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U.S. Growth Stocks: America is on Sale! Buy Now!

Posted December 17, 2007

"Because of the structural problems that the U.S. has long term, the dollar is likely to rally just a little bit but remain pretty weak. Which makes the relative values of U.S. hard assets and financial assets, vis-à-vis Europe and Japan, a steal. Therefore, at this level of the dollar, the U.S. is likely to reaccelerate pretty soon, helped not only by the dollar but also by the Fed cutting interest rates." — Horacio Marquez

Baltimore – (TFN): The following is taken from a transcript for the TFN Smart Investing Market Insights program “America is on Sale! Buy Now!” filmed December 13, 2007.

Krista Das:
Welcome to Smart Investing Market Insights on TodaysFinancialNews.com. I’m Krista Das.

It looks like we are heading into 2008 with a rainbow of negativity concerning the markets, but is there justification to all of this hype? I have invited Horacio Marquez back on the program to assess the current situation. Horacio is the editor of Money Map Report and Money Map VIP Trader. Thanks for coming on the show, Horacio.

Horacio Marquez:
Thanks for having me, Krista.

Krista Das:
So tell us, what has changed in the market since your last interview? I must admit that your economic outlook from the last interview is playing out pretty accurately so far.

Horacio Marquez:
Well, we were expecting the Fed to cut rates well before the market anticipated moved into that situation. But the market kind of jumped the guy, and instead of expecting a rate cut of 25 basis points, like we were, a lot of market participants moved to the position that the Fed would cut 50 basis points and that they would cut very aggressively on the discount rate as well. 

So the negative factors that were discussed last time are being reversed much faster than I anticipated. For example, the banks are being recapitalized. Citicorp received a major capital infusion. At the same time, the dollar weakness has started to kick in with some very nice reversal of the trade flows. And the rate cuts of the Fed are starting to kick in as well.

Krista Das:
What do you make of the recent rally and Fed actions?

Don’t have the time to read? Watch the financial video!

Horacio Marquez:
Well, basically, the recent rally, again, was an overestimation by the market of what the Fed would do in terms of cutting rates. But the economy is not as weak as some market pundits are posing. So the Fed only needed to do 25 basis points, which, in my mind, is exactly what the economy needed in order for the Fed to stay ahead of economic weakness. 

On the other hand, they moved the following day to implement this coordinated move with other central banks around the world to increase the liquidity to the banking system in order to unlock the credit crunch. And that is very, very positive for the market. And the Fed, by not cutting 50 basis points, is actually keeping their powder dry, which means they are able to cut more in the future should they need to do that.

Krista Das:
Let’s talk about the president’s new housing plan for a moment. Do you think it’s going to be effective in dealing with foreclosures?

Horacio Marquez:
Yes. Actually, the president’s plan, while not perfect, as it’s impossible to come up with a perfect plan in such a short period of time that has the type of widespread support that this plan enjoys. It basically means that as much as 1.2 million homes are going to be prevented from going into foreclosure by a rate freeze that lasts as much as five years.  

Which means that those 1.2 million homes are not going to be hitting in a weak market. And therefore, by keeping those mortgages current, it also relieves a lot of the pressure on the banks, balance sheets and on the balance sheets of the special investment vehicles, the SIVs, which are a major problem in the credit crunch. Therefore, it accelerates the resolution of both the credit crunch, and at the same time, it contains the negative wealth effect from a drop in housing prices.

Krista Das:
And what about the currency market; how do you think it’s going to play out in ’08? Is the U.S. dollar going to continue to weaken, and are the bricks going to get stronger, meaning Brazil, Russia, India and China?

Horacio Marquez:
Well, basically, we’ve already seen with the dollar these levels the net exports, that is exports minus imports, which obviously are negative right now because the U.S. imports a lot more than it exports. But that balance of trade is improving dramatically, and that has meant that, for the time being, we have seen a low in the dollar. 

However, because of the structural problems that the U.S. has long term, the dollar is likely to rally just a little bit but remain pretty weak.  Which is, at these terms of trade – that is, these relative values of U.S. hard assets and financial assets, vis-à-vis Europe and Japan, the U.S. is a steal. Therefore, at this level of the dollar, the U.S. is likely to reaccelerate pretty soon, helped not only by the dollar but also by the Fed cutting interest rates. And at the same time, by the presidential year politics that we’ll have next year.

Krista Das:
So the U.S. economy in 2008, is it time to buy, and when?

Horacio Marquez:
Definitely. Basically, right now it’s a very good moment to start looking at very valuable assets that have been the proverbial baby that has been thrown out with the bathwater.  For example, the main financial institutions in the U.S., companies like Citicorp… those companies have very valuable franchises. And though they are troubled right now, the wheels are already in motion to restructure them, recapitalize them and make them, once more lean, mean and profitable.

Therefore, somewhere in here you have to start buying Citicorp. If you have a longer-term horizon you can start averaging in, whether Citicorp rallies or whether Citicorp continues selling off from these levels – something that I think that you need to do right away.

At the same time, you have to buy companies like 3M that are internationally diversified.  And other companies that will be benefiting from the very strong global growth that will be here to stay, thanks to the coordinated easing of monetary conditions by central banks around the world.

Krista Das:
Horacio, thanks for your 2008 predictions, and thanks for being on the show.

Horacio Marquez:
Thank you very much, Krista.  It’s been a pleasure to be here today.

Click here if you would like to learn more about Horacio’s predictions and his investment research publication, The Money Map Report.


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