Deric Cadora of TheDOCument.com offers his investment outlook for 2007, on stocks, bonds, the dollar, precious metals and energy. Amazingly enough, this doesn’t sound anything like the bullish outlook I’ve been hearing for weeks from the talking heads on CNBC:
Last year’s prognostication began with the sentence, “My outlook for U.S. equities in 2006 is rather grim.” Obviously, the impetuous rally of the latter half of the year proved the outlook wrong, though in mid-July it was looking mighty insightful. The reasons for my grim view, however, have not retracted, but rather grown stronger. Collective expectations for equity returns have become more ebullient. Bulls feel bulletproof after surviving the early summer tumble, and earnings expectations, especially in tech, continue to escalate despite incontrovertible proof that the demand side is weakening rapidly while inventories grow. I also cited the decay in the housing arena as a drag on the overall market and suggested that housing stocks and their suppliers, such as Building Materials Holding Corp., would have painful years. Housing shares did, indeed, tumble (BMHC fell 30% in 2006), though the effects of their decline have yet to be felt on a broader scale.
That said, the rally from the July lows appears very much like a speculative blow-off phase for the greater cycle that began off the 2002-03 lows. I will not only reiterate, but amplify, my grim outlook for equities going forward. The U.S. economy is slipping into recession. In fact, if one uses more realistic figures for inflation than what the government publishes, we have already experienced recession in real terms. The effect of overzealous lending in the housing market is beginning to be felt in the sub-prime arena and will make a greater mark in 2007. More subtle indicators include the facts that Dow dog, GM, which lead the market higher by doubling off its early-year low, appears to have completed its counter-trend rally. Also, odd-lot short sales, a useful indicator of how unsophisticated investors are positioned, are at a 13-month low. Finally, Nasdaq indices have failed to better their November highs while the S&P 500 and Dow have set new highs. In recent years, weakness has tended to develop in the Nasdaq prior to broader market declines. Therefore, I anticipate that an inflection point could be imminent.
Then again, as the title says, this is only one investor’s opinion, and as he admits, he was quite wrong in ‘06.
