Low interest rates and accelerating economic growth will power the stock market.

Recently I spent several days at the World Money Show in Orlando. If you have never attended a show like this it is difficult to imagine its scale. There were over 13,000 registrants and dozens of speakers ranging from superstars like Steve Forbes to executives of small Canadian gold mining companies seeking to drum up interest among American investors. At any given time, attendees could choose from at least 10 different workshops and panel sessions. If you weren’t sure exactly what you were looking for, confusion quickly set in.

As you might imagine, a wide variety of opinions on the future of gold, bonds, stocks, interest rates, and the economy were expressed by various speakers. But I found that there was general consensus on several key issues. Here’s a rundown.

1. The U.S. economic recovery is real and will accelerate in 2004. I didn’t encounter a single speaker who believed otherwise. The feeling is that the momentum has now taken hold and the risk of slipping back into recession has just about vanished.

2. The U.S. dollar will continue to decline in value against other major world currencies, although not as precipitously as in 2003. The fall in the value of the greenback has been a boon to U.S. exporters and, somewhat surprisingly, has not boosted inflation, at least to this point. The view is that Washington will continue its policy of benign neglect of the currency. Europe and Canada will be the hardest hit if the greenback falls further in value. Gold will be a big beneficiary.

3. U.S. stock markets will have a good year. Although there was widespread agreement that it is becoming harder to find good value in the markets, the feeling is that the indexes will continue to rise through 2004, although in spurts.

4. U.S. interest rates will start to rise. No one disagreed with that. The issue is when. Some feel it will be this year, perhaps as early as summer. Others feel they will stay low at least until the Presidential election in November and perhaps longer if inflation remains under control. But sooner or later, they will start moving higher. No one expects them to fall below current levels and I heard no talk of deflation as a possible scenario.

I should note here that the Canadian interest rate scenario could be somewhat different. Our economic growth is likely to be slower than that of the U.S. and the Bank of Canada has an additional motivation to cut our rates further in the form of the powerful loonie. Many Canadian corporations are already taking big profit hits as a result of the strong dollar and neither the Bank nor the Federal Government wants to see that situation deteriorate further.

5. Bonds and certain types of income securities are vulnerable. This is the obvious corollary to rising interest rates. No one that I heard advocated buying long-term bonds now although there was a feeling among some speakers that REITs could hold their ground even if interest rates move up because of the increased economic activity that would accompany such a move.

One thing that surprised me was the lack of emphasis on the potential economic impact of a major terrorist attack on U.S. soil. Some speakers made mention of it, but no one that I heard saw it as a major threat to the investment climate at this time. It doesn’t seem to be a case of ignoring the possibility but rather of adopting a “we-need-to-get-on-with-life” attitude. Let’s hope it works out all right.

So on the basis of all this, what are the investment implications?

• Buy stocks. The markets had a strong run in 2003 but it is not over. However, selectivity will become much more important in 2004.

• Stay with gold. If the U.S. dollar continues to decline, albeit more gradually, gold will benefit. The recent pull-back in the bullion price is likely only temporary.

• Choose short-term bonds. Those with maturity dates beyond five years will be most vulnerable when rates eventually rise.

• Be cautious with income trusts. Many (but not all) could see a drop in their market price when Canadian interest rates turn around. The good news is that will probably not occur until some time after the U.S. Federal Reserve Board makes a move, which could still be many months away.