Market Predictions for 2005: A Look at What the Future Holds

So now it’s once again time to make a few predictions for 2005…anyone who claims to know exactly what’s going to happen in the future is either in need of serious medication or has psychic abilities…I can’t make claim to either one.

Each New Year, millions of people around the world make “resolutions.” They swear an oath to either do more or less of something. Whether it be eating less or working out more, stopping smoking or volunteering… Most people see it as a fresh start to make a change and look into the future. I sit down every year around Dec. 30, and look back on what I had predicted for the coming year. Then I review comments I made throughout the year, and finally, I put my pen to paper and try to gauge what’s in store for the upcoming year.

I am often quoted by various media sources, for better or worse. It serves as a permanent record of my forecasts, and I can go back almost seven years now to read articles almost every day, from CBS MarketWatch, for example, that quoted me at the time. In those articles, I can get a real sense for what I was thinking and why I thought the market was going in the direction I predicted. I find this very useful, because it’s a good measure of how accurate my perceptions were.

Luckily for me, I am far more often right than I am wrong, or I wouldn’t likely be writing to you now.

For example, over a year and a half ago, I predicted oil would surge above $50 when we were trading around $28 or $30. Then again, in September 2004, on CBS TV, I predicted that we will see $60 after crude retested the low, around $36 or $40.

Market Predictions for 2005: This Year’s Forecast

So now it’s once again time to make a few predictions for 2005. Let me explain my criteria for predictions. First of all, anyone who claims to know exactly what’s going to happen in the future is either in need of serious medication or has psychic abilities…I can’t make claim to either one.

However, in my opinion, you really don’t need to be psychic. You simply need to make general conclusions based on past trading history and current events.

So below are a few of my straightforward predictions for some of the major markets. All are subject to change and adjustment as events as the year unfolds. That’s why we have a newsletter, in order to keep you up to date. The point is all of these predictions serve as a macro base of my viewpoint, just as technical indicators do, and seasonal trends as well. But all are subject to change.

A good trader is flexible when need be. However, I feel strongly that the predictions below are very likely and serve as a good barometer for a market that is heating up fast with investors, the resource markets:

Crude Oil: Will trade between $38-52 for year. Crude will spike at some point to $60 or above, possibly significantly above, depending on the severity of events. I believe as high as $100 per barrel. I believe there will be an attack on a major oil installation in Saudi Arabia in 2005.

Unleaded Gasoline: On the retail side, I believe we will see $3 gas again this summer. On a more widespread basis, supply levels are not seeing the builds they need this time of year, and this is likely setting things up for a summer similar to 2004.

Natural Gas: Will continue to gain favor, but will be extremely volatile as it moves ultimately toward the $8 mark.

Coal (Equities): Coal companies will continue to grow throughout 2005 as the world energy complex is strained to capacity. Companies to watch: CONSOL Energy (CNX:NYSE) and Foundation Coal Holdings (FCL:NYSE).

Gold: Prices will certainly be determined by dollar strength or weakness. However, if the dollar resumes its decline, as I feel strongly it will, gold could reach the $500 mark before summer. I feel the upside potential for gold is to $550, barring any major event or a complete collapse of the dollar.

Shipping Companies, Drillers, Refiners and the Major Oil Companies: Will all have another record year of profits and see their share prices climb significantly.

A Crude Oil ETF: Will be launched, and the Nymex and its membership will be the force behind the development.

Market Predictions for 2005:Stay tuned!

With the resource markets gaining huge market share, few investors will be able to turn away from this important sector – a sector that has long been shunned as “high risk” and gambling.

Jim Rogers, the famous “Investment Biker” and guru, is also the creator of a commodities index and matching mutual fund that carry his name. “Everybody has a brother-in-law who bought soybeans on a 5% margin and then got wiped out.”

But things have changed. Did you know that an NYSE membership trades for under $1million for the first time in a long time, yet a New York Mercantile Exchange membership just sold for $1.7 million? The commodities markets are gaining in stature and respectability and can’t be brushed off as easily by old school money management professionals anymore.

The raging bull of the commodities sector has been growing by leaps and bounds. Jim Rogers points out, “People who have always ignored and scoffed at commodities can no longer afford to do so.”

The reasons are simple: Supplies of many vital commodities are declining, yet demand continues to explode as the economies of China, India, developing countries and many other nations continue to grow at an exponential rate.

An astute observation from Rogers is that prices move to the extremes. This has happened so many times since 1960 that “You would have made more money in the last 45 years in commodities than in stocks and bonds,” he says. “You would have had less risk and a better inflation hedge.”

So one prediction I will stand by 100% is that the future of the resource markets and related equities is solid and will keep growing as demand for raw materials, foodstuffs, energy and anything else the world uses remains in high demand and short supply.

World Events:

The Dow will reach 11,000-plus, but will finish the year lower.

China and India will begin cutting more and more deals with Russia, Venezuela, Nigeria and elsewhere, as the Chinese population is projected to grow by 60 million in five years.

The United States will entangle itself in yet another crisis, this time in Iran, and the results will be even worse than Iraq.

Russia will continue to recoup its “plundered” natural resources and the companies that use them, similar to the YUKOS battle. This will caution investors from the West, but will ultimately have little effect.

As a wise trader once told me, “Yesterday is a canceled check, tomorrow is a promissory note and today is a gift – that’s why we call it the present.” Good luck in 2005, and good trading.

Kevin Kerr
January 2005

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