there’s a change in monetary policy, since much of the move has been artificially supported.
Let’s take a look at how the S&P 500 has been affected by monetary policy over the past few years, and how investing in stocks at the current level is becoming increasingly risky.
Chart courtesy of www.StockCharts.com
The first quantitative easing program by the Federal Reserve lasted from December 2008 until March 2010. This period is not shown on the chart above, as one could argue that the S&P 500 became extremely oversold and that investing in stocks for the long-term made sense at … Read More
Let me begin by first stating this: I’m not going to talk about the Federal Reserve in any detail, or about the holiday shopping season and how it’s so important to the retail sector and the economy because these don’t seem to be of any great concern to the markets.
The reality is that both traders and investors appear to be really comfortable at this moment with the record-high levels in the stock market. Take a look at the multiple records recently set by the S&P 500 and Dow Jones Industrial Average; you won’t see any sign of a pullback. Yet no one seems to care—even though this is all incredibly dangerous for the stock market.
This is simply not a normal trading environment for the stock market, since the Federal Reserve has largely been responsible for the record advances, as I previously discussed in this column on Friday.
A look at the CBOE Volatility Index (VIX), or the “fear index,” reveals the current multiyear low in the VIX, which we haven’t seen since 2007, prior to the subprime mortgage-driven stock market correction in 2008, The current low level of the VIX suggests that the stock market is relaxed and is not expecting any strong moves in either direction on the horizon. Looks like the market could be in for a surprise in the New Year.
Are traders simply too relaxed? The chart of the VIX below shows the big gaps between the VIX readings and the S&P 500.
In 2007, the VIX reading was below 10, but the S&P 500 didn’t begin to sell off until the VIX increased … Read More
There’s one point that I cannot stress enough in this column, and longtime readers are sure to know it: consumer confidence is extremely important for economic growth here in America.
It’s simple logic. Because so much of our economy is built on domestic spending, without an increase in consumer confidence, consumer spending will languish and we won’t have higher levels of economic growth.
Recently, new information from the Conference Board was quite disappointing. The Consumer Confidence Index dropped to a seven-month low in November to 70.4, following a decline in October as well. (Source: “Consumer Confidence Declines Again in November,” The Conference Board web site, November 26, 2013.)
Over the short term, consumer confidence declined due to people stating their concerns regarding a weakening of economic conditions. What’s more concerning is that the expectations for the next six months worsened, as people stated they were increasingly worried about their job prospects and earnings, which isn’t a surprise considering the data hasn’t been all that positive lately, especially when it comes to wage growth.
If consumer confidence is turning pessimistic over the stability of jobs or paychecks, how can we really expect the average American to increase their spending or businesses to feel more confident in expanding?
This type of uncertainty leads to slower economic growth. If you are unsure of your financial health over the next few months, chances are you won’t increase your spending, and a lower level of consumer confidence leads to muted economic growth.
Clearly, one market sector I am worried about is that of companies catering to the average American.
Chart courtesy of www.StockCharts.com
Target Corporation … Read More
For me, trading has always revolved around economic fundamentals and stock market analysis. And if you’re like me, you’re getting somewhat irritated with the recent trading in the stock market by investors who seem more inclined to trade on what economists at the Federal Reserve do with their quantitative easing strategy than on what’s really important—the underlying fundamentals of the economy and corporate America’s financial health.
The reality is that corporate America is struggling to grow revenues. This means that companies and consumers aren’t spending at levels that make me comfortable with the economy. Of course, the stock market doesn’t really seem to care; it simply wants the flow of cheap money to continue.
In my view, it’s the same old thing that continues to engulf the trading in the stock market, and it’s annoying. For instance, if we see strong non-jobs economic data, the stock market edges higher. If we see signs of strengthening in the jobs market, the stock market sells off.
Of course, that’s because the Fed has made it clear that jobs creation is the focal point that will dictate when the central bank will begin to taper its monthly bond buying program, an unprecedented policy that has added trillions of dollars of debt to the bank’s balance sheet.
While all eyes will be on the non-farm payrolls reading today, November’s ADP Employment Change reading released last Wednesday showed that 215,000 new jobs were created last month, which is well above the consensus estimate of 173,000 and the upwardly revised 184,000 jobs created in October. How did the stock market react to the good news? Negatively, … Read More
Many times people ask me how I come up with my investment strategy.
Obviously, there is no one answer, but a common trick I use when developing any investment strategy is to look for areas where market sentiment still remains below peak optimism.
Following the tragic events of the Fukushima Daiichi nuclear power plant disaster in Japan, market sentiment for uranium dropped, naturally. As Japan halted all nuclear power plants, shareholders adjusted their investment strategy to get out of uranium mining stocks.
Now, the time when market sentiment is about to shift for the uranium industry, I believe, is close at hand.
The reality for energy use over the next decade is that it will grow massively around the world. Nations like China and India cannot keep up with industrial demand for energy, which is now causing huge amounts of pollution.
Chinese authorities are aware of the polluting side effects of conventional energy sources, such as coal, and are building several new nuclear power plants, which is a much cleaner energy source. Market sentiment will continue to shift in favor of uranium as more nations realize that nuclear power will continue to be with us for some time.
Adjusting your investment strategy before everyone jumps on board is important. Even Japan is now conducting analysis to re-open 14 nuclear power plants, as five utilities within that nation are requesting these energy sources be put back online.
If you’re going to look for a uranium miner to add to your portfolio, one well-established and smooth-running company to consider is Cameco Corporation (NYSE/CCJ, TSX/CCO).
Chart courtesy of www.StockCharts.com
In the latest quarter, … Read More