I realize you are constantly bombarded with slogans like "it will be different this time", but in reality it never is. What is different this time is people.

Here are some of the biggest lies perpetrated on the American people during 2007;

1) The "goldilocks" economy.
2) The "sub prime" housing debacle will not impact the overall economy.
3) Housing decline has bottomed.
4) "People are Smart"
5) The US backs a strong dollar policy.
6) Inflation is under control.
7) The U.S. Consumer is resilient.
8) Higher energy prices will not de-rail the economy.
9) We are in Iraq to fight terrorism.
10) Foreign shoppers will boost retail sales.

When making investment decisions, it is best to follow the advice of Warren Buffett. Buffett doesn't listen to analysts or the press. He doesn't put much faith in management's projections, and prefers to look at what a company has done in the past to judge what they will do in the future.

You should do the same remembering that the most valuable button on your TV remote is the "mute" button.

People Watch: People, Freaks, Mutants, and Trends

One cannot comment on the stock market and the economy without first commenting on what the public is doing. Once you understand what affects people, then you’ll know how and where to invest.

As I glanced at the polling numbers for the Republican Presidential Candidates in Iowa, I was impressed that the top vote getters were Mike Huckabee (a former minister), and Mitt Romney ( a Mormon). This tells me that the American people are craving candidates who are decent, honest and moral. This is encouraging.

I was watching a re-run of the movie Field of Dreams, and the comment that struck me the most was;

"The one constant through time has been baseball. It reminds us that all was once good and could be again”.

I believe the majority of Americans want someone who will remind us that “all was once good and could be again”. Sorry to get so philosophical here, but I feel that philosophy and history play a major roll in understand future events.

On the other hand, the "Freaks" in society do not want decency. The "Freaks" run our TV airwaves, and have turned some in society into "Mutants" who have no sense of honesty, decency, or morality. They will use any and all means possible to attract eyeballs for their programs, regardless of the effect it has on society, and more importantly, our kids.

One of the Freaks (non-media) who has had an impact on the behaviors and attitudes of young adults and teens has been Abercrombie & Fitch (ANF). If you look at their advertising, you’ll see that Abercrombie sells sex to sell clothes. This is no secret, all you have to do is walk into one of their stores or go to their website and you’ll see what I mean.

“Freak TV” has been running a story about Brittney Spears’ 16 year old sister Jamie Lynn, who is idolized by young teens, getting pregnant. As the tabloid freaks discussed the impact this might have on her fans, they showed a picture of Jamie Lynn and her boyfriend who just happened to be wearing a shirt with “Abercrombie” on the chest. Is this just a Coincidence?

My point in this little exercise is if you were paying attention to the behaviors and trends of people (although sad), you would have made a lot of money by owning Abercrombie & Fitch (ANF) stock over the past 5 years. The same can be said for Apple (Ipods), Research and Motion (Blackberry’s), and Croxs (ugly shoes).

This Week & Last:

The wild ride continued last week as the Financials continue to come under pressure from the sub prime housing crisis. Bear Stearns showed their first loss in its 84-year history after writing off $1.9 billion of bad mortgage debt.

On Tuesday, a group of banks said they were committed to launching a ‘super' structured investment vehicle (SIV) rescue fund to help ease the credit crisis. On Friday, three of the major banks involved fund decided against the idea, and thought getting help from overseas investors was a better idea.

The credit crisis will take most of 2008 to unwind and then the repair process will begin. Like most disasters, Wall Street will recognize the recovery before the media. Look for the Financials to bottom in 2008, and begin a slow steady climb into 2009. For those who are patient value investors, 40-50% returns in 2009 may be in the offering.

Today's big news was the assassination of Pakistani opposition leader Benazir Bhutto. This added more instability to oil markets. In reality the Pakistani news shouldn't have any impact at all, but over the past 5 years it seems that every geopolitical event is an excuse to drive oil prices higher.

Also this morning, the Energy Information Administration (EIA) said oil inventories fell by 3.3 million barrels last week, more than double the 1.3 million barrel decline that was expected.

Yesterday, crude rose sharply after the Turks launched attacks on Kurdish rebels in southeastern Turkey. The excuses for driving oil prices higher never seem to end.

China's gross domestic product growth is expected to come in at 11.5 percent for 2007. Annual GDP growth came in at 11.5 percent in both the third quarter and the first nine months of the year. This translates into higher energy usage as China's economy continues to expand.

2008 could be the year China's economy begins to slow.

For the week:

-Gold closed at $815.80/oz up from $798.10 last week but up from $800.00 two weeks ago.

-The Commodities CRB Index closed at 354.23, up from 348.60 last week, and up from 342.92 two weeks ago. The index hit a high of 359.05 on November the 7th.

-Crude Oil closed at $93.31 /bbl up from $91.55 last week and up from $88.28 two weeks ago.

-The U.S. Dollar close at 77.74 up from 77.45 last week and up from 76.34 two weeks ago.

Predictions for 2008

1) The next shoe to drop in real estate will be in the commercial-real-estate market. The downturn will not be as severe as the residential market, but we will be led to believe it will.

2) The stock market will see its first 15% correction in 7 years. The cyclical bull rally
is now the second longest bull rally since the 1920s. As the market gets more selective in 2008, the stock market will re-test the November and August lows. If the lows are eventually broken, things could get ugly, and the bearish pattern of lower highs and lower lows will prevail.

If rally attempts fail to breakout to new highs, and the 1,363.98-1,370.80 bottoms are violated, the next level of key support lies near 1,330-1,340 mark which is where the 2006 breakout began. A severve market correction could cause the SPX to revisit the prior 2002 lows.

3) After hearing rumors of potential bankruptcies, a 1929 style crash, and extreme gloom and doom, the Financial Sector will rally and be among the top performing sectors for the year. 2009 will be even better.

Quality bank stocks with 5%+ dividend yields will rally in a low interest rate environment. Home refinancing will be a big source of revenue for the banks as consumers with ARMs and interest only loans switch to fixed rate mortgages.

4) In late 2008, early 2009, the Fed will begin raising interest rates to shore up the dollar, and fight inflation. Gold, oil, and commodity prices will retreat (but not crash). Buying these sectors on weakness will prove to be rewarding.

5) The stock market will punish investors who do not stick to a disciplined investment and risk strategy approach.

6) After a brief but sharp correction, the international markets will outperform the domestic equity market.

7) Crude Oil will correct sharply as the US and Chinese economies slow. A drop to the low-to-mid 70s looks to be a good entry point with the new trading range expanding to a low of 70/bbl, and a high of 120/bbl.

8) Gold prices will also correct, and the low-to-mid 700s looks to be a good entry point, while the mid-to-high 800s looks like a good exit price.

9) Commodities are in a long-term bull market. Any pullbacks in the CRB Index below the 320-
327 area look to be attractive entry points. The most attractive commodities are in the agricultural area, particularly grains and foodstuffs such as corn, wheat, soybean and
sugar.

10) The media is portraying Hillary and Obama as our nation’s saviors. The American people may have a different idea. The homemade Ron Paul signs you see tacked to telephone polls are suggesting the American people are fed up.

We are altering our sell strategy a bit to prepare for a tough year in 2008. At Dow 14,000, or S&P 1525, we will reduce our allocations by 5-10%

Our current asset allocation is as follows;

70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

At Dow 12,500, or 1400, we will raise our allocation to the stock market by 5% to;

75% Equities: (Normally 95%) Aggressive
65% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

At Dow 14,000, S&P 1525, we will reduce our allocation models by 5-10% to;

55% Equities: (Normally 95%) Aggressive
45% Equities: (Normally 80%) Moderately Aggressive
35% Equities: (Normally 60%) Moderate
15% Equities: (Normally 40%) Moderately Conservative
10% Equities: (Normally 20%) Conservative