Our Roadmap for a Profitable Year

Stocks: With the world’s wealthiest (formerly) consumers sidelined and the credit crisis going global, expect 2008 to be just as volatile as 2007 when it comes to stocks and mutual funds that invest in stocks.

If we’re lucky and our economy doesn't hit a recession in 2008, we expect the stock market to end ’08 just about where it began this year. In other words, flat.

But, unfortunately, we don't expect to be that lucky. We believe that we will experience at least a mild recession this year, which means index funds and stock mutual funds will likely be big losers (more on this in a moment).

With the volatility that epitomized the market in 2007 continuing, come big changes in the list of leading stocks in 2008.

Our advice: First, don't go chasing stocks that did well last year. You could get seriously burned! Second, we look for the smart money to turn to high-quality bonds, large-cap stocks that do business overseas, and well-known and respected foreign-based companies. Give strong consideration to these for your portfolio.

Recession: The dreaded "R" word is all the buzz right now, so let's talk about that a little bit more. This may surprise you, but we actually believe that a recession has already begun, in part, thanks to the whole sub-prime credit crisis. But don't panic … at least not yet!

You've heard about companies such as Merrill Lynch and Citibank now rushing to re-price/write-down both the CDOs (Collateralized Debt Obligations) that we warned you about and other asset-based securities on their books to the tune of $20 billion. That's okay for now. If -- and this is a BIG “ if ” -- the financial sector is over-reacting, then a truly deep recession can be averted.

IF (there’s that pesky word again!) that is the case, we could see an economic turn for the better by mid-year.

Our advice: At this point, it’s way too early to invest your hard-earned dollars based on this scenario actually coming to pass, but rest assured that we will keep you posted throughout the year.

Oil: We've thought for some time that 2008 would bring $100 per barrel oil. Sure enough, on the first trading day of the year, oil actually went over $100 before pulling back under the century mark. Unfortunately, this is only the beginning. We look for prices to spike as high as $125 per barrel. Yikes!

Obviously, record oil prices won't benefit consumers and would contribute to any recession we experience. They won't help the U.S. automobile industry, either. Foreign car manufacturers will continue to fare much better than our “Big Three” car companies because they have been building fuel-efficient models far longer and far better than we have. Foreign markets have paid through the nose for gasoline for years, so the automakers in those markets have adapted.

Actually, manufacturers of almost anything that is fuel-efficient should do well in 2008.