Management will be key in 2007. Those companies which can outperform their rivals and adjust to changing economic and market conditions will appreciate dramatically in 2007, while the bulk of publicly-traded companies will skirmish with health care, distribution and marketing issues.
Stocks in general will perform poorly, however, and some will fail outright. A correction is fairly due in the near term, most likely in the first two quarters of 2007, though either sharply rising prices or range-bound fluctuations are equally possible. There has not been a 10-15% correction in the Dow for the entire length of the current bull market, which has now extended to 51 months.
The Dow has just completed its 4th consecutive year of positive returns and 2006 was the best year in the past three. It's not surprising that stocks have accomplished such sparkling gains considering the healthy profit scenarios and rather loose policy guidelines over recent years.
What is surprising is how the markets have behaved with rigid resolution during a time of high deficit spending, a poor balance of trade and the general malaise associated with the conflict in Iraq and the poor US foreign relations policy. Falling currency values must have contributed to higher share prices over this period. Foreigners have, in relation to dollar-denominated assets, more money to boost stock prices, and they certainly have. One could assert that stocks must rise just to stay even with the falling value of the US dollar.
Continued loose policy on many fronts, including the Fed's rate policy could lead to a hyperinflationary environment, but that's all about to change. The shifting politics in Washington should foment positive movements on fiscal policy, foreign relations and spending. A conclusion in Iraq is overdue and calls for an end to US military involvement in the Middle East will only grow louder if the conditions remain the same or worsen.
It's going to be a year of transition in which strong internal management will not only profit but lead into a more balanced and dynamic market. With that in mind, a 15% rise on the Dow would put the average at 16,675, a number that not only seems unrealistic, and probably is. Don't expect the Dow to cross much higher than 16,000 at some point in 2007, but be reminded that a pull-back in the first half will make such a move all the more daunting.
To say that every rally climbs a wall of worry is to speak loudly of this current bull. Sustaining the edge during a transition will not be easy for traders or investors. Expect a cyclical change in sector leadership, and small emerging technology companies in computing, agriculture, medicine and energy will perform very well and many will be takeover targets.
Large value companies, like those comprising the Dow, will continue to diversify to meet changing demands and become even more entrenched in their respective business sectors. That's all positive news for US stocks and 2007 will present quality buying opportunities. The underground, or unseen, economy will continue to thrive and feed into the mainstream at an unprecedented rate. Cash and credit are circulating and growing remarkedly; a condition that must be approached and understood to be cautionary.
2007 will experience political disruptions more often than economic ones. The world's currency exchange system, precarious as it is, has now interpreted globalization effects and accommodated. While areas of fragility will persist, no cataclysmic events can be seen looming and those problem areas such as inflation and disparities in markets will be met with policy action. Areas outside the US will almost certainly afford better returns, though with the associated higher risk. Established foreign firms based in stable nations should be given a hard look.
Expected gains are 7% on the Dow, 12% on the Nasdaq and 5% on the S&P 500 at year end, though the range, especially the lows, could be dramatic.
Friday, December 29, 2006
Thursday, December 28, 2006
2007 Predictions (part 1)
With 2006 winding down, everybody's out with predictions for 2007, so I thought I would follow the crowd for a change and throw down a few of my own observations before the clock runs out.
Since there are two trading days remaining, I'm going to cut my predictions into two parts, covering currency, interest rates and commodities today and the stock markets, economic trends and some political observations tomorrow.
Taking a somewhat more cynical view of markets as opposed to some of the more supply/demand theorists, I'm presaging my prophecies with a couple of caveats: 1. The Democratically-controlled Congress will restore a sense of fairness and balance to the country as a whole while putting some pressure on the administration for fiscal restraint; 2. Our lame duck president will remain stubbornly in opposition to public opinion on Iraq and the faux war on terror and face calls for resignation or face impeachment as early as Spring. (For more on my views on impeachment, see my political blog.)
Currencies: Stabilizing dollar
After years and years of dollar depreciation, the tide may finally begin to roll out. The demise of the Dollar vs. the Euro is vividly revealed in this Euro to US$ chart.
Since reaching parity (1$ = 1EUR) late in 2002, it's been a pretty steady path of appreciation for the Euro at the Dollar's expense though the trend has definitely slowed since the peak in December 2004. It was at that point that the Fed hiked rates 25 basis points to 2.25% and the fifth consecutive rate increase, with the first in June, 2004, when the rate was finally moved off the 1% "emergency" rate to 1.25.
Since then, the Fed raised rates for a total of 17 consecutive meetings, the last of which was June 2006, when the FOMC finished their upwards adjustment at 5.25%, where it stands today.
So, there is no correlation between US interest rates and the value of the dollar versus foreign currencies.
Talk of the death of the dollar has been strong lately, however, but wildly overstated. The abrupt change by Iran - to price their oil in Euros rather than dollars - and the flight of some Gulf nations to ease their foreign reserves and investment funds partially out of US Dollars likely has more to do with politics than money, though the two are closely affiliated.
If the US isn't getting the message that meddling in the Middle east has reached its limit, maybe moving some money away from US investments may get our attention... at least that's what it looks like from afar.
Since we're reaching a double bottom in the Euro-Dollar trade, I expect the dollar to bounce between 1.33 and 1.18 in 2007, with the main triggers being our international relations and how well the Congress reigns in spending.
Interest Rates: Little change
The Fed is now 4 meetings into stand pat mode, fixing the Fed funds rate at a very fair 5.25% and that's not likely to change dramatically. The first half of 2007 may see some slowing of the economy and calls to ease rates, but the Fed will not see a recession looming and will choose to err on the side of prudence, keeping rates the same at least through June.
The June meeting may be the most propitious time for the Fed to make a move as the economy will look like it's stalling out, but with inflation not likely to be much of a concern in a slowing environment, raising rates will be pretty much out of the equation as well.
It's going to be a boring year to be an economist as we move politically and economically back to the center and further away from the radicalism of the previous six years.
Commodities: Lower prices good for all
In the commodities field, lower oil prices are going to keep the economy on an even keel. Oil prices have been going south generally for the past six months and the new political climate is likely to foment more declines in crude and gasoline.
There's a glut of goods and raw materials in the US and to a lesser extent worldwide and distribution will be a key. China will not be able to continue expanding at their breakneck pace as the developed nations will experience slow growth. The overriding factors of globalization and reduced demand for imports to the US should keep prices for functional commodities - copper, silver, zinc, oil, natural gas, coal and timber - somewhat in check.
There will be opportunities for reasonable gains both on the short and long sides, but these occasions will be short-lived. The overall trend will be lower with gold bottoming out in the $550-575 range, silver backing up to $10.75/oz. and copper easing to a more reasonable 2.15 per pound.
Another warm winter, courtesy of global warming, will contribute to keep oil below $60/bbl. for much of the year. A fall below $50 is not out of the question and stabilization in the $44-47 range is a distinct possibility by Fall.
The continued slowdown in the US housing market will be the main factor driving all commodity prices lower.
Tomorrow: Stocks, trends and politics.
Since there are two trading days remaining, I'm going to cut my predictions into two parts, covering currency, interest rates and commodities today and the stock markets, economic trends and some political observations tomorrow.
Taking a somewhat more cynical view of markets as opposed to some of the more supply/demand theorists, I'm presaging my prophecies with a couple of caveats: 1. The Democratically-controlled Congress will restore a sense of fairness and balance to the country as a whole while putting some pressure on the administration for fiscal restraint; 2. Our lame duck president will remain stubbornly in opposition to public opinion on Iraq and the faux war on terror and face calls for resignation or face impeachment as early as Spring. (For more on my views on impeachment, see my political blog.)
Currencies: Stabilizing dollar
After years and years of dollar depreciation, the tide may finally begin to roll out. The demise of the Dollar vs. the Euro is vividly revealed in this Euro to US$ chart.
Since reaching parity (1$ = 1EUR) late in 2002, it's been a pretty steady path of appreciation for the Euro at the Dollar's expense though the trend has definitely slowed since the peak in December 2004. It was at that point that the Fed hiked rates 25 basis points to 2.25% and the fifth consecutive rate increase, with the first in June, 2004, when the rate was finally moved off the 1% "emergency" rate to 1.25.
Since then, the Fed raised rates for a total of 17 consecutive meetings, the last of which was June 2006, when the FOMC finished their upwards adjustment at 5.25%, where it stands today.
So, there is no correlation between US interest rates and the value of the dollar versus foreign currencies.
Talk of the death of the dollar has been strong lately, however, but wildly overstated. The abrupt change by Iran - to price their oil in Euros rather than dollars - and the flight of some Gulf nations to ease their foreign reserves and investment funds partially out of US Dollars likely has more to do with politics than money, though the two are closely affiliated.
If the US isn't getting the message that meddling in the Middle east has reached its limit, maybe moving some money away from US investments may get our attention... at least that's what it looks like from afar.
Since we're reaching a double bottom in the Euro-Dollar trade, I expect the dollar to bounce between 1.33 and 1.18 in 2007, with the main triggers being our international relations and how well the Congress reigns in spending.
Interest Rates: Little change
The Fed is now 4 meetings into stand pat mode, fixing the Fed funds rate at a very fair 5.25% and that's not likely to change dramatically. The first half of 2007 may see some slowing of the economy and calls to ease rates, but the Fed will not see a recession looming and will choose to err on the side of prudence, keeping rates the same at least through June.
The June meeting may be the most propitious time for the Fed to make a move as the economy will look like it's stalling out, but with inflation not likely to be much of a concern in a slowing environment, raising rates will be pretty much out of the equation as well.
It's going to be a boring year to be an economist as we move politically and economically back to the center and further away from the radicalism of the previous six years.
Commodities: Lower prices good for all
In the commodities field, lower oil prices are going to keep the economy on an even keel. Oil prices have been going south generally for the past six months and the new political climate is likely to foment more declines in crude and gasoline.
There's a glut of goods and raw materials in the US and to a lesser extent worldwide and distribution will be a key. China will not be able to continue expanding at their breakneck pace as the developed nations will experience slow growth. The overriding factors of globalization and reduced demand for imports to the US should keep prices for functional commodities - copper, silver, zinc, oil, natural gas, coal and timber - somewhat in check.
There will be opportunities for reasonable gains both on the short and long sides, but these occasions will be short-lived. The overall trend will be lower with gold bottoming out in the $550-575 range, silver backing up to $10.75/oz. and copper easing to a more reasonable 2.15 per pound.
Another warm winter, courtesy of global warming, will contribute to keep oil below $60/bbl. for much of the year. A fall below $50 is not out of the question and stabilization in the $44-47 range is a distinct possibility by Fall.
The continued slowdown in the US housing market will be the main factor driving all commodity prices lower.
Tomorrow: Stocks, trends and politics.
Wednesday, December 27, 2006
WELCOME! Money Daily is now LIVE!
Unlike many blogs, this one is all about money, investing, saving and having enough to live a full and rewarding life.
Most people spend their entire lives worrying about money and never do what it takes to have the money they really need. The middle class, especially in America and Western European countries, has been marginalized by major corporations, governments and a monstrosity of media which keeps the middle class not in the middle, but near the bottom of the social hierarchy.
But the world is changing. Individuals are being empowered to take back control of their lives, get off the 9-5 (or longer) treadmill, turn away debt and act responsibly - something corporations, the media and politicians do not.
Change, however, is gradual, incremental and often barely noticeable. People are always looking for the grand gesture, the sweeping movement, the revolutionary idea, though that is seldom the way things work. Every day the government-corporate-media (Govcordia) tells us that this-or-that cause will produce this-or-that effect, as though the world can be filtered down into easily-digestible chunks of data by which we can plan our lives.
Nothing could be further than the truth. What Govcordia wants is to keep the middle class in a constant struggle, and they've done a great job of it over the years. Rare is the case of people rising from modest means to the top of the heap. What's common is for people to remain working for 45 years at some job or other, accumulate assets - and a boatload of debt - and retire quietly.
If that's how you want to live your life, then stop right here... this is not for you. But, if you want to live a rewarding and meaningful life and reject the ordinary and the commonplace, then get ready for change.
What you can expect from this blog is something out of the ordinary, not the conventional wisdom from Govcordia, but radical thinking from emerging experts in fields of personal finance, politics, ecology and management.
The days of big government, big corporations and big media are coming to an end. Welcome to the world of self-government, home business and alternative media. It all starts here.
Most people spend their entire lives worrying about money and never do what it takes to have the money they really need. The middle class, especially in America and Western European countries, has been marginalized by major corporations, governments and a monstrosity of media which keeps the middle class not in the middle, but near the bottom of the social hierarchy.
But the world is changing. Individuals are being empowered to take back control of their lives, get off the 9-5 (or longer) treadmill, turn away debt and act responsibly - something corporations, the media and politicians do not.
Change, however, is gradual, incremental and often barely noticeable. People are always looking for the grand gesture, the sweeping movement, the revolutionary idea, though that is seldom the way things work. Every day the government-corporate-media (Govcordia) tells us that this-or-that cause will produce this-or-that effect, as though the world can be filtered down into easily-digestible chunks of data by which we can plan our lives.
Nothing could be further than the truth. What Govcordia wants is to keep the middle class in a constant struggle, and they've done a great job of it over the years. Rare is the case of people rising from modest means to the top of the heap. What's common is for people to remain working for 45 years at some job or other, accumulate assets - and a boatload of debt - and retire quietly.
If that's how you want to live your life, then stop right here... this is not for you. But, if you want to live a rewarding and meaningful life and reject the ordinary and the commonplace, then get ready for change.
What you can expect from this blog is something out of the ordinary, not the conventional wisdom from Govcordia, but radical thinking from emerging experts in fields of personal finance, politics, ecology and management.
The days of big government, big corporations and big media are coming to an end. Welcome to the world of self-government, home business and alternative media. It all starts here.
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