Economist and author Mark Skousen, who last year correctly predicted that the market would move higher on Fed liquidity, says he remains “cautiously bullish” on stocks but adds that gold and silver will do well going forward and is especially positive on oil.
It’s not clear that the Federal Reserve can continue to keep interest rates low, said Skousen, a columnist for Franklin Prosperity Report, published by Newsmax. Add to that the burden of new regulations on healthcare and labor from the White House, and the path forward for equities is less clear than a year ago.
Stocks have doubled off the March 2009 low but seem to have hit a wall on Middle East unrest and fears of a double-dip in the U.S. economy as oil shot higher. Gasoline prices now average $3.54 a gallon nationwide.
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“I think liquidity is slowing down a little bit. The market is having a harder time moving higher. It might even move lower here,” Skousen told Newsmax.TV.
“How long can the Fed maintain these low interest rates? Are they going to another quantitative easing to stimulate the economy? While I remain cautiously bullish, I do think there are a lot of dangers there.”
Nevertheless, Skousen, who edits the investment newsletter Forecasts & Strategies, maintains his view that investors shouldn't “fight the Fed” by presuming that liquidity will end soon. There’s no indication that interest rates will rise, nor that the Fed’s bond-buying strategy has run its course, he says.
“We’re still fully invested at this point, although we do maintain a very large gold and silver and oil. Oil is another area you can stay invested in and do well,” Skousen says.
Regarding oil, Skousen pointed out that ExxonMobil recently announced that it would expand its production operations. Considering the continuing turmoil in the Middle East and the Obama administration’s unwillingness to expand drilling at home, investors would do well to focus on crude.
“I’m quite bullish on oil, gold is a great investment right now but oil is a better play,” Skousen said.
As for inflation, Skousen believes that, while current inflation is weak, there are clear signs of inflation to come in the rising prices of precious metals.
“Inflation is still not that relevant. The fact that gold and silver are moving to new highs is a great indicator of future inflation,” Skousen says. “But current inflation is not that strong.”
Businesses are sitting on record amounts of cash but they are likely to continue to grow mostly by keeping costs in line with demand and taking advantage of rising productivity, he says.
There will be an eventual uptick in hiring, but expect plenty of mergers and acquisition activity, too.
“I do think employment is going to get better, but it’s going to be slow process,” Skousen says.
Unemployment in February fell to 8.9 percent from 9 percent, the lowest point since April 2009. In November, just three months ago, the jobless rate had been 9.8 percent.
The Federal Reserve projects unemployment to stay at about its current level for the rest of 2011 and then fall to between 7.5 percent and 8 percent in 2012.
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