See the complete list of trends that we analyze.

1) Investment & Securities Industry Overview

The investment and securities industry in the U.S. remains a vast and vibrant sector, employing about 900,000 people. Nearly 4 billion shares trade on an average day on the NYSE, Amex and NASDAQ combined. Mutual fund assets in the U.S. totaled about $11.5 trillion as of the end of 2007. According to the Investment Company Institute, www.ici.org, global mutual fund assets were $21.8 trillion at the end of 2006. Nearly 50 million Americans participated in 401(k) investment plans at their places of work in 2007, while tens of millions owned stocks, bonds and annuities in their individual accounts.

In late 2007, former U.S. Federal Reserve chief Alan Greenspan estimated the total value of equities traded on major exchanges around the world at $50 trillion, about double what it was five years earlier in 2002. At the same time, he estimated the total value of global long-term securities of all types at nearly $100 trillion, including stocks, bonds and other financial instruments.

The term Sovereign Wealth Fund (SWF) is used to describe a national government's pool of assets available for investment. Nations that are major exporters, such as the oil and gas exporting nations of Saudi Arabia, Kuwait and Russia, have earned massive amounts of excess capital. SWFs have become a major influence in the investment world of today. Disciplined, professional investment practices can give them the ability to create superior returns on this capital by making global investments. On the other hand, SWFs, under governmental control, may also be subject to cronyism and mismanagement. By the beginning of 2008, the world's SWFs totaled about $3 trillion by some estimates, and were growing very rapidly.

Both in the U.S. and abroad, 2007 was a wild ride for the investment industry. Many major stock indexes around the world, including the Dow Jones, hit new record highs. Assets in many types of funds were at all-time highs. However, markets were enduring extreme volatility at times, and the outlook for 2008 is not all positive, as many analysts are concerned about the potential for a global economic slowdown.

Nonetheless, globally, there is an astonishing amount of capital looking for a place to land, and corporations are sitting on vast amounts of cash as well. Investment markets have clearly rebounded, regaining ground from spectacular losses in 2000-2002. Short- and long-term interest rates have remained relatively low. Cross-border investing is extremely active, including very high purchases of foreign equities by U.S. investors, and merger and acquisition activity by multinational corporations and funds.

Investment banks earned tremendous profits in 2006, thanks to strong markets, extremely active merger and acquisition activity and easy access to credit at very low interest rates. However, by mid 2007, multiple layers of problems came to the fore at investment companies in many parts of the world. These problems were launched by easy credit and an overly enthusiastic market for collateralized debt obligations (CDOs) that included pools of "subprime" mortgages. In fact, the entire market for risky debt collapsed, including subprime mortgages, junk bonds, highly leveraged loans and CDOs of many types. As a result, hundreds of billions of dollars in investment assets will be written-down, and many firms are finding themselves forced to sell major stakes in order to bring in new capital.

Leveraged Buyouts (LBOs) by private equity investors have been running at an extremely high rate. Low interest rates, easy access to debt and easy credit terms contributed to this trend. However, by late 2007, some high profile buyouts had fallen apart (while other acquisitions faced lowered prices) as loans for buyouts were no longer as easy to obtain.

Corporate merger and acquisition (M&A) activity has been running at a very high rate in the U.S. and abroad. Total global M&A activity is estimated by Dealogic at $4 trillion during 2006 and about $3.8 trillion during the first eight months of 2007. Activity was led by an immense acquisition deal announced in 2007, the purchase of banking giant ABN Amro for $99.9 billion by Royal Bank of Scotland, Fortis Group and Banco Santander.

Venture capitalists are very active, but at lower levels than during the boom of 1995-2000. The fact that IPOs sometimes offer a viable exit strategy is encouraging venture activity. More encouraging to investors in emerging companies, however, is the fact that mature corporations are eager to make acquisitions. Meanwhile, venture investments have been soaring in the growing business centers of India and China.

Individual investors in general have regained faith in their stock portfolios, mutual fund investments and 401(k)s, although many have lowered their expectations of future returns on their investments. From 2001 through early 2006, millions of individual investors turned to real estate for a large portion of their portfolios, snapping up rental houses, bigger primary residences and second homes, and driving up home values in the process. The condominium market was particularly robust in cities like Miami and Las Vegas, where individuals bought new properties in hopes of selling them quickly at a profit. Unfortunately, many of these buyers overpaid and over-borrowed, and saturated markets have put an end to the real estate boom. In fact, home values have fallen dramatically in many major markets in North America and Europe.

Individual wealth is reaching new heights. According to a recent study by Spectrem Group, U.S. households that have achieved net worth of at least $5 million, not including their primary residence, were estimated to have risen to 1 million by 2006, up from about 250,000 ten years earlier in 1996.

The investment sector as a whole faces significant challenges for 2008. Bad investments in CDOs must be written down in value. Some investment firms will find themselves short of capital. By the end of 2007, a management shakeup was already underway at top firms ranging from Citigroup to Merrill Lynch. Meanwhile, the entire structure and process of collateralized debt remains in question. In particular, the methodology that enabled rating firms to place AAA ratings on debt instruments that turned out to be big losers must be improved, and investors need to regain their faith in debt ratings, markets and values. Meanwhile, several threats remain in the background, including worries about potential inflation, energy costs, terrorism or political upheaval, as well as persistently high U.S. federal deficits, a U.S. dollar that has plummeted in value and extremely high levels of consumer debt.