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Calamos: ‘’Recovery Trumps Taper Talk’’

John P. Calamos
John P. Calamos is the founder and CEO of Calamos Investments

In his latest Economic Review and Outlook report* Greek-American John P. Calamos, Founder and CEO of Calamos Investments reaffirms his strong confidence of the future of the U.S. economy and estimates that the financial markets have discounted the Federal Reserve’s intention to slow down gradually its extraordinary bond-buying program. However, he identifies some key risk factors within an interrelated global economy that might create short-term volatility.

“We believe less Fed intervention will prove to be a long-term positive for the economy and markets.”

“Equities remain attractive in our view, particularly growth equities. Equity P/Es have typically been highest when long-term interest rates are in the 4-6% range, and the global economy is expanding.”

In simple terms the prices of the stocks are expected to rise due to an improving economic environment of sustained growth that will be depicted with higher but more appropriate ‘healthy’ interest rates.

Calamos is convinced that investors will prefer growth-stocks with sound fundamentals once interest rates start to rise, in order to address the increased market risk.

The Greek-American financial ‘guru’ mentions in his report several key-points that indicate an ongoing improvement on the real-economy.

“Rising equity markets, higher home prices, and improving employment are supporting a ‘wealth effect’ that has bolstered discretionary spending. Consumer net worth has strengthened as debt burdens have fallen dramatically.”

On the other hand, China is identified as a key risk factor that could slow-down global growth due to the gradual decrease of credit availability within the over leveraged Chinese economy.

“China is facing growing pains that could stoke macro uncertainties, but they have weathered ups and downs before.”

Furthermore, the Euro-zone worries persist as the European Austerity Doctrine has infected the fundamentals of the Euro area peripheral economies.

“However, the EU has shown that it will go to great lengths to stay together, and both the Bank of England and the European Central Bank have indicated that they expect to continue their supportive policy by keeping rates low.”

China and the Euro-zone impact might be partly offset by Japan’s Economic Recovery prospect.

“A weakening yen and gains in private consumption and net trade contributed to first quarter GDP growth of 4.1%. Employment and wages are rising faster than inflation, which could help support consumer activity. Japan is the fourth largest economy in the world, so a sustained wealth effect could be a welcomed bright spot countering the less robust prospects of the EU consumer.”

Calamos, after having scrutinized all the key factors of the current global financial architecture concludes that, “despite the rise in U.S. long-term interest rates, our global outlook remains one of cautious optimism. Many signs point to the U.S. being in a mid-cycle phase: recovery looks sustainable at this point.”

“Our fundamental research is leading us to a range of opportunities, including those in technology, consumer discretionary and financials,”

You can read the full Economic Review and Outlook report here.

*The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

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