Being a bear on pretty much everything was a lonely business for much of 2007. It doesn’t look like that’s going to be the case in 2008.
This week’s papers are full of dire predictions of house-price crashes, repossessions, record bankruptcies and recession, to say nothing of falling corporate profits and lower stockmarkets.
At MoneyWeek, we quite like the feeling of being in the minority when it comes to forecasting, so what I’d really like at this point is to be able to tell you that all these pessimists are fools and that everything is going to be just fine. Sadly, I can’t do that.
All the evidence really does suggest that 2008 is going to be extremely unpleasant. Most G7 countries are, as Saxo Bank puts it, “maxed-out” on cheap credit. House prices are falling. Loans are increasingly hard to get and increasingly expensive. Public finances are generally unsound (so there is no way that governments, and the UK Government in particular, will be able to up their spending to compensate for falling consumer spending), and inflation is still a big risk, with food and energy prices both rising fast.
The US may already be in recession, and if it isn’t, it soon will be. The news this week that manufacturing growth has more or less stalled has made it very clear that the credit crunch goes far beyond falling condo prices in Florida and Las Vegas.
All this makes us nervous about suggesting anyone puts much in the way of new money into the markets at the moment. However, we do still like precious metals – I’m hanging on to my gold funds and getting exposure to platinum, silver and palladium via an exchange-traded fund. We are still long-term soft-commodity bulls (another position in which we are now joined by almost everyone else), so we’ll be watching wheat and soybean prices this year.
We also remain long-term bulls on energy – oil, natural gas, coal and any alternatives that might actually work – and industrial commodities, but that said I don’t think I’ll be putting much more money into oil stocks right now. The price has just moved to $100, but if global growth falters, its bull market could well see something of a setback. The same goes for the big miners.
Another thing we’re getting nervous about, given the state of the UK economy and Gordon Brown’s treatment of public finances, is the pound, so we’ll be looking for some good currency funds to suggest to you over the next few weeks.
For a round-up of where other forecasters expect the markets to go this year, see The outlook for global markets in 2008, but for specific stock tips that reflect many of our own views see our New Year Roundtable. The tips that came out of last year’s discussion ended 2007 up an average of over 10%, not bad given the dismal performance of the FTSE 100 (up 3.8%).
And this year’s tips look interesting too. There are more tips on page 14 (see our latest issue online), where we have asked Tim Price of PFP Wealth Management to pick the stocks he likes best for 2008. We asked him to do the same last year and his picks ended 2007 up 17%. Happy New Year.