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Will the economy and the financial markets keep on ticking in 2007?

- Alan Lavine and Gail Liberman



Financial markets seem little worried that the pace of economic growth slowed during second half 2006. Bond yields have remained within a fairly tight trading range, and stocks actually have managed an impressive rally, rising more than 10 percent from their lows of June and July.

Milton Ezrati, economic and market strategist for tge Lord Abbett group of mutual funds believes the economy will continue to grow in 2007. Stocks should advance on balance, though their rapid rise during fall 2006 is bound to slow. Bonds, under the influence of steady monetary policy, should remain steady as well, much as they have in past months. Among his observations:

  • Probably the biggest threat to this outlook is the ongoing weakness of housing, which some observers fear could drag down the overall economy. Such a severe correction is not especially likely because housing prices are not nearly so extended nationwide as they are in certain regions. Moreover, continued growth in consumer spending will serve as one important counterbalance to the effect of housing's weakness.

  • The real engine of growth going forward should come from business spending on new equipment, software, systems, and the like. Corporate finances are in better shape than they have been for decades.

"In such an environment of moderate economic growth, there is every reason to look for the stock market to continue rising on balance," he said. "The outlook for relative stability in the bond and money markets should also foster a favorable stock market environment. The Federal Reserve Board has all but voiced its intent to keep short-term interest rates steady.

So what is the best thing investors can do this year? Check the value of your stock, bonds and cash. Then rebalance your portfolio so that it is in tune with your investment comfort level. The younger you are the more you should invest in stocks. The older you are the more you should invest in bonds.

Also, avoid investing new money in mutual funds at the end of the year. The reason: You will receive a prorated share of any capital gains distributions the fund has earned during the entire year.

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Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.


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