This is The Wall Street Digest Hotline Update for Tuesday, August 7, 2007, at 6:00 p.m. EST.
The Fed left rates unchanged today, while maintaining a bias against inflation. At the close, the Dow rose 35 points, closing at 13,503, while the Nasdaq gained 14 points, closing at 2,561. Oil closed up $0.34 to $72.40 per barrel, and gold remained unchanged at $683.30 an ounce.
The Fed is walking a very fine line; inflationary pressures on one side, with serious deflationary problems on the other. Government agencies must make mortgage money available to all who need to refinance five-year arm mortgages. Mortgage money must also be available to assist those who must sell their homes to avoid bankruptcy. If mortgage money isn't available, the banks and mortgage lenders will end up owning more homes and condos than they did during the 1990's real estate crisis. The Fed will say what it has to every six weeks to stabilize the finance markets, while also doing what it must behind the scenes to solve the problem. You can bet that government mortgage agencies are scrambling 24/7.
Economic growth is slowing. When job growth begins to slow, the Fed will begin to cut rates--probably before year-end. Meanwhile, global liquidity climbed to yet another record high of $5.67 trillion in May, up 22.76 percent year-over-year and more than doubling since the start of the decade. Emerging nations held a record $4.2 trillion in international reserves in May. The benefits of free trade are enormous. The global/international markets are enjoying the greatest boom of all-time, while the U.S. stock market is undervalued and oversold.
I believe the stock market will continue to rise into year-end. Fed Chairman Bernanke does not expect housing to bottom this year. Real estate is an illiquid, high-risk investment! Do not look for real estate bargains. Renting a home or condo is cheaper than owning. When that scenario reverses, it will then be safe to buy a home or condo.
The dollar has fallen to an all-time low against the euro, and a 26-year low against the British pound. A falling dollar will continue to enhance the return of your offshore investments. Consequently, you should remain fully invested, with at least 50 to 75 percent of your portfolio allocated to our recommended global/international investments. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Friday, August 10, 2007, at 6:00 p.m. EST.