It's a Wrap!

I find it hard to believe that it is the end of 2007 already. It seems like we just ushered in the New Year 2007 and here we are sending it off to the history books.

I don't know what kind of year you might have had, but I do hope it was one that will leave good memories, ones that you will treasure as the years roll on.

Of course, I focus on the financial aspects of the goings on in the world here each week, but this week will be a different. I will be looking at the year "in review," so to speak, and make a few prediction for the coming year.

The prediction part always makes me a bit nervous, for who can really tell what the New Year will bring? But, I guess that it is the not knowing that makes it exciting to some degree.

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Nevertheless, I will make a few fearless forecasts, just so at the end of 2008 we can see how right (or wrong) I was.

Let's look at the past year first.

As 2007 rolled in, we were in the midst of a huge stock market rally that had begun in late July 2006. That rally ran the market up a spectacular 3,000 Dow points and sent the Dow to an all new record high of nearly 14,200!

This rally set all sorts of records, of course. Besides a new high, it accelerated volume on the exchange to new heights, too. And the activity of new issues also enjoyed a spectacular rise!

But, I must admit that we did have to settle for second place for the number of IPOs this year. The European markets beat us just by a tad. The rally finally did end in early July, just as the markets were hit by several problems, one stemming from the mortgage markets' overzealous activity and the other from a growing concern over the slide in the dollar.

In the first instance, a "mess" did develop that involved not just our markets but many of the world's markets as well.

In one instance, we saw an event develop that we have not seen in a mature, developed economy for nearly 75 years – a run on major bank, Northern Rock, in England.

Granted, it only occurred because of government inaction, but it did occur and it was a wake up call to all banks and investors everywhere.

In the case of the U.S. dollar, well, that is still playing out, but it is slowly dawning on the world economy that the slide was not all that bad and may serve to as a readjustment of currency valuations that should have occurred years ago. We will need most of 2008 behind us to really get a good reading on this one.

The mortgage market problem I just referred to will surely go down in history as the so-called "subprime" mess. I won't repeat all the fallout from that problem, but as we enter the New Year the markets are beginning to re-stabilize after some difficult days of market churning and, for some, a long holding of the breath.

It now appears that the markets will survive the problem, albeit with some very new investors on the scene. You will be hearing a lot about what are called sovereign funds in the future. These funds have been around a long, long time, but 2007 will be looked back on as the year that the sovereigns came of age.

You see, after a number of banks and brokerage firms took large write-offs, they turned to this source of capital to replenish their cash boxes. The result of this action will be felt for many years to come as each of the firms receiving such funds will be modifying their behavior to account for the desires of their new investors.

Will that be bad for the business? Doubt it. Investors are investors regardless of who they are. They want a good return on their investments and, for the most part, will rely on the management they invested in to give it to them.

Managers who fail will be replaced, of course, thus marking the most likely and important effect we will see over time from the inclusion of these new sovereign folks.

If anything, I expect that we will see mostly a hands-off attitude by these new investors, at least until they see what three to four years of their presence brings. But, it is safe to say that the sovereigns are not interested in running their newly invested in companies.

They will just want to see good returns, growing equity bases, and the promise of even better futures. Lacking any one of these, however, may bring new blood into the businesses. Should be a fascinating few years as we watch all this play out.

As for my Super Chart this year, there was never a day that it was even close to violating the Keyline to the downside.

There clearly was a nine month long trading range between the top resistance S&P cash index 1550 area and the bottom support at S&P cash index 1400. We have worked this area in what is called by chartists a "correction in time" mode versus what is usually just a correction in price.

A correction in time is just as good as a price correction and in some respects better. The better aspect is that four out of five times a correction in time is just a "pause" while investors absorb a recent big move, which, of course, we had from the Dow 11,000 area to the Dow 14,000+ area from July 2006 to July 2007.

The "pause" will, I believe, resolve itself it the next few months to the resumption of an up move that will carry us to new highs and likely signal the resumption of "normal" economic activity after the subprime mess, which is rapidly receding into the background.

OK, let's get to the hard part now. Here are my predictions for 2008.

First of all, I predict that the New Year of 2008 will see a new market high sometime during the year at about the S&P cash index 1700, which would be roughly Dow 15,300 or so.

Those of you that trade the leaps might want to consider buying well out of the money calls to take advantage of this move.

I expect the dollar will remain in the dollar index (DX) range of a high of 79-80 and a low of 72-73, basically a trading range of seven to eight points, not much to write home about in any event.

This "stabilizing" of the dollar will clearly help boost U.S. exports, a piece of really good news to the economy. I predict we will see very strong defense sector growth emerge, also. I suggest you do some investigation into these two areas if you are serious about making a good profit in 2008.

As for Treasury bond yields, I don't expect any huge decline in interest rates in 2008. The year might see a decline to the 3.75 percent to 4 percent area, but not a lot more in my view, if even this much.

That will not make some elements of the financial world happy, but it will keep the economic boat on an even keel. Expect many to call Bernanke a dunce for not lowering rates, but his actions will be proven right in the end.

Dr. Bernanke will opt to use money supply to accomplish the work needed to fuel growth and to keep inflation in tow. And do believe this man when he says that the Fed will not come to the rescue of those that make big money judgment mistakes in the future.

Those days ended when Mr. Greenspan left the office of Fed chairman. Dr. Bernanke is a new, fresh breath of air and his leadership will be largely responsible for the gains we see unfold in 2008.

Lastly, I expect that commodity prices will soften across the board pretty much, including a stagnant period for gold this year. In the long run, however, I still see $2,000-plus an ounce as the ultimate target price of gold in the next 36 to 48 months, possibly even as high as $2,500 an ounce.

The one area that is still a big question to me is the grains, partly because the world food supply productive capacity is still a question until the spring planting and weather patterns become clearer, and partly because the legislative side of this equation is really in flux as foreign nations begin a concerted effort to have the WTO upbraid the U.S. for its subsidy programs. So, in that area, count me as on the fence.

Oh yes, one last thought. All the above predictions are predicated on my Super Chart holding all the trading activity above its Keyline. That is always a given, of course. If the Keyline is broken to the downside, all bets are off. But, if you are a regular reader, you already know that.

Well, that's it for this week and that's a wrap for the year. I think I did enough predicting so that when the end of 2008 gets here, I will either be a hero or a dunce (I pick hero, of course. But, we will see).

Do hope you had a wonderful Chanukah and Christmas and that 2008 brings your home happiness, good memories, and a growing sense of what love of one another means.

And if you will permit, I am dedicating my last column this year to my beloved wife Ina, who passed this vale on May 21 of this year. She remains a lovely shining light for me and a constant source of inspiration to treasure life and rise to higher achievements every day.

Do hope your coming investing week is a good one. In the meantime, you keep in touch. I do! See you next week.

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