Two articles follow:
#1 Expectations . . . and notations
By Donald Lambro
URL:http://www.washingtontimes.com/commentary/20031231-083502-5870r.htm
Forecasting is a risky business at best, especially in a world where terrorism is unfortunately common. While there are too many uncertainties to predict the distant future, it is possible to make reasonably sound judgment calls about near-future events based on analyzing shorter-term trends. With that, here are my predictions for 2004.
The economy: I expect the U.S. economy to surprise all the experts and turn in a much stronger performance than the current consensus forecasts. I see 5.5 to 6 percent growth for the year, propelled by the tax cuts, declining oil prices, a more rapidly expanding global economy (especially in Asia), new free trade agreements, and a slightly more stable international situation in key trouble spots.
Here at home, stronger growth will sharply increase tax revenues, and that will shrink the federal budget deficit and help ease the tighter fiscal situation in the states. Unemployment will continue to decline (I see it at about 5.4 percent) with the arrival of jobs in health care, financial services, the building trades and the technology field.
Spurred by much stronger corporate earnings and a sharper upturn in capital investment, the Dow will skirt 11,000 by year's end. Inflation will remain tame but interest rates will rise somewhat, though they will still remain relatively low.
A big factor in the U.S. growth rate will be exports. Growth rates in Europe, Japan and elsewhere in Asia will be higher than expected, and that will encourage faster U.S. export sales. India, Russia and China will be among our biggest customers.
Iraq: The guerrilla war being waged by Iraqi and foreign terrorists in and around Baghdad and elsewhere in the country will continue for the time being, but that won't stop the movement toward a free, independent, pro-Western Iraqi government.
Look for a handover of authority to a provisional government sooner rather than later, perhaps this spring, with elections and a constitution to follow. Stepped-up training and recruitment of Iraqi soldiers and police, and a growing private anti-terrorist militia, will keep al Qaeda killers and Saddam Hussein loyalists at bay as the new government takes hold. With that, the ground role of the U.S. military will decline. Our role will gradually be reduced to military training and supply, infrastructure assistance and, when needed, military backup.
The war on terrorism: The likelihood of terrorist attacks in the United States and Europe is increasing, but anti-terrorism forces are stronger, smarter and more broadly deployed. Anti-terrorist technology is getting better, too. Chemical, biological and explosive sensors will be much more effective in guarding transportation industries and the nation's infrastructure.
Our defenses are a work in progress that will only improve over time, and that includes the proactive military engagements we have undertaken in the heart of terrorist activity in the Middle East.
Congress: Getting a budget passed that will gently apply the brakes on spending would be a big achievement, but don't hold your breath. Congress always spends more in an election year. Don't expect much in the way of new legislative activity.
President Bush will call for final action on his remaining agenda, which includes tort reform and an energy independence bill. There will no doubt be some beef inspection reforms passed. Mr. Bush will call for further reforms to broaden portable, tax-free savings and retirement investment accounts, and some action on that could happen before the year is out.
Elections: This is shaping up to be a major year for Mr. Bush and the Republicans, and promises further retrenchment for the Democrats.
No incumbent president has ever lost re-election when the economy was growing at 4 percent or better and unemployment was falling into the 5 percent range. If Howard Dean is the Democratic nominee, as appears likely, Mr. Bush will win an electoral vote landslide — sweeping the Southern and Western Plains states and picking up key states in the Midwest and Northeast. California remains up for grabs.
Look for Republicans to strengthen their control of the Senate, picking up at least three of the five open Democratic Senate seats in North and South Carolina, Florida, Louisiana and Georgia. The House will remain in Republican hands with little change in the political lineup.
Thus, Mr. Bush will enter his second term with the larger political mandate he needs to pursue a more ambitious agenda: making his 10-year tax cuts permanent, strengthening Social Security by creating individual retirement investment accounts, and proposing health insurance for all uninsured workers via tax credits.
The coming months will no doubt pose many dangers for the United States, both at home and abroad, but we've never backed away from such challenges before. In many respects, 2004 is shaping up to be a much better year than 2003 — as long as we keep the terrorists frightened, defensive and on the run.
Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.
#2 The Bulls Returned in 2003, but Will They Stay?
Wednesday, December 31, 2003
URL:http://www.foxnews.com/story/0,2933,107113,00.html
NEW YORK — Investors celebrated the long-awaited return of the bull market in 2003, snapping up shares after three years of bitter declines. But 2004 arrives with a warning for an increasingly exuberant Wall Street: The best of the gains is over.
With stocks advancing since March on investor hopes for a strong economic recovery, the three main gauges are trading at their highest levels in nearly two years.
Stiff challenges for the coming year, however, include the risk of rising interest rates, a widening mutual fund probe and investor overconfidence.
"In 2004, the first issue is for individual investors to get their expectations in line," said Robert Froehlich, chief investment strategist for Deutsche Asset Management in Chicago. "When we started this year, no one thought anything positive was going to happen."
"Now that the Nasdaq is up 50 percent, many might believe we'll get 50 percent gains from here to eternity," he said. "But 2004 won't be as strong."
Market forecasts for the new year are certainly more modest, ranging from a flat performance to a 15 percent advance. At least one analyst believes that after a decent rise in the first half of 2004, the Dow Jones industrials (search) will slide from over 10,000 back to 8,000.
In 2003, the three main gauges have posted solid double-digit gains, with the Nasdaq reaching 2,000 -- last seen Jan. 15, 2002 -- and the Dow crossing the 10,000 milestone, the first time since May 31, 2002.
Analysts cite several risks to the market in 2004, both fundamental and technical:
-- With short-term interest rates at a 45-year low, the Federal Reserve (search) faces increasing pressure to raise rates to stave off inflation in a recovering economy. Indeed, at its Dec. 9 meeting, the Fed issued upbeat comments about the economy that some analysts believed signaled a possible rate hike by mid-2004. Higher rates could dampen consumer and business spending, which are critical to a solid rebound.
-- A presidential election year typically sees more modest stock gains, of about 7.3 percent, compared to a robust 16.7 percent in the third year of a presidential term, according to the Stock Trader's Almanac (search). Experts attribute that to political uncertainty in an election year and a "juicing" of the economy by incumbents in the third year that loses effect over time.
-- State and federal regulators continue to widen their probe into shady trading practices in the mutual fund industry. While individual investors have largely stayed put in funds, more revelations of wrongdoing might rattle confidence and spark selling.
-- In general the value of stocks is a bit high relative to companies' profits, particularly in the tech sector. Many analysts believe stocks are due for a pullback of about 10 percent or more.
"It's pretty dangerous when investor consensus gets very bullish at the same time valuations are getting stretched and risks are high," said Bernie Schaeffer, chairman of Schaeffer's Investment Research. He forecasts a Dow 8,000 by the end of 2004.
Still, investors can't help feeling upbeat.
Ted Kennedy, an executive for a franchising company in Ann Arbor, Mich., recently began increasing his shares in health care and consumer cyclicals, which typically do well during an economic recovery.
"There is life after recession," Kennedy said. "The decline that happened during the last bear market was the most significant in my investment lifetime -- I had never seen a drop this sustained. ... Now I'm more optimistic."
That attitude is in sharp contrast to how investors felt when dismal corporate profits, terrorism fears and accounting scandals sent the Dow to a five-year low and the Nasdaq and S&P indexes to six-year lows on Oct. 9, 2002.
That date turned out to mark the end of the bear market which began in 2000 -- the first three-year downturn since Franklin D. Roosevelt (search) was president in 1941 -- as investors came back in 2003, lured by rock-bottom interest rates, a $350 billion tax cut package and optimism after the war in Iraq subsided.
Analysts say the good economic news will continue in 2004, but with investors upbeat, much of the strong data already has been priced into the market. That could make stocks resistant to a significant advance and vulnerable to declines should the data unexpectedly disappoint.
In addition, the market historically has seen short-term "cyclical" bull markets happen within a longer-term "secular" bear market. Some analysts believe a secular bear market began when the tech bubble burst in 2000; if so, that could mean fleeting gains in 2004.
"With rates rising, more of the surprises in 2004 will be on the negative side than positive," cautions Tim Hayes, global stock strategist at Ned Davis Research in Venice, Fla. "The market has now gone up for more than a year. It wouldn't be unusual to see a stiff correction." |
