U.S. and World Outlook
As we noted last week, the U.S. economy is still strong; the market fears that accompanied the sharp late-2018 correction are beginning to dissipate slightly, and investors are showing themselves willing to hunt for bargains. Some stocks have obviously reset to more attractive price levels; we are watching some U.S. growth stocks, as well as U.S. small-cap stocks which experienced both strong earnings growth in 2018, and significant price declines in the year’s tumultuous final quarter. We believe that divergence has opened some attractive opportunities for investors. Although some technical analysts are calling for the market to retest December’s lows, we do not know if that will occur, and we suggest using corrections as buying opportunities for companies that are now reasonably valued and have visible strong profit growth over the next several years. We also recommend that investors favor companies with good cash flow and strong balance sheets. While China is currently experiencing an economic slowdown, we anticipate that the government will engage in significant new stimulus efforts, leading the Chinese economy to reaccelerate later in 2019. This will benefit both China and the regional trading partners that function as its “workshops.”
Global Markets
We continue to be bullish on the Brazilian real and on Brazilian government bonds. We believe that the Japanese yen will appreciate versus the U.S. dollar in 2019. We are newly bullish on the British pound, as we believe that markets may overreact to Brexit worries as the UK comes down to its March deadline to depart the European Union.
Gold and Silver
Gold and silver are havens that we like at this time. Gold will benefit from inflation abroad, although there will be little inflation in the U.S. this year. The outlook for gold depends greatly upon the value of the U.S. dollar; a weak dollar will cause gold, silver, and other commodities to rise; absent that, we anticipate modest appreciation for gold in 2019.
Cryptocurrencies and Blockchain
We continue to monitor the digital currency and blockchain space for speculative opportunities. We noted a research report showing record crypto trade volumes at the end of 2018, in spite of a deep bear market; this implies to us that, as we have often stated, it is important to see gradual growth of regulation and confidence that digital currency markets are transparent and unmanipulated. Digital currencies continue to demonstrate effectiveness in one area where their influence is being felt by traditional financial service providers — cross-border payments.
Thanks for listening; we welcome your calls and questions.
Wealth Builder Dividend Portfolio Management
In January 2016, some of our clients who are retirees asked us if Guild could offer accounts that would hold income-producing securities, and yet would not suffer like bonds as interest rates rose in 2016 and beyond. (Guild had recently notified clients to expect several years of interest-rate increases and bond-price depreciation.)
Guild selected 15 to 20 dividend-paying common and preferred stocks that we believed could be used to create income for clients during a period of rising interest rates. We picked stocks which paid dividends well in excess of the return on 10- and 20-year U.S. Treasury bonds, and which we believed would increase their dividends in a rising interest-rate environment. Except in the case of a major global calamity, we anticipated very low portfolio turnover, thus minimizing taxation risk.
The results have been good and while losses with stocks are always possible, we anticipate that results will continue to be good in the rising interest rate environment that we see ahead. For further information, please contact Aubrey Ford (aford@guildinvestment.com) at Guild Investment Management.
