I can’t help but to think that I am setting myself up here. There are so many variables that could throw a wrench into my predictions, and tarnish my flawless reputation (cough). Nevertheless, I can’t help but to jump into the 2008 forecasting game and give my readers some ideas for what I believe is in store for 2008. Without further adieu, here are my 10 predictions for 2008:
1) Economic conditions in the U.S. will deteriorate further and we will finally get consensus that the dreaded “R” word is a reality. The Fed will intervene and do everything possible to avert it, but it has been delayed for so long that the any Fed plans to prop up the economy will ultimately fail.
2) The sub-prime crisis will intensify with additional write-downs and massive quarterly losses for the financial giants. Bailouts will never seem to be enough and any relief will be short-term with announcements of additional cash infusions being necessary. At least one major bank or financial institution will go under and cease to exist by the end of Q2.
3) Real estate prices will continue to fall in 2008. A new round of rate resets will usher in a second and larger wave of foreclosures. The worst of the financial and real estates crisis is definitely ahead of us, not behind us.
4) The Fed will continue to lower rates (below 3%) and flood the market with dollars in an attempt to prop up the economy, but it will be too little too late. There will be rallies, but the muted and fading effect of Fed intervention will create a panic in the markets that will cause a massive sell off, albeit prolonged.
5) The dollar will suffer tremendous losses as the printing presses kick into high gear and foreign central banks and commercial institutions rush to the door even faster than they did in 2007. China will continue to diversify its reserves out of dollars, creating additional downside pressure and pushing the Euro closer towards becoming the world’s new reserve currency. The unwinding of the yen carry trade will be another factor pushing the dollar to new lows in 2008. There will be several mini-rallies along the way that will convince people that the dollar is going to rebound, but it will end the year losing another 10-15% in value.
6) Oil will dip towards $80 per barrel due to the slowing economy and release of additional supplies. However, continued inflation and war in the Middle East will push oil back above $100, and could even see the price spike towards $150 in the event of war with Iran.
7) Gold will post its highest gain yet during 2008, outpacing the 31% gain of 2007. Investors will start to take more interest in gold as it becomes hard to ignore the massive advances from lower rates, the lower dollar and higher oil Gold equities will catch up to the metal and return to offering impressive leverage. Junior miners will outpace the majors, and silver will outpace gold by a small margin. Prices will become much more volatile with $50 days in either direction, and a trading range between $770 - $1,120 during 2008. Gold will suffer a major correction at some point, but it will be shorter than previous corrections, and any dips will prove to be excellent buying opportunities.
8) Political unrest will increase with major events taking place in Iran, Pakistan and beyond. The U.S. will enter another country and start another war, despite being spread thin already. Tensions will increase with Russia and China, who view U.S. moves as both a power grab and a threat to their interests in the region.
9) I won’t offer a prediction as to who wins the U.S. presidential election, but I will forecast high voter turnout, plenty of controversy and a focus on voter fraud from the use of electronic voting machines. Recounts, lawsuits, protests and a much divided America, especially as the economic slowdown hits consumers in the pocketbook.
10) Alternative energy stocks will continue to do well in 2008, led by the solar sector. Global warming will continue to be a hot topic (pun intended). Government subsidies will increase, especially if the Dems win the white house. New technologies will continue to make alternative energy more efficient and viable.
2008 will be a difficult year for many investors, but I don’t intend to be one of them. There are opportunities in the markets at all times. I will continue to be long gold and silver, picking up quality juniors along the way. I am also long on clean energy stocks, including solar, wind and uranium. On the short side of things, I am positioned to gain from further declines in real estate and financials by owning the Ultrashort ETFs: UltraShort Real Estate ProShares (SRS), and UltraShort Russell1000 Growth ProShares (SFK). Peace and prosperity to all in 2008!