2003 in Stocks: Four in a Row for the Bears

The Fed also can't do much to prevent more damaging developments in corporate America. Lenders will feel more pain. Credit card lender Metris(MXT Quote) will file for bankruptcy protection in 2003 and AmeriCredit(ACF Quote) will trade under $5 by the end of the year. Capital One(COF Quote) looks set to fall to $20 or below. If the bottom falls out of the housing market, impairing mortgages to people of low creditworthiness, many big-name banks could get hit.

In fact, two of the three biggest corporate events of 2003 will be in the financial sector. Fannie Mae's(FNM Quote) earnings will fall well below expectations next year, sparking a strict regulatory crackdown on the government-sponsored behemoth.

Second, the surfacing of serious problems at GE Capital, General Electric's(GE Quote) gargantuan finance arm, could drag General Electric stock to as low as $15. The third big corporate story for 2003 will be Tyco's(TYC Quote) struggle to pay back the crushing $12 billion of obligations that come due next year. Only an unprecedented amount of grace from its creditors will allow Tyco to avoid a bankruptcy filing.

The News From Outside of New York

Investors also must contend with negative political events. The likely war with Iraq will turn out to be the cakewalk the hawks expect, causing stocks to rally sharply and oil to plunge in the month or so after Baghdad is taken. And the U.S. colonization of the country won't be problematic for the first two years. No, Iraq becomes a negative only when the Iraqis get sick of being run by the Americans and local guerillas start to target the U.S. military units. Alas, a quick victory in Iraq will be more than offset when Brazil's new president, Luiz Inacio Lula da Silva, decides to default on the country's $260 billion of foreign debt -- probably toward the end of next year.

The Japanese economy will resume its tailspin, going by recent signs that the reformist Prime Minister Junichiro Koizumi has ditched his pledge to cap government debt issuance. However, the really big international economics story for 2003 will be increased discussion of the awful implications of the inevitable collapse of the Chinese economy. The actual crash may not happen for two years, but the market will start pricing it in next year.