Six for '06

01/06/2006 12:00 am EST

Focus:

Lawrence Edelson

Editor, Real Wealth Report

In an intriguing combination of talents the Safe Money Report features commentary and stock selections from both Martin Weisswho focuses on more conservative ideas and Larry Edelson, who covers the speculative positions. Here, the latter outlines six forecasts for '06.

Forecast#1: The Deficit Twins will Soar

"Every year since 2002, we've seen triple-digit deficits piled onto the $8 trillion Mt. Everest of debt owed by the US government. This year, we'll add another $319 billion according to the White House. Despite the administration's efforts to whittle away the trade deficit through dollar devaluation, the trade deficit will keep on climbing as long as (1) imported goods (especially from Asia) are more attractive to American consumers than American goods are to foreigners and (2) we consume more oil than we can extract from our own lands.

Forecast #2: US Dollar Rally Will Run Out of Steam

"The fundamentals that have been devaluing the greenback since 2002 remain steadfastly in place. The rally in the dollar in 2005 gained back only about one-third of what it has lost since 2002. A meager bounce at best. I haven't changed my view that a dollar collapse lurks in the shadows. I suspect that when the shaky false props under the dollar snap, the tumble will be swift, steep, and painful for the unwary.

Forecast #3: Inflation Will Accelerate Higher

"Many commodities have hit multi-decade highs. If this isn't inflation, I don't know what is. Maybe the government workers who compile the inflation numbers haven't been grocery shopping or driving lately. As I see it, the only reason the American consumer hasn't yet had a swift kick in the pocketbook from inflation is because corporations have been absorbing the rising costs of materials and energy to stay competitive with cheaper foreign goods. But they can't keep doing it indefinitely. Keep your eyes open and protect yourself. Inflation is just beginning to accelerate higher.

Forecast #4: The Bernanke Fed Will Continue to Raise Interest Rates

"The consensus says the Bernanke Fed will continue to nudge interest rates up in "measured" increments as they have been doing since June 2004. When inflation strains at the reins to break out into a trot and then a gallop, the Fed will have little choice but to yank on the bit with more rate increases to maintain control.

Forecast #5: China and India Will Exercise Ever Greater Influence on the Global Economy

"With a combined population of 2.4 billion potential consumers—one-third of all humans on earth—the two Asian powerhouses keep posting numbers that make economists and marketers salivate. Having spent a lot of time in China this year, I see no evidence of any significant slowdown. Barring any major catastrophes, China will be an economic powerhouse through 2006 and for the foreseeable future. India has only recently begun to play catch-up. But now it is coming on strong and closing the gap. The rising economic tides of China and India will also help lift the economies of other emerging Asian countries.

Forecast #6: Gold Is Headed for $740.

"When gold was at $260, I forecast a rise to $500. What's next? My first target is $540; my second is $618; and my third is $740. Let me make it clear this is not likely to be a straight-line progression from one level to the next. There will almost certainly be corrections along the way. These pullbacks should neither surprise nor alarm you. They are actually reasons for celebration—buy-on-the-dip opportunities to add more gold to your portfolio."

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