Looking Forward: 2008 —
the Year of the Rat |
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2008 is the year of the rat. The Chinese
say those born in these years make
good and wise advisors and at times
hunger for power and money. They are
also charming and intelligent. Sounds
about perfect to us money-manager
types! |
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Following five years of a Bull
Market in stocks and bonds,
the rat that will plague Wall
Street in 2008 is the credit
crunch. We are braced for an
economic slowdown in the
U.S. for the next two quarters
as a result of credit market
turbulence. |
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| Eco 101 defines a recession as two consecutive negative
quarters of GDP. Simple folk describe it as the time your
neighbor loses his job. A depression is when YOU lose
your job … but we digress. |
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A 2008 recession? Probably not. But
slowing growth is a virtual certainty.
2001 was our last U.S. recession. It
lasted eight months. While we see the
U.S. avoiding a true recession in 2008,
American economic weakness will
likely be exported to Europe and then to Asia. |
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| Despite our prediction of NO recession, we plan to invest
as though one were imminent, just to be on the safe
side. |
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We will invest in sectors that flourish in times of economic
weakness, such as bonds, high tech, digital-based
entertainment, energy and utilities, global healthcare and
anything “green” … except the U.S. greenback. This is
called TARGET investing. It worked well for us in 2007
when the stock market rose only 3.5% blamed on credit,
housing, slowing economy and the dumpy dollar. Our
stocks dramatically outperformed. WHY? Our targeted
investments were themes and trends that were on-point;
these investments powered forward as the economy
began to lose steam. For more information, see “Looking
Back” on page three.
The investment themes we will follow in 2008 are:
Bond investing will pick up in 2008 as a safe haven.
Yield-seekers will persue the elusive investment goal
of known outcome in their portfolios. Predictable and
budgetable cash flow from bonds is especially vital for
retirees. The graying of America is a solid investment
theme for 2008. |
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Energy investments which surged 30% in
2007 have long been the centerpiece of our
investment strategy and 2008 will be no
exception. Stalwarts like Exxon and Chevron
have tripled in the past 5 years while
returning investors some pretty fat dividends.
Why? They’re growth stocks now, no longer just dividend-rich old faithfuls. Tight supplies
and growing global demand from developing |
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nations will
keep crude oil prices elevated and comfortably above the
critical $86 level while heading for $125/barrel, ending
the year at $97. Continued terror threats and the weak
U.S. dollar keep pressure on oil prices.
The cleaner-burning alternative, natural gas, has reaped
considerable profits for our investors in 2005, 2006 and
2007. 2008 won’t be any different as we ferret-out successors
to Burlington Resources and Western Gas which
were both acquired. |
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Green (Alternative) Energy thrives on high oil prices as citizens of the world seek cleaner air and a safer environment by eliminating CO2 from their space. A push to be less dependent on middle east crude oil contributes to the green-fever. Cleaner and cheaper fuels such as solar, wind, and even nuclear will prove that crude oil is not the solo solution to |
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| our long term energy needs. The alternative energy trade is only JUST BEGINNING. Green is the new red, white and blue! We expect great things ahead even though our darling solar stocks have risen 100% to 200% in 2007. |
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| High tech: The tech revival
was the main theme
of 2007 and will repeat that
dominance in 2008. High tech
means innovation, which is
why both consumers and corporate
wallets will continue in
earnest to chase the tech stock
leaders. Emerging populations and new wealth open new
markets and the biggest and brightest should |
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continue
to dominate. This is good for Apple, Google and Cisco
among others. We will continue to build meaningful long
term positions in these leaders of the pack but take some
time to dally with an upstart from time to time. During
slow growth economies, tech stocks play like entertainment
stocks in their resilience to recessionary pressures.
Global health care continues to intrigue us as new
middle-classes emerge from developing nations. The politics
of healthcare is the kill-joy but Baby Boomers with
increased life expectancy should help investors stick with
the natural winners. We intuitively KNOW healthcare
costs are rising and it is only a question of WHO will pay
the bills: the government, the employer or YOU. This assumption
makes Generic Drug investments a no-brainer.
Ditto for medical software and Medicare management. |
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| China hosts the 2008
Olympics. Skeptics say
the August international
event will spell the end
of the China Boom.
Wrong. Once the world
SEES China “Up Close
& Personal” on NBC-TV, Chinese investing will hold |
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more allure than ever before.
The Shenzhen which is reserved exclusively for Chinese
investors went up nearly 500% since 2005
Inflation is our silent enemy and it looks like CPI inflation is back above 4%. This is the result of U.S. dollar weakness. We think the Fed will have to spend considerable inflation-fighting effort in coming years which will result in a tepid recovery from the 2008 slowdown.
The Fed has been unusually accommodative but is probably close to the end of its rate cuts, and will try to use other confidence-building techniques going forward. Housing fears are overstated. Yes, mortgage delinquencies and foreclosures are real but should not have a severe impact on the 2008 economy. |
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In closing, as we research, trade and monitor your investments in 2008, we will remember the words of French novelist Marcel Proust (1871-1922) who proclaimed, “The voyage of discovery lies not in finding new landscapes, but in having new eyes.”
Happy new year from all of us at BIC!
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