The economy faces serious challenges in 2008: 1. New home sales are at a 16 year low and may go lower; 2. Inflation will be high for the next few months as energy and food prices work their way through the economy; 3. Retail sales will be weak, as evidenced by the Christmas season; 4. Illiquidity in the credit markets will spread from mortgages to auto loans and credit cards due to financial companies tightening their lending standards; 5. Adjustable rate and subprime mortgage problems will continue; 6. Corporate profits will turn negative.
These factors will contribute to, but not cause, the 2008 recession and they will be somewhat mitigated by strong export demand (thanks to the weak dollar) and, at least for the time being, good unemployment numbers.
The decline in the value of existing homes is what will cause the 2008 recession and cause it to be the most severe recession since the early 1980s (although not all that bad by historical standards). The bulk of the average American's savings is in their home and their net worth is decreasing.
There will be far fewer mortgage refinancings and home equity loans to monetize housing values. Declining housing values will cause/force consumers to cut back spending.
Existing home prices were down 3.3% for the twelve months ending in November. Although sales were up slightly in November, they're still down 20% from a year ago. Record levels of foreclosures and mortgages which rates adjust in 2008 make it unlikely the November up tick will be sustained.
There will be no economic recovery until housing prices bottom. The Fed will cut rates to combat the economic downturn but financial institutions stricter lending standards will mitigate the impact of the Fed's actions. Thus, we should expect up to four quarters of negative economic growth.
Morgan Stanley, in their December 10 Strategy piece, looked at historical stock market declines and concluded that, on average, the S&P declines 9.5% from its peak to the start of a recession, 18% from there to its bottom, then rebounds by 25% through the end of the recession.
The S&P (and the Dow and NASDAQ) is off about 5% from its 2007 high. This suggests another 23% decline until it reaches its recessionary low. Forecasting is not an exact science (far from it) and the U.S. economy has proven to be remarkably resilient. Also, the S&P is trading at a reasonable level, based on its P/E ratio, so maybe the decline will be less this time, say 15% from current levels.
How do you invest for a recession? For stocks and mutual funds look for companies which sell consumer necessities, heath care companies, companies with large foreign sales, high dividend (make sure its secure) stocks and invest internationally.
Bonds typically perform well during recessions because of falling interest rates. But with Treasury yields already low and the uncertainties surrounding corporate bonds, you would be wise to keep your fixed income investments short-term until the credit situation resolves itself. What you shouldn't do, though, is get out of the stock market.
The U.S. will come through this recession as it has every other and economic growth will drive the stock market to new highs. As the Morgan Stanley report points out, the stock market rises sharply prior to the end of a recession and nobody can pick the turning point.
Lastly, although I don't advocate market timing, I'd put new 401-K and IRA contributions into cash for the time being. Cash is king in times like these.
In response an on-line Monaco internet site says the American media is wrong, and have forgotten why Monaco's property prices are high in the first place.
'The error they made was comparing Monaco with places like Rome, Warsaw, Los Angeles and Vancouver, and they also overestimated closing costs. While admittedly high in Monaco at around 11 per cent, it's not common to be 20 per cent that their research was based on.'
The comparison of 50 financial centres assumed the property was not a main residence and looked at rental returns - another error when calculating Monaco's property prices according to the Monaco internet guide.
'By law in Monaco rentals are a minimum of one year, so it's obvious that rental returns are going to be less than places where weekly and six monthly rentals are possible. To gain residency in Monaco via renting the residency office needs evidence of a twelve month contract, so Monaco is in a unique position when compared to other leading financial centres.'
'There is a shortage of available property in Monaco and high demand that shows no sign of slowing down - given all these factors we just think the US magazine's analysis of the Monaco real estate scene has been done without taking local factors into consideration.'
Typical property prices in Monaco at the moment include a second floor studio apartment at 1,100,000 Euros, a one bedroom apartment in Monte Carlo at 2,150,000 Euros, and a three bedroom two bathroom apartment at five million Euros.
As well as buying a property, to gain residency in Monaco a bank account needs to be opened in the Principality, with account opening deposits varying between 100,000 and 500,000 Euros.
One thing that could put the brake on the number of Brits looking to move to Monaco was announced after the magazine's claims about Monaco real estate prices were published.
The amount of time British tax exiles can spend in their home country is being limited by the British government, and it could impact the British economy, claim a company who specialise in tax haven property and residency.
Up until now a British taxpayer could avoid paying income tax by taking residency in a tax haven such as Andorra or Monaco, and be allowed to spend 90 days a year in Britain before falling foul of the UK's Inland Revenue. Importantly both the day of arrival and departure into the UK didn't count as a day.
So technically, a tax exile living in Andorra could drive to Barcelona airport for a 7am flight to London, and given the hour's time difference between Spain and the UK, be comfortably in an office working by lunchtime.
Equally, the same tax exile could leave the London office at 6pm Friday for Barcelona en route to Andorra - and importantly those five days in the UK would count only as three of their ninety day allowance as the day travelling to and from the UK aren't counted. Which allowed business men and women to commute from the tax havens of Andorra and Monaco thirty weeks a year. Some would do Monday to Thursday and could do that virtually all year and still stay on the right side of the British tax authorities.
Both Bill Byrnes & Roger Munns are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Bill Byrnes has sinced written about articles on various topics from Financial Planning, Currency Trading and Financial Planning. Bill Byrnes is co-founder of MUTUALdecision, , providing investors with data on the top mutual funds, and author of the MUTUALdecision Blog. He's been. Bill Byrnes's top article generates over 6600 views. to your Favourites.
Roger Munns has sinced written about articles on various topics from Marketing, Family Travel and Cars. To learn more about visit Monaco real estate guide Monacoproperty.netFor more general information about Monte Carlo and Monaco including. Roger Munns's top article generates over 201000 views. to your Favourites.