Trend #1: Rising long-term interest rates. The 10-year U.S. Treasury hit a yield of 3.6% Friday morning. My forecast calls for the bellwether 10-year Treasury to easily sail past 4.0% this year.
I’ve been predicting that bond investors would take a hit since the summer of 2010, and that’s exactly what has been happening. The yield on the 10-year Treasury sits today at the same point it did in January of 2008—but short-term interest rates were a lot higher back then. Pressure is now mounting for short-term rates to rise as well.
The writing is on the wall with this one: long-term interest rates are rising despite the Fed’s QE2 effort, which is omnibus. Investors shorting long-term bonds are booking, and will continue to reap serious profits this year.
Trend #2: Stock prices will continue to rise in the immediate term. We told our readers to jump into stocks in March of 2009, and have kept them in stocks since then. The Dow Jones Industrial Average has risen 93% since March 9, 2009. Yes, the easy money has been made in the stock market, but there is another five percent to 10% upside profit potential.
Each passing day, more and more investors are becoming convinced that the worst is over for the economy. They will be proven wrong, but, in the meantime, the cash on the sidelines will push stock prices higher. The bear market rally of the past two years has been a true classic, panning out just as I expected, with more upside left.
Investors can continue to reap immediate-term profits from the stock market (almost anything, except real estate stocks, has been going up over the past 25 months), but, as long-term yields hit four percent and get closer to five percent, the market rally will be deflated like one big balloon.
Trend #3: Gold prices are at about halfway in their bull market cycle. This morning, gold bullion is up another $12.50 an ounce, closing in on $1,500 per ounce. Since 2002, I have been yelling, screaming, to anyone who would listen: Buy gold related investments! I continue to believe that gold is headed to $2,500 to $3,000 per ounce.
The U.S. dollar index chart ($USD) is about to break major support, the Fed is getting nervous about long-term inflation, and the Chinese are on a buying spree trying to get their hands on as many decent precious metal exploration and development companies they can. There are plenty of quality gold stocks listed on senior stock exchanges that will deliver serious profits to investors this year.
There you have it. My closing commentary for the week…three major financial trends investor can still profit from today.
Michael’s Personal Notes:
The widely expected move by the European Central Bank to raise interest rates yesterday, after keeping them artificially low for three years, marks the first time in 40 years that Europe has moved to raise interest rates before the U.S.
The European Central Bank (ECB) raised interest rates by one-quarter point to 1.25%. The equivalent bank rate in the U.S. is between zero and one-quarter percent. Germany’s economy is booming, inflation risks are high, and the ECB is acting. Two more rate increases of one-quarter point each are expected by the ECB this year.
The European Central Bank has now joined the ranks of Canada, India, China, New Zealand, Australia, Poland, and Sweden in raising interest rates post-recession. The U.S. Fed, usually the global leader in setting interest rates policies, will soon be the laggard in joining the global trend of rising short-term interest rates.
Where the Market Stands; Where it’s Headed:
A bear market in stocks still presides. Expect continued immediate-term rising stock prices. The short- to long-term picture continues to deteriorate.
What He Said:
“You’ve been reading my articles over the past few months and have seen how negative I’ve become on the U.S. economy. Particularly, I believe it’s the ramifications of the faltering housing sector that are being underestimated by economists. A recession doesn’t take much to happen. It’s disappointing more hasn’t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn’t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.
Gold Stock Trends
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