What the Smart Money Thinks

Everyone had an opinion on oil prices, noting that the previous year Bianco's forecast of an oil price over $55 a barrel had been startling. Now, several were factoring into their forecasts the impact of oil approaching -- or exceeding -- $100 a barrel in 2006.

Perhaps most astonishing, no one in the group was forecasting a recession. Some thought gross domestic product might slip to around 2% by the end of the year, while others stuck with forecasts around 3.5% (compared with an average of 4.1% growth over the last two years).

Crystal Ball Gazing

If someone had a crystal ball a few years ago and had forecast that the Fed would raise short-term interest rates 13 times, oil would be near $70 a barrel, and the federal budget deficit would exceed $400 billion, you'd definitely have figured the economy would be staggering into recession by now.

Instead we have interest rates on 10-year bonds at only 4.37% -- actually flat or below some shorter-term rates -- and an economy that is still growing. Alan Greenspan called it a "conundrum" last February, and it remains so today, though there are many explanations.

Bianco says that 2006 is likely to be a continuation of 2005, though with slightly slowing growth. He figures short-term rates will remain higher than long rates all year, cutting into the profitability of the financial services sector. Still, he prognosticates that the Dow could rise as high as 11,500, and that the Nasdaq will end the year around 2300. And he figures we'll live with oil around $70 a barrel -- a price driven by demand, and necessary to encourage more exploration and production.

His outlook for consumers' personal finances is a bright one. Bianco says too many people are forecasting the end of the housing market, which he figures will stay strong in most parts of the country this year. After all, he notes, most people with adjustable-rate mortgages won't face a reset for another two years. And if inflation picks up a bit, it won't bother consumers who see it as beneficial for home prices.

Of course, all those forecasts could go out the window in the event of an unexpected terrorist or health threat. But we've weathered some of those in the past -- as well as all those interest rates hikes -- and our economy remains strong. The "smart money" doesn't seem worried. Maybe that's the best indicator of all. And that's The Savage Truth.

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