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Bear Market
Lombardi Publishing was originally established in 1986 as an investment newsletter publisher offering stock market guidance and analysis to readers. Today, we publish 25 paidfor investment letters most of which provide stock market guidance. Determining the over all direction of the stock market is very importantis it a bear market or a bull marketis first and foremost in our 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. We start by determining if we are in a bear market or a bull market, based on that analysis, we look at what sectors are hot, what sectors to avoid. Our two most recent and popular calls were telling investors to bail from stocks in 2007 (the bull market was over and a bear market was setting in) and telling investors to jump back into the stock market in March of 2009 (a bear market rally was started).

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PROFIT CONFIDENTIAL Forecasts

The Next Step for the Stock Market


No Comments Posted by Michael Lombardi, MBA in bear market on February 24th, 2012 For the benefit of my new readers, and as an update for my long-time readers, today I want to talk about exactly where I believe we are in the stock market. Aftera25-year bull market in stocks, which was fueled by a 25year decline in interest rates and a period of great financial leveraging that accompanied collapsing interest rates, a Phase I bear market (often referred to as the first down-leg) brought stock prices down sharply. Fromitshighof14,164inOctober2007,theDowJonesIndustrialAveragecrashedto6,440 by March 2009a 55% drop. This phase of the secular bear market is behind us. APhaseIIbearmarket(oftenreferredtoastherebound, bounce o r suckers rally) started in March of 2009. The Dow Jones Industrial Average has risen about 100% since March 9, 2009. Thebearmarkethasbeendoinganexcellentjobduringthiscurrentphaseofluring investors back into the stock market. Phase II bear markets give investors the false impression that the economy has turned the corner and that stocks are a safe bet again exactly where we are today. This phase of the secular bear market is still upon us. Giventhat2012isaPresidentialelectionyearintheU.S.,giventhatthegovernmentandthe Fed have fought the natural forces of this bear market tooth and nail, the bear market rally, the bouncein this secular bear market, has been long. PhaseIIIofthesecularbearmarketiswhenstockpricescomecrashingdownagain, bringing stock prices down to the point at which the Phase I bear market started or lowerin this case, 6,440 on the Dow Jones Industrial Average, about 50% below where the stock market sits today. Yes,Im sure many of my readers are sitting there, reading this, and thinking this cant happen. I also understand that Im one of the few stock market analysts out there with this opinion. But history is history. What I have explained above, the stark reality of where we are with the stock market, is how a secular bear market works. Thegovernmentcantakeonasmuchdebtasitlikes($5.0trillionandcountingsince President Obama took office) and our central bank can increase the money supply as much it wants (an increase of about $2.0 trillion since the credit crisis began). But too much debt and too much money printing always lead to rapid inflation and higher interest rates. The natural forces of a secular bear market will eventually play themselves out.

Immediate term outlook:


The bear market rally in stocks that started March 9, 2009 remains intact. Since March of 2009 we have been and continue to be immediate term bullish on stocks. Gold bullion is up $1,300 an ounce since we first recommended it in 2002 and we are still bullish on the metal.

Short-to-medium term outlook:


National debt increasing at the rate of $125 billion per month will eventually debase the U.S. dollar. Our concern is future deterioration of the greenback, an expansive money supply and rising U.S. national debt will eventually push domestic inflation and interest rates higher, negatively impacting the American economy and equities.

PROFIT CONFIDENTIAL Estimates


Total 2011 per share earnings for 30 stocks in the Dow Jones Industrial Average: Dow Jones Industrial Average Price/earnings multiple: Dow Jones Industrial Average Dividend Yield: 3-month day U.S. T-bill Yield: 10-year U.S. Treasury Yield:

$900 13.4 2.6% 0.01% 2.0%

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ThereisnoquestioninmymindthattheChineseeconomywillbethenextgreatworld economic power. While many still view China as mainly an export economy, the Chinese economy is already beginning to show that it is much more than that. Ive been talking about how the Chinese economy is experiencing real wage inflation and that, in just a few short years, there will be no great cost advantage to manufacturers setting up in China as opposed to other major industrialized nations. ThismeansthattheChineseeconomycant rely on its cheap labor as the sole means of attracting investment, because their labor costs will soon be comparable to labor costs of other developed nations. So what are the Chinese doing about this? Justthisweek,ChinaopeneditsfirstcarassemblyplantintheEuropeanUnion,inBulgaria. Yes, a Chinese car manufacturer chose Bulgaria as its base from which to sell cars in the European Union, because of its low labor costs, low taxes, and well-educated workforce. Where have we heard that before! Only a few short years back, it was U.S. and European car manufacturers and companies setting up in China. The tables have turned. The Chinese economy has grown up. TheplantwillbejointlyoperatedbyChinas Great Wall Motor Company and Bulgarias Litex Motors, just as other multinationals created joint ventures within China. The plant will eventually assemble 50,000 cars per year, and will initially sell in Bulgaria and neighboring Eastern European countries. The plan is to expand into the European Union. WithintheChineseeconomy,allChineseautomakersareexpressingtheirdesiretogain long-term strategic positions within Europe and the U.S. This is just the latest venture into Europe. In 2010, Chinas Geely Automobile Holdings bought Volvo from Ford Motor Company (NYSE/F), while the Chinese economys largest carmaker, Chery, owns a share of a Fiat plant in Italy. Whenpeopleaskwherethenextgreatmultinationalcompanieswillcomefrom,dearreader, dont forget about China. The Chinese economy has grown to the point where powerful companies have now emerged and are ready to take on the world. TheseChinesecompaniesarenotjusttalkingaboutittheyaretakingactionandmaking moves across the globe. The long-term picture for Chinese companies looks very bright. They have the money and are investing throughout the world in order to maintain strong earnings growth. The Chinese economy and the companies within it are going to challenge the multinationals of both the U.S. and Europe. It might be a good idea, dear reader, to look at up-and-coming companies within the Chinese economy, the next great multinationals. Where the Market Stands; Where Its Headed: Its just a matter of time before the Dow Jones Industrial Average moves decisively above the 13,000 level. Stock advisor bullishness has pulled back a little (which is good for stocks) and economic news sounds encouraging for investors; maybe stocks are not such a bad place to park ones money is the thinking Im hearing from investors. As I have been writing, there is no real economicreason for the market rally. The economy isnt getting better. In my opinion, under the surface, the economy is deteriorating. What lie ahead are inflation and higher interest rates. The stock market has been kept alive the past three years by interest rates that are unnaturally low and an unprecedented expansion of the money supply. The final stage of the bear market rallythat final blow to the upsideis being set up. What He Said: Bonds could now be a buy: Bonds rise in price when interest rates fall, as their return makes them more valuable. After a bear market in bonds that has lasted for months, the action in the bond market, as I read it, indicates that the bear market in bonds could be over. Ive always preferred quality when buying bonds, going with government bonds over corporate bonds. If you have some cash lying around, bonds could be a great deal. Michael Lombardi in PROFIT CONFIDENTIAL, July 24, 2006. The yield on 10-year U.S. Treasuries fell from five percent in the summer of 2006 to 2.4% in October, 2011doubling the price of the bonds Michael recommended.

Chinas Gold Rush


By Michael Lombardi, MBA Over the last few years, the China government has implemented new measures to make its currencythe yuanan open currency to be used by investors globally. Ten years ago, it was very difficult for even large investors to trade in the Chinese yuan. That is no longer the case today and the Peoples Bank of China has given every indication that China wants the yuan to be considered on level with the U.S. dollar and the euro.Withthat in mind, lets look ... Read More

What My Gut Is Telling Me Right Now About the Stock Market


By Mitchell Clark, B.Comm. The single greatest threat to your investment portfolio isnt a Greek debt default (although thats a big one). The major threat is geopolitical and it has to do with the potential for war with Iranand, to a lesser extent, Syria. Investment risk in the stock market remains very high at this time. I repeat my earlier view that a conservative investment stance is warranted. Of course, because the stock market has run so strong since the beginning of the year, it ... Read More

Why the Great Wall of Chinas Still Standing


By George Leong, B.Comm. The Great Wall of China is not crumbling down as some are starting to suggest following news that Chinese premier Wen Jiabao cut the countrys gross domestic product (GDP) target to an eight-year low of 7.5% for 2012. As I have said in previous commentary, China is stalling and clearly impacted by the debt and muted growth in Europe, particularly the eurozone, but the country is not in a downward spiral, as 7.5% growth is comparatively good. GDP growth in ... Read More

Two Reasons to Worry about the S&P 500


By Sasha Cekerevac The overall market, as represented by the S&P 500, has had a tremendous run from the October lows. Even through all of the never-ending struggles with the European crisis, unemployment still high, and a slowing world economy, the S&P 500 has managed to gain over 27%, approximately, over the last six months. That is a tremendous amount over a short period of time and the question I get asked all of the time is: what happens now? Ill give you ... Read More

Extra

Corporate Insiders Bailing Out of Stocks


No Comments Posted by Michael Lombardi, MBA in stock market on February 16th, 2012

Medium-term Economic Picture Worsens


By Michael Lombardi, MBA There is rapid inflation in the system, dear reader, but lets not speak too loudly about it.Ill keep this note to a whisper as we

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There are many reasons to be skeptical about this past Januarys market rally. One of the most important key indicators flashing a warning sign is the fact that the stock markets big rise in January occurred on very light trading volume. But theres another key indicator that is also flashing a red warning sign: insider selling. Insiders are officers, directors and the largest shareholders of corporations. It is critical to follow whether insiders are buying or selling their companys stock; it could be an indication that they expect to see their companys stock rise or fall in price. When insiders are buying, investors usually think it is time to buy. When insiders are selling, it could mean something is up, and so investors might consider selling. Argus Research has posted some alarming numbers from their corporate insider key indicator concerning the overall market, to which investors should pay attention. Their ratio showed that insiders are selling their shares at a pace not seen since July 2011. If you remember, dear reader, the market proceeded to fall dramatically in August, September and October of 2011. Their key indicator, the corporate insider sell-to-buy ratio, stood at 5.77-to-1, which means that, for every 100 shares corporate insiders bought, 577 shares were sold by insiders of the company for which they work. If companies listed on the New York Stock Exchange are taken in isolation, this key indicator gets worse8.2-to-1. To put some perspective on this key indicator, in November of 2011, before the over 25% market rally began, the sell-to-buy ratio stood at 0.81-to-1, which means that, for every 100 shares insiders bought, only 81 shares were sold.

turn our attention to the just-released Institute of Supply Managements factor index. The institutes survey of manufacturers throughout the U.S. includes a discussion on commodity prices. Commodity prices are a critical component of manufacturerscosts, because they are the inputs used to produce all of the goods that consumers purchase in this country.ForFebruaryof ... Read More

Want to Buy Low/Sell High? What You Need to Know


By Mitchell Clark, B.Comm. The spot price of gold really needs to hold above $1,700 an ounce in order to maintain its positive short-term price momentum. There is good underlying strength for gold long-term and, to illustrate it, just pull up a five- and 10-year chart on the spot price. The outlook for gold remains positive and the same goes for silver. Like other sectors of the stock market, there is no rush to be taking on new positions in mining stocks. Its still one ... Read More

Fourth-quarter Earnings Season Round-up


The recent corporate insider selling was confirmed by Trim Tabs Research. Their key indicator showed that insider selling for the month of January was five times insider buying, which, has thus farfor the month of Februaryincreased at an alarming 15 times. For their key indicator, the interpretation is that, in the January market rally, for every 100 shares bought by insiders, 500 shares were sold. From February 1 to 13, the selling is accelerating rapidly: for every 100 shares bought, 1,500 shares were sold. Insider selling, in isolation, cannot be the sole key indicator on which a buy-or-sell recommendation can be made. These numbers confirm the bear market trap that is currently playing itself out with this market rally. It seems that, while a few people were buying in Januarys market rally (as evidenced by very low trading money), the smart money (corporate insiders) were selling into this market rally. Sounds like the smart money is the one to heed, dear reader. Michaels Personal Notes: I was very confident I was going to be right about calling for a fifth consecutive year of trilliondollar budget deficits, but Im surprised myself at how quickly I would be proven right. Just a few weeks ago, I commented on the Congressional Budget Offices (CBO) forecast for budget deficits in future years. (See: Getting Used to Trillion-dollar Annual Deficits.) Again, I want to reiterate, this was not and still isnt a criticism of the CBO, because it has to project budget deficits based upon the current laws and tax cuts in place. At the time, I warned that the then 2013 budget deficit of only $585 billion was not going to materialize. The only way this number could be reached would be if taxes increased dramatically, which, considering such a weak economy, was not going to transpireis what I argued. When President Obama released the budget this week, he asked Congress to extend the payroll-tax cut and the unemployment insurance benefits until the end of 2012. Should President Obama win the election and his budget pass into law (highly unlikely), then the projected budget deficit for 2013 will be $901 billion. Compound this with the 2012 budget deficit now expected to come in at a worse level than previously projected of just under $1.3 trillion from a previous estimated $1.1 trillion. Since the 2013 budget deficit has now moved from $585 billion to $901 billion, Im sticking to my forecast of the budget deficit for next year surpassing the $1.0-trillion mark by a large margin. The proposed budget sees the top individual tax rate rise to 39.6% from 35%. The budget would treat dividends like regular income and remove other tax benefits from the wealthy. (There is no way that Congress is going to approve such a spike in taxes.) While the budget acknowledges that Medicare spending will increase dramatically from 2013 and on, it offsets this by saying that defense spending will fall. The defense spending cut has a lot to do with closing out the campaign in Afghanistan, but the tensions with Iran have been escalating dramatically. A war with Iran could throw these budget deficit projections right out the window. The Republicans will release their recommended budget soon. They are going to target

By George Leong, B.Comm. Spain announced that that it was going to miss its deficit targets for 2012. Greece got another $170 billion in cash to avoid defaulting. The financial mess in the eurozone and Europe is real. I expect more shocks down the road from Europe; but, while there is renewed optimism towards the U.S. economy with an improving jobs sector, corporate America is still a concern. Whileits true there have been stellar performances from Apple Inc. (NASDAQ/AAPL) that are worthy of an ... Read More

These Companies Are Raising Their Dividend Yield


By Sasha Cekerevac With the volatility weve seen in the markets over the past few years, investors have become hesitant to put their money into the market. There are many good reasons to be cautious; more money printing, the U.S. administration is determined to lower the value of the dollar, scandals, and the banking crisis. These are just a few issues that keep many investors up at night. Through all of this turmoil, an investor looking for income simply cant get it in the ... Read More

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different tax cuts and revenue priorities, so both parties will debate their philosophical approaches to the electorate on how to best move forward in this country. What is frightening isIm almost certainthat no matter what budgets and tax cuts either party presents, neither will prevent annual trillion-dollar budget deficits in the next few years. Theyll say theyll tackle the issue, but, in future years. (Stop me if youve heard that one before!) All I know is that taking the budget deficit projections in this budget right to 2016, and giving myself an error cushion of just five percent on the budget deficits, will ensure that our debt-toGDP will be roughly in the vicinity of 130% by the end of either President Obamas second term or the new Presidents first term. Welcome to Greece These unprecedented trillion-dollar budget deficits mean more money printing and a continued rise in the price of gold bullion and will certainly put upward pressure on interest ratesfaster than we can imagine. Protect yourself, dear reader. (Also see: Could the U.S.s Credit Rating Be Downgraded Again?) Where the Market Stands; Where its Headed: I wrote yesterday morning about how I was getting uncomfortable with so many stock advisors turning bullish andbangthe Dow Jones Industrial Average has its worse day of the year, down almost 100 points yesterday. Dear reader, we need to get ready for big one-day drops for the stock market. They will become the norm when Phase III of the bear market starts. But I still believe there is more life left in the bear market rally (or should I say suckers rally) that started in 2009. What He Said: Despite all my yellingand screamingabout gold, I believe only a few of my readers and a small fraction of the general public have taken a position in gold. Why? Because golds not trendybuying condominiums for investment is! If you are an investor, you need to seriously look at investing in gold stocks because gold bullion prices will likely continue to rise. Michael Lombardi in PROFIT CONFIDENTIAL, September, 21, 2005. Gold bullion was trading under $300.00 an ounce when Michael first started recommending gold-related investments.

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How the Massive Global Economic Slowdown Will Affect Us


No Comments Posted by Michael Lombardi, MBA in economic analysis on February 10th, 2012 There can be no doubt about it; we live in an increasingly global economy. As Ive been writing often, dear reader, how the rest of the world is faring with the global economic slowdown will be a big factor in how the U.S. economy does in 2012. Chinas Lunar New Year holiday is equivalent to North Americas Thanksgiving; it is a gauge for retailers on how confident the consumer is, and how the following year will develop, since it is one of the busiest shopping seasons of the year. As Ive been saying, in spite of digging deeper into debt, the U.S. consumer was unable to muster a strong holiday season. The economic slowdown affected Chinas Lunar New Year as well. Although holiday sales grew 16% in China, this was the slowest rate of growth in three years. Large retailers to jewelers admitted that sales were disappointing and, while some refused to forecast for 2012 because of the uncertainty, others pointed to the economic slowdown in Europe and the U.S. as affecting consumer sentiment. (See: 2012 Economic Growth Forecast Slashed Across Most Countries.) This was further confirmed by Chinas Ministry of Industry and Information Technology, which sees Chinas industrial output as slowing to 11% in 2012, from 13.9% in 2011but admits that there are significant downside risks to the forecast due to the global economic slowdown. This is consistent with the message from Chinas central bank. Remaining in Asia, South Koreas central bank cut its economic forecast for the first half of 2012, after experiencing 3.6% growth in 2011. The central bank noted the global economic slowdown as one of the factors tempering its outlook. Indias government forecast 2012 as the year of slowest growth since 2009three years ago. In a 180-degree turn, Indias central bank has expressed that it will stop raising rates to fight inflation, as the attention has now turned to possibly cutting rates, because of inflation

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slowing as well as economic growth due towait for itthe global economic slowdown. Over to Europe now, where the dominant economy that drives the eurozone, Germany, saw its exports fall in December at the fastest pace in three years due to the economic slowdown. Once again, dear reader, the fact that Asian economies experienced the slowest economic growth in three years and the fact that Germanys exports fell at the fastest pace in three years is no coincidence. It proves the economic slowdown and how interconnected we are economically. Seasonally adjusted exports fell 4.3% in December in Germany, far worse than the one percent that economists had expected. Industrial production dropped off 2.9%, which is clearly pointing to an economic slowdown, as confirmed by Germanys central bank. It is evident that exports to the rest of the eurozone are slowing, but a global economic slowdown also factored into the equation. In Italy, the central bank is looking for a decline of 0.4% in GDP growth for 2012. Preliminary numbers suggest that Italys GDP was far worse than expected in the fourth quarter due to the economic slowdown. Clearly, a massive economic slowdown is evident throughout countries in Asia and Europe. This will without a doubt affect the U.S. economy and eventually American stock markets. As far as I can see, the major U.S. stock markets are not pricing in the economic slowdown as of yet. All hail to the current bear market suckers rally! Michaels Personal Notes: Its not too late for this country On that historic day when Standard & Poors stripped the U.S. of its elite AAA status last year, because of its large government debt and budget deficit, it has been forgotten that the rating agency placed a negative outlook on the countrys rating. The negative outlook centered on the fact that our country had no concerted medium- or longterm plan to reduce the debt, let alone the budget deficit. Of course, such a plan will be difficult to conceive or even implement in an election year, but the budget deficit is nonetheless estimated to be $1.3 trillion this year. Standard & Poors came out this week warning that the U.S. faces another rating cut in the next six to 24 months if a credible plan is not put in place to tackle the relentlessly rising government debt and the budget deficit. Standard & Poors acknowledges that not much can be done about the U.S. fiscal problems until after the elections, but at least it is putting the current/new administration on alert, warning them that if one of their first mandates is not creating a plan to bring the budget deficit under control, then another downgrade will follow. Yes, after the downgrade of the U.S. credit rating last summer, demand for U.S. bonds went up and interest rates continued to fall. This was due to a confluence of events: the crisis in Europe; the Arab Spring; and the privilege of being the reserve currency. Privileges are earned, not given. Just because we have the reserve currency now, doesnt mean we will retain it in the future; not with trillion-dollar budget deficits. In order to continue to earn that right, we need to address the ballooning government debt (and trillion-dollar budget deficit), which stands at over $15.0 trillion. In addition to this, our unfunded liabilities are at the very least $55.0 trillion. I commend Standard & Poors for drawing attention to one of the most important issues facing our country. The problem is that tackling the debt and budget deficit means tackling entitlements: Medicare and Social Security are the major ones. This will cause an uproar among Americans, which is why politicians dont want to touch it; it will greatly reduce their chances of being re-elected. With budget deficits of at least a trillion dollars being created annually, clearly we are on a path that is unsustainable. We need true leaders to stand up, discuss the issues in a concise manner, and make very difficult decisions that will steer us onto a path of fiscal disciplinebudget surpluses, not budget deficitson the road to reducing the government debt. It is not too late for this country, but if we continue down this budget deficit path, one day it will be. We cannot have our children inherit this mess. I cannot think of one responsible father who, witnessing their child run into high debt (budget deficit), says, Dont worry son; just increase the credit limit on your card and youll be fine. Investors in our government bonds will one day look at the trillion-dollar budget deficits and escalating government debt and have little confidence that it can ever be repaid. Once that occurs, no one will want our bonds, which will send interest rates rocketing higher. There is a one-in-three chance that the U.S.s credit rating will be downgraded again. Remember what happened when Standard & Poors first downgraded the U.S.? It sent the stock market down dramatically. History has a tendency to repeat itself. (Also see: Getting Used to Trillion-dollar Annual Deficits.)

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Where the Market Stands; Where its Headed: The Dow Jones Industrial Average sits 130 points away from the 13,000 levelsomething the worlds most widely followed stock market hasnt touched in four years. As I note above, the worlds major economies are slowing quickly here in 2012. Government debt has gone wild. The budget deficit is out-of-control. Massive monetary stimulus will eventually trigger inflation, which will cause interest rates to riseand the stock market is rising? We are in a bear market rally that started in 2009. The purpose of this phase of the bear market is to lure investors back into stocks. The bear is doing an excellent job of this. Enjoy the rally, my dear reader. Its getting tired and long in the toothas they say. What He Said: When property prices start coming down in North America, it wont be a pretty sight, because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. Its only a matter of logic, reality and time. Michael Lombardi in PROFIT CONFIDENTIAL, June 23, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

Proof the Stock Market Rallys Getting Close to the End


Comments Off Posted by Michael Lombardi, MBA in stock market on February 9th, 2012 Theres no doubt about it. The stock market had a fantastic January! But heres the bad news: companies in the S&P 500 that released their earnings reports in January (with 49% of S&P 500 companies reporting so far), have had their worst performance since the economy supposedly rebounded (source: Financial Post). Just 46% of those companies in the S&P 500 that have reported fourth-quarter 2011 earnings so far have beat market expectationsthe lowest reading since the third quarter of 2008. Many companies were citing increased input costs and a new general economic slowdown worldwide because of the eurozone credit crisis as factors that affected their earnings reports. While it will take a few more weeks for most S&P 500 companies to have the visibility required to make more reliable forecasts for the current year, many analysts are now expecting that revisions to the S&P 500 earnings will be mostly to the downside in 2012. The Association of American Railroads (AAR) also released its latest report for January, 2012. After experiencing slow railcar growth in the second half of 2011, the AAR saw only 1.1% growth in January, from the same period last year. Theassociationfurthernotedthat,whileauto-related carloads remained strong, grains, chemicals and coal were flat to declining on a year-on-year basis. For2012,theAARseesahigherrailpricingenvironmentalongwithhigherfuelsurcharges on the back of lower volumewhich means that the U.S. economy is to remain relatively flat. ThisAARreportconfirmsthenegativityintheBalticDryIndex,onwhichIreportedon yesterday. Both of them point to 2012 as being a difficult year. Thatiswhy,dearreader,youshouldbeverywaryoftherecentstockmarketclimb.AsIhave been writing since 2009we have simply been experiencing a suckers rally within the confines of a long-term bear market. The divergence between earnings reports and stock prices cannot continue. Should S&P 500 earnings for 2012 be lowered again, then that will affect the current price/earnings (P/E) ratio for the market as a whole. ThiswillundoubtedlyputpressureonstocksanddrivetheS&P500indexlower. Lets keep in mind as well that the strong market rise and strong performance put in by the S&P 500 in January was on low volume. This means that many market participants were hesitant, so kept their cash on the sidelines. After sifting through the hard facts above, it is hard to see how that money on the sidelines will suddenly come rushing into the S&P 500. Without this new money coming in, a true market advance cannot sustain itself. Michaels Personal Notes:

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A story of the Super Bowl, America, chariot racing, the Roman Empire, and our destined future Super Bowl XLVI made U.S. television history by pulling in the biggest audience, at 111.3 million viewers (source: NBC). The game was seen by close to 47% of all U.S. homes. Itisnowonderthat,withthismanyeyeballs,theaverage30-second commercial sold for a record $3.5 million (source: NBC). Rapid inflation here. Forthehalftimeshow,afewmorepeoplewantedtotuneinbecausethefeaturedartistwas Madonna. That brought total viewers from 111.3 million to 114 million. TheaverageSuperBowlticketwas$3,982inthedaysleadinguptothegame(rapid inflation). Face value of the tickets ranged from $800.00-$1,200 (rapid inflation again). DuringtheRomanEmpireandByzantineEmpire,chariotracingwasthemostpopularsport. The chariot racers were divided into factionsteamsthat fans wore the colors of and rooted for: Blue, Green, Red and White. UndertheByzantinerule,thehippodromewasbuilt,whichseatedroughly60,000fans.An imperial box was created for the emperor and his family. During the interval between races, the crowd was entertained with various performers: singers; dancers; mimes; clowns; and others. The cost of goods rose during the Byzantine regime, the first real form of rapid inflation. Theracesprovidedthefanswithanopportunitytochooseateamcolor,whichgavethe illusion of control in an otherwise authoritarian society, as purchasing power fell due to rapid inflation (source: Barbara Schrodt). The races took the citizens focus off the financial problems of society as they looked so forward to their weekend sports. TherewasatimeduringtheRomanEmpire,roughlybetween300B.C.and400A.D.,when the number of soldiers skyrocketed to over 300,000, from 20,000. During this time, as more soldiers entered the ranks, their pay and pensions increased 350% (rapid inflation) from 124 Roman denarii (the denarius was the currency at the time) to 438 Roman denarii (source: Kenneth Harl). Inadesperateattempttokeeptheirreign,theemperorspaidthesoldierswithadebased currency, which fed rapid inflation. The amount of silver that went into every coin went from 2.19 grams at the height of the empire to just 0.04 at the end; it was also a low grade of silver (source: Martin Armstrong). Theemperors,duringthistime,madefinancialpromisestothepeoplethatclearlycouldnot ever be paid. Besides just the pay itself, there was the matter of future pensions, where there was no money (unfunded liabilities). With government debt out of control, the currency was debased, but rapid inflation was the resulting consequence, which destroyed the Roman Empire. WithgovernmentdebtintheU.S.atover$15.0trillionandunfundedliabilitiesataminimum of $55.0 trillion (with that number probably larger), we have the same problem the Romans faced many centuries ago. WorldGDPin2011was$65.0trillion(source:IMF).Thereisnotenoughmoneyintheworld to pay for the U.S. government debt and, if we continue to expand our money supply (create money), rapid inflation will be the result. Wearenotaddressingtheissuesandmakingtheharddecisionstofixtheseproblemsas rapid inflation creeps in. One day, the market will force us to make those hard decisions. Worse,over46millionpeopleareonfoodstampsinthiscountry,withyouthunemployment at over 18% (source: SNAP & BLS), while there are the privileged few who can afford to pay for rapid inflation and tickets at the Super Bowl. Historyreallyneverchangesjusttheplayerschange.TosustaintheRomanEmpireasit grew and grew, money was printed; the rapid inflation came, the value of money deteriorated, and the empire slowly ceased to be the worlds economic powerhouse of its time. ThesameishappeninginAmericarightbeforeoureyes.Itwillbealongprocessbut at least this time we know who the next world economic power will be. Go East, young man, to a land where citizens are encouraged to own goldChina. Where the Market Stands; Where its Headed: Iseemoreandmoremarketparticipantsturningbullish.LawrenceFink,theheadof BlackRock Inc. (NYSE/BLK), the worlds largest money manager, said yesterday that investors should be 100% in stocks. Stock advisors are turning more bullish each passing day. Of course, this is all very negative for the stock marketit usually does the opposite of what is expected of it. The bear market rally in stocks could be forming a base here from which to make its final upward push before retiring for good. What He Said:

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The U.S. reduced interest rates in 2004 to their lowest level in 46 years. And what did Americans do with their access to easy money? They borrowed and borrowed some more, investing the borrowed money into real estate. Looking ahead, perhaps the Feds actions (of bringing interest rates so low as to entice consumers to borrow more than they can afford) will one day be regarded as one of the most costly errors committed by it or any other banking system in the last 75 years. Michael Lombardi in PROFIT CONFIDENTIAL, July 21, 2005. Long before anyone was thinking of a banking crisis, Michael was warning that the coming real estate bust would wreak havoc with the banking system.

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