Why We Need Higher Rates

02/10/2012 10:45 am EST

Focus: MARKETS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

We need to see rising interest rates in order for stocks to turn around, says market veteran Mark Skousen, who shares his outlook on the market for 2012.

Let’s open it up and talk about the stock market. What’s your take on this?

Well, we’ve had a ten-year bear market or a flat market. It really hasn’t moved much in ten years, and Warren Buffett’s Berkshire Hathaway (BRK.A) is a good example of where that hasn’t gone in ten years either.

This is a very unusual situation. It reminds me of the 70s. So, there is always hope that some things will turn around, but I think fundamentally we have to get control of the deficits.

We have to see interest rates rise, because if interest rates rise, it means we’re returning to normalcy and things will look better. But I think we’re building a base for a higher stock market.

I’m really bullish on the dividend-paying stocks as a conservative way to play it…but yes, I think there is a major sea change coming politically that will be more pro-business. If that’s the case, then we are going to see a recovery, and there’s going to be job creation and so forth.

If the dividend plays are the conservative, would you say small-cap growth is the more aggressive?

Yes, I would. Small-cap growth would be more aggressive, but I want to wait and see.

I’m not going to try to pick the bottom of this market. I want to see that market turn around, and we get some momentum. Then I’ll start recommending the small-cap growth and the emerging markets as well.

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