More market and economic predictions for 2008

A few other finance and economic predictions for 2008 have come to mind:

• The limits for mortgages that Fannie Mae and Freddie Mac can purchase and securitize will be raised significantly, to somewhere in the $500,000 to $850,000 range, and the limit to the volume of mortgages they can acquire will be raised substantially as well. Today these government-sponsored enterprises (GSE) can buy mortgages only up to $417,000, which does in fact cover most mortgages, but there are a significant number of mortgages in the $450,000 to $650,000 range that are more difficult to finance today since they are classified as "non-conforming" since they are over that $417,000 limit. In addition, the regulatory oversight rules will be modified to permit the GSEs to acquire and securitize (with an implicit government protection against loss) a significantly larger volume of mortgages. Wall Street had lobbied heavily to limit the GSEs in recent years so that Wall Street could capture this lucrative business, but then Wall Street bungled everything by focusing far too much energy and capital on dubious subprime mortgages. Now, Wall Street doesn't have much of a leg to stand on to argue against unleashing the GSEs so that they can "save the Middle Class mortgage markets." We can count on unleashed Fannie and Freddie to save the day.
• Commodities speculation will continue to garner a lot of attention, but less so as returns begin to fray if not crumble. The resulting bitterness of those buying $90 oil expecting it to reach $150 within the next year or two will ultimately break the back of the commodities speculative bubble, maybe not within the next couple of months, but certainly within the next two years.
• The media will continue to be a poor source of information on investments and investment strategies. There will continue to be an extreme focus on a combination of short-term and transient noise and unlikely long-term fringe scenarios, with virtually no attempt to truly enlighten investors. Many investors will miss out on many investment opportunities simply because the media misleads them into looking into all the wrong places and refusing to recommend that they look in any of the right places. Rather than focus on accurate reporting of facts, most media "stories" will be densely peppered with the language of speculation: "could", "may", "might", "if", "expected", "will"
• None of the big banks, not even Citigroup, will "fail" in 2008.
• People will continue to chatter incessantly about the "weak" and "falling" dollar in 2008, even though the dollar will strengthen (modestly) in 2008.
• Consumers will continue to baffle and befuddle even the most sophisticated of Wall Street "analysts." Wall Street will continue to do a lousy job of forecasting consumer spending.
• Consumer sentiment surveys will continue to be proven as a poor indicator of future consumer spending.
• Some enterprising journalist will "discover" that a new "baby boom" is underway in 2008.
• The reputations and perceived value of Wall Street "analysts" will continue to decline.
• Very few Wall Street "analysts" will correctly call the U.S. economy in 2008 until well after their initial outlooks are proven very wrong.
• The vast bulk of Wall Street's so-called "professionals" will continue to second-guess and criticize the Federal Reserve and its Chairman, even as such criticisms continue to be proven to be way off mark.
• The vast bulk of Wall Street's so-called "professionals" will continue to be baffled at the resilience of the U.S. stock market even as these "professionals" continue to misguidedly push unsuspecting investors into all manner of "emerging markets", "alternative investments", and hybrid "products" which combine high fees, unclear risks, and terms that no mere mortal investor could ever be expected to comprehend.

Other than that, I expect that 2008 will be mostly "business as usual."

-- Jack Krupansky