predictions for 2008
Macroeconomics: There will be no recession in 2008. By that I mean, no official recession. What will happen unofficially to the real economic activity, I'm not sure, but I guess there will be a 1%-2% contraction. However, with the statisticians we have, we'll never suspect there was any contraction. The odds of official recession: 25% at best.
Inflation: 8% unofficially; 4% is the maximum the authorities will officially admit.
Fed rates: will go down to 1%, possibly lower.
GDP: The Bureau of Economic Analysis will deliver a 1.5%-2% growth thanks to its newest data processing technologies.
Mortgage rates: will drop by a lesser amount than short-term rates. The normal yield curve will let the banks replenish their reserves. By the end of the year, competition among banks will begin to drive mortgage rates lower as well.
Money supply: M2 will grow 10%, M3 - 16%, much faster than the real inflation. The excess capital will pour into new bubbles.
Stock market: expect Dow 14000 by the end of the year.
Market trends: traders will be disappointed. LTBH investors will do better than traders as the market springs back from the oversold condition. Housing stocks will easily outperform the S&P 500. Financials will rally with a 6-month time lag after housing. Health care stocks will disappoint. The prices charged by HMOs still have some room to grow, but the analysts expect too much. With only 7 months left before the election of Obama, investors will stay on the sidelines.
Commodities: oil will fluctuate wildly around $100 but the $100 average should hold due to the continuing demand from Southeast Asia. The gold bubble will pop. Copper and silver should do better, but they too will experience a correction. But food inflation will continue unabated. The only thing that could halt it temporarily is if congress throws this ridiculous ethanol program into the wastebasket, which won't happen this year.
Housing: we are at an early stage of a secular bull market. Price growth will resume this year. By Dec, the NAR will report a 3% year-on-year increase, with another 10% increase to follow next year. Big winners: second-tier builders which the market had given up for dead.
Best stocks to buy: real estate, agriculture, defence, emerging markets, and, starting from September-October, financials.
Story of the year: victory in Irak. Whether Phyrric or not, it will be officially announced, and it will give Obama a convenient pretext to take to his heels, saving us some $200 bln a year in the process.
The wildcard of 2008: a slowdown in Europe. At the current exchange rates, the European economy cannot compete even a third-world country like USA.