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The Future of Business

What stories will dominate the financial world in 2008? Our Wall Street guru makes his predictions.

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Illustration by Mark Dumont  

Normally, in an election year, you can count on the sitting president, even a lame duck, to prop up the economy with discretionary spending and tax breaks that give voters an incentive to reelect the party in power. That usually translates to a rosy stock market.

But not this White House. And not this stock market. The president’s been blessed with a good economy for five years, so good that the administration hasn’t had to focus on it. Now that it has to, because of a massive housing crisis it should have prevented, the administration is once again displaying its knack for gross incompetence. It needs aggressive help from one man, Federal Reserve chairman Ben Bernanke, who needs to slash rates quickly if Bush and company want to save the country from a recession and prevent a clean sweep by the Democrats, whoever gets the nomination.

But the Fed chairman’s not playing ball. He’s the paragon of caution when caution’s the most reckless course. That’s how quickly housing’s contagion has spread, thanks to tight money and reduced spending. Between the president’s ineffectuality and Bernanke’s rank amateurism, we’re at the mercy of a struggling economy and, perhaps, for the first time in a half-dozen years, facing a down stock market.

That doesn’t mean we can’t make money in 2008. It does, however, mean that the average stock will find it tough sledding for a while, and, unless the Fed starts waking up, you may be better off waiting to buy until we see lower prices later in the year. With that somewhat grim backdrop, let’s take a look at what could happen, and how to profit from it, even if it’s best to wait a while to jump in. What follows are my top-ten financial predictions for 2008—some mortal locks, others long shots, in that order.

1. Goldman Sachs makes more money than every other brokerage firm in New York combined and finishes the year at $300 a share. Not a prediction—an inevitability. In fact, it’s only January, and I think it’s already come true.

2. Oil goes much higher, maybe as much as $125 a barrel. That sends gasoline to $5 a gallon, even at those terrific service stations outside the Holland Tunnel. Pundits keep blaming the endless rise on geopolitics, but in the latter half of 2007, we saw reduced tension in Iraq, Iran, and Venezuela, plus flat-out production by the Saudis and the Russians, and all that happened is the price went from the $70s to the $90s. We are running out of oil more quickly than people can imagine, and that means great returns for oil companies. Just buy the stock of the company you filled up at today or buy a driller (Transocean’s my favorite), then sit back and make money. The odds oil will rise? Two to 1. The $125-per-barrel target might be pushing it, but higher oil is pretty much a sure thing.

3. The Fed arranges an Arabic Heimlich maneuver on Citigroup, so the banking giant doesn’t choke on the worst mortgage portfolio in the country. Rather than face the demise of the biggest U.S. bank, and the panic its fall could trigger, Congress looks the other way as Arab investors buy 51 percent of the somnambulant bank. Unfortunately for Citigroup, I’d lay 3 to 1 on this happening. I say “unfortunately,” but I shouldn’t. It’s unfortunate that a proud institution basically has to give up its autonomy, but its stock would go up considerably once it got that capital.

4. Verizon becomes your cable provider. In one of the most remarkable frog-to-prince transformations I’ve seen, Verizon CEO Ivan Seidenberg offers an alternative, Fios, that is better and cheaper than anything Time Warner, Cablevision, or Comcast can produce. Throw in Verizon’s growing cell-phone business and growth accelerates dramatically, making VZ the best-performing stock in the Dow Jones averages. Time Warner and Comcast hit new lows, and the retreat of cable begins. Sorry, cable guys: We’re looking at 4 to 1 here.

5. In the first real debacle of the private-equity era, Cerberus Capital Management, the quiet hedge-fund king, fails in its bid to resuscitate Chrysler—not a surprising turn, given that it picked Bob “I ruined Home Depot and all I got was $200 million” Nardelli to run the country’s worst car company. The combination of Chrysler and the 51 percent of GM’s lousy mortgage business that it paid top dollar for forces former Treasury secretary John Snow to seek a bailout for Cerberus. Amazingly, given the love of hedge-fund contributions by both parties, Congress agrees and writes checks for billions to save Cerberus’ wealthy investors. Call the Chrysler failure a lock. The bailout? I’d say 5 to 1.


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