Something About the Market You’re Not Going to Read Anywhere Else

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Last night, Cisco Systems, Inc. (NASDAQ/CSCO) lowered its current quarter revenue and earnings forecasts and the stock got slammed 15% in after-hours trading. Major market futures were down one percent on the news.

Is this a fickle market or what? One downgrade in revenue/earnings forecasts after hundreds of companies reported third-quarter earnings that surprised on the upside and, bang, the market reacts negatively. Or at least that’s what the market would like you to think.

The few past trading sessions have been “blah” for the stock market. Profit-taking? Maybe. But take a look at the bond market for the real answer.

The yield on the bellwether five-year U.S. Treasury has moved up to 1.20% from 1.08% only a week ago. What’s happening? Wasn’t the Fed’s Quantitative Easing Part II supposed to bring down long-term interest rates? So far, it hasn’t worked.

Here is what happening with the market right now…something you’re not going to read anywhere else:

Interest rates in the U.S. are starting to rise. I’ve been writing, warning, about this for months. And it is starting to happen right now. Look at the standard 30-year U.S. mortgage. No one is buying houses, but the rate just keeps rising—now at 4.47%.

Bond investors are getting whacked and this may be only the beginning.

Of course, as interest rates rise, the severely oversold U.S. dollar is rallying back. A stronger greenback puts price pressure on gold and on the stock market, pushing those markets down.

But, have no fear. I’m sure the Fed will give us QE3, QE4 and more. Remember, not a single investment goes up or down in a straight line. Once in a while, the U.S. dollar rebounds whenever it gets severely oversold. We’ve seen this happen many times since the greenback started to decline in value in 2002. I look at each rally in the U.S. dollar, and the corresponding decline in gold and stock prices, as an opportunity to get back into those latter markets.

This time, the dollar is rallying as interest rates “unexpectedly” rise. I’m watching the situation closely for my readers. Are we looking at the start of a new long-term trend in rising interest rates? (Remember, interest rates move in 20- to 30-year cycles.) Or is the spike in rates a temporary thing, because QE2 hasn’t really taken effect and because QE3 and QE4 haven’t been announced?

Stay tuned. It’s getting really interesting for the markets now. The biggest profits for investors are yet to come.

Michael’s Personal Notes:

You’ve got to hand it to General Motors Co. Somebody over there must be very, very smart.

They go bankrupt. They force their unions to lower wages. They get suppliers to take haircuts. They get the government to loan them money and to become investors in the company. And all of a sudden, they are making billions of dollars again.

How come I can’t do that with my business? Oh, I know why; it’s because I’m not “too big too fail.”

GM made a whopping $2.16 billion its third quarter. This is the same company that lost $30.0 billion in 2006. What a turnaround! Now if GM is successful in its November 17 IPO, the U.S. government’s ownership of GM will fall to 43% from 61% (according to the prospectus). President Obama can claim bragging rights on this one.

But what about the unions? It’s an old cycle, my dear reader. When the current contracts are up, the unions, who will cry that they got the short end of the stick during GM’s restructuring, will be asking for much higher wages. Smells like inflation to me.

Where the Market Stands, Where it’s Headed:

The market stops moving higher for a couple of days and immediately I hear cries that the rally is over. Talk about short-term thinking! I doubt that the bear market rally that started in March of 2009 is over. In fact, this baby has legs left.

The Dow Jones Industrial Average starts this morning up 8.9% for 2010. Add in a dividend yield of 2.5%, and stocks have returned more than 10% this year. Sorry bond investors.

What He Said:

“I see a deal when it’s a deal. And right now there’s a good ‘for sale’ sign flashing on gold bullion and gold producer shares. In fact, after peaking at the $690.00-an-ounce level earlier this year, gold could be a bargain at its current price of around $650.00 per ounce. As a reader, you are undoubtedly aware of my negative stance on the general stock market and the U.S. economy. As the economic problems continue to brew in the U.S., as these problems develop into others, and as they are finally exposed, what other investment but gold will worldwide investors turn to?” Michael Lombardi in PROFIT CONFIDENTIAL, March 14, 2007. Gold bullion was trading at under $300.00 an ounce when Michael first started recommending gold-related investments. Many gold stocks recommended in Michael’s advisories have gained in excess of 100%.

1 Gold Investment Article Round Up

We at 1 Gold Investment have been publishing Gold Based Investment related high quality articles from the leaders in Gold Investment (Michael Lombardi) in the current market. There is Huge and Good response to articles which we are publishing and more and more readers are getting attached to our website articles so we have come up with this post, this post is a round up of our GOLD related article which are most popular on our website and liked by our readers and you will enjoy it too.

Stock Market Correction Phase Over? Spot Price of Gold Looks to Be Bottoming
Gold Bullion’s Price Action: Time to Separate the Men from the Boys
Stock Market & Gold: An Opportunity Like We’ve Never Seen Before?
Gold & Silver Setting up for an Attractive New Entry Point
The Best Bet in Town—Resources—Getting Ready for the Big Squeeze
Inflation at Almost 5%…Is It Any Wonder Dollars Buy Less and Less?
Oil & Gold-Two Great Commodities
Gold: Getting Ready for the Coming Correction
Precious Metals Sector Deal-making Padding Investor Wallets
Gold Investing: The Time to Jump Back in Is Very Near
Gold: The Only Sector with Improving Fundamentals
The Smartest Dictator of Them All Seizes All the Gold

Oil & Gold-Two Great Commodities

Oil & Gold—Two Great Commodities Whose Prices Reflect the Fear in
Financial Markets

By Mitchell Clark, B.Comm.

The only trading action that seems to be working for long investors is in gold stocks these days. This isn’t a surprise, nor is it unexpected with the spot price of gold so high. Two more junior gold producers, AuRico Gold (NYSE/AUQ) and Northgate Minerals (AMEX/NXG), announced a deal to merge. The two juniors hope to create a new intermediate gold player and the expectation for production growth as a combined company is significant.

In this particular case, AuRico Gold is doing the buying. The company’s share price (which has almost doubled since the beginning of the year) appreciated swiftly to a recent 52-week high of $14.17 per share. Then the company announced the all-share deal to acquire Northgate. It’s a trend that we’re going to see more of over the coming quarters. With share prices lofty and bank accounts full, everyone in the gold mining business wants to bulk up before the party’s over.

The broader stock market’s trading action reflects the overall sentiment in the economy. Add in the fact that the month of September is often not a good one for stocks, and one could easily predict that the next several weeks are going to be difficult. The stock market isn’t expensively priced, but that doesn’t mean that it will be anytime soon. There’s a mini cycle going on in the stock market and it’s all about the revision of expectations for the future. Expected returns from stocks are going down big-time, as current economic data sink in. No doubt the stock market needs a major catalyst in order for it to advance. It’s unclear at this time what that catalyst will be. As is usually the case, the market will need a combination of factors to come together if it’s going to move higher in any sustainable fashion.

The S&P 500 Index did an impressive job of recovering from the 1,120 level. It clawed its way back to 1,200 and is now trying to balance itself out with the fears in the marketplace. The next major move could be anything. What’s likely in my view is that the trading action will very difficult until we get into third-quarter earnings. Any earnings warnings from corporations in this market will not be well received. The same goes for any changes in fourth-quarter visibility come reporting time. Everything now has a fragility to it—the economy, financial markets, and expectations for the future. The only exception is the market for gold; investors still view this specific asset as a haven, even though the spot price has already gone up dramatically.

The best near-term indicator for share prices continues to be the spot price of oil. A weaker oil price is exactly what the economy needs, but it also serves to illustrate declining sentiment about the future. Stocks won’t advance until the economic news shows some major improvement.