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How’s Business? Real estate looks good

By Joe Palumbo III

I still believe that the U.S. economy will continue to grow in 2006 based on the following. First, inflation should cool off a tad, as long as there are no further oil price spikes in 2006. Major stock market indexes may very probably return to somewhere in the vicinity of 10 percent. The large-cap growth stocks are the value buys, now that value stocks and the small-cap stocks have outperformed for a long period of time; and their prices have gone up. I believe the Fed will have one or possibly two more hikes in the early part of this year for short-term interest rates, thus bringing the Fed fund rates to a target of approximately 4.5 percent. Long term rates will stay slightly higher at somewhere in the neighborhood of 5 percent.There is also a lot of talk about foreign stocks. Europe and Japan are well-valued but also uncertain. It is worth mentioning that these markets are becoming a must for a well-rounded and diversified portfolio. Real estate is leveling off in some areas, but has not collapsed in the slightest and continues to grow quite aggressively in other areas. We are all starting to see the housing market begin to drop in our home town areas (as rates rise), but other areas are continuing to flourish.Pre-construction and out-of-state real estate ventures are becoming more the norm, as they continue to provide solid returns with limited downside. Fixed income investments, such as bonds, may be prone to lag, especially if the Fed raises short term rates. So How's Business in regard to the 2006 forecast? As durable as the economy and some financial markets turned in 2005, there is never a guarantee that portfolios will turn shock-proof in 2006. Joseph J. Palumbo III is a managing partner for the Palco Group. He can be reached toll free at (888) 670-0241 (ext. 124), or at jp@palcogroup.comYou can visit at www.palcogroup.com