Market Outlook: 06-03-08

Robert Hsu, June 03, 2008

Along with higher gas and food prices, plunging consumer confidence, rising job loss and the housing slump have been wreaking havoc on the U.S. economy and consumer. Just last week, the Federal Reserve cut its 2008 economic growth projection by nearly a full percentage point to 0.3% to 1.2% from 1.3% to 2%.

Because of the rising commodity prices, the Fed noted that it would not cut interest rates again to battle the slowing economy because it feared rising inflation. The Fed lifted its outlook for core inflation, which excludes food and energy, to 2.2% to 2.4% from its old forecast of 2% to 2.2%. I think that this is too low of a projection.

Inflation is already high and pushing food and gasoline prices to record highs. Add in the slide in home values and rising unemployment and you can see why its no wonder that U.S. consumer confidence continues to weaken. For May, consumer confidence fell to its lowest level since 1992 -- It now sits at 57.2. These three factors could further threaten to hobble the consumer spending that accounts for more than two-thirds of the U.S. economy.

And the two-year U.S. housing slump is showing no sign of bottoming, while unemployment numbers are expected to jump even higher this year and remain elevated next year. According to the most recent S&P/Case-Shiller report, average home prices in the 20 largest metropolitan areas dropped 14.4% in March from a year earlier. That's the most since the figures were first published in 2001.

Robert Shiller, an economic professor at Yale University and co-creator of the S&P/Case-Shiller housing-price index, said property values may drop more than 30% from their peak in 2006. I think the declining home values, along with the tightening of housing loans by banks and rising foreclosures and short sales, will likely add to the real estate slump.

The drag from home-price declines, the credit crunch and oil prices will probably be more severe than some had forecast earlier in the year. That's why I continue to recommend that we steer clear of the United States. I continue to recommend that we focus our attention and money on the more profitable opportunities in emerging markets in Asia.

To find out the top Asia Edge picks to weather the current economic storm, become a member of Asia Edge today.

Sponsored Links

What's happening in the world's major foreign markets right now? Will current events affect the stocks in your portfolio? Read InvestorPlace Asia's Top Stories to find out everything you need to know in order to stay on top of global economic news.

more...

Every country has its own special customs and traditions. Being familiar with a country's culture can often make a difference in whether you gain or lose from investing in its stock market. Check out our culture section to learn more about the societies of the world's fastest-growing emerging economies.

more...

There's a lot happening around the world today, and it's important to know how it's affecting your investments. Watch the latest videos covering important Asia topics!

more...