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A Mid-Year Look at the 2008 Predictions

By: The Mess that Greenspan Made Wednesday, July 02, 2008 11:01 AM

Sectors: Commodity , Finance
Symbols: ADP, BBI

Now half-way through the new year, today seems to be as good a time as any to have a look at the predictions for 2008 made back in January.

Just for fun...

Aside from oil and gold prices going up, about everything else was thought to be heading down in the new year, something that appears to be happening at a rate even faster than believed at the time.

As usual, most of the forecast seems about on-track however, the second half of 2008 is shaping up to be some kind of a blockbuster with the Olympics, the U.S. election, and soaring oil prices.

The oil price peak of $130, a bold call at the time, looks absolutely tame six months on. As for the other predictions, let's have a look.

1. Lots More Pain for Housing

There is a near consensus that housing is in for more trouble in 2008, but this is not one of those cases where it would be better to go against the crowd - that will happen in another couple years or so when your friends and neighbors tell you that real estate is a horrible investment. Just like back in 1995-1996, when no one wanted to go near an open house five years after that last peak - that's when you'll know we've hit bottom.

Housing prices will fall another 10 percent nationally, based on the year-over-year change to the 20-city S&P Case Shiller Home Price Index for October 2008 (this report gets released at the end of December and showed a 6.7 percent decline as of last week.)

In some areas home prices will reach 2003 levels, which, in California, would still be more than double the price at the 1995-1996 bottom but will be a painful 40 percent below the 2006 peak. Don't let talk of stabilizing sales for new or existing homes confuse the issue of home prices - home prices will continue to fall as long as inventory remains at historically high levels.

Predicting no rebound in housing was a no-brainer. The Case-Shiller index is now running at about minus 15 percent year-over-year and may moderate a bit by year-end - we'll see. Generally speaking, California home prices have reverted to at least 2004 levels - back to 2003 prices by year-end seems pretty likely.

2. The Dollar Will Continue to Go Down

The eight percent decline in 2007 on the trade weighted U.S. dollar index (against the Euro, Yen, Pound, etc.) was such a success that there will be another, slightly smaller, decline in 2008. By year-end the index will be at 71 or 72 and economists will marvel at how the trade deficit is narrowing and how gross domestic product is receiving welcomed support due to more exports.

The Japanese yen will gain the most against the greenback and both the euro and the Canadian loonie will strengthen, but not as much as in 2007. The British pound will lose ground to the buck as credit and housing market problems accelerate in the U.K.

The U.S.

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