Bad April Fools’ Joke for Investors Playing Out

Wow! Things must be good again. The stock market just had its best first quarter run in a decade, up 6.4% for the calendar quarter ended yesterday. The U.S. Labor Department said that 216,000 jobs were created in March and the unemployment rate has fallen to 8.8%.

Good times are rolling again. Luxury retail brand Prada says that its net income rose to $355 million in 2010, up 150% from the year before. Most of the luxury-brand stocks are rising again, and this morning we have the NASDAQ saying it wants to buy the NYSE for $11.3 billion. Deal-making is back, big-time.

My gut tells me that this will all turn out to be a bad April Fools’ joke for investors.

Sure, I may be the only economist and stock analyst out there today who is warning investors. But I was also the only one telling my readers to buy gold at $300.00 an ounce in 2000, telling them to get out of U.S. real estate in 2005, and predicting a severe recession in 2007 when the stock market was at a record high. It’s okay; I’m used to going it alone. (Maybe that’s why this investment e-letter continues to gain 30,000 new readers a month.)

Okay. Enough talk. Let’s look at what is unfolding here:

Phase I of the bear market: Bring stocks down to the point where investors bail out of stocks, and create deep negativity and fear surrounding stocks and the economy. This occurred during most of 2008 and early 2009, culminating with the Dow Jones Industrial Average collapsing to 6,440 on March 9, 2009. Only a few months earlier, in October 2007, the Dow Jones was trading at a record high of 14,164.

Phase II of the bear market: Bring the suckers back in. Slowly spread the feeling that “the economy is getting better again” and “the worst is behind us.” Bring stock prices higher, make investors feel they are missing the boat on the economic turnaround. This morning, the Dow Jones sits 91% higher than it did in March of 2009. Greatest turn-around story of our generation! Unfortunately, Phase II of the bear market is close to turning into Phase III.

Phase III of the bear market: Just when the great majority of investors and citizens feel that the economy has fully recovered, pull the carpet from under their feet again. Start bringing stocks back down, some weeks slowly, other weeks violently. Phase III of the bear market is not far off. Ideally, it will hit when the current bear market rally has risen 100% from when Phase I ended, which would be 12,880 on the Dow Jones or five percent to 10% either way of that number.

Please read my “Personal Notes” and “Where the Market Stands; Where it’s Headed” commentaries for today below, as they relate to the above.

Michael’s Personal Notes:

It’s absolutely ridiculous to see so many investors and analysts glued to the newswire this morning waiting to hear the U.S. job numbers report for March. By this point, I’ve trained my readers to be skeptical about the “official” unemployment rate posted by our government.

Keep the following in mind:

1)      The job numbers are always revised the following month. For example, this morning the U.S. Labor Department released the March unemployment rate and the “revised” job numbers report for February.

2)      There has been stark criticism of how the government determines the unemployment rate. In compiling the “official” unemployment rate, the following are excluded: people who have given up looking for work; prisoners (1.5% of the working population); retirees who have involuntarily accepted early retirement; part-time workers who want full-time jobs; and professional students who stay in school because they cannot find work.

3)      Eight million Americans lost their jobs during the 2008-2009 recessions. If the U.S. created 200,000 jobs every month for 40 months straight (which it will not), it would take over three years just to be back where we were before the recession started.

Bottom line: I never trust the job numbers report. As crazy as it sounds, when the U.S. Labor Department said this morning that the official unemployment rate is now 8.8%, I added 75% to that number to get a real unemployment rate of 15.4%. The “underemployment” rate (includes part-time workers who want full-time work and those people who given up looking for work) stands at 15.7%.

Where the Market Stands; Where it’s Headed:

It was an outstanding first quarter for the stock market, with the Dow Jones Industrial Average gaining 6.4% for the quarter ended March 31, 2011. This bear market rally has more steam to blow off. And I’m looking for one more shot above the Dow Jones’ post-crash high of 12,391.29 set this past February.

Yes, I continue to see stock prices rising in the immediate term. But short-term, the market’s internals are looking worse. The bear market rally that started in March of 2009 is getting “long in the tooth,” as they say, and getting close to finishing its run. Part III of this bear market rally, coming to us soon, promises to be a doozy.

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

Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter

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Bad April Fools’ Joke for Investors Playing Out

Wow! Things must be good again. The stock market just had its best first quarter run in a decade, up 6.4% for the calendar quarter ended yesterday. The U.S. Labor Department said that 216,000 jobs were created in March and the unemployment rate has fallen to 8.8%.

Good times are rolling again. Luxury retail brand Prada says that its net income rose to $355 million in 2010, up 150% from the year before. Most of the luxury-brand stocks are rising again, and this morning we have the NASDAQ saying it wants to buy the NYSE for $11.3 billion. Deal-making is back, big-time.

My gut tells me that this will all turn out to be a bad April Fools’ joke for investors.

Sure, I may be the only economist and stock analyst out there today who is warning investors. But I was also the only one telling my readers to buy gold at $300.00 an ounce in 2000, telling them to get out of U.S. real estate in 2005, and predicting a severe recession in 2007 when the stock market was at a record high. It’s okay; I’m used to going it alone. (Maybe that’s why this investment e-letter continues to gain 30,000 new readers a month.)

Okay. Enough talk. Let’s look at what is unfolding here:

Phase I of the bear market: Bring stocks down to the point where investors bail out of stocks, and create deep negativity and fear surrounding stocks and the economy. This occurred during most of 2008 and early 2009, culminating with the Dow Jones Industrial Average collapsing to 6,440 on March 9, 2009. Only a few months earlier, in October 2007, the Dow Jones was trading at a record high of 14,164.

Phase II of the bear market: Bring the suckers back in. Slowly spread the feeling that “the economy is getting better again” and “the worst is behind us.” Bring stock prices higher, make investors feel they are missing the boat on the economic turnaround. This morning, the Dow Jones sits 91% higher than it did in March of 2009. Greatest turn-around story of our generation! Unfortunately, Phase II of the bear market is close to turning into Phase III.

Phase III of the bear market: Just when the great majority of investors and citizens feel that the economy has fully recovered, pull the carpet from under their feet again. Start bringing stocks back down, some weeks slowly, other weeks violently. Phase III of the bear market is not far off. Ideally, it will hit when the current bear market rally has risen 100% from when Phase I ended, which would be 12,880 on the Dow Jones or five percent to 10% either way of that number.

Please read my “Personal Notes” and “Where the Market Stands; Where it’s Headed” commentaries for today below, as they relate to the above.

Michael’s Personal Notes:

It’s absolutely ridiculous to see so many investors and analysts glued to the newswire this morning waiting to hear the U.S. job numbers report for March. By this point, I’ve trained my readers to be skeptical about the “official” unemployment rate posted by our government.

Keep the following in mind:

1)      The job numbers are always revised the following month. For example, this morning the U.S. Labor Department released the March unemployment rate and the “revised” job numbers report for February.

2)      There has been stark criticism of how the government determines the unemployment rate. In compiling the “official” unemployment rate, the following are excluded: people who have given up looking for work; prisoners (1.5% of the working population); retirees who have involuntarily accepted early retirement; part-time workers who want full-time jobs; and professional students who stay in school because they cannot find work.

3)      Eight million Americans lost their jobs during the 2008-2009 recessions. If the U.S. created 200,000 jobs every month for 40 months straight (which it will not), it would take over three years just to be back where we were before the recession started.

Bottom line: I never trust the job numbers report. As crazy as it sounds, when the U.S. Labor Department said this morning that the official unemployment rate is now 8.8%, I added 75% to that number to get a real unemployment rate of 15.4%. The “underemployment” rate (includes part-time workers who want full-time work and those people who given up looking for work) stands at 15.7%.

Where the Market Stands; Where it’s Headed:

It was an outstanding first quarter for the stock market, with the Dow Jones Industrial Average gaining 6.4% for the quarter ended March 31, 2011. This bear market rally has more steam to blow off. And I’m looking for one more shot above the Dow Jones’ post-crash high of 12,391.29 set this past February.

Yes, I continue to see stock prices rising in the immediate term. But short-term, the market’s internals are looking worse. The bear market rally that started in March of 2009 is getting “long in the tooth,” as they say, and getting close to finishing its run. Part III of this bear market rally, coming to us soon, promises to be a doozy.

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

Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland. Follow Michael and the latest from Profit Confidential on Twitter

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Bloody Fools

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The time to buy is when there's blood in the streets.
--Baron Nathan Rotschild

Given today's sharp rally, I can only assume that the equity crowd -- clever contrarians that they are -- saw all these distressing reports and decided -- for the umpteenth time since the financial crisis began -- that things must be near a bottom -- right?

"Gallup Reports Underemployment Surges To 19.9%, February "Jobs Situation Deteriorates": As Bad As 2010" (Zero Hedge)

On one hand we have the Department of Truth about to tell tomorrow that NFP based on various seasonal and birth death adjustments increased by 250,000. On the other hand, we have Gallup which actually does real time polling without a procyclical propaganda bias. And Gallup does't have any good news: "Unemployment, as measured by Gallup without seasonal adjustment, hit 10.3% in February -- up from 9.8% at the end of January. The U.S. unemployment rate is now essentially the same as the 10.4% at the end of February 2010." And the one indicator that nobody in the mainstream media will touch with a ten foot pole: "Underemployment, a measure that combines part-time workers wanting full-time work with those who are unemployed, surged in February to 19.9%. This resulted from the combination of a sharp 0.5-point increase since the end of January in the percentage unemployed and a 0.5-point increase in the percentage working part time but wanting full-time work. Underemployment is now higher than it was at this point a year ago (19.7%)."

"The Shape of Fiscal Crisis to Come" (Guardian)

The US is living on borrowed dollars and, as political deadlock goes on, borrowed time. It must learn from Europe's misfortune
 
The American fiscal condition faces a perfect storm. The outlook for the medium term has deteriorated markedly, important causes being the Great Recession and the extension of the Bush tax cuts. Nor are the projections cheerful in the long term. And these issues will come to a head. On 4 March, the spending authority that has kept the US going in the past budgetary period is set to expire.

"Broke Town, U.S.A." (New York Times)

Vallejo, a city about 25 miles north of San Francisco, offers a sneak preview of what could be the latest version of economic disaster. When the foreclosure wave hit, local tax revenue evaporated. The city managers couldn’t make their budget and eliminated financing for the local museum, the symphony and the senior center. The city begged the public-employee unions for pay cuts — all to no avail. In May 2008, Vallejo filed for bankruptcy. The filing drew little national attention; most people were too busy watching banks fail to worry about cities. But while the banks have largely recovered, Vallejo is still in bankruptcy. The police force has shrunk from 153 officers to 92. Calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city’s firehouses were closed. Last summer, a fire ravaged a house in one of the city’s better neighborhoods; one of the firetrucks came from another town, 15 miles away. Is this America’s future?

Cities across America are facing dire financial distress. Meredith Whitney, a banking analyst turned independent adviser who correctly predicted the banking meltdown, has issued an Armageddon-like prediction of mass municipal defaults. Others — notably Newt Gingrich — have suggested that state governments as well as cities should be allowed to file for bankruptcy. Congress held a hearing to examine the idea.

These forecasts of apocalypse have touched a nerve. Americans, still reeling from the devastating impact of the mortgage debacle, are fearful that the next economic disaster is only a matter of time. To anyone reading the headlines of budget deficits and staggering pension liabilities, it takes little imagination to conclude that the next big one will be government itself. The problems of cities are everywhere.

"Budget Hardships Continue for U.S. Counties -Survey" (Reuters)

Counties across the United State are still reeling from the effects of the recession, slammed by declining aid from state governments and lower tax revenues, according to a survey by the National Association of Counties released on Thursday.

Almost one-quarter of the 500 counties surveyed said they have laid off workers, with all counties of populations topping 1 million having eliminated jobs, the study found. Counties are also reorganizing, delaying projects and using reserves.

A decrease in state funding is the leading contributor to counties' low revenues, and finding replacement funds will be hard for most counties.

"Raising taxes is still not an option for many," the study found.

"More College Graduates Take Public Service Jobs" (New York Times)

If Alison Sadock had finished college before the financial crisis, she probably would have done something corporate. Maybe a job in retail, or finance, or brand management at a big company — the kind of work her oldest sister, who graduated in the economically effervescent year of 2005, does at PepsiCo.

“You know, a normal job,” Ms. Sadock says.

But she graduated in a deep recession in the spring of 2009 when jobs were scarce. Instead of the merchandising career she had imagined, she landed in public service, working on behalf of America’s sickest children.

Ms. Sadock is part of a cohort of young college graduates who ended up doing good because the economy did them wrong.

As job hunts became tough after the crisis, anecdotal evidence suggested that more young people considered public service. Exactly how big that shift was is now becoming clear: In 2009 alone, 16 percent more young college graduates worked for the federal government than in the previous year and 11 percent more for nonprofit groups, according to an analysis by The New York Times of data from the American Community Survey of the United States Census Bureau. A smaller Labor Department survey showed that the share of educated young people in these jobs continued to rise last year.

"On Charles Ponzi Day We Celebrate Another All Time Record In Food Stamp Usage" (Zero Hedge)

Bernanke's plan to recreate Libya in our own back yard is continuing to work magnificently. It is no surprise that on Charles Ponzi day, the update to food stamp usage indicates that in December those receiving an average of $134 per month has just hit 44.1 million people. These lucky people will soon be able to buy an inflation adjusted 2.3 crumbs of notional bread with this generous handout from the Chairsatan. In other words, America is now the land of the free, home of the brave, of whom 14.3% can't afford to eat, even with all the new jobs created by both the old QE1, Lite and 2, and soon to be 3. Don't forget that according to the Bernank, QE2 has already created 250,000 new jobs... all at the a modest cost of $1.3 million per job.

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