While most forecasters predict U.S. economic growth of about 2 percent this year, Todd Horwitz, senior strategist for Adam Mesh Trading Group, thinks they have it all wrong.
“I don’t think we can avoid recession,” he tells Newsmax TV in an exclusive interview. “We’ve got a lot of deeper problems than anybody is letting on.”
Take the job market for example. While the official jobless rate totaled 7.8 percent in December, adding workers who have given up their search or who are underemployed probably means a true unemployment rate of 17 or 18 percent, says Horwitz.
Watch our exclusive video. Story continues below.
“We’ve got that big group of people that can’t get employed. I do look for some trouble.”
The Federal Reserve has embarked upon a massive easing program, but it can’t solve all of banks’ woes, he explains. With interest rates so low, banks can’t make money lending to small businesses.
“All of the small companies are having trouble borrowing money because there’s not a big enough spread in interest rates,” he notes.
“So banks, instead of loaning money to the average small business, are taking the money they’re borrowing from the Fed at zero, and they’re giving it back to the U.S. government at 1.7 or 3 percent for the 10- or 30-year bond.”
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
Horwitz calls this outcome a “liquidity lock,” which will cause nothing but problems, as low interest-rate environments typically do. “We need to get rates to start to rise a little bit, to create a little bit more movement in the economy and create some borrowing and lending and some more churning.”
The Fed’s easing is pushing stock prices higher, as investors chase yield in a low-interest-rate environment. That means you want to keep your money in equities, Horwitz maintains.
“The best asset class here is to stay with where the Fed is,” he says. “The Fed says ‘we’re going to keep buying [Treasurys and mortgage-backed securities], we’re going to keep pumping and liquefying the system,’ so you want to stay in the equity market”
The stock market has more than doubled since March 2009, “and there is no sign that we’re going to go lower,” Horwitz adds. “The equity market continues to grind higher.”
In other markets, Horwitz expects gold to continue the decline from its September 2011 record high of $1,921 an ounce. Spot gold traded at $1,657 at midday Friday.
“Every rally is an opportunity to sell,” he explains. “This $1,700 level would be a spot to take a stab in getting short gold.” The metal could resume its rally after dropping to the mid-$1,500s, but for now the direction is down, Horwitz says.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
© 2013 Moneynews. All rights reserved.