My Expectations for 2008:

2008 will be the weakest year of this business cycle for GDP growth, and corporate profits. The economy should get stronger in 2009.

Unemployment should rise a bit – to at least 5.0%.

Inflation should be modest for most consumer goods. However, I expect food prices (especially for grain and meat) will continue to rise more significantly.

Interest rates will decline further during 2008. My targets are 2.5% for the 2 year Treasury, 3.0% for the 5 year Treasury, and 3.7% for the 10 year Treasury. I anticipate that the Federal Reserve will need to lower the Federal Funds Target Rate to about 3.25% during 2008.

Home prices (in the previously “hot” markets) should decline a little faster during 2008 compared to 2007. I expect further (but less severe) price declines during 2009. This should be followed by a weak recovery during 2010.

Homebuilders will have a terrible year as new home sales decline in 2008. It will remain tough for them in 2009.

Homebuilder stock prices should fall a bit further during 2008, perhaps finding a bottom in 2009.

The stock market will be bumpy – likely down for a while, but possibly ending the year with a small gain. An irrational but short-lived bull run is possible this year.

Financial stocks should bottom during 2008.

The dollar should end its slide during 2008.