What To Watch In 2008

January 3, 2008
By seadmin

Want to know what you should be looking at in 2008? Of course, we all want to know what the keys to the kingdom will be in the year ahead, but nobody has a crystal ball, and nobody can tell you for sure what will be the key developments shaping the year.

What we can say with confidence is that some things are definitely worth keeping very close tabs on right now. Here are five of the trends I think we should all be carefully examining as we dive into 2008.

1. Home prices, home sales and housing inventory numbers. The housing bear market of 2007 isn’t going anywhere in 2008. In fact, I think we are headed for a lot more trouble on the home front during the next 12 months and even beyond. That said there will come a time when the next great real estate buying opportunity hits, and that is when you’ve got to be prepared to take action.

2. Mortgage rates. The real estate bear will continue being fueled by the lack of available mortgage money in 2008. I’ve always said that someday mortgage money will be hard to come by, and that day is definitely here. If you need a jumbo loan (a loan valued at more than $417,000) you also are going to have to pay a jumbo rate. And, if you have even the slightest blemish on your credit you can forget about getting that home loan. If mortgage money continues being scarce, look for more housing woes ahead.

3. Interest rates. There is a big decoupling going on right now between Treasury bond rates, corporate bond rates and consumer credit card and auto loan interest rates. The spread between AAA credit ratings and everything else is becoming greater and greater, and this situation is something that must be watched closely in 2008. We know the Federal Reserve is watching this phenomenon take place, but despite what many people think, the Fed doesn’t control market rates like Treasury and corporate bond rates. These rates are determined by investors, and if the value of money becomes distorted the situation could spell trouble for the economy at large.

4. The falling U.S. dollar. What can you say about the fate of the greenback in 2007 that can’t be said better by a quick look at the chart below?

The dollar traded below its long-term, 200-day moving average (red line) for the entirety of 2007, and the outlook for the once-mighty currency remains bleak. If we see the dollar continue its big slide, inflation will get worse and limit the Fed’s flexibility to modulate the cost of capital.

5. The 200-day moving average of all your investments. We just saw how the U.S. dollar traded below its 200-day moving average all of last year, but do you know where your investments stand in relation to their 200-day moving averages? If you don’t, then this situation is something you will definitely want to watch in 2008. Knowing where your investments are in relation to their long-term trend line is crucial in helping you decide whether you should stick with, or release one or more of your current holdings. To determine where your stocks, mutual funds or exchange-traded funds are in relation to their 200-day moving averages, I recommend this Web site. Follow the easy instructions on the site and you can obtain all of the technical information you could ever want about any publicly traded investment you own.

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