kiplinger connection
Foreign Relations • Fuel Outlook • Real Estate

Foreign Relations: Russia becomes competitive.
Fuel outlook: The higher cost of staying warm.
Real Estate: Favorable outlook for architects and their salaries.

Foreign Relations
Is Russia reverting to its darker past?
Recent trends look like Red flags: President Vladimir Putin's thinly veiled scheme for retaining power even after his term ends. The state's outsize role in key industries. Russia's bullying of neighboring countries. And a new focus on rebuilding its military.

But there’s no "Soviet Union II" ahead.
Economically, capitalism holds sway. For American and other foreign businesses, Russia will remain a promising emerging market, buoyed by abundant natural resource exports.
In fact, U.S. firms are sounding upbeat about the investment climate in the country. They say "Fortress Russia" fears are overblown. A pending investment law will help. It’ll clarify murky rules on foreign ownership, even as it places restrictions on some sectors.
And economic growth is looking good … likely to expand at a 6% to 7% clip annually ... assuming, as we do, that Russia will continue to get high prices abroad for its oil and gas.

Energy wealth is creating new markets for goods and services:
Retail. U.S. companies such as Subway, Chem-Dry, and Gold's Gym are looking to take advantage of Russians' newfound disposable income.
Infrastructure. Russia needs foreign help to upgrade its roads, rail networks, electricity grid, airports, hospitals, schools, and farms.
High-tech products. Russia is lacking in quality and quantity of domestically made telecom equipment, IT gear, medical technology, energy equipment, and much more. To assure continued economic growth, Moscow will have to leave the door open for such foreign-made goods.

Politically, relations with Russia are going to remain tense.
Several potential flash points are on the diplomatic horizon. Washington and Moscow will butt heads over tougher sanctions on Iran, Kosovo's future, conflicts in the Caucasus, and the U.S. missile shield.
And Putin keeps upsetting Congress with his antidemocratic moves. There's little the U.S. can do to pressure leaders in Moscow. Russia, now financially independent, with bountiful energy resources, a nuclear arsenal, and plenty of arms to export, is seeking an equal say on global issues. And the country is in a position to demand such a role.
Russia won't be an enemy again. But it is a rising competitor that the U.S. will have to respect and consult with more often.

Fuel Outlook
Oil prices are going to gyrate widely over the next few months as supplies tighten and the weak dollar prompts suppliers to ask for more. By year end, a barrel will cost about $72, down from $80 now ... then probably up again in 2008, maybe even hitting $100 a barrel briefly.
Expect gasoline to reach $2.80 a gallon before falling to $2.65 in Dec. By next spring, when demand picks up ... about $3.25 a gallon.
Staying warm will cost more ... about 25% more than last winter for heating oil customers and about 10% for those relying on natural gas.

Real Estate
Foreign investors are fueling the commercial real estate market, attracted by the weak dollar and a roughly 10% rate of return. The global economic expansion has put a lot of money in a lot of pockets, and foreign investors are on the prowl for safe havens with good returns. That helps make up for the credit market turmoil and the slowing economy here. Both factors have put a huge dent in U.S. investment money. Foreign money now accounts for almost 10% of total investment in U.S. commercial realty.

The pool of foreign buyers is also expanding.
Russians, Italians, and even some Afghans are vying with Australians, Germans, and Arabs for U.S. property. Overall, foreign investment in commercial realty will rise a whopping 82% this year, with a 12% jump likely in 2008.

Jobs in commercial real estate remain plentiful. Engineers, architects, and interior designers will be in demand through next year. That puts pressure on salaries for those jobs. Pay will rise 6% for architects and engineers in 2008, after gaining about 6.5% this year.