With 2007 fast coming to a close, you will find the media gearing up for a variety of market forecasts and predictions ranging from the plausible to the downright outrageous. Be prepared to be fed this information on an almost daily basis for the next few weeks. Most of this “advice” is useless as I have written about before.

Nevertheless, I think it pays to look at other view points and opinions, even if you happen to disagree.

A different view about 2008 was featured in a brief interview on MarketWatch with William Knapp, chief investment strategist for MainStay Investments, who said that “investors should expect the economy to sidestep a recession in 2008 but, even if one occurs, consumers will barely know it happened.”

Wow; that’s about as optimistic of a view as I have heard. Given the variety of issues I have posted about for the past 8 months starting with the Subprime debacle, followed by the credit crises, the housing disaster and more recently the huge number of credit card defaults many banks are facing, I sure can’t agree with the above assessment. With none of these above issues even being close to being resolved, my personal view is far less optimistic.

However, whichever direction the markets will turn, there are bound to be opportunities we can take advantage of. Right now, certain sectors and countries appear to be on the upswing, and we are easing ourselves into those markets.

By only paying attention to trends, I don’t blindside myself to a certain viewpoint of what may or may not happen. If it ends up that Mr. Knapp is right, then the market trends will lead us in the direction of those areas that will move up given his outlook. If the markets adopt a more pessimistic attitude, then we will adjust accordingly and follow those trends that are supported by that scenario.

Bond guru Bill Gross of Pimco has made his share of forecasts, which usually do not sit well with investors. The one that caused a bit of an uproar was when he forecast the Dow to be falling to the 6,000 level, or thereabouts. I think that one was made sometime last year.

A few days ago, he said the recession had begun in December and that he’s been begging the Fed to cut interest rates, at least according to 24/7 Wall Street. I am not sure in what form that begging took place, but let’s not forget that Mr. Gross is somewhat biased in that lower interest rates will help his bond investments. Muni bond funds have had their worst year in seven, and Pimco’s own PML is down about -9.7% for the year. So yes, a recession and much lower interest rates will bode well for his stable of funds.

My point is the same that I have made before: Forecasting can’t be done with any accuracy at all. While I have written about the prospect of a recession as a result of the Subprime/credit fall out, we can’t make investment decisions simply based on that possibility alone. I will continue to watch the actual market trends and make my picks based on those ETFs/no load fund areas that are showing the strongest momentum figures.

With all the talk about the Subprime crisis and the resulting credit debacle, you may have been wondering as to what exactly the definition of a “credit crunch” is.

Minyanville’s Kevin Depew defines is as follows:

“The simple answer is that a “credit crunch” is a general decline in the supply of, and demand for, credit.

This risk aversion on the part of lenders makes it more difficult for even the most credit-worthy borrowers to obtain money at reasonable terms. In effect, interest rates – the cost of money – can become infinitely high for many borrowers. As a result, it becomes difficult to fund projects and investments, which can slow economic growth, which can make lenders even more unwilling to lend.”

OK, now we know what it is, how do we get out of it? Kevin explains:

“The Fed can make even more credit available; a monetary response. This may temporarily relieve tight credit conditions among financial institutions.

Being a non-economist, I like his explanation; short, sweet and to the point. As the credit bubble continues to unwind with potentially far reaching effects, it’s important that you know how it was created in the first place and what can be done to get out of it.”

While it does not have a direct effect on the decision making part of our trend tracking methodology, it will help you understand where we are when looking at the big picture. If a major trend, such as we’ve been having in domestic equities for 14 months, comes to an end all of a sudden, there is a good chance nowadays, that the Subprime/credit/housing debacle is one of the main culprits.

Minyanville had a hilarious piece in Kevin Depew’s “Five Things You Need to Know.” This one was number five and it dealt with General Mills’ move back in June to raise the price of its cereal while decreasing the box size so that customers would hopefully be fooled by the cost increase.

Some applauded the move, upgrading the stock from “Earnest” to “Sneaky,” while other Wall Street analysts found the whole thing confusing.

Minyanville obtained a transcript from a portion of that previous analyst call (not to be taken too seriously):

Analyst: So let me see if I understand this. The price of your cereal is going up?

General Mills Spokesperson: That’s correct.

Analyst: But the price per box is actually going down?

General Mills Spokesperson: Correct.

Analyst: So then how is the price going up?

General Mills Spokesperson: Because we’re making the box smaller.

Analyst: Ok, but you just said the price of each box is going to be less.

General Mills Spokesperson: Yes, that’s true.

Analyst: So then you’re actually lowering prices.

General Mills Spokesperson: No, we’re raising prices.

Analyst: How?

General Mills Spokesperson: Look, you’re an analyst, you work with numbers.

Analyst: Right. Ok. I got it.

General Mills Spokesperson: Next question.

Analyst: Uh, actually, I don’t get it. How can you raise the price by lowering the price?

General Mills Spokesperson: Because we’re decreasing the size of the box.

Analyst: Ok, but you’re charging less for each box.

General Mills Spokesperson: Yes. Because we’re decreasing the size.

Analyst: Ah, I get it. So then the price is really the same, you’re just making the box smaller which makes the price look lower.

General Mills Spokesperson: No, no, no! Listen. We’re raising the price of our cereal.

Analyst: But –

General Mills Spokesperson: Shut up! Now listen, we’re raising the price of our cereal.

Analyst: (Silence).

General Mills Spokesperson: Say it.

Analyst: We’re raising the price of our cereal.

General Mills Spokesperson: Good. We’re raising the price of our cereal… while simultaneously making the box smaller. Go on, say it.

Analyst: While simultaneously making the box smaller…

General Mills Spokesperson: But… and this is the important part… but we’re raising the price more than we’re decreasing the size of the box… go on…

Analyst: But we’re raising the price more than we’re decreasing the size of the box.

General Mills Spokesperson: So…

Analyst: So…

General Mills Spokesperson: That…

Analyst: That…

General Mills Spokesperson: Come on…

Analyst: Come –

General Mills Spokesperson: No, I mean, come on and follow the thought. So that…

Analyst: Oh. So that…

General Mills Spokesperson: The…

Analyst: The… price is lower?

General Mills Spokesperson: No! So that the customer…

Analyst: So that the customer…

General Mills Spokesperson: Will.

Analyst: Will.

General Mills Spokesperson: Oh good Lord. So that the customer will think the price has gone down when it’s really gone up!

Analyst: Oh.

General Mills Spokesperson: See? Price increase. Smaller box. Larger price increase than smaller box.

Analyst: Right. I still don’t get it.

General Mills Spokesperson: You know what? Just forget it.

Analyst: I’m going to have to downgrade your stock, you know.

General Mills Spokesperson: Good. Good. You do that.

Analyst: I will.

General Mills Spokesperson: I don’t even want you to rate our stock positive.

Analyst: Good, because I won’t.

General Mills Spokesperson: It would be an insult to the company for you to rate it positive.

Analyst: I’m downgrading your stock to “Mean.”

With all of the hastily arranged government plans to resolve the credit crisis and/or solve the mortgage/housing debacle, there were bound to be some solutions offered that makes you wonder how somebody could actually have the guts to put some of the proposals in writing.

I was reminded of that when I read the story “Fed proposes mortgage rules to protect borrowers.” If this matter wouldn’t be so serious, it would qualify as the joke of the week. Here are some snippets from the article:

Lenders will have to confirm that a borrower can afford a mortgage before making a loan under protections proposed by the Federal Reserve on Tuesday, following defaults and losses on U.S. subprime mortgages this year.

The proposed regulations would require that lenders confirm a borrower can afford a home loan by verifying his income and assets with tax records, payroll receipts, and other documentation.

The new rules are aimed at ending the recent practice of so-called “stated income” loans in which borrowers state their income without any evidence.

Wow, these are truly far reaching new ideas. How dare they? I will actually need to verify my income and thereby demonstrate that I can afford the mortgage? It’s just not fair. Isn’t that what they did in the last century? I thought we made some progress here by simply being able to write down our income and get a loan with no questions asked. What’s the world coming to?

OK, so just in case I mess up, here’s something that should help:

The new rules will not assist today’s struggling homeowners but would give consumers the right to sue mortgage lenders who act unfairly and deceptively in preparing loans in future.

Ah, that sounds good and makes me feel better! I am sure that I can find something that is not right with my new loan, just in case I fall on hard times and can’t make the payments again; I then simply sue the bastards. I love it when the government comes up with unique ideas, don’t you?

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Today’s rebound rally pulled the major indexes out of the doldrums and into positive territory for the week.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved to +4.81% above its long-term trend line (red) as the chart below shows:

The international index dropped to -1.82% below its own trend line, keeping us in a sell mode for that arena.