The U.S. Market and Economy
The U.S. economy is strong, although slowing from the very rapid growth of 2018. For 2019, we anticipate economic growth of 2.3% before inflation and 4.1% after inflation. U.S. stocks are in a volatile state with slow appreciation toward a rising market overall for 2019. We believe that volatility will begin to moderate by mid-2019, and trade negotiations will go positively, with a final agreement in late 2019. We would take profits during periods of market rally, and buy the dips for capital appreciation. Look for companies with strong balance sheets, visible growth, and reasonable valuations. That combination was not available in 2018, but on corrections, more companies are joining that club.
Europe
In our view, Europe still does not have the will to grow. They would rather take it easy and grow at a very slow 1% than make a big effort and grow at a more rapid 3% rate. They are complacent and modestly comfortable; as long as they do not have to accommodate any more of the world’s poor, their economies will grow enough to create small, self-satisfied growth. Because the world’s poor are coming to their door to immigrate, they must keep them out or be forced from their complacency toward growth. Only Germany, Holland, Switzerland, and a few others seem to have th desire to grow. We are avoiding Europe; if the UK gets a clean Brexit, we will buy the pound and UK stocks.
Asia
China has not yet solved its growth problems, and there is still resentment against President Xi for declaring himself “president for life.” We are staying away from Chinese stocks at the present; maybe later in 2019 the tide will turn if trade agreements with the U.S., Europe, and others are completed.
India remains on our buy list. Growth is strong and continuing. The elections are making it harder for Modi to accomplish all that he wants, and Indian stocks are not cheap; but the trends are in favor of more growth, more success, and more rationality by the Indian government in encouraging individual achievement and in monitoring and decreasing the rampant corruption that engulfs India.
Brazil
Brazil remains a favorite; there are positive signs of change, and a reduction of corruption by the political class, strengthening of the rule of law, cutting corruption in government, and a raising of the retirement age from the mid 50s to the mid 60s. If some of these changes come to fruition, and if the grip of corruption can be loosened, crime will diminish, and the Brazilian real, bonds, and stocks will all continue their rally.
Gold
Gold has risen to the $1300 range and found some resistance. We still believe that gold will approach $1350 in 2019 if the U.S. dollar goes sideways. Should the dollar fall, gold could possibly move substantially higher.
Thanks for listening; we welcome your calls and questions.
