Tags: Gue | economy | taxes | sequester

Energy Strategist Elliott Gue to Moneynews: US Will ‘Skirt Recession’

Thursday, 28 Feb 2013 02:15 PM

By Dan Weil and Kathleen Walter

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The economy will be unable to grow substantially in the coming months, thanks to the tax hikes approved in January and the automatic spending cuts set to begin Friday, says Elliott Gue, energy strategist and editor of the StreetAuthority newsletters High-Yield International and Top 10 Stocks.

“We’re going to skirt recession, but what we’re going to see is basically what we’ve been seeing ever since the end of the financial crisis, which is just very slow growth, very slow improvement,” he tells Newsmax TV in an exclusive interview.

Gross domestic product will likely expand 1 to 1.5 percent in the first half of the year, Gue says. And you can blame fiscal policy for the weakness.

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“Though Republicans and Democrats did come together and sort out a deal to avert some of the fiscal cliff at the beginning of the year, the reality is that taxes in particular went up on about 77 percent of U.S. households,” thanks to the payroll tax increase, he explains.

“We’re already seeing evidence that that’s starting to hit in the actual economic data and in corporate earnings results.” For example, Wal-Mart Stores reported a weak first-quarter outlook last week.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

“So we’re already starting to see the effect of taxes and higher payroll taxes on consumer spending,” Gue adds.

As for the sequester, which totals $85 billion through the fiscal year ending Sept. 30, “in and of itself, [that] is not enough to have a humongous impact on the U.S. economy,” he says. But when you also take into account the payroll tax increase and the tax hike on the wealthy that resulted from the fiscal cliff compromise, “the combination is pretty sinister.”

On the subject of Federal Reserve policy, “it’s a little bit too early to call the end of quantitative easing,” he says. The Fed has added more than $2 trillion to its balance sheet through quantitative easing in the past five years.

While some of the central bank’s hawks would like to see quantitative easing curtailed, “the reality is that the main voting members of the Fed are not going to be willing to end quantitative easing until there are real signs of economic growth,” Gue says. “It’s unrealistic to think that the Fed is going to make major changes to its quantitative easing program until sometime in the middle of 2014.”

The sluggish economy will likely enforce its will on the soaring stock market, Gue says. “We’re likely to see a pretty significant correction … for some of the reasons we just talked about — the sequester and fiscal consolidation.”

But that doesn’t mean an end to the bull market that began in 2009 and has pushed stocks close to record highs, he adds. “One of the factors that’s really helping us is strong growth outside of the United States. In particular, we’ll see a pickup in the Chinese economy this year.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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