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Predictions
for 2004
The Year As We
Saw It
by Joe Duarte
December 31, 2004
2005 will likely be another year full of surprises on all fronts. In this report we review where we got our 2004 predictions right, and when we missed.
2004 Predictions
Stocks
What
we said:
In true Presidential Cycle fashion, we expect stocks to be higher at the
end of 2004. Somewhere in the first half of the year, we expect a
significant correction. This may be seen as a time correction in which
stocks move sideways or remain range bound, as they did in 1994, for
several months. Or they may begin to move down, either steadily or
violently, as profit taking takes hold of the market. By the May to July
time period, barring a major external event, we expect the market to start
a rally that moves into the election time frame.
Drug and biotech stocks will be among the best performing sectors along with financial stocks and technology consultant firms.
Japan and Asian markets may provide upward surprises.
How
we fared:
This was a pretty good set of predictions.
Stocks had a good size correction early on in the year and bottomed in
August, with a 12% rally in the S & P 500 off of the bottom as of
December 28.
Biotech stocks were up some 13% for the year as of December 28, while drug stocks down hard, although they were showing signs of trying to recover by the end of the year.
Technology consulting firms, mostly IBM and EDS were flat for the year as of 12-28, but did rally off of the market bottom in August.
Interest Rates
What
we said:
Market rates may rise, but are unlikely to move to the 5% yield on the
U.S. Ten year note.
The Fed won’t change rates if they haven’t done so by the summer.
How
we fared:
We didn’t do too badly here either. U.S. Ten Year note yields rose to
4.85% in April, but were basically flat for the year as 12-28.
The Fed didn’t wait until the summer. They just got going, and going, and going…
Oil and Natural Gas
What
we said:
We expect crude oil to remain between $25-$35 per barrel in 2004, and to
otherwise adhere to general seasonal tendencies.
Natural gas should remain above $4.
How
we fared:
Boy, did we miss this one. Oil prices rose to $55 per barrel by October,
and might end the year somewhere around $40, $5-$15 above our target band.
Thanks to technical analysis and the fact that we are easily humbled, our energy stock portfolios managed to do well for the year, despite our bad prognostication.
The moral is that you can make all the predictions in the world, but you should still trade the markets as they are, not as you think they should be.
On natural gas we did better.
Geopolitics
What
we said:
President Bush should win the election in 2004.
Hillary Clinton has a 50-50 possibility of running for President.
A Howard Dean nomination will pose a major challenge to the unity of the Democratic party.
Expect big developments in Iraq, Iran, Afghanistan, and Syria. More specifically deals will be cut, and significant revelations about former relationships will be uncovered.
Venezuela and South America will heat up as places of political intrigue and perhaps even become significant terrorist havens targeted by the U.S.
Chances are higher than most expect for the capture, killing, or severe damage of Osama bin Laden.
Russia’s Putin will attempt to move closer to Bush and the U.S. oil industry after his re-election in March.
Expect a major attempt to remove the PLO’s Yasser Arafat by any and all means.
If Colin Powell leaves the State Department, consider James Baker a high choice to become his replacement.
Wolfowitz and or Rumsfeld will leave the Department of Defense.
And finally, no one will still know where Vice President Dick Cheney is or what he does, if a Bush II re-election becomes reality.
How
we fared:
This was a mouthful of a section, covering
a broad set of subjects. But again, we did all right.
Bush won the election.
The Democrats did not nominate Howard Dean, but became a divided house just the same.
The situation in Iraq, Iran, Afghanistan, and Syria was also full of developments, as we predicted.
Iran, as we reported and chronicled became a hotbed of controversy with its nuclear program and the revelations of its involvement in planting false information with the U.S., through Ahmed Chalabi. The bad information was critical in Washington’s decision to use W.M.D. as an excuse to invade Iraq.
The Afghan elections were successfully held, and there is some hope growing there; feeble to be sure.
Venezuela’s Hugo Chavez secured his hold on power and is steadily moving toward what we expect to become a dictatorial Marxist regime similar to Fidel Castro’s in Cuba.
South America’s fastest growing export to the U.S. was crime, as Latin gangs on the East Coast were reportedly increasing their activity, especially near Maryland.
On bin Laden’s capture, we were way wrong.
On Putin, we were even more wrong, as Russia seems to be reverting to its old KGB guided Cold War days.
Colin Powell is leaving the State Department. James Baker ain’t interested. This was another miss. What we were thinking at the time we made that prediction is not retrievable from the mental archives. That’s probably a good thing too.
We did get the Dick Cheney disappearing act right though. After the election, the VP retrieved his invisibility cloak and probably went fishing.
Predictions for 2005
Here are our top predictions for the upcoming year.
2005 – A Year Of Reckoning
2005 might best be characterized as a year of reckoning, in which 2004’s scores are settled, and loose ends are tied. Unfortunately, score settling and loose end tying usually foster retribution, which means that although some factions in the geopolitical world might make inroads, in the larger scope of things, progress will be temporary.
Frankly, the odds of a major victory for any side in the current global struggle are slim, suggesting that a new, more volatile, status quo is all that we can hope for.
Predictions For 2005
Stocks
The first year of the Presidential cycle usually follows a pattern of a January-February top, with mostly sideways action throughout the year. Both rallies and declines are possible along the way. Timing strategies, sector, and individual stock selection are likely to be the only real way to make money in this market.
Expectations should be tempered as well.
The drug and biotech sector remains one of our longer term favorites. Small speculative biotechs with emphasis on stem cell and genomic-based themes may have their day in the sun, even if only in volatile spurts.
Large oil stocks also look as if they could be fairly strong, along with selected oil service stocks.
Large tech names might be a surprise.
This could also be a year where currency trends reverse and the dollar stabilizes and even could rally.
If the dollar rallies, it could be accompanied by a decline, or at least a decrease in the rate of rise of international markets.
China is the big question, with the potential for volatility rising, and a higher than expected probability of more scandals in the financial markets resulting from Chinese companies and their creative book keeping.
Interest Rates
The conventional wisdom is that the Fed will continue to ratchet up rates until the end of time.
Our indicators suggest that the Fed may pause for one or two meetings during 2005 and that perhaps rates will stabilize.
As with 2004, a rise above 5% on the U.S. 10 Year note yield, would be a negative for economic growth, and stocks.
Oil And Natural Gas
Given last year’s dismal forecast, we are a bit hesitant here. But, fearless as ever, on we plunge into the spine tingling forecast.
The key is two fold:
1)
Much depends what happens to crude oil at the $40 area, and whether Al-Qaeda
can actually do major damage to a significant oil installation.
2) What Russia does after its de facto nationalization of Yugansk, and
Putin’s maneuvering to keep the U.S. at bay.
Weather, especially hurricane season damage, and the extent to which winter is actually cold or not so cold will also be an important factor.
Geopolitics
Iraq will be the axis again.
Successful elections, a significant decrease of insurgent activity, and a push in the actual rebuilding of the country are the goals of the U.S. and the interim Iraqi government.
What they might get is a Shiite dominated government, followed by a savage crackdown on the insurgents by the Shiites, and the potential for some international conflict between Iraq, Iran, and Syria.
Al-Qaeda is likely to continue its attempts to destabilize the Saudi government.
Russia’s closeness to the U.S. is just about finished. But that doesn’t mean that Putin won’t flip flop and try it again.
The nasty surprises of the year could come from China, Africa, and Iran.
Look for India and China to become even more aggressive in their quest for global oil reserves. This could spark regional and maybe even international conflicts.
The U.N. food for oil situation could come to fruition this year. Kofi Annan is not out of the woods.
The Democrats will try to find something on Bush and the Republicans that could turn into a scandal. Watch for Rep. Henry Waxman to dig up the mud.
Expect a continued purge of the CIA, with possible extensions to the FBI, the State Department and maybe even Defense.
Rumsfeld and Wolfowitz are still not in the clear.
Colin Powell may be setting himself up to follow Kofi Annan at the U.N.
Hillary Clinton will quietly be making her move toward a run to the White House.
Hugo Chavez and Fidel Castro are up to something. And it can’t be any good for the U.S.
Latin American gang exports to the U.S. and their activity will likely increase.
Afghanistan’s heroin production and the Iranian drug and AIDS crisis will get no real major media coverage.
Vice President Cheney will once again rarely be seen. He’s really good at working quietly and decisively.
Conclusion
Geopolitics, oil, and natural disasters will be at the top of the catalysts.
2005 will bring new meaning to the phrase: “It’s A Small World.”
Editor's note: The following reports appeared on www.joe-duarte.com and www.intelligentforecasts.com on December 30 and December 31, 2001. Doctor Duarte wishes all a happy new year!
© 2004 Dr. Joe Duarte
Dr. Duarte's Bio and Archive
|
|
Joe
Duarte M.D. is founder and Editor in Chief of Joe-Duarte.com. Dr.
Duarte is a board certified anesthesiologist, a registered
investment advisor, and President of River Willow Capital
Management, where he manages individual client accounts.  His
latest books "Successful
Energy Sector Investing" and "Successful
Biotech Investing" (Prima/Random House) are available on
line at amazon.com, barnesandnoble.com, borders.com, Traders Press,
and all major online and brick and mortar bookstores in the U.S.,
U.K. Europe, and Australia.
Dr. Joe Duarte’s Daily Market I.Q. is a subscriber service that provides daily intelligence, trading strategies, and technical analysis at www.joe-duarte.com. |
