A Tougher 2004 Ahead??? Possible economic trends from The Motley Fool

[Gloria]

I don't have a link because this came in an email....


This piece is written from a stock investor's point of view-- does examine some of the underlying economic issues ahead....



A Tougher 2004 Ahead?
By Jeff Fischer
December 18, 2003

(SNIP)

Five months of rising equities started to make investing seem simple, but then the markets -- especially the Nasdaq -- went choppy, reminding us that it's not that easy. The good news was out. Investors had anticipated it with a long ascent. And now 2004, in my opinion, will likely be much more challenging for stock buyers.

Next year, we should continue to witness a steep drop in home refinancing (so stocks of related companies should suffer); we're almost surely going to see a slowdown in new home starts after record highs throughout this year, putting home builders and related companies on shakier foundations; and we're likely to see interest rates begin to rise by summertime, causing some investors to move toward interest-bearing vehicles and away from stocks.

With gains in interest rates, rate-bearing investments offer better competition against stocks for investment dollars. Next year, we're apt to see this battle begin, especially if the Federal Reserve raises rates as many as four times, as some already predict.

Throw in the fact that year-over-year growth comparisons will be much tougher in 2004, and we're entering a year that will probably present shareholders with many more challenges than 2003. The rebound surge that lifted most stocks happened this year. Next year's gains are likely to come much more selectively.

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[JPace]

1. Is there a link here?

[Code_Name_D]

2. Entresting.

This guy is making many of the same predictions we have been making. The drops on the home refinancing and housing starts that he mentioned looks like a soft way of saying that the housing bubble is about to burst. In fact, his "prediction" is a little bit too late. This last week, housing starts were said to be at an all time high. But with a contradiction, building permits fell off.

Though I am not entirely sure, a "housing start" is like a stock on a plot of land. When you buy real-estate, you buy in large chunks in units of acres. When a devluper buys up a plot of land, and splits that land into smaller unites, each unit is I thing (I could be wrong here) called a housing start.

A building permit is basically informing the county or city that you plan to build a house on this spot, assuming a review on the construction to make sure you are building in the right area and other concerns are addressed. A building permit is permission to build and intention to build.

Now the two do not always agree with each other. But they should still track. Housing starts is to anticipate the demand for new building permits. When the two diverge like they just did this last week however, is a big, bright, red flag that something is amiss.

Another bothersome sign is that repossessed housing being place back on the market is up. I also suspect that the used home market is also looking at a glut. With so much supply, the price of homes is bound to drop below expenditures, and those in the industry start to go bankrupt. And real-estate busts can be particularly painful.

I am not sure what he means by "Throw in the fact that year-over-year growth comparisons will be much tougher in 2004." The first rule of economics is that it's always in recovery, so you can't ever say any thing bad about it. You can never say "the economy is going to contract." Instead it would seem you say that "growth is going to be tuff."

[seasat]

3. I get this from the Motley Fool too.

I like their reports since they don't seem to have a bias due to representing an industry. They are not like some of the cheerleaders you see in the finacial media. They tend to shoot straight and admit when they are wrong.