Predicting the Future

Is it Just a Bunch of Bull?

The old saw that bad news sells newspapers and drives electronic news seems to prevail. If it bleeds it leads. Bad news on the doorstep- I couldn't take one more step. Such is the state of the fourth estate. But dust away the shocking headlines and the Whitehouse banter and the spin doctors and what is left are cold hard facts. Will 2008 find the economy continuing to hurtle down the tubes?

What's that you say? The picture is not all bleak? During the past five years Standard and Poors 500 has rocketed more than 17%. It is true that came on the heels of a 25% increase in 2003 balanced a bit by a mere 3% increase in 2005 and little better in 2007, but that is a five year run of the Bull. That beats the running of the bulls at Pamplona Spain, which only occurs once each year but gets much more coverage because there is much more blood to report about. Many money strategists predict 2008 will also be a good year for the stock market and make a rare six-year run of positive growth.

But how can that be with sub-prime mortgages, credit problems, falling home prices, tighter loan standards, etc. Those folks supposedly in the know are predicting a brighter market in 2008 for several reasons. Much of the bad news cited above is over and things are settling down. Sort of like when FEMA finally arrived in New Orleans. As housing prices appear to be "bottoming out" more families can afford homes and more investors are willing to get back into the swing. Also, central banks around the world, including our own Federal Reserve, will continue to lower interest rates to encourage investing.

With the dollar at an all time low against the Euro and many other currencies, foreign investment is pouring into the US like two-for-one night at the local pizzeria. Cash rich economies such as those in China, Singapore, and the Middle East are snapping up investments in the US. AS the price of oil continues to rise and OPEC countries become awash with cash, they need a place to park it. As global growth continues US companies abroad benefit from the global boom.

Although stock prices rise, many have low valuations, which allow them to rise. Compared to bonds, stocks are considered a good buy. And although we have been CNNed and Foxed, and even Mainstream Media-ed to death with candidates who want to be your president, stocks in election years typically do well, especially in the third and fourth quarters.

Remember, the housing market values have dropped double figures - homes in some areas have lost up to 12% of their values. But during the run-up of the past few years, home market values have doubled and even tripled in some areas. So let's see... a $ 100,000 home rises in value to $ 300,000 over a few years. Then a "housing crisis" causes it to drop in value to $ 260,000 - and the sky is falling? Apparently that's what sells.

A little blogging music maestro.... How about "Bad Moon Rising?"

Dr. Forgot