It Looks Like Investors Are Willing to Trade Lower QE For Faster Economic Growth

Guild Investment Management |

We are seeing stronger economic figures in the U.S. and the world. To be more specific, last week U.S. GDP for Q3 2013 was revised upward to 3.6 percent. Last week’s increase in consumer confidence was big… and job growth was substantial. As a result of stronger GDP, jobs, and consumer confidence, we expect higher corporate profits and higher stock prices over the intermediate term.

While the current economic news is not a surprise to us, we see further signs of increase in spending by corporations on new plants and equipment. Corporate boards are getting more confident and they are authorizing the spending suggested by more optimstic corporate managements. This spending will create further demand for construction and manufacturing jobs.

Stronger economic data and comments by Federal Reserve board members imply that QE will be tapered soon. Many market participants are concerned that this taper will send a temporary sell signal to the world stock markets. For this reason some are selling and a stock market correction appears to be beginning. We expect a modest market correction lasting from a couple of weeks to a couple of months. We expect a minimum of 4 percent to a maximum of 12 percent stock market decline. Thus far, the market has declined by about 2 percent. We believe that U.S. and global economies will continue to strengthen in the coming quarters, and stocks will resume their appreciation as investors realize that the market is a discounting mechanism and that stronger future economic growth will be reflected in stock prices.

We have raised cash for clients in order to protect capital during the expected correction period. In spite of the correction, some industry groups and specific companiees will be able to prosper and we believe that we will be able to identify some of those companies. We will be quick to re-enter markets when the coast is clear.

Gold has been declining for over two years. During that period of time, many gold shares have fallen by more than 50 percent while gold has declined by about one third. Gold is in a base-building period which will be followed by a rise beginning in 2014. In our opinion, gold and selected gold shares can be bought on weakness over the next few months.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FLKDF Falkland Islands Holdings Plc 2.33 0.00 0.00 0

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