Salient to Investors:

Phil Mause at Pacific Economics Group writes:

  • Investors should buy up dividend stocks, business development companies (BDCs), REITs and other investments yielding more than bonds.
  • A dividend stock led stock market could rise considerably – dips will be shallow as many investors will be waiting to get in.
  • There will not be meaningful reductions in federal spending; wasteful spending is almost always political.
  • We are not on the verge of a “grand bargain” or a stable solution to the federal spending issue. The party out of power always has made the national debt and the current deficit a big issue. Deficits will continue because there is really no acceptable alternative. Anxiety about spending cutbacks and tax increases that will never actually occur will continue, so  businesses and households will remain frugal and the economy will stumble along.
  • Battles over monetary policy will be largely rhetorical, with business telling Republicans to “back off” as soon as they blunder into specific legislation curbing the Fed.
  • Bond prices won’t rise or decline much. Over the next 5 years, interest rates will stay low except for a brief effort to raise them in 2015; the short rate may rise to 1% and the 10-yr to 3.5% but any sign of an adverse reaction will cause the Fed to halt, even reverse, tentative rate increases. The Fed will not want to raise rates immediately before the 2016 election so rates won’t exceed 1% until well into 2017. The US will fight competitive currency devaluations to make sure the dollar is not overvalued, providing another brake on efforts to raise short-term rates.

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