June 16, 2006
Using the clarity of a sunny day to noodle the future, Fri., 6/16/2006 8:49 AM
Today is one of those remarkably brilliant clear days across Lake Ontario. So I decided to polish up the Cara Crystal Ball to see what the future might hold.
I see… nothing…
Just kidding. Have you ever known me to see nothing? Even when nothing exists?
The view I’m getting is that the rate of growth in current technology developments (see Flash memory for example) will drive immense productivity gains in the next few years. With new super-chips, not just in flash memory, I believe there will be a whole new level of software applications coming.
With these revolutionary new developments, I think there will be huge replacement demands on technology producers that are positioned to exploit the future, not just cope with the present.
The same replacement demand will happen (surprise, surprise) in the automobile industry, which is a huge component of the U.S. economy (and a major user of chips).
And the high cost of oil will start to weaken as alternatives (nuclear, LNG, wind, fuel cells, etc) are used. That will help put buyers into the auto showrooms (physical and mostly virtual showrooms).
Meanwhile, with the massive capital investment that has moved from the U.S. into the emerging economies (China and India) and the out-sourcing of production to those nations, I see a super cycle of relatively low inflation ahead.
So the intermediate-term bull phase in gold that I believe started on Wednesday is likely to be one of the last ones, probably terminating in a new price high -- with probably a melt-up spike happening at the end, similar to 1980.
I believe the timing of the price peak will be early in 3Q08, the point that the next broad equity bull reaches its peak. The timing will possibly be when the Chinese proudly show off their gold at their precious Olympic Games. It could also be around the time – about then – that the U.S.-Iraq war is brought to a conclusion by pressure from Congress.
Between 3Q06 and 3Q08, with massive volatility in capital and forex markets, I think there will be huge opportunities for traders of gold and gold stocks, and I’ll be there. But during this phase, I think we should all be shifting our focus away from commodities and back to financial assets.
That’s not to say that commodities will go into a bear like 1980, which persisted for 20 years. It’s just to say that unallocated assets (cash and gold) will start to be employed in capital markets (stocks and bonds) like, say, 3Q82.
Because of the current bear in technology, and the marvelous technology developments on the horizon, I believe that tech will be the next play, probably starting in 4Q06 or 1Q07.
As the yield curve starts sloping higher at the long end, the banks will join the techs as leaders in the next bull market.
And because I think that the Fed and the Administration will enable a soft landing for the U.S. housing market, I think the growth in personal incomes and the wealth effect coming from the next bull market in equities will drive consumer discretionary stocks too.
I'm starting to think that my bear market low forecast of Dow = 8800 is a good one, rather than say 8200. I don’t see how, short of a depression, corporate cash flow, dividends and share buy-backs, could fall off to such an extent that equity markets would drop lower than 8800 on the Dow.
The Cara Crystal Ball is saying that I will make some changes in the Cara 100 in the next several months, to be timed with a market bottom. I will not (likely) change anything in the Energy, Consumer Staples, or Financials (certainly not the big banks). But I have been looking at some Consumer Discretionary and Technology companies that appear to be better positioned for the next five years than some of the present Cara 100.
I will not add Apple to the C100 because my crystal ball is telling me the success of the iPod and the change in marketing strategy (hugely positive) at Apple in this business cycle will likely be duplicated by other companies in the next one.
With the advent (success?) of programmed trading – mostly by bankers and hedge funds -- and the phenomenal growth in retail trader sophistication around the world, I think the future for trading markets is a colossal one.
Finally (for now anyway), I see myself going back into the trading business – for what will be my fourth kick at the can. I just love kicking that can.
(...)
j.