Market Summary
The U.S. Economy and Stock Market
The U.S. economy continues to move ahead as do the U.S. stock market and U.S. corporate profits, which as we all know, lead the outlook for stocks. Most agree that the growth rate of the economy will slow in 2019, after the strong upward move in economic growth in 2018.
However, many think that the economy will continue to slow throughout 2019. Not all believe that. This week, the economists at Goldman Sachs announced that they believe that the first quarter will be the low point for economic growth in 2019, and beginning in the second quarter, the economy will begin to strengthen again.
Whatever the outcome, on a factual level today, U.S. stocks are acting as if the worst is over, and with the exception of some companies which are announcing a negative outlook for 2019, most companies are upbeat about their growth prospects this year.
In spite of the current good spirits we foresee a volatile year and we suggest waiting for market declines before buying
Industries with strong growth patterns ahead include healthcare, software, cloud, banking, energy, and financial technology; small companies and especially gold are doing well. Gold is the best-performing U.S. sector; after a number of years of underperformance, gold is getting a comeback, and as we have said, we expect gold to move higher this year, especially if the U.S. dollar falls in value.
Non-U.S. Stock Markets: Brazil
Our favorite non-U.S. market continues to be Brazil, which has seen its currency, bond, and stock markets move up substantially — but we still believe that they will go higher over time. President Bolsonaro is proving to be a cost cutter and non-corrupt man who is for improving the lot of the average Brazilian, by cutting corruption, decreasing violent crime, and bringing a more free-market economic model to a chronically corrupt, inefficient, and wasteful Brazilian economy.
The last two presidents were very corrupt, and their Workers Party and other allied parties were disgraced by impeachments and imprisonment of leaders for theft. Major state-owned companies made huge payments to Brazil’s political leaders, and in effect stole billions from the Brazilian people. The populace is fed up with this corruption, looting of state-owned companies, and political mismanagement. They have elected a reformer who wants the public to enjoy the benefits of Brazil’s energy, mining, and industrial riches rather than shifting the rewards to a corrupt political class and their cronies at major state-owned enterprises.
Europe
After a long hiatus, Europe is starting to enjoy a little reprieve form decline, but we don’t see any major political will in Europe for growth. The European stock markets can bounce, but unless the Europeans embrace growth, they will just be shifting the chairs on the deck of a 1%-growing European economy. The growing countries — Germany, Holland and some smaller northern European countries — will pay the price for laziness and profligacy in southern Europe.
Asia
China is showing signs of taking more proactive steps to stimulate growth. The initial steps have been supplemented, an by the second half of 2019, about August, we should see faster growth from China. A settlement of trade disputes with the U.S. and many other countries could do a lot to stimulate Chinese growth. Because of the theft of secrets, the forced turnover of technology, and state support for companies which manipulate the markets and steal others’ technology, China will have to do much more to create growth. Overstated projected growth of 5% will probably be real growth of 2 or 3%.
Many other Asian countries depend upon China as part of their supply chain, and these countries will not show growth until China improves theirs.
We have been bullish on India, which has become a bit overpriced, but we still see growth potential there.
Venezuela
Why would we mention Venezuela, where the second in a series of incredibly corrupt dictators has continued the ruination of one of the world’s richest countries in terms of oil and mineral resources? Because at some point, Venezuela will present opportunities. President Maduro has paid off military leaders to protect his scheme of theft, and they are benefitting form his policies. Without Maduro and his military support — if he is defeated and his policies of theft, corruption, and failure to provide for his people are removed — we will see the end of mass starvation, crime, police attacks on poor neighborhoods, and the theft of private property by government thugs, and the potential for an extremely rich country to right itself.
If the rule of law could be reintroduced, the theft could be stopped, and the thuggery and murder ended. It is possible that in a very short period of time, maybe three years, Venezuela could be revived. In a few years’ time, we could see a strong and vibrant Venezuelan economy based on its oil and mineral wealth. This country could call home the educated class of citizens who have fled the country over the past decade, and begin to manage and develop its resources for the benefit of its citizens — millions of whom have fled to neighboring south American countries.
Gold
Gold has been a strong performer in 2019, and our bullish attitude is undiminished. We believe that (1) slow economic growth in much of the world, (2) some rising inflationary trends in Asia and developing world, (3) lower values of some currencies, (4) the realization that many countries have excessive debt levels, and (5) a lack of trust in the wisdom of governments and their ability to make rational decisions to benefit their citizenry, are all encouraging the rise in the gold price. Gold demand is coming from many countries, and the fact that gold has underperformed for many years and is cheap is a major contributing factor. We remain bullish on gold and some gold-mining shares.
Thanks for listening; we welcome your calls and questions.
