With the height of the holiday season nearly behind us, attention turns to what’s happening in the new year. Topping the list is the direction that the national economy is taking — where are we heading?
Here are the ABCs of what could affect the economy — for good or ill — in 2007:
Afghanistan: If we lose our grip there to the resurgent Taliban, it will be a huge embarrassment to the administration and bad in terms of economic confidence. Apple Computer Inc. (AAPL): What will Steve Jobs announce in the first quarter? A real-deal phone with music will be a big deal; but also watch out for a stock-option backdating surprise right at the turn of the year.
Bush: Will he embed us deeper into Iraq? Will there be a constitutional crisis over the funding of what may be his proposal to add significant troop numbers, not for a “surge,” but for the long haul though 2008? The stock market believes we are going to get out of Iraq substantially before the next U.S. presidential election; any news to the contrary will be bad for
China: Will its economy continue to grow and will it revalue its currency upward by mid-year? Will the U.S. take it to the World Trade Organization (possibly forced by Congress)?
Dollar: Will the dollar continue to trend down softly (so as not to cause a panic and to help the Federal Reserve hold steady interest rate policy?) Will the deficit renew its upward climb with Iraq to cost more than $2 billion a week? Will the Democratic Congress go back to pay-as-you-go, Clinton-era spending caps (good for the financial markets)?
Energy: Will oil be re-priced in euros because of a shrinking U.S. dollar, or will it merely trend upward as it did this year?
France: Will it elect its first female president, a socialist … and will that be bad for the euro, good for Hillary?
GDP: Will U.S. gross domestic product fall to less than 3 percent annualized growth (no big deal), less than 2 percent (which could mean lower interest rates by summer) or less than 1 percent (look out below, here comes election-year recession)? Or will there be an upside resurgence surprise (near 4 percent) which would prove Fed Chairman Ben Bernanke right again and enhance his credentials, but would also mean higher rates by next
Housing: Will home prices stabilize and then begin to rebound by the second half of 2007, or continue to fall? I’m betting (with Bernanke) that the former is the case.
Iraq and Iran: The biggest issue of the year regarding the U.S. economy. A debacle in Iraq would significantly undermine market confidence. And when will the Fed start cutting interest rates? With immigration, will Bush and the Democrats push through a guest-worker program, and at the same time open the door to more high-skilled visa permits? The latter would be very good for U.S. tech shares.
Jail: Who will do time for stock options backdating? Japan: Will its economic resurgence continue to provide some push to global growth?