REACTIONS TO QE3
CHARLES CAMERON, CO-PORTFOLIO MANAGER: I think this round of quantitative easing is a little different than the first two. This is the more open-ended and should be more impactful going forward. The market did not really expect it -- they expected more asset purchases, but this time Bernanke has made it open-ended. Any kind of weakness in labor going forward is going to continue the process. There is no end to this one. This quantitative easing should be the most impactful going forward. There are still a lot of other problems in the world, but again, you've had Europe participate a little bit and China is easing a little bit. I think this will be the most meaningful monetary policy move going forward. Additionally, there was a lot of talk about mortgage-backed securities. The one sector of the economy that has done a little bit better has been housing; I think this is just reinforcing a stronger housing market. A lot of people own houses; it is important in the wealth effect and Bernanke clearly wants the wealth effect to take hold in the economy. Mortgage-backed securities seem to be a very good option.
FUTURE OF THE U.S. DOLLAR
I think with the Fed now printing faster than other central banks, the dollar will weaken. However, the Europeans don't want a stronger euro and the Japanese don't want a stronger yen. Therefore, the dollar will be the weaker currency going forward, simply because the Fed is printing faster than everywhere else. You will see responses from other central banks, but I do not think the dollar can weaken too dramatically in the short term.
OPPORTUNITIES IN HARD ASSETS
The two sectors that we are the most excited about is, first, the domestic oil exploration and production companies. We think the oil markets are still pretty tight. Crude oil is around $95, and we think that domestic E&P's are the way to play it. The other sector we are excited about is the gold sector. And again, this is because of this open-ended QE [round of quantitative easing.] There are going to be a lot of dollars around and, as a result, there is going to be currency weakness. Gold should clearly be the beneficiary in that environment.
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