For much of my 25 years in financial services, I provided my fellow senior managers with a weekly market forecast, including a weekly prediction of closing Dow Jones Industrial Average prices at the end of the week. Here is the first of a similar report, this time written for WND readers.

While the Wall Street Journal and most market analysts are forecasting a 2007 continuation of the 2006 record bull market, I am taking a contrarian position, predicting 2007 will usher in a strong bear market that will soon begin reflecting the realities of the economic recession we entered roughly 11 months ago, in February 2006.

I predict that stocks will trade lower this week with the Dow Jones Industrial Average to close at around 12,257 on Friday, Jan. 12, roughly 140 points down from the opening bell of 12,398 yesterday.

Several signs indicate that the housing bubble has burst and the housing market will continue to deteriorate throughout 2007. On Jan. 2, Mortgage Lenders Network USA announced a decision to stop making new loans, marking a string of failures among sub-prime lenders. In 2006, Mortgage Lenders Network USA produced more than $12.1 billion in home loans, 80 percent of which were to people with bad credit ratings. Lehman Brothers Holdings announced a tentative agreement to assume Mortgage Lenders’ wholesale business, but the decision marked a further collapse in the bottom tier of the mortgage business. This development is particularly troubling since the housing bubble’s height was stimulated in large part by sub-prime lending to homeowners with marginal credit. Lehman is the second-largest underwriter in mortgage-backed securities, right behind Bear Stearns.

Nationwide, home purchase contracts are running at a 40 percent cancellation rate, in a market where buyers with strong credit histories are demanding deep discounts on home listings, plus in the new-home market a series of incentives and extras before delivering a firm contract to buy.

The yield curve remains inverted, with short-term Treasury three-months bills yielding 5.045 percent Friday, compared to 4.648 percent on 10-year Treasury notes. Yield curve inversions, while rare, generally forecast deep market downward adjustments, as investors in strong markets typically demand higher yields for holding debt notes longer.

The U.S. Treasury has in recent weeks made a strong effort to support the dollar in international currency markets. I think the ability of the Treasury to sustain this action will become increasingly difficult as investors see that market downturn reports increase the likelihood that the Federal Reserve will hold interest rates where they are or lower them to prevent recession. With European central banks increasing rates, the U.S. dollar will be under increasing sell-off pressure unless the Fed were to raise rates. The Fed is truly in a dilemma: lower rates right now would tank the dollar internationally, while higher rates would send the housing market into a tailspin.

The reports coming in now on the 2006 Christmas season show disappointing sales figures, with every indication that major retailers had to offer deep discounts to attract buyers at all. The lower-than-expected Christmas sales reflect concern in the lower-skilled and lower-paying U.S. job markets that are increasingly under strong competition from illegal aliens who are willing to work for less money and virtually no benefits. With the major U.S. automakers announcing another round of plant closings and layoffs at the end of 2006, many workers saw their union-supported jobs going to China, with the only replacement jobs available in the $10 to $15 per hour range, considerably less than they were used to receiving.

We believe the Bush administration will be under increasing pressure in 2007 to argue for a guest worker amnesty as the U.S. middle class begins to experience increasing home foreclosures in a market where employment in the lower-skilled job categories are increasingly difficult to find. Open borders and “jobs Americans are not willing to do” are marginally successful arguments in a robust economy, but an impossible sale to a nation that realizes a deep recession is already well under way.

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