Published October 2005

Economist’s views for 2006

John Caldwell, chief investment strategist for the McDonald Financial Group, a KeyCorp company, is regularly quoted by the Wall Street Journal, the Washington Post and CNBC about his views on the U.S. economy. In mid-September, Caldwell gathered with a small group of Snohomish County business people at the Everett Golf & Country Club to talk about those views, in a session sponsored by KeyBank Business Banking.

Looking ahead at 2006, he sees a stock market that “lacks stability and perspective, focusing too much on what’s happening today, yet over the past 12 months, the S&P 500 is up 10 percent, an impressive showing for all the challenges the market faces.”

He sees economic recovery continuing, due in part to the fact that 420 of the companies in the “500” mix have “$850 billion in cash on their balance sheets, so they have the money to spend to support that economic growth.” Caldwell noted, too, that a slowing economy next year could bring only 7 percent to 9 percent stock gains, including dividends, but said “bonds will not be much of an alternative.”

As for housing, there is no such thing as a “national housing bubble” that will burst, Caldwell said, since “housing markets are local” and individual. What does worry economists, he said, is leverage in the housing market.

“Half of all mortgages in California are adjustable rates or interest only, so it will be very easy in the next few years to find people who borrowed too much at lower rates ... when the rates are adjusted higher, they’ll be losing their homes,” he predicted.

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