by Addison Wiggin & Ian Mathias
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2007 in review… the biggest winners and losers of the global economy
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Hugo Chavez on how to make a currency “strong”… just lop off some zeros!
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Home sale stats conclude an ugly 2007… which markets escaped the housing bust and which were hit the hardest
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Gold rallies, passes all-time high… Ed Bugos on what looks like another breakout year
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How yesterday marks the beginning of the end… “we’re screwed” is putting it lightly
Fare thee well, ’07…
Despite a volatile year — subprime busts, credit crunches, CDOs, SIVs and more billion-dollar write-downs than you can shake a stick at — 2007 will go down in the books as another “positive” year for the markets.
Benchmarks fell on Monday, the year’s last day of trading, by about 0.7%. Nevertheless, the Dow finished the year up 6.4%, the S&P 500 ended up 3.5% and the Nasdaq reigned supreme once again, up 9.8%.
But the real growth in 2007 came from abroad. The FTSE All-World equities index rose 10.3% last year.
No surprise, the Chinese market proved to be the cream of the crop… the Shanghai Composite ended the year up 96%. Brazil and India took the silver and bronze, up 76% and 74%, respectively, according to the FT.
A resounding “huzzah!” goes out to our favorite South American dic… excuse us… “president,” Hugo Chavez, for spearheading the worst performing market in 2007. According to Lipper Research, the Venezuelan market fell 29% in 2007, the ugliest return of any established market in the world. Ireland’s market nipped close behind, with a 25% header.
Japan took third, down about 10%.
But Venezuelans can rest easy. Their president unveiled the “strong bolivar” yesterday…behind armed guards:
The “strong” bolivar… same inflation, less bothersome zeros
The new currency is the same as the old, save the three zeros lopped off the end of every denomination. The move is supposed to simplify consumer finances and accounting and boost confidence in the currency. Yeah… smart move… because every other president in history who’s tried to manipulate their currency has been successful. Go, Hugo.
The new and improved bolivars will be set at 2.15 per U.S. dollar. According to CNN, this morning, the black market rate is hovering closer to 5.60. In 2007, inflation in Venezuela rose over 20%.
Our hero…
Here in the U.S. on Monday, the National Association of Realtors reported a surprising rise in existing home sales, up 0.4%, to an annual rate of 5 million homes — 20% lower than the year before.
The median price of an existing home fell to $210,200, down 3.3% year to date, the fifth biggest annual decline on record.
New home sales fell 9% from October-November, the Commerce Department reported soon after. The 9% drop proved to be the largest monthly decline in over 12 years. For the year, new home sales were down more than 34%. But if you ask us, there’s plenty more housing pain in store for 2008… stay tuned.
Not all housing markets suffered in 2007. Here’s a quick rundown of the biggest winners and losers, according to CNNMoney:
Gold surged to an all-time high this morning. The precious metal rose from $836 to $848 in morning trading, just a breath away from its record high of $850, set in 1980. By lunchtime, gold had soared to just short of $860, and continues to rise as we write.
“It looks like gold is in the midst of a breakout of its two-month consolidation,” writes our gold adviser Ed Bugos. “If confirmed, we are likely to see at least a $100 rally in the next few weeks, and the bulls may even challenge the $1,000 level as early as February.
“The longer I spend looking at my charts, the more I’m convinced that the market is poised for a history-making move. The time is ripe for the bulls to challenge $1,000 and wake the world up with a foray into four-digit terrain. Let the fireworks begin!”
The fireworks began awhile ago for gold’s die-hard fans. The metal rose over 31% in 2007 — its seventh consecutive positive year versus the dollar.
And by some cruel twist of fate, the dollar sank again overnight. The dollar index pushed deeper into the 76 area — down a little over 10% for the year.
The euro capped off the year by creeping back up to $1.46.
“I believe the euro will continue its climb versus the dollar [this year],” EverBank impresario Chuck Butler tells us. “I believe commodities will make a comeback, thus pushing Aussie and Canadian currencies higher, with the Aussie probably reaching that parity level we talked about a couple of months ago. I think we’ll see about a 10% rise in renminbi for the year, and gold continuing its seven-year climb.”
The pound lost its grip at $2 and fell to $1.98. The Canuck loonie, on the other hand, has re-established parity… and then some. The Canadian dollar currently trades for $1.01.
Oil ended at $95.98 on Monday, up 57% for the year. The world’s predominant fuel and political agitator rose to $96 this morning.
“$100-125 oil is not far off at all,” writes the Maniac Trader in an e-mail from his holiday hide-out. “I don’t necessarily think this week will break the record, but still… we are just a few bucks away from $100. The usual suspects are driving prices higher: China, Nigerian problems… and, most of all, fear of high demand and lower supplies in the U.S.”
We end this morning with exceptional malaise… this week marks the first time baby boomers will be granted Social Security benefits.
Those born in 1946, the first “official” generation of baby boomers, will turn 62 this year, and thus become eligible for government promised retirement benefits.
Some 80 million U.S. citizens were born between 1946-1964. The government has estimated that payroll taxes will be unable to cover promised benefits by 2017 and that the trust fund set up to support such entitlements will be bankrupt by 2041.
Toss in benefits promised by Medicare and Medicaid and… well… we’re screwed.
Happy New Year,
Addison Wiggin
The 5 Min. Forecast
ADDITIONAL RESOURCES
Venezuela launches new currency
Real Estate: The best – and the worst – of 2007
Baby Boomers Begin to Claim Social Security