Moving Toward Cyclicals

Focus: MARKETS

Kelley Wright Image Kelley Wright Managing Editor, Investment Quality Trends

This could be the year where we start to see the effects of all the easy money that's floating around begin to show up as creeping inflation, observes Kelley Wright of Investment Quality Trends.

The start of 2013 comes with welcome news for Investment Quality Trends; we were named to The Hulbert Financial Digest 2013 Newsletter Honor Roll. For inclusion in the Honor Roll, a newsletter must exhibit above-average performance in both up and down markets. That only 14 of the over 200 newsletters HFD follows meets these qualifications suggests this is an accomplishment worthy of distinction.

As we survey the current economic and market landscape in an attempt to divine the direction of both over the coming months and year, a few broad themes are easily discernible...but many more, however, are not.

What we know, for example, is that the Fed will remain accommodative and will continue to inject liquidity via outright bond purchases. This will keep Treasury yields low and dividend yields attractive. Real interest rates will also remain negative, which provides a bit of a floor beneath stock prices. In our view, this is a positive for financials.

There's also greater visibility as to how the federal debt and deficit issues will be addressed. While the numbers associated with both are not unimportant, the headline is what an increase in taxes and a reduction in spending represents: a sea change in fiscal policy thinking about the debt and deficits.

This is not to say that the federal government will embrace full-blown austerity; there isn’t the political will or the voter appetite for anything so radical.