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Monday, December 31, 2007

2007 US & World Market Recap

Fitz's 2007 US & World Market Recap

The main 2007 story lines for US investors was strength in oil, gold, and Asian markets (with the exception of Japan) and the continued weakness of the US currency. The US dollar index was down a whopping 8%, which means if you were invested in the S&P or the DJIA you did worse than kiss your sister - you lost money, and that's before taking into account inflation and taxes. Europe was anemic in general, with the exception of Germany which is still seeing strong demand for exporting quality products to Asia. Speaking of inflation, I won't even post the inflation numbers issued by the current administration because I simply don't believe them. So, let's forget the official inflation numbers and simply look at oil and commodity prices - which the gold bugs obviously are watching closely. US investors are feeling a double-whammy as the huge deficit spending of the last 7 years combined with the Federal Reserve dropping interest rates to bail out the Wall Street sub-prime profiteers has the US dollar dropping like a rock. It is down some 40% since Bush took office. Will these trends continue in 2008? See down below after the market wrap up summary.

NOTE: The % changes listed below are simply the change in the local index or commodity. That is, currency fluctuations are not taken into account.

Jan 1, 2007 Jan 1, 2008 % Change

OIL $61 $95 +57 % per barrel
GOLD $636.90 $832.10 +31 % per oz
US DOLLAR 83.5 76.65 -8 % US $INDEX-NYBOT:DX
S&P 500 1418 1468 +4 %
DJIA 12463 13264 +6 %
NASDAQ 2415 2652 +10 %
FTSE-100 6220 6456 +3.8 % England
DAX 6596 8076 +22 % Germany
CAC-40 5541 5614 + 1 % France
TSE 12908 13858 + 7 % Canada
BVSP 44474 63644 +43 % Brazil
AORD 5632 6421 +14 % Australia
SEC 2550 5261 +106 % Shanghai
HSI 20008 27812 +39 % Hong Kong Hang Seng
N225 17199 15307 -11 % Japan Nikkei
STI 2990 3482 +16 % Singapore Straits
KS11 1430 1897 +33 % Seoul Composite
TWII 7760 8506 +10 % Taiwan

Fitz's Fearless Predictions for 2008

2008 will continue to be a market for hard assets as the dollar will continue its fall with the Federal Reserve cranking up the printing presses to pay for the huge budget deficits and the sub-prime bailout. Inflation will therefore accelerate. As in 2007, this is not an environment with which to invest in the S&P 500 or US bonds, which will be dead money. Oil and gold will continue on their upward trends, with dizzying shake outs to scare the weak of heart. With fiat currrencies around the world (yes, I include the US dollar in this group) continuing to get pounded, countries rich in natural resources with sound fiscal policies will continue to do well: Canada, Russia, and Brazil for instance. The BRIC countries should continue to outperform. The big wild-card in every economic prediction for 2008 continues to be geo-political events outside of the investor's control (i.e. Bush). If Bush goes into Iran, all bets are off and oil will sky-rocket. Watch out for Pakistan as yet another one of the US's propped up dictators is turning ruthless so he can stay in control (read this as he wants to continue collecting the billions of US dollars we are sending there, like we did with Sadam Hussein, Noriega, etc. etc). This is yet another reason to own gold, which like oil, is priced the world over in US dollars. Watch out if the middle eastern countries decide to begin trading oil in non-US dollar currencies. This would signal the final death bell for the US dollar. I suppose it is possible for the US dollar to turn around and strengthen...however, when the British pound lost its reign as the world reserve currency of choice, it declined some 80% before it recovered. So, one could make a case that the dollar is only half-way down the waterfall. Either way, one cannot afford to hold only US dollar denominated assets.

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