In an amazing stroke of luck, Santa left a crystal ball under the tree for me last week. Despite trepidation at foreseeing the future, I felt obligated to take a peek and provide readers with a list of 11 surprises for the coming year.

  • Osama bin Laden is captured on Oct. 15 by U.S. Green Berets in an Iranian desert cave, outfitted with French kidney dialysis equipment and tended by Russian doctors. The discovery energizes President Bush's already surging campaign for re-election and pushes the Dow Jones Industrial Average above 12,750 for the first time.

    Democrats cry foul, complaining that the administration had pinned the al Qaeda leader months before and saved his capture for a rainy day. Yet their peacenik candidate loses his key foreign policy rhetorical plank and goes down to a landslide defeat that eclipses past losses by McGovern and Dukakis.
  • U.S. job growth stages a remarkable comeback on the strength of the Iraq rebuilding effort. Employment at Rust Belt steel makers, ore processors, mineral miners, sawmills, machinery makers and oilfield-equipment makers surges as the Bush administration puts tens of billions of taxpayer dollars to work in hammering, nailing and soldering the industrial and social infrastructure of the once-prodigious oil exporter back together.

    By the middle of the spring, the U.S. economy is adding more than 200,000 new jobs per month, and factory-capacity utilization hits a three-year high. Boosting manufacturing is a little-heralded clause of the 2003 tax cuts that allows accelerated amortization of capital-equipment purchases in this year, and businesses ramp up their purchase of all kinds of machinery, from computers and optical switches to looms and backhoes.
  • Congress makes the 2003 tax cuts permanent, frustrating financial bears who complained that this year's fiscal stimulus was a one-time hit of methamphetamine for the U.S. economy and would not be repeated in the future. The most controversial clause of the 2004 tax bill -- permanent elimination of the estate and dividend taxes -- provides a rallying cry for Democrats that the GOP is only looking out for the rich. The Democratic presidential candidate tries to run on a promise to repeal the tax cuts, only to find polls show voters like paying lower taxes for some reason.
  • Oil soars over $35 a barrel and remains there for more than 45 days in June and July after King Fahd, longtime leader of Saudi Arabia, dies and his heirs fail to decide quickly on a new leader. The world learns that Fahd has numerous full brothers, half-brothers and sons with competing claims to the throne.

    Half-brother Prince Abdullah bin Abdul Aziz Al Saud, long expected to take King Fahd's place, decides that both he and full brother Prince Sultan bin Abdul Aziz Al Saud are too old for the job, and sidesteps the line of succession by naming one of his own sons to lead the country. Fahd's full brother Prince Sultan, commander of the 100,000-man Saudi armed forces, objects -- and has his men attack Abdullah's 60,000-man national guard. Another full brother, Prince Nayef, the current minister of the interior who wields tremendous power within Islam as head of the Supreme Committee of the Hajj, attempts to broker a compromise and is assassinated.

    As the world looks on with horror, full brother Prince Salman, 67, head of the Saudi intelligence forces and the closest to Wahabi fundamentalists, emerges as the apparent winner of the power struggle and, in one of his first official acts, closes American military bases in the kingdom. U.S. equities swoon by 15% as investors fear higher energy prices and political turmoil will kill the broadening global economic recovery.

    Order is restored when President Bush sends in warplanes to back Prince Abdullah's side, and both Sultan and Salman's forces are crushed. Oil prices return to the $25-a-barrel range by late August, and the U.S. armed forces are able to retreat to their Riyadh barracks by the fall.
  • The Federal Reserve keeps interest rates at 45-year lows through all of 2004, despite the rise in jobs and the strengthening economy. Stocks decline in November as investors are certain of a rate hike in December, but the monetary policy leaders remain on hold by claiming the recovery is still tenuous and by noting a continued lack of inflationary pressure.
  • Gold prices plunge from the $485 level back to the $375 area in the late spring as central banks around the world flood the market with supply at those prices. Analysts declare that the selling has popped a metals bubble. Stocks of tiny gold and silver miners, which had emerged from under $1 to the $5-$10 range, collapse by 50% in a run for the exits. But just as the decline gets out of hand, the Saudi crisis emerges and metals prices stabilize. This turns out to be the best long-term opportunity to buy into the gold and silver rally since late 2002, and the yellow metal ends the year at $510.
  • Government corruption emerges as the next phase of the mutual fund scandal, as prosecutors allege that four mid-level bureaucrats at federal regulatory agencies were criminally complicit in the market-timing and late-trading scandals that rocked the industry in 2003. Plea-bargain agreements show the regulators were offered high-level jobs at mutual funds upon their exit from government and were wined and dined in the Caribbean and Aspen, Colo., in return for their agreements to tacitly sanction the behavior.
  • Standard & Poor's boots out four constituents of its flagship S&P 500 Index, and they go on to record an average 35% gain for the year. The gatekeeper for the index that is tracked by more than $1 trillion in funds kicks out spice maker McCormick (MKC), chipmaker Power-One (PWER), steel maker Allegheny Technologies (ATI) and housewares maker Tupperware (TUP) due to their market capitalizations below $1 billion and diminishing representation of their industries.

    Showing no remorse for their disastrous 2002 decisions to kick McDermott International (MDR) out of the index at $4.50 in August 2003 (it closed the year at around $12) and to kick AMR (AMR) out of the index at $1.50 in March (it closed the year around $13), the indexers add high-flying Web retailers Amazon.com (AMZN) and InterActiveCorp (IACI), biotech Gilead Sciences (GILD) and homebuilder Lennar (LEN). The new stocks decline 15% on average in 2004.
  • Small-cap oil and gas drillers become the hot sector for momentum traders in the first three quarters of the year. The move is driven in part by higher demand from the strengthening economy, but it's exacerbated by heavy merger activity that puts a rising bid under the stocks.

    Shares of micro-cap wildcatters such as TransGlobe Energy (TGA), Toreador Resources (TRGL) and Abraxas Petroleum (ABP) and small oil-services providers like Omni Energy Services (OMNI) double and triple in price.
  • Rich-content Internet advertising emerges as the hot tech trend of the year, attracting scads of venture capital to start-ups and momentum money to current public plays. DoubleClick (DCLK), the doyen of the group, advances 50% during the year but finds itself eclipsed by specialist direct and interactive marketers Modem Media (MMPT), Traffix (TRFX) and aQuantive (AQNT), as well as by the IPO of the new Web advertising leader, Google.

    International broadband Internet suppliers such as NTL (NTLI) and UnitedGlobalCom (UCOMA) are seen as ways to play the trend, as their high-speed networks provide the platform for improved product sales.
  • Chile, Brazil, Peru, Mexico and Argentina become more widely recognized for their improved domestic economies, strong commodity exports and safe havens for tourism. Despite bears' projections of major trouble because of high consumer and corporate debt and income disparities, their stock markets surge to new highs by the end of the year.
  • I'll monitor these projected surprises throughout 2004, and let you know whether Santa's gift of future-sight was crystal or cloudy.


    Oh, and one other thing. Last year's forecast at this time from Mr. P, an anonymous hedge fund manager who provides us with guidance from time to time, was pretty accurate.

    Here's his outlook for 2004:

    I believe the market is fully priced and that returns going forward will be dull, with low volatility, in the 5% to 8% range. Current low volatility implies unrealistic expectation of a low-risk geopolitical environment. Returns for investors will come from buying selloffs during periodic high-volatility events associated with terrorism risk, large European bankruptcies and big moves in currencies and commodities. The trend will be flat to up, however, as the Fed will continue to provide liquidity through low interest rates. In the fall, if it appears that Bush will achieve a supermajority in Congress to pass his political, financial and social agenda, then the market will be primed to soar in the fourth quarter and in 2005.

    Jon D. Markman is publisher of StockTactics Advisor, an independent weekly investment newsletter, as well as senior strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdm@oddpost.com. At the time of publication, Markman controlled accounts with positions in UnitedGlobalCom.

    More from Personal Finance

    9 Best Investment Books for Beginners

    9 Best Investment Books for Beginners

    How to Calculate Your Net Worth and Pin Down Your Financial Health

    How to Calculate Your Net Worth and Pin Down Your Financial Health

    The Best States for Millennials' Money and Health

    The Best States for Millennials' Money and Health

    U.S. Banks Urged to Make Small Loans In Competition With Payday Lenders

    U.S. Banks Urged to Make Small Loans In Competition With Payday Lenders

    How to Void a Check

    How to Void a Check