Forward Scenario 2005
Twice a year I do forward projections or long views of the underlying factors effecting the psyche of investors. Here's what I've come up with for the next 6 months.
# 1 ---- Strong markets into early 2005 --- then volatility increases
# 2 ---- Small stocks will continue getting money... looking for leaders
# 3 ---- Revolution of innovation is changing companies (technology)
# 4 ---- Major themes... biotechnology, medicine, alternative energy and communication
# 5 ---- Cash Liquidity of US companies is at a record high
# 6 ---- Large House Investors are cycling out of old themes
# 7 ---- Interest Rates will NOT climb much higher at this time
# 8 ---- Inflationary pressures will be contained and modest
# 9 ---- Dollar will base at near 80
# 10 -- Oil will NOT come down, but remain near $50 ± or higher
# 11 -- Grains especially and other Agricultural products will trend higher
# 12 -- World Wide Recessionary pressures will remain dominant
# 13 -- American consumer (small buyer) will be hurt by extended energy costs
# 14 -- Economic and Investment volatility will continue over the threat of terrorism
# 14 -- Conservative agenda will continue to polarize political policies
# 15 -- Potential for dramatic (unexpected) market declines has increased
Investment communities are now refocusing their attention (national and international) after the rather startling US election. The election clarified for the deep pocketed and powerful world wide investors which of their themes will be played out in 2005 and beyond, they will be allocating into or strengthening these positions.
The US stock market anticipates enactment of the administrations platform to retain the buyers, but the market returns for this administration will be muted by the realities they created earlier and by infighting surrounding the conservative agenda.
# 1 --- Oil is a Tax:
It will negate inflationary pressures and reduce economic consumption patterns.
For the US, Europe and Japan this will effectively overshadow any expected stock market gains. Indexes will remain captured by volatile swings, don't expect a crash and don't expect a melt up either.
# 2 --- Currencies and bonds --- as affected by --- oil and gold:
Their interconnectedness will dramatically effect economic deficits, economic growth, capital flows on a world wide basis and this interplay will become the dominant themes for the next 2-4-8 years.
# 3 --- The US dollar --- Euro implications are a key:
As the dollar remains low, OPEC needs $50 per barrel of oil to maintain their purchasing power. $80 or $100 per barrel is not out of the question. The American and European consumer (the small guys), will all be crushed by the extended energy shock. The most likely end result will be a marked reduction in the standard of living in the US and other industrial countries.
# 4 --- The Unexpected:
Bill Gross of PIMCO ----- "America's and, therefore increasingly, the world's economy is unstably founded on a base of cheap money used as leverage to support certain asset prices of dubious value. If and when the cost of those funds moves sharply higher for any reason a dollar crisis, inflation, foreign central bank sales of Treasuries, increasing budget deficits, to name a few then the flaws of a levered economy will be quickly exposed." (Note: There are news wire quotes that Russia has been moving out of dollars and into euro's, and this might make other smaller banking institutions follow.)
In short the US economy is still strong, European economy is weakening, and Japan and China are still a question. Expected buyers in all the stock markets will play off the US administrations agenda and continue modestly higher with favored sectors outperforming. But eventually these gains will become muted for the above reasons. |
