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I simply have a difficult time getting on board with the view that our housing markets will be this year’s major Issue. And, actually, I’ll be surprised if the U.S., Chinese or the global economy takes center stage. When it comes to Issues 2007, I fully expect developments in and around finance and the financial markets to overshadow economic issues, concerns and risks. I’ll even go out on the analytical limb and predict it will be one captivating, historic and, likely, fateful year – and very much All About Finance…..

The bottom line is that the U.S. Credit and Economic Bubbles have no alternative than to expand ("failure is not an option"). But with risk intermediation and speculation having already been pushed to risk-taking extremes, sustaining this boom will be no small feat. Indeed, it will require another Herculean pushing of the Finance envelope. We did witness as much last year with developments in global Credit derivatives, high-risk lending, financial leveraging, and M&A. One can at this point safely assume the U.S. financial sector is up to 2007’s challenge, which leaves me pondering the ramifications for only greater Monetary Disorder…..

The flaw of the fateful late-twenties period was that vulnerabilities and fragilities, certainly including obvious and mounting U.S. and global economic risks, had monetary authorities acquiescing to increasingly egregious Credit and speculative excesses. And the more encompassing, commanding, and towering the Financial Sphere Bubble became, the more intimidating the process of reigning in excess appeared to a shrinking Federal Reserve. It is the nature of Credit and Economic Bubble imbalances, disparities and asset price inflation to keep policymakers confused, unassured, hesitant, and, in the end, accommodative.

I find it rather astounding that some are today calling for the Fed to soon initiate an easing cycle. This would be an enormous mistake, one I don’t expect the Fed to be in any hurry to make. Unrelenting Financial Sphere excesses today pose by far the greatest systemic risk. To what extent the Fed and global central bankers recognize this reality may very well be The Key Issue for 2007. The Fed and the markets are in an especially tenuous position if the Bernanke Fed actually attempts to wrest some control of "money," Credit and the entire financial system back from Wall Street and the speculator community. Ditto if foreign central bankers dare enter the fray.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.