Monthly Economic Commentary – November 2007
As we move into last month of the fourth quarter, volatility has returned with a vengeance and the markets and other asset classes have come, in some cases, well off the new highs set just one month ago. During the month of November, the market saw several asset class reallocation as bonds and money market instruments became the safe havens from volatility. Over that time the dollar has attempted to find some solid footing, oil prices have yet to reach $100/barrel, and gold blasted beyond the $800/ounce level, only to retreat by month’s end. We believe that while the market has become somewhat detached from the economic fundamentals, the liquidity driven rallies in asset classes like metals and energy will continue.
Our overall view is that the economy is still in expansionary mode, with natural slowing at points due to the age of the economic cycle. This is supported by recent Fed action and confirmed by the latest economic data on housing and spending. Much of the worries late this year have surrounded the holiday shopping season, which has seen increased traffic, but lower expenditures per consumer. The housing market’s decline into the holiday season (new and existing home sales have fallen steadily in 2007) has likely compelled the cash-strapped consumer to scale back on holiday spending. We feel this will be the most significant test of the economy’s resilience thus far.
