The second of our two-part series update on our financial predictions for 2007:
Real Estate — More bad times ahead for housing prices. While many are reporting the worst for the housing market is over in the U.S., I don’t see it. We are only halfway through a year that will see billions of U.S. adjustable mortgages reset to higher interest-rate levels.
Home builders continue to complain about slow sales and bloated home inventories. The stock price charts of the biggest U.S. home builders tell the same story. The commercial real estate market in the U.S. is stable — it should continue that way unless interest rates in the U.S. move upward to protect the U.S. dollar. At that point, guaranteed rates on T-bills might be more attractive than the return on investment real estate causing a shake-up in that market place.
Gold — It is still my favorite investment for the year. Gold bullion has been in a bull market for several years now that’s almost gone unnoticed by the general public. But, as of late, gold producer shares have not been big shiners. As the U.S. dollar remains under pressure against other world currencies, as U.S. debt levels continue to reach new record highs, I believe gold will continue to rise in price.
In my opinion, quality gold stocks are an attractive undervalued play at present.
Economy — The only way we will fight off a recession by year end is if the Fed cuts interest rates soon. The average U.S. consumer is all but tapped out. They are having a difficult time digesting higher gas prices and higher payments on their homes. But the Fed has a problem — cut interest rates and the U.S. dollar could collapse on world markets making U.S. issued bonds a hard sell.
The problem continues to be the housing bust. Consumers can’t feel good spending if the values of their homes are declining. Most difficult: If we enter a recession we will not be able to count on consumer spending getting us out of the recession, as the average U.S. savings rate continues to set record lows.