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Are Your Stars Aligned for 2006?

At this time of year I like to look back at what we predicted, how things turned out, and what we are predicting going forward.  But first let’s look at what some others are predicting.

Don Hayes of the Hayes Market Forecast

“We are expecting one more squall, and then clear skies ahead. We are projecting the ……oh me, please don’t make fun of me…..but we are projecting the S&P 500 to move up over 30% in these next 12 months. We are projecting that the price of oil will fall to $42 a barrel, and that the yield on the 10-year bond will continue to remain close to current levels…or lower, as the fed funds rate is actually cut. We are projecting that commodity prices will stabilize a little lower than today’s level, and that the currencies of the major countries are currently settling into a range where they will remain for years to come. We are projecting a glorious coming out in the recognition of the massive “build-out” phase of the Technology Revolution in which every country of the world will either become Democratic and Capitalistic or they will be cut off from the world.” Reprinted with permission from Hayes Market Forecast

Kelly’s Comment:

Don has had an excellent year of forecasting.  I like his ability to look for the positive and also his discipline of selling into strength and buying into weakness.  I hope he is right in 2006.

The Elliot Wave Theorist – Robert Prechter

“The year 2005 ends with the Dow Industrials having produced virtually no gain while running in the tightest one-year trading range in its history. What it did produce was one of the most entrenched levels of extreme investor optimism on record, which is exceedingly bearish. The New Year will see the Dow, S&P and NASDAQ resume their respective bear markets that started in 2000. This time though, they will be led by the small- and mid-cap sectors, which are on the cusp of strong downward reversals. With a key time cycle pointed down hard through most of 2006, the stock market’s upcoming third wave decline should amply reward the bears. EWFF’s main bond forecast for the New Year is for a continuation of the widening spread between junk and treasury debt, which we first issued last March. Virtually all economists and strategists are dismissing the implications of the inverted yield curve in U.S. Treasuries. Our stance, which was detailed in an August Special Report, is the opposite. The inversion relative to bullish market expectations implies trouble ahead for stocks and the economy. Gold is at the front end of at least an Intermediate degree decline, which should draw prices toward an initial target near $445. Silver should also decline in the coming months. The U.S. Dollar Index remains in a multi-month upward correction that should ultimately carry to just beneath 100.” Reprinted with permission from Elliott Wave International

Kelly’s Comment:

The EWT has had a poor year with the stock market predictions.  They have constantly looked for the resumption of the Bear Market that began in 2000 and have been too cautious on the market.  I suspect that they are right but just early and being early predicting a down market leaves us all open to much criticism.   They called the turn in oil very well and also the recent top in gold.  Their analysis of currency has been fabulous but they do not look at the Canadian Dollar with the service I get.

The Dines Letter: - James Dines

As we study the unfolding drama, there has been remarkable strength in stocks, commodities, the US dollar and precious metals, even while real estate is in early-stage Top Formation and  scarcely-noticed bonds sink lower. The very fact that the Dow-Jones Industrial Average is approximately where it was six years ago suggests that stocks are churning in a rough balance between buying and selling, despite its puny year-end rally……….The very fact that there are so many markets making historic highs is in itself the type of "noise" that induces us to pull back with some caution until we can clarify in which direction the real leadership in 2006 will burst. ……………there could be an acceleration in uranium’s bull market.……………. we believe that gold strength is a function of an international flight from paper currencies.

Kelly’s Comment:

Mr. Dines has had a fabulous year.  He was suggesting being long gold and the energy sector and still suggests this.  He has been cautious on the stock market in the US for good reason.  No doubt Mr. Dines is quite the eccentric but he is a very astute market personality.



** I have prepared this commentary to give you my thoughts on various investment alternatives and considerations which may be relevant to your portfolio. This commentary reflects my opinions alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, I bring my best judgment and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of my informed opinions rather than analyses produced by the Research Department of National Bank Financial **