US Investment Outlook - 4th Quarter 2007

By: David_Urban

So long as the dollar continues its freefall stock prices will rise. This will be more due to the collapse of the dollar than anything else. If you are in the US it will be a very good time to invest in large cap stocks but the best investments will be in gold and oil alternatives.

The political waters will begin to clear as the primaries draw closer. For the Democrats, it is Hillary Clinton and whomever she chooses to be her VP. Don't be fooled by any noise, she is ahead in all of the state-by-state polls with the exception of Illinois and by a large margin in most states.

For the Republicans the waters are a bit muddier and I do not expect those waters to clear until we are into the primary season. Right now I believe Romney will take the nomination. Beware, there are some major problems with respect to fundraising that need to be addressed quickly or else 2008 will turn into a Democratic tidal wave.

The Fed meeting in October will be interesting to see what if any move is made. An additional 50 point cut would signal that the Fed is trying to affect the mortgage rate ahead of the Alt-A resets to help out people whose mortgage will be resetting to higher rates.

The subprime problems are not over by a long shot. In early 2008, expect the Alt-A mortgage resets to make the headlines.

While it is a positive that some banks have decided to write down their loan books to reflect subprime and commercial paper losses the banks may not be out of the woods yet. The Alt-A mortgage resets will cause problems early next year unless they are included in these write downs.

I expect earnings to be up and overall EPS growth to accelerate due to the falling dollar. Companies who have a significant amount of international (large caps) exposure will see the largest benefits.

The October employment report be interesting only to see job growth excluding the birth/death model. Ignore the noise about the printed number and look deeper.

The recent pop on Monday makes me nervous for the rest of the month as the internals are looking weak. New highs are topping out and the advance-decline line is not confirming the move up. Bullish percentages are at a point where tops are made not where rallies continue. In short, be cautious. This may be a trap although I believe by the end of the year we will be higher. It is a tough call here with decent economic growth and inflation beginning to temporarily recede but problems remain on the horizon.

By David Urban

http://blog.myspace.com/global112

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