In any case we think you should judge for yourself so below you will find the outlook section from our January 2008 newsletter for your perusal. For those of you that want to read the entire newsletter, you can find it in the "publications" section of our website at http://www.lobnek.com/ Enjoy!
"2008 is set to deliver another challenging year on various fronts. In the U.S., the housing recession combined with tighter credit standards, rising prices and a weaker jobs market is likely to raise the risk of contagion into consumption. As the U.S. enters an election year, policy will center on averting an economic recession (in the process stoking the risk of inflation even further), with employment and taxes taking center stage of the debate. In an increasingly challenging environment, businesses with strong balance sheets and low debt are better equipped to handle a potential downturn. With Fed policy increasingly geared towards averting a recession, inflation will become a growing concern and its potentially corrosive effect on equity and fixed income will boost demand for investments that have a strong correlation to inflation such as commodities and Treasury Inflation Protected Securities. The U.S. economic slowdown will undoubtedly dent growth in Europe, Asia and emerging countries that continue to depend to a large extent on U.S. consumer demand. Although the impact is likely to be mitigated somewhat due to the accumulation of reserves, improved fiscal and monetary discipline and the emergence of a distinct consumer class in key emerging countries such as China and India, volatility and inflation will threaten the stability, especially in those countries that have currencies pegged to the dollar or that have economies largely dependent on foreign direct investments. China itself will be facing serious challenges on various fronts but is unlikely to take any drastic measures to address them until after the Beijing Olympics. Europe which cyclically trails the U.S. will also start to show signs of a slowdown, hurt by a strong currency, falling home prices and a growing risk of inflation (which will further restrict the ECB’s ability to cut rates).
Currency wise, the U.S. dollar could weaken further as the interest rate differential widens but is bound to recover later in the year, particularly against the Euro given the advanced stage of the
U.S. business cycle and the growing risk of inflationary pressure.
Commodities will also remain volatile, reflecting ongoing geopolitical risk although the overall trend should be upwards as growing demand appetite and supply disruptions continue to beleaguer the markets.
As we move into an environment conducive towards volatility, we can expect less uniformity and therefore greater polarity in performance amongst and within asset classes. The choice of investments will play a more significant role in determining performance. We at Lobnek Wealth Management believe that an overall defensive approach combined with a rigorous and highly selective investment policy is most appropriate to counter the numerous challenges that lie ahead.
We look forward to helping our clients achieve their goals in what will likely be a challenging year ahead."
