2007 - Predictions Part 1

For all the doom and gloom predictors (me included) and despite some troubles over the last twelve months, 2006 is ending in a very positive way for investors. And this situation has encouraged many forecasters to come out and say that 2007 will be, you guessed it, another decent year for equities – even in the US.
So what has happened? The Federal Reserve Chairman Ben Bernanke survived his probationary period. The housing market dived. The Democrats snatched control of Congress, and the American public was constantly reminded that things could be going better in Iraq. Through it all, except for a brief and scary spell last summer, investors have enjoyed a strong rally that has been hitting new highs over the last few weeks – at least with the Dow Jones 30 if nothing else. The Dow Jones Industrial Average is ahead by more than 15%, and has hit new highs, more than six years after first surpassing 12,000. And while lagging a bit owing to the sluggish performance of mega-cap technology shares, the Nasdaq Composite has gained more than 10%.
At the time of writing, were the book to close today on 2006, the major indexes would have notched their fourth straight year of gains, with returns above the long-term average, at that. The Standard & Poor’s 500 is up by over 12% with its total return with re-invested dividends approaches 15%. That’s more than double the total return for the Dow Jones Corporate Bond Index and triple what 10-year Treasuries have given.
It would be wrong to say that investors have liked or enjoyed this year’s generosity, as they have had a bear of a time keeping pace with the bull run. More than 70% of active large-cap fund managers were trailing the market as of Oct. 31. To have exploited the year’s twists and turns fully, one would have had to bet heavily on a commodity boom until May, a sharp slowdown and commodity bust into summer and a recovery led by consumer spending this fall. What’s more, much of the fuel for the recent rally was provided by stubborn short sellers, who expected the market to swoon into the mid-term elections, as history suggested it would. Their plans foiled, the shorts were forced to cover their positions, sending stocks even higher.
The market’s gains are all the more impressive given that all the year’s upside, and more, has come since the summer months, when concerns about slower economic growth and commodity-fueled inflation culminated in an 8% pullback in the indices, the largest decline of the bull market that began in late 2002. Since then they have risen in each of the past five months and in 11 of the past 12.
This continued upside has exceeded the forecasts of practically all of the Wall Street strategists surveyed by a well known American journal just over a year ago. Unsurprisingly for a bunch of people who make their living from equities, they are very optimistic about next year as well. When all of the forecasts are put together they are looking for an 8% gain (that’s both the average and median prediction), which would place the S&P 500 at around 1520 by year end, on the threshold of its all-time record of 1550 set in early 2000.
Neatly summing up the group’s general view, Goldman Sachs’ longtime chief investment strategist, Abby Joseph Cohen says, “Share prices properly reflect a favorable fundamental picture for 2007. Growth is moderating, inflation pressures are abating and the [Federal Reserve] is expected to maintain a friendly stance. Equity valuation is supportive.” Cohen thinks the S&P 500 can rise 10%, to 1550 in a year.
“We’re cautiously optimistic,” says Michael Ryan, chief strategist for the wealth-management group at UBS, who has an S&P target of 1500. “The market is fairly valued, at a level where neither bear nor bull markets usually begin.” Says Henry McVey at Morgan Stanley: “Stocks look cheap relative to bonds at current levels. When you have a 6.5% earnings yield [the inverse of the price-earnings ratio], and a 4.5% bond yield, we want to own equities.”
Irrelevant of what they are saying, it is an idea to look at the other side of the coin and find out which areas are susceptible to surprise or even shock. Often there is at least one bear lurking somewhere. Contrarians might argue that the Street is too happy for the market’s good. That said, no one is calling for huge upside. The most ardent bull thinks the S&P can rise 13%. Everyone else is bunched between 2% and 10%. In this post-bubble environment, strategists do not like to make rash forecasts. Similarly, there’s a narrow range of opinion about several aspects of the current outlook. All the strategists see 10-year Treasury yields of 4.5% to 5.10%, and all but one is calling for the Fed to ease. Yet a majority assumes either a flat yield curve or one that remains inverted by the end of 2007. Therefore these equity experts would be totally unprepared for any bond-market volatility and up that well known creek if the Fed did nothing, or worse, tightened.
To summarize their collective opinions, the economy is in a classic mid-cycle slowdown, engineered by the Fed’s 17 rate increases through last June and aided by downsides in the auto and housing markets. Economic growth will slow, but a recession will be averted. Inflationary forces will cool. Rates will stay tame. The Fed will begin cutting rates by mid-year. Corporate-earnings growth will take a step back from its double-digit pace into the mid-single digits. But investors will pay up in terms of slightly higher price-earnings multiples on stocks and shares as they support the Fed and gain confidence that economic growth will persist. Liquidity is abundant, companies are flush with cash and buyout activity is accelerating.
Of course, arguments are what make markets or at least what make them interesting. Therefore, next week we should look at the most important things that are separating this year’s bulls from bears.

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]

Snap Shots: by Harry Flashman

How pro shooters fool you

Photography is one of the least truthful pastimes you can take up. For the pro photographer much time is used in working out how to either show the product in a favorable way, or to disguise some defect or other. There is a veritable army of people out there who love to go through advertising brochures and look for minute imperfections and write to the manufacturer saying “Do all of your watches have scratches on them?” And who gets the blame? Not the manufacturer who sent over the product, but the poor old photographer, that’s who. This can really be an enormous problem when you may be photographing a pre-production item and this is the only one in captivity.

Let’s look at a few examples where the photographer has to stretch the truth somewhat. Ever tried photographing champagne? There’s never enough bubbles to keep art directors happy, so the photographer drops some sugar into the glass. Only a few grains are enough to give the almost still glass of champers that “just opened” fizz look to it. You also have to bring the light in from the back of the glass, as well as from the front. This takes two flash heads, or at least one head and a reflector.
While still on wines, if you try and shoot a bottle of red wine, it comes out thick dark maroon or even black. Restaurateurs who have tried photographing their wines will agree. So what does the pro shooter do? Well he has a couple of courses of action. First is to dilute the red wine by about 50 percent and secondly place a silver foil reflector on the back of the bottle. So what happens to the half bottle of red that was removed to dilute the wine? The photographer has it with dinner.
And so to food photography. This is one area where there are more fraudulent practices than any other. Cold food can be made to look hot by sprinkling chips of dry ice to give “steam” coming off the dish. Not palatable, but it looks OK. Cooking oil gets brushed on slices of the cold meat so that they look moist and succulent.
That is just for starters. In the commercial photography studio, the dedicated food photographer would erect a “light tent” of white polystyrene and bounce electronic flash inside. Brightness is necessary to stop the food looking grey and dull. If you want a “warm” look to the food, then you can use internal reflector tungsten bulbs as well, but be warned, that if you use the tungsten light as the sole source the food will turn out very orange. Lighting is just so important. If you do not have bright sparkly light then potatoes will look grey, and even the china plates look drab and dirty.
In places such as the USA, there are very firm rules about photographing food. Mainly the fact that you are not allowed to use substitute materials which “look” like food, but are actually not. This covers the old trick of using shaving cream as the “cream” on top of cappuccino coffee for example, or polystyrene foam as “ice cream”. Personally I think this is a load of ballyhoo, because the photograph is just to represent what the food will look like - you don’t eat a photograph, now do you!
Even in simple portraiture, the concept is to show the sitter in the best possible way. For example, if the person has “bat ears” the portrait should be taken with the head turned so that one ear disappears from view. Not “lying” but presenting mother nature in a different way. And always remember that when all else fails, it’s a quick trip to the retouchers.
Another piece of photo-fraud was inserting an architect’s model of a hotel, as not yet built, into the aerial shot of a beach resort city. This required working out the height of the helicopter relative to the height of the model and then combining the two slides. It took two 12 hour days in the studio to photograph the architect’s model and another day in the lab to combine the images.
Never believe everything you see!

Modern Medicine: by Dr. Iain Corness, Consultant

Happy, healthy 2007 is within reach

This week’s column has really the same message last year’s column at this time. This is because it is that time of year when we make all those good resolutions that we have absolutely no intention of keeping, but it all sounded right at the New Year parties! Well, that’s the truth, isn’t it?
However there are a few resolutions that if you follow or abide by them you will get even more New Years to celebrate. Interested? You should be - I am offering you up to 10 more years, but like all great offers, there are some conditions that apply!
The first resolution, for all cigarette smokers out there, is to give up the weed in 2007. It is no use trying to deny it. We have shown, more than adequately, that cigarettes are the greatest killers of mankind, even including all the terrorists on the planet. All smokers are on borrowed time. End of story. And I don’t care if your grandfather smoked 60 a day and lived to be 123. The big numbers that have been examined in studies all over the world say it all - smokers do not live as long as non-smokers. Smokers get all kinds of cancers much more than non-smokers, and that’s all kinds - not just lung cancers. Smokers get more heart attacks than non-smokers. Do you want me to go on? In the face of all the evidence, continuing smoking in 2007 is just plain dumb. So how do you give up? I am not going to say it is easy, but the best method still remains your positive desire to give up and then go Cold Turkey. You tell yourself you are giving up right now, and never take another cigarette. Forget the other ways of giving up. Cold Turkey has been shown to be the best - and as a bonus, it costs you nothing!
The next resolution is very easy. Take 100 milligrams of aspirin every day. Once again, the big numbers prove the hypothesis. Your chances of having a heart attack are very much less by that simple expedient of 100 milligrams of aspirin a day. You can either buy 100 milligram tablets, such as Cardiprin, or take quarter of an ordinary 500 milligram aspirin tablet, which is 125 mgm. Close enough.
Another easy resolution is to get more exercise - daily. This is a resolution that will tone up your cardiovascular system and reduce your chances of having that final coronary occlusion (or as it is often called, a coronary conclusion!). You don’t need to go to a gymnasium, pump iron, take steroids or wear those silly strappy singlets either. Half an hour of brisk walking, or fifteen minutes of exercising each day will do. I keep fit by walking, and if I have not done enough during the day will go for a walk with my little daughter in the evening.
Since you are what you eat, or so it is said, your next resolution should be to look at exactly what you do eat. Cut down on animal fats (where you get your cholesterol from) and increase your intake of fish is a good start. Eat ‘Asian’ twice a week, fish twice a week, and sensibly for the other three days.
How’s the alcohol intake these days? Fuzzy heads in the morning? Then perhaps you should include alcohol reduction in your resolutions too. Four ‘standard’ drinks a day for men and two for women (sorry girls, but you don’t handle alcohol as well as we do!). Plus at least one AFD (alcohol free day) per week.
What is a ‘standard’ drink? That is taken as 10 grams of alcohol - equal to one glass of full strength beer (285 mls), one small (100ml) glass of wine, or one measure (30ml) of spirits. One can of regular beer contains about one and half standard drinks, while a bottle of wine contains about seven.
Happy New Year, and stay well in 2007.

Dear Hillary,
This is Delboy from Chiangmai, you were spot on with the comments you made about my last letter regarding motorbike helmets getting stolen, and me not locking up my motorcycle. I was not using my head so to speak, and your advice was so right. Thanks for the common sense answer Hillary.
We can get the Pattaya Mail and continue to read your column, that stupid letter from “Cranky Franky,” I was surprised you even printed it, what a jerk, nobody forces him to read your column, and I, like “Porno Pete” turn to your column first when buying the newspaper.
Hillary have a Great Christmas and New Year, I am getting a bit on the plump side and my New Year resolution is to get Trim, Taught and Terrific (where can I get non fat Belgium Chocolates?).
Delboy
Dear Delboy,
Thank you for the best wishes and your contributions during the year. It is always nice to know that one’s advice has not fallen totally on deaf ears. Sorry I don’t know where you can get non-fat Belgium chocolates, but I do know where you can send the fattening ones! Right here. When someone sends me a bottle of champers it will be a right picnic. Have a wonderful 2007, Delboy.
Dear Hillary,
I enjoy your writing. Enjoy these chocs.
Big D USA
Dear Big D USA,
Oooh I love big strong men of few words! Thank you so much, your lovely note pinned to a large bag of different chocolates. I overcame the temptation to rip the cover off the Hershey bars straight away, and have put them all in a cool place till Xmas, when I will bring them out and make a right pig of myself all day. A great 2007 for you too, Big D USA.
Dear ‘Illary (sic),
Dearest ‘Illary (sic), me old wine binger, yes I’m back again for a few months and am crackin (sic) me sides with lafter (sic) at the letters youse (sic) still getting from all them ignorant twirps (sic). Lookin (sic) forward ter (sic) some more clandestinnine (sic) get tergethers, so its all on again me old froot (sic). Me digs is sorted and don’t be surprised if something doesn’t pop up between the editers (sic) Lexus and yer (sic) bike! Those flowery dresses you’ve given up’ll be fine fer (sic) curtains an tell the milkman it’ll be two bottles, mekon (sic) of course. Be seein yer!
Nairod
Dear Ramrod, sorry Nairod,
I can’t really say I am over the moon with the news that you have returned. Sorry I had to shorten your epistle with its protestations of undying love and hoped for trysts on piers through space reasons, but I really have to disappoint you. The flower print dresses are all gone (I threw them away after Songkran after they got covered in all that messy powder) so I certainly won’t be offering them up as curtains for your new abode, which hopefully will be several hundred kilometers from the office. I also wonder which editor you mean? My editor has a 15 year old Daihatsu Mira and certainly not a Lexus, as he hasn’t finished paying off the Daihatsu yet. He has registered his Non-Performing Loan on the stock exchange, I am led to believe. And what’s this about a bike for me? I’ve only just paid the last payment on my broom, a bike is totally out of my league. Perhaps it is one of the other newspapers? There is so much going on in Pattaya, after all. However, I must say your spelling is improving. You almost got your name right this time! Happy 2007.
Dear Hillary,
Will you still be here in 2007? I enjoy your bits each week and the advice is sometimes right on. A few weeks back somebody said you should get a raise from your editor and I reckon so. You are doing a public service so you should get the top dollar. All the ones in the US like Oprah get big money, so you should too. Keep up the good work and all the best with the boss.
Hughie
Dear Hughie,
Aren’t you just the nicest man! Comparing poor little Hillary with the mighty Oprah! However, there are some differences between us, you know. She’s in America, for one! My Petal, if Hillary could get even 10 percent of Oprah’s salary, I’d be on the next plane to Milan for some new threads, so that I wouldn’t have to worry about creatures like Nairod lusting after my flower prints. Every time I hang them out on the line I have to be just so careful when he’s around. Nicks ‘em. Gone, and my undies. He’s a terrible man. You worry me though, when you say you “enjoy my bits” each week. What “bits” are we talking about here? Some of my bits are never discussed here in the column. This is a family newspaper Hughie, and anyway, you’d never get to see them either. As far as a raise is concerned, I’ll show your letter to the editor, but he’ll probably just think I made it up, just as some people think I dream up people like Nairod. That’s no dream, it’s a nightmare, and the damned things are so long and are handwritten! Life’s hard some days!