8 Predictions for 2008

As we look ahead to 2008, I thought it would be worthwhile to share some of my thinking for entertainment purposes of what I think will happen in 2008. As the year goes on, I will review how I did on these predictions with both subscribers and in this public blog.

1. Markets will produce results ahead of their historic average as liquidity provided by the Fed works into the system. In addition, bond yields are not far from historic lows and will be supportive for higher stock prices. I feel that valuations in the market are at reasonable levels and in fact are very cheap in certain parts of the market.

2. Financials will stage a comeback and be one of the best performing sectors during the year. In addition, asset management firms which have seen recent share price declines will be market leaders in 2008.

3. Valuations will matter. In 2007, we saw many names with very high P/E perform exceptionally well but in 2008 I think we will see a more traditional market environment where inexpensive stocks do best.

4. The Fed will continue to cut rates to be within 25 basis points of 3.5% by the end of the year (100 basis points below current levels) with the actions all coming at the start of the year to keep a recession at bay (although a slowdown is likely in Q4 07 and Q1 08). The economy will begin to pick up steam in the later half of the year.

5. U.S. stocks will outperform international stocks on a dollar basis. For the first time in several years, I anticipate that U.S. stocks will outperform international (especially European) securities in part due to currency moves and in part due to a slight slowdown that I expect to occur in European markets. I think emerging market stocks will hold up well for the year due to all of the liquidity from the U.S. Fed, however, I would not be surprised to see a selloff in some of the frothier markets such as China and India.

6. Consumer stocks will start off rocky but end up with sizeable gains for the year as consumers become more confident.

7. Housing will reach a bottom near mid-year. This is one of the harder areas to predict but I believe that housing will finally reach its bottom in mid-year and prices will stabilize. Housing is a notoriously slow moving market so I do not anticipate a rise in prices but rather a stabilization as low interest rates helps to even out supply and demand. I would expect some consolidation within the industry just prior to the bottoming of the market.

8. Commodity prices will continue to be volatile throughout the year as geopolitical risks are not going away and speculation (both bullish and bearish) will continue to create rapidly moving markets.

I feel that my portfolio is well positioned if the above events were to happen and will benefit especially in the asset management area from the positive market environment that I expect in 2008.

Comments

[d:]

Probably the most idiotic predictions for 08 I have come across yet-
only TWO makes sense commodities will be volatile and rates will be cut
Housing will continue death spiral down, international will continue to outperform (not europe-writer is correct-Europe and England are close to witnessing their real estate bath also on average)-
Financials will be cut in half over next 2 years and go back down and only represent 10% of S&P vs. 21% today-more write-offs ahead-

2007 Dec 11 05:30 PM

[censeo:]

Without any substantiation, Weiss's commentary reads like a letter to Santa Claus. Nos. 1,2,5 & 6 = Wrong.
Nos. 3 & 4 = yes, but so what: too little and far too late
No. 7 = slim possibility but unlikely; the damn has just begun to crumble: many more boat to wash down over the falls.
No. 8 = Yes. Congrats, 1 out of 8.

2007 Dec 12 01:25 AM

[NoFate:]

Is this actually just your wish list to Santa and it got mixed up with the real article? If not, then I am baffled.

Why would the Fed continue to cut rates aggressively when the market is going to set new records ...and housing will apparently bottom next year?

This is utter nonsense. Jeeeezus ...be a bear ...or be a bull ...but don't claim the best parts of both sides and try to keep a straight face.

2007 Dec 12 06:25 AM

[HEARTSFORLOVE:]

i sure wouldnt sleep well at night if i had funds in your portfolio.
These predictions are out of a fairytale.
Are you aware of how the markets dropped yesterday after a quarter point drop. the market took a bath on account of thinking the issues at hand need much more serious medicine.
It seems the fed is afraid iether way it goes.
And the public can sense it.
The purging of the corrupt liar loans to poor folks trying to get rich is a long way from winding out. The Fed has printed too much money and debased the wealth of too many hard working americans. To bail out the subprimes is a disneyesque fantasy that is not going to work on account that is unfair to others who did not take the risk.
Sometimes when one reads these predictions .. one really wonders if it is a corporate policy document to ameliorate the fears of the public. The truth is prepare for tough times . Consolidate your risks. lessen your loans and do everything you can conservatively to maintain your wealth.
The days to listening to corporate advisors is for the dodo's

2007 Dec 12 03:22 PM

[techy:]

a bull doing bull shit of prediction..

unless some how magically all the subprime crap is melted into gold.....how are the banks/financials going to do better??

if i am not wrong, all the financials/banks have lost more than 2-5 years of earnings, if that is the case, should their price not go back to 2002 levels??

2007 Dec 12 03:29 PM

[questionable..:]

When do you predict this to happen? No iea about the house one, but the stocks are possible, though definitely nothng till mid-year. Hte fed is still concerned with inflation, and have justrealized what a shithole theyve made for htemselves. Do yourealize how any base points they have cut FFR in the past few months?

2007 Dec 12 07:51 PM

[ussmls7:]

You must have just left a Goldmans party, you are dreaming if you believe any one in the world will fall for the same crap again. The Feds are trying to slow down all the people that are going to sue the hell out of a lot of scum bags that packaged all this crap & sold it, knowing they were short & would make a killing doing so, now the Feds have put it on the tax payers back, bailing out the ones that stayed in the game to long. You need to get real, the MSM has got you just where they want you, sucker. good luck in 2010. you did not say, do you own phyical gold/silver? Most say you should have 10 to 20% or more. I would start over with your outlook for 08 & research the damn truth of what caused this, & the big players who are knee deep in it all.

2007 Dec 12 08:29 PM

[iman:]

Is this whole article a joke?

2007 Dec 12 09:04 PM

[NoFate:]

I just couldn't leave this one alone! Here are MY predictions based on your list:

1. Markets will produce results ahead of their historic average as liquidity provided by the Fed works into the system.

Response: There is plenty of liquidity in the system. The problem is that Banks don't trust each other, so they won't lend to each other. They are afraid other banks will run into problems because many are keeping their CDOs/SIVs mark to model (i.e. mark to make believe) and off balance sheet. Banks need trust and transparency, not lower interest rates.

Markets ultimately reflect earnings ...and earnings are going into the toilet.


2. Financials will stage a comeback and be one of the best performing sectors during the year.

One or more major financial will go bankrupt. See #1.


3. Valuations will matter.

Future earnings estimates are still WAY too high, so current PE ratios appear lower than they should. Both prices and earnings will drop next year for most companies, so who knows where the PEs will eventually end up. Cash will matter. See #1.


4. The Fed will continue to cut rates to be within 25 basis points of 3.5% by the end of the year...

The Fed will cut rates to at least 3.0% ...possibly lower. They will be trying to avoid a severe Japan-like recession caused by DEFLATION of assets (i.e. houses, etc.).


5. U.S. stocks will outperform international stocks on a dollar basis.

Emerging markets will easily out perform US stocks, though our recession will cause a global slowdown. We will export more and they will import less from us, but it won't be enough to save us. Much of Europe will also be in a recession. The $ could actually rise if other economies slow down ...but the GDP growth rates in places like China, India, S. America, etc. pretty much ensure stronger markets. See #1 and #3.


6. Consumer stocks will start off rocky but end up with sizable gains for the year as consumers become more confident.

Which consumer stocks ...staples or discretionary? If staples, then I agree with you... if discretionary then I think you are crazy. See #1, 4 and 5.


7. Housing will reach a bottom near mid-year.

Huh? The CME has Case-Shiller Housing futures ...most of them indicate a bottom in 2010 or 2011. Plus, have you seen the ARM reset schedule?? The next 6 months make the last 6 months look like a walk in the park.


8. Commodity prices will continue to be volatile throughout the year...

Ummmm, yeah. So what? Are they going up or down? You didn't make a prediction on the US$, which is the key to this one. I'm not sure where the $ is going, so I am staying away from commodities at the moment (currencies also).

Anyway, I am going to print this and we will see who is closer at the end of next year.

2007 Dec 13 04:56 AM

[Maryocon:]

. The housing market will not bottom in the middle of next year. The housing market will not bottom until the inventory of homes on the market decreases from 1 year, plus or minus, to six or 8 month. It will not bottom until the affordability factor reaches at least 40+%. We are not even close to that figure in most parts of the country. It will not bottom until credit is available to a wide variety of buyers and that does not look like it will happen in the near future. I just wish his prediction was correct but it isn’t even close.

2007 Dec 13 10:55 AM

[ussmls7:]

NOFATE has the best post so far, but will the fed make do the right thing?, keep the hell out, let the scum wash its self out of all ,that is has injected in, by your friendly investment bankers. They are rallying to screw up more as I type. All is not fine for the future.

2007 Dec 13 11:40 AM

[REBEL:]

I see there are other investors with a clear vision of how the Fed - government Axis will screw them. Remember the day the Federal Reserve took over YOUR MONEY SUPPLY in 1913 the U.S. dollar was worth 100 cents. In 94 years it has become progressively worth less -worth less - worthless, (4 cents in 2007). Now we know why the government is overseeing the destruction of anything which is virtuous in the U.S. They want cover so they can destroy our economy at their leisure. Just don't stray off the plantation or you may get the "Waco Treatment".

2007 Dec 13 01:21 PM

[jcrash:]

I think the best indicator here is that all of you disagree.

Too many bears in the woods for me to think the market is not near a bottom.

Liquidity in credits markets <> liquidity in equity markets.

Housing market is not as bad as most people think. Where I live (oklahoma), it is doing great.

Resets will matter less and less as people get out from under the ARMS.

Natural Resources, oil services, integrated oil, most semis - all going higher. Financials - I wouldn't touch them even without the credit issues, so certainly not going near them here.

With all these posted in agreement, I will go with them being wrong over them all being right - all things being equal. I just don't think things are so easy to figure out, if they were, you'd all be millionaires and have better things to do than posting here.

2007 Dec 13 04:17 PM

[Camaro1944:]

I do not beleive that George Bush will let any PHOTOS of any USA Residents being Evicted, or their Furniture being set out on the Sidewalk, in an Election Year 2008. He is working full speed ahead on a PLAN to have all the FED Mortgage Lenders and Insurers to Relax their lending Policies, and to extend the Foreclosure Times and Lower the Future Interest rates for these Home Owners in Trouble. The Real Problem is that the USA BANKs have stopped Lending Money to anyone ! The Banks of Scotland, Ireland, and INDIA continue to Lend Money to Small Businesses ! Consumers are now getting all their Spending Money from their Credit Cards because the Major BANKs have all stopped lending ! Master Card and Bank of America are predicted to have Banner Years in 2008 for this Reason ! They were not affected by these Sub-Prime Loans.

2007 Dec 15 05:40 PM

[Dan Weiss:]

I appreciate everyone's comments in regards to my predictions for 2008. As everyone knows, these are simply predictions in my many years of experience when everyone thinks the same (i.e. there will be a death spiral in financials, international stocks will outperform forever, etc.) the opposite is very likely to happen. Financials have taken it on the chin this year and in my opinion are already pricing in a large amount of bad news which in all honesty will likely happen in the first quarter of 2008. My expectation is that with a proactive Fed injecting money into the system as well as significant foreign investment financials will be a leading sector over the next year. I would say that the most uncertain of these predictions in my opinion is a housing bottom in the middle of the year but I am standing by this prediction. Keep in mind that the prediction is only stating that the housing market will stabilize not that it will all of a sudden completely reverse course and turn higher.

2007 Dec 27 09:37 PM

[NoFate:]

If it was just a single shock to Financials I would agree with you Dan, but there are long term effects that will continue to drag them down:
1. ARM resets - Take ~6 months to migrate to forclosures. The worst is still coming.
2. Housing prices are expected to drop 20-30% over the next several years. More and more home owners will become underwater (debt > house value). Many will walk away.

With a 10+ month supply this is going to take a few years to unwind. In the meantime bank margins get slimmer and slimmer ...and credit becomes harder and harder to get.

Yes, 2007 was a terrible year for financials. But guess what? 2000 was a terrible year for tech ...and so was 2001 ...and so was 2002. Financials will likely play out the same way.

At least wait for something that looks like a bottom ...IYF just looks like a falling knife right now.

2008 Jan 09 04:26 AM

[Dan Weiss:]

We are now nearly 1/3 of the way into the year and so far here is the record:
1) So far incorrect but I still think we will have positive results by the end of the year.
2) Asset management firms are starting to outperform and financials have staged a nice comeback in April. (Too early to tell)
3) This has clearly been correct thus far. Just look at some of the high valuation stocks from late 07 and what has happened to them. 4) I was far too conservative in my Fed thinking but the general direction was clearly correct. I continue to expect a second half rebound.
5) So far, so good here. I anticipate that the dollar should strengthen the rest of the year only increasing the spread.
6) So far this has played out exactly as I stated.
7) Housing is still not showing signs of a bottom although housing stocks have done quite well.
8) Correct as volatility is substantially above last year's levels and I would expect this to continue.

Overall, we are only 1/3 into the year but I continue to stand by the predictions with the exception of a slight delay in the housing bottom.

2008 Apr 28 08:35 PM

[cowboyg:]

I built subdivisions for 10 yrs as a construction foreman I began to wonder who was funding all this development and why so much. Now its clear, someone scammed our system for billions $
Please dont make us pay for this act of greed.
Let these liar lending criminals and banks fall
flat on their face,finish the war and take care
of your people, remember Enron whats the
difference its wrong!!!!!!!!!!

2008 Sep 25 04:46 PM

[cowboyg:]

I built subdivisions for 10 yrs as a construction foreman I began to wonder who was funding all this development and why so much. Now its clear, someone scammed our system for billions $
Please dont make us pay for this act of greed.
Let these liar lending criminals and banks fall
flat on their face,finish the war and take care
of your people, remember Enron whats the
difference its wrong!!!!!!!!!!

2008 Sep 25 04:46 PM