The Stock & Bond Markets -
Strategists at 12 of the biggest Wall Street firms agree that U.S. stocks will rally next year. The last year that happened was for 2001, when the Standard & Poor's 500 Index dropped 13 percent. On the other hand, confidence among U.S. consumers unexpectedly increased this month to the highest level since April, reflecting job growth that may keep Americans spending. The Conference Board's index of consumer sentiment rose more than forecast, to 109 this month from a revised 105.3 which far exceeded the majority of economists' expectations of a fall to 102. ``Despite the latest improvement in the index, there is little to suggest that the pace of economic activity in the final quarter of 2006 is anything but moderately better than its uninspiring performance earlier this year,'' Lynn Franco, director of the Conference Board's Consumer Research Center. For example, initial reports suggest U.S. holiday retail sales grew at a slower rate than last year with MasterCard Advisors stating in a Dec. 26 press release that sales from Nov. 24 to Dec. 24 rose 3 percent, compared with a 5.2 percent gain last year.

Bond prices continued to be under pressure as the Federal Reserve, while halting 11 consecutive monthly rate hikes, has indicated they are still concerned about inflation and willing to raise rates to keep it under control. Many are predicting that the slide in bond prices will slow and, possibly, reverse itself in 2007 so we continue to advise investors diversify rather than try to read too many "tea leaves" and "bet the ranch" on once asset class or category.

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Real Estate Bubble? -
Housing starts in the U.S. rebounded in November from the lowest level in more than six years, while building permits dropped to a nine-year low, suggesting weakness in home construction will persist in the new year. Recent data suggest the most severe housing slowdown since 1990 may be nearing a bottom, as mortgage rates have fallen below last year's levels, making homes affordable for more people. Wet weather in October may have delayed some starts until November, helping to boost last month's figures, economists said. Still, near-record inventories of unsold homes will keep a lid on home construction well into 2007. Builders and real-estate professionals are showing some new optimism. An index of homebuilder confidence has gained in two of the last three months. Sales of existing homes, which account for 85 percent of residential sales, unexpectedly rose in November, as prices fell for the fourth month in a row, adding to evidence that the housing slowdown is ending.. Existing home sales may rise 4.6 percent by the fourth quarter of 2007 from the current quarter, according to many analysts. The trough in home construction may be farther off. Housing starts are set to end the year at 1.82 million, down 12.3 percent from last year's level, according to the National Association of Realtors latest forecast released Dec. 11. Housing starts next year may fall another 15.1 percent to a 1.54 million level. Economists consider new-home purchases a more timely barometer of the market because they are recorded when a contract is signed. Most sales of existing homes are recorded when a contract closes and reflect buying decisions made months earlier. So with decline of new-home purchases slowing, a hoped for "soft landing" may result.