More immediately, the proposed U.S. budget with its size and deficits is clearly a “shock and awe” stimulus plan that Europe and Japan seem unlikely to have the fortitude to match. However, recovery versus the yen and the euro is likely to maintain interest in the dollar as a key asset class, a positive signal of rolling rotation to reduced risk. Even as yields rise, government bonds could even find a place in more conservative financials balance sheets, raising standards for lower quality borrowers to more in line with historical risk spreads, thus accentuating favor for quality. Despite negative current news on global economies and equity market lows, we believe markets to have overcompensated. We would favor quality companies in financials, in information technology, in industrials and increasingly in energy as exercising sector market leadership. Despite fear about U.S. budget and healthcare implications, we favor them as restructuring stocks.
Click HERE to read the complete article.