A Better Deal for Delaware

RECESSION?: The question I get asked quite often these days is whether we will have a rescession, and what impact that has on how we manage portfolios or give investment advice. I am not an economist, but I do sit with them, hear them on conference calls and read what they have to say often these days. The weight of opinon seems to be on extended sluggish growth, but probably not a recession. However, the opinions have changed enough recently to make me conerrned that many of these economists are easily swayed by the most recent of news.
BusinessWeek recently asked 54 forecasters for their views on everything from housing and the credit crunch to Fed policy and global growth. The economists project, on average, that the economy will grow 2.1% from the fourth quarter of 2007 to the end of 2008 (compared to 2.6% in 2007). Only two of the forecasters expect a recession. The vast majority think the risk of a downturn has risen substantially in recent months. The jobless rate will increase from 4.7% in November to 5.1%. The yearly growth in consumer prices will slide from 4.3% in November to 2.4%, while core inflation, which excludes energy and food, will hold steady at 2.2%. Home prices will fall about 7%. A big reason for the confidence in no recession is the overwhelming consensus of predictions for further rate cuts by the Fed (something with which I am less confident). The target rate is expected to drop from 4.25% to between 2.5% and 4%. Amost half of the analysts project it to fall below 4%.
The Conference Board (www.conference-board.org) publishes the Leading Economic Indicators (”LEI”) and the Consumer Confidence Index. Last week, the Conference Board published its report for November. The LEI fell 0.4% in November vs. -0.5% in October and +0.1% in September. From the report: “After having been essentially flat since early 2006, the leading index has weakened sharply in recent months, and it has declined to its lowest level since the middle of 2005. In addition, real GDP has continued to expand, growing at an average annual rate of 3.1 percent through the third quarter of the year (including a 4.9 percent annual rate growth in the third quarter). The recent behavior of the composite indexes suggest that while slow economic growth is likely in the near term, risks for further economic weakness have increased.”
Do you have a good fix on what your portfolio might do if we have a bad year or two in the markets. If we had a “one in twenty” negative year next year, is your portfolio strategy sound enough that you will hang in there? If not, or if you don’t know, I recommend a check up during the first quarter of 2008 as one of your new year’s resolutions.
MORTGAGE RATES: The average U.S. 30-year fixed-rate mortgage for the week of Dec. 20 moved up to 6.14%, with an average 0.4 point, from 6.11% in the prior week — one year ago the 30-year fixed rate averaged 6.13%. The average for the 15-year fixed-rate mortgage for this week increased to 5.79%, with an average 0.4 point, compared to 5.78% last week — this week’s rate compared to 5.89% a year ago.
RETIRING ON SOCIAL SECURITY: The US government projects that 37% of American workers reach the end of their working years with nothing saved for retirement.
FREE TRADE: It is estimated by the Peterson Institute that Americans save $1 trillion a year as a result of our nation’s free trade policy. The savings to US consumers from the less expensive foreign products are 19 times larger than the estimated 225,000 jobs — and $54 billion in lost lifetime wages — eliminated annually as a result of our free trade policy.
Well, I am off to do some last minute shopping. Have a wonderful week.

Doug

Douglas R. MacGray, J.D, C.F.P.®, C.E.A.®
Senior Vice President, Financial Planning
EGE Advisors, Ltd.

“Plans fail for lack of counsel, but with many advisers they succeed.” Proverbs 15:22
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