2006 was a rollercoaster of a year and the trends in the fourth quarter are creating a slightly flat outlook for 2007. The quarter's key economic data suggested that neither boom times nor a recession are eminent. Overseas economies are very likely to outperform U.S. economies and inflation is likely to remain moderate through the New Year. Inflation data, of course, tends to be backward looking. It is useful in determining where we have been but for forecasting purposes, the general trend in economic activity has proven to be much more useful.
The Federal Reserve left interest rates unchanged at both its recent meetings, pausing the series of interest rate hikes it began two years earlier. Given our outlook for slowing economic growth and moderate inflation, it is thought that the central banks are done with this tightening cycle, and we may even anticipate a rate cut in the next 12 months. Nonetheless, the Fed Funds rate having apparently topped out at only 5.25% wouldn't seem to leave room for big cuts.
At a recent conference I attended, Kurt Wolfgruber, Chief Investment Officer at Oppenheimer Funds, Inc. spoke. His comments were particularly timely. To paraphrase, all of the ups and downs of the market that the supposed gurus obsess over are merely talking points that they create to keep themselves employed. A true “investor” is committed to a strategy that is well balanced, customized and reflective of the needs of that investor. There are some great opportunities on the horizon for all of us in 2007 and I’m excited to see what the New Year has is store.
