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2007 Review -- Dollars and Senseless

Stocks

The Dow Jones Industrial Average in 2007 increased 6.4%.

The S&P 500 rose 3.5%.

The Nasdaq Composite Index gained 9.8%.

During the late summer, then again in the fall and winter, the major stock market indices became quite volatile. Certain segments of the markets underwent long-overdue downward corrections. A few blue chip companies were sold off in wild panics. Liberal Democrats in the financial media predictably acted out like spoiled two-year-olds on Dexedrine. Amidst the shrill noise, however, many professional investors -- from leading mutual fund and hedge fund managers to a massive foreign sovereign equity vehicle -- took advantage of the most promising large-scale buying opportunities since early 2003.

Read "The Intelligent Investor," by Ben Graham.
Be guided accordingly.

Bonds

Last year was a very good year for government debt.

The skittish fled the volatile stock markets, en masse, and moved vast sums of money into the safe havens of U.S. Treasury Bills and Treasury Notes.

The price of the 10-year Treasury Note was up in excess of 13%.

Currency

The dollar in 2007 continued its decline against its major rivals.

The cheap dollar has done the following: (1) invigorated our export sector, kept a lid on our trade shortfall and thus boosted top-line GDP growth, (2) boosted oil prices and thus contributed to higher overall inflation, (3) drawn throngs of foreign tourists and boosted our leisure and hospitality sectors, but (4) it's made it far less palatable for inherited-wealth prima donnas to take lengthy EUropean vacations. Tragic, I know.

Incidentally, the decline in the dollar is not being driven by fundamentals. Come on, let's get real.

The major economies of the EUro Zone when compared to America possess: higher unemployment rates, lower rates of worker productivity, larger social spending programs (when adjusted for relative GDP). Not to mention lower birth rates. Not to mention weak growth rates and high inflation. Japan's demographics are better than EUrope's, true, but that nation's economy over the past two *decades* has gone nowhere but sideways or down.

No, the decline in the dollar is being driven by momentum and by highly-leveraged short selling. What's your opinon about that, George Soros?

Mortgage Rates

Mortgage rates ended 2007 essentially at the same levels at which they began the year.

In most areas of the country you still can obtain 30-year fixed mortgages for around 6% with no points. To put that into perspective, back in the halcyon daze of Tip O'Neill 30-year fixed mortgages cost upwards of 17% -- plus up-front points and bigger required down payments.

Oil

Oil prices in 2007 charged towards $100 per barrel before meeting "resistance" there and closing the year at 96 bucks and change.

The sharp rise in oil prices over the past several years has been driven: (1) by a strong global economy, (2) by momentum and highly-leveraged call options (i.e., speculative buying on Wall St.), (3) by a cheap dollar, (4) by massive demand from the fast-growing economies of China and India, and (5) by a "war premium" concerning Mid-East geopolitics.

There's also the reality that when prices of raw commodities start rising they tend to keep on rising for long periods.

Until they inevitably drop like stones.


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Comments (5)

if you insist on wearing th... (Below threshold)
trapped in mn:

if you insist on wearing the rose colored glasses, at least tell the complete story: the foreign sovereign wealth fund(s) snapping up these supposed bargains paid less than market for their purchases or received obscene interest rates on their purchases - with hedging, their returns are guaranteed, something you'd know if you did a little reading and which you owe to your readers to explain! - anybody would have jumped on the deals they got - unfortunately, regular investors have to be content to pay still inflated prices for these pieces of junk - wait until the smoke clears on all the problem loans before pontificating - you'll look a little less foolish later

It's Hooverville, damn it!<... (Below threshold)

It's Hooverville, damn it!

trapped in mn ~ You can't h... (Below threshold)

trapped in mn ~ You can't help being stupid, but you could keep quiet.

Jim Addison: what exactly ... (Below threshold)
trapped in mn:

Jim Addison: what exactly is stupid? always helpful to back up your assinine remarks with a fact or two -

You need update that "resis... (Below threshold)
John S:

You need update that "resistance" at $96. Filled my tank today: $50. It was $35 a few months ago. By April it'll be $75. Filled my oil tank at home: $950. Next week it'll be $1,100. By April $1,500. Fortunately the government doesn't include energy, (or food, or healthcare) in its inflation figures. So, apparently, inflation is less than 2% a year. And that means, by their calculations, GDP is still positive. I'm so relieved.




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