"THE BEAT GOES ON" Year-End Investment Review and Outlook for 2007 By Abner, Herrman & Brock Asset Management As a result of the strong action by the Federal Reserve in raising interest rates, the year 2006 ended with a moderating of U.S. economic growth. After having experienced 5.6% growth in Gross Domestic Product during the first quarter, the U.S. economy grew at an estimated rate of 2% in the fourth quarter of 2006. The slow down in the growth of the U.S. economy was welcomed by both the equity and bond markets as it relieved investor concerns that faster economic growth would increase the risk of inflation which would trigger more Federal Reserve rate hikes. Higher rates of inflation and higher interest rates would create the potential for a more severe economic decline. With the concern of a sharp decline in the economy reduced, the economic outlook for 2007 is more favorable. Our view is that the U.S. economy will navigate a “soft landing” and avoid a recession. A recession would reduce corporate profits, increase unemployment and bring back the fear of deflation. Interest rates have probably peaked and may be reduced if the Federal Reserve needs to stimulate the economy. The housing market which had been over built and over priced seems to be working off the excess inventories. Housing prices appear to have retreated which may stabilize the housing decline during 2007. We are encouraged that the prospect of the U.S. and other leading global economies will continue their long unprecedented rise. Bond prices ended 2006 about equal to where they began the year. Interest rates rose in the first half of the year on inflation concerns and rising energy and commodity prices thus reducing bond prices. During the second half of the year, interest rates declined as inflation concerns abated and energy prices retreated, returning interest rates to the levels of the beginning of the year. For 2007, we would expect a modest decline in intermediate term bond prices and a modest increase in short term bond prices as the yield curve moves back to a traditional upward-sloping shape. We continue to believe that inflation will be kept under control increasing in the 2-3% area. (To read this article in its entirety, click here) Abner, Herrman & Brock Asset Management has provided personalized investment solutions for high net worth families nationwide since 1981. For a free portfolio evaluation, please visit their web site at www.ahbi.com or call them directly @ 201-484-2000 for a personal discussion on Investment Philosophy, Process and People.