BCA just came out with their monthly forecast for April 2012:
- US economy will not grow strongly (contrary to market perception). Although the housing market has bottomed, lacking household income growth, looming fiscal restraint, and rising gas prices will dampen growth. As a consequence...
In the long term inflation will pick up if the economy is getting stronger and the Fed is missing the exit point. Also, the number of experts who think that a bit of inflation would be helpful to get public debt down is increasing!
- Eurozone: Portugal may be next in the Euro crisis. But Spain's banks are heavily engaged in Portugal, which allows the crisis to affect the whole Iberian peninsula. It is not difficult to see the crisis spreading further to Italy and then France.
The ECB will be forced to keep interest rates very low for the next 3 to 5 years, which is supportive for the Dollar and Gold.
- China: Although housing is continuing to weaken, BCA thinks that the economy will land softly. Mainly because Chinese homeowner are not leveraged (mortgage loans are 15% of GDP compared to 64% in the US). Hong Kong experienced a huge housing bust in the 90s without taking its economy down.
Also the government would inject capital into their state owned banks if necessary.
- Equities: Although the equity risk premium is very high, which suggest that equities are under valued....
this is only true in relation to bonds, which are super expensive, yielding historic low. So don't expect a bull market.
- Bonds: Yields will stay low for the next 2-3 years.
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