2004 Economic Predictions

Well it is that time again, another year over and a new one has begun. I hope everyone is re-energized and ready for another year of profit making and profit taking.

I’m ready to lay it on the line, stick my neck out and provide you, dear reader with my forecast for the coming year!

Too many market pundits suggest that stock indices have begun a new bull market in 2003. I for one feel that they are already over-inflated (the pundits as well) and don’t expect to see nearly the same growth in the NASDAQ or the Dow this year as last. In fact after first and second quarter earnings I expect to see a lot of sideways action with a downward trend beginning.

Interest rates will be higher by the end of the year but I can’t imagine they will be significantly higher. The Fed will have to increase rates to entice foreigners, as well as domestic entities, to continue to buy treasury and other government debt issues. Continued attempts at stimulating capital spending with an eye to growth will keep a cap on the rates.

I foresee some sort of debt crisis looming on the horizon. With a daily shortfall of a billion or so dollars and lenders growing weary and cautious… something has got to give. Don’t expect any additional tax breaks…no matter who gets elected and whatever promises they made.

Real estate demand, I predict, will soften. Rents are coming down in some key geographical centers, making it more attractive to rent again…and besides, if you didn’t buy a house in the last couple of years…what would make you do so now? Investment at the top of a prolonged market “rise” makes little sense.

In terms of employment, I think we will see a furthering of the trend where good IT and manufacturing jobs continue to move offshore to less expensive labor centers. The only real employment growth will come in areas the government doesn’t really want to brag about, i.e. low paying and unskilled.

Economically, I predict we’re in for another tough year. Profits will be hard won and growth barely visible. I think the impacts of tax cuts have run their course and it will become increasingly difficult to stimulate growth through conventional means. Foreclosures and bankruptcies will continue, unaltered by our nation’s much-heralded economic recovery.

My regular readers must have, at this point, begun to wonder when I would get to the gold, so to speak. Well here we are, and, as I did for 2003, I predict gold will be worth more per ounce at the end of this year than last.

We will see a elegant dance between a declining U.S. dollar and a climbing bullion price. On occasion the dance will not be so pretty, like when Japan’s central bankers run out of protection money. The Euro will reign supreme and become increasingly a replacement for the mighty greenback. Heck we may even see OPEC adopt Euros.

All the best in the coming year,