kiplinger connection
Energy • Jobs and Workers • The Economy

Energy: Gasoline prices look lower in 2008.
Jobs and Workers: Social Security verification promises problems.
The Economy: The market isn’t dead, it’s just resting.

Energy
Next year promises to bring slightly lower oil and fuel prices, largely because supplies will likely be more stable than in 2007. Oil production will be more robust, and there probably won’t be a repeat of this year’s large-scale refinery problems that drove up fuel prices. But sudden disruptions leading to price spikes can’t be wholly ruled out.
Crude oil prices will average $62 a barrel, vs. $63 this year.
Gasoline ... around $2.65 a gallon. In 2007 ... $2.70 on average.
Diesel ... about $2.70 a gallon, also down a nickel from 2007.

Congress is poised to pass a scaled-down energy bill this year, falling short of earlier plans for more-comprehensive energy legislation.
What to expect: Higher vehicle fuel efficiency standards ... up to 35 miles per gallon by 2022, up from today’s minimum of 27.5 mpg for passenger cars and 22.2 mpg for light trucks, SUVs, and minivans.
A 50¢-per-gallon credit for making fuel from cellulosic ethanol, produced from farm waste and other biomass, helping to spur production.
A requirement that more new motor vehicles run mostly on ethanol. Half of all vehicles made in 2015 will have to operate on 85% ethanol.
Tax incentives for expanding ethanol fuel pumps. To cover costs of adding pumps, gas station owners can claim a credit of up to $30,000.
And extension of tax credits for producers of renewable energy ... wind, solar, and more. Plus for the first time, electricity producers that harness wave and current power will be eligible for this credit.
An ethanol use mandate will be halved. Congress had wanted about 36 billion gallons of ethanol and biodiesel used in motor vehicles by 2022. But lawmakers realize that about 18 billion is more realistic.

Jobs and Workers
Employers will soon be hit hard by new worker verification rules.
The aim is to deny jobs to illegal immigrants so fewer will cross the border in the first place. New Department of Homeland Security rules will make companies fire workers who use false Social Security numbers.
But getting it right may be a huge problem. Employers are worried that many of the "no match" letters they will get from Social Security will be a result of name changes, typos, or problems with the database. They say scores of legal employees face losing their jobs for no reason. Employers and unions plan to join forces and sue to block the new rules.

The Economy
The stock market's tumble is a long-overdue correction. Although it’s sparked by real fears about housing and credit, a downward move of this magnitude does not come as a complete shock.
Don't be surprised to see the Dow continue to slide into the mid-12,000s before stabilizing ... roughly a 10% drop from the peak of 14,000 reached on July 19. Even after such a fall, the market would still be up 13% over year-earlier levels.
Stocks have gone an unusually long time without a big pullback. The current bull market, which began its gallop way back in mid-2002, has had only one retreat of at least 10%, the standard definition of a correction ... in 2003. Four years without such a move is rare.

Should the drop be taken as a signal to abandon stocks? No. As we said in our July 20 letter, we advise caution rather than panic, retaining an investment focus on high-quality bonds and equities.
Instead, the time may be ripe to snap up some nice bargains. Stock valuations are looking attractive already. The average ratio of stock prices to 2008 earnings for S&P 500 companies is 15.2, compared with a historical average of 15.7. Obviously, a further drop in the market indexes will make these ratios even more attractive.

By and large, U.S. companies will see profits keep rising, thanks to strong global growth, which is fueling sales abroad. About half the sales of S&P 500 companies are registered overseas.
Action by the Federal Reserve should help limit damage from tighter credit conditions. The central bank is adding liquidity in the money market to ensure that companies have access to cash. The risk of a freeze-up in business spending will thus be lessened.
The bottom line: Don't give up on the bull. He's just resting.