Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com . He's also a regular contributor to RealMoney , TheStreet.com's subscription site. If you'd like to see all of Jon Markman's RealMoney commentary, click here for information about a free trial.

If you thought Mother Nature was a crazy ol' lady this year, you ain't seen nothin' yet. By the time 2006 is done, the term "weather volatility" will replace "global warming" as the primary catchword of fearful investors, environmentalists and politicians.

While hurricanes are likely to return in force as a threat to Gulf of Mexico residents and energy producers in 2006, volcanoes will be the new hurricanes; South America will become the new Middle East; Google ( GOOG) will boggle; Canadian gas shale will become the new oil sands; the dollar will droop; and defense will be the new offense.

If you don't believe it, step with me into my time machine, where we can get a sneak peek at the six news events that will most surprise investors in the coming year.


Wind will stir up nearly as much trouble in 2006 as it did this year as a long-term cycle of heightened cyclone activity in the Atlantic Ocean and Caribbean Sea intensifies. Count on six major hurricanes with winds over 120 mph in 2006, with three making high-impact landfall on the U.S. Gulf Coast and impairing efforts by seaside dwellers and oil-platform owners to rebuild from this year's storms.

Major oil-services companies, such as Schlumberger ( SLB), will benefit, as will smaller and much more obscure players, such as Allis-Chalmers ( ALY). For clean-up work, keep in mind the post-Katrina 100% advance of Home Solutions of America ( HOM).

Gringo, Go Home

In 2005, we got a taste of the new tide of anticapitalist fervor gripping South America governments from the flamboyant President Hugo Chavez of Venezuela. He imposed retroactive taxes on foreign oil companies, threatened the nationalization of U.S. shareholders' assets and wrapped his socialist message in an anti-American flag.

In the past several decades, the U.S. became accustomed to dealing dismissively with hemispheric neighbors, such as Nicaragua and El Salvador, because they had scant resources or trade to offer. But the raging global demand for oil, copper, nickel, tin, bauxite and grain has shifted the balance of power slightly south. Now, when we really need Venezuelan petroleum and Bolivian base metals, new leaders with treasuries fattened by Chinese commodity buyers are giving us the cold shoulder.

On Monday, Evo Morales, the newly elected president in Bolivia -- and a former coca farmer -- put the Bush administration on notice that there was a new sheriff in town. He has vowed to hike state control of Bolivia's natural gas reserves -- reportedly the largest in South America after Venezuela's -- and cut the exploration and production role of multinationals such as ExxonMobil ( XOM).

If U.S. access to landlocked Bolivia's 53 trillion cubic feet of natural gas is cut off, it might be a positive for North America-focused producers. So, consider laying in shares of leaders like Chesapeake Energy ( CHK) and Ultra Petroleum ( UPL).

For a serious sign of change, watch the upcoming re-election campaign of staunch U.S. ally Vincente Fox of Mexico. A setback could bring turmoil to the energy market. And if you don't mind one last issue, consider that state-sponsored, anti-American terrorism from the south is not a factor today -- but it is something experts consider an increasing possibility.

Google's Scent of Success

The ascent of Google shares captivated investors' hearts, minds and portfolios in 2005 for a lot of good reasons. The company figured out how to monetize the process of discovery. We were lost, and now we're found. As Google pressed forward, it surprised skeptics by revealing that the combination of unobtrusive, relevant text ads with email, search queries and video is a legitimately disruptive technology.

Over the next year, Google is likely to introduce free, ad-supported competitors to the Microsoft ( MSFT) Office suite and push its ad-supported Web email solution into much broader circulation. There should be little doubt that it will offer a music service to rival Apple's ( AAPL) iTunes and Real Networks' ( RNWK) Rhapsody.

The advance of Google shares to the mid-$400 area has discounted a lot of the expectations for this growth. Yet strangely enough, it may not yet be wildly overvalued. Its 2006 earnings multiple is 50, which growth managers do not consider ridiculous for a premier, well-managed company with solid earnings and strong prospects. Expect the price to move substantially higher by midyear on enthusiasm for the market-share devouring beast of the Googleplex, where it will stall at the $666 level after achieving a $200 billion market cap and the mark of the devil.

Shale for Sale

Last year, I proposed that $40 would become the new $25 for those who buy their oil in barrels rather than cans. That was an out-of-consensus guess, yet underestimated the strength of the commodity this year. As $50 became the new $40 as a minimum for per-barrel oil prices, the vast and obscure oil sands of Canada became big news for investors. Companies with major oil sands exposure, such as Suncor Energy ( SU), were up as much as 100% this year, as the sands only become profitable to mine and refine with average oil prices at $30-plus.

The next big play in Canada is likely to be natural gas trapped in shale formations. Now, everyone already knows that Canada is big in gas -- but most of its production now comes from gas found in sandstone formations. Shale gas is big in the U.S. -- where the Barnett shale formation in East Texas and the Pinedale shale formation in Wyoming have made billion-dollar companies out of Ultra and Chesapeake -- but not in Canada.

According to fund manager David Anderson, whose Palo Alto Investors has been an early institutional owner of these outfits, Canadian shale and coal beds will become a rich target for gas exploration and development over the next year. Top players are megacap Encana ( ECA), mid-cap Quicksilver Resources ( KWK) and Canadian-traded small-cap Ember Resources.

Service companies that should have a shot at success with the shale surprise are Canadian outfits Trican Well Services and Calfrac Well Services, and the American drilling fluids provider Flotek Industries ( FTK). Key areas of interest are the Mannville coals and the Horseshoe Canyon coals in the province of Alberta.

Diesel Days

Over the past few years, energy-minded investors have come to recognize that oil is for transportation while natural gas is for industry. In the coming year, that line will become increasingly blurred, as higher prices bring "gas to liquids," or GTL, programs into the mainstream. This is the process by which hugely capital-intensive specialist companies convert natural gas into a form of "clean" diesel that can be poured into a vehicle's tank.

There's a lot more natural gas in the world than oil, so the concept -- if successful on mass scale -- will take the load off of petroleum-producing countries. In contrast to conventional liquefied natural gas, GTL is nonexplosive, easily transportable and does not require special port terminals.

The world's biggest reserves are in Qatar, Russia and Iran. The top company involved is big-cap Sasol ( SSL), which is based in South Africa but well traded on the New York Stock Exchange. Another play on clean diesel is Frontier Oil ( FTO), a Houston-based mid-cap refiner that specializes in turning the sourest, or highest sulfur, crude oil into usable fuel.

Life, Erupted

Now we're in the lightning round for surprises. Quickly, the rest of them go like this: The first half to three quarters of 2006 will be rough on equities, with the potential for a slide of as much as 15%. The first quarter of earnings growth should be fine, but a sharp slowdown in the second and third quarters, as higher interest rates finally bite, will really shock people. Just as the Dow declines under 9900, the dollar falls over, and fears emerge for the resumption of a 2000-2002 style bear market.

But stocks will stabilize and recover by late summer. The catalyst for the final spike down will be a massive volcanic eruption somewhere in the Pacific Ocean area -- perhaps Mexico or the U.S., but more likely in the Indonesia-Philippines-China-Japan zone. At first, the cloud of dust will spark doomsday scenarios of choked-off agriculture and imperiled photosynthesis. But intensified hurricane activity on the other side of the globe will mix up the air enough to avert disaster, and worldwide equities will recover.

American voters' dissatisfaction with the Bush administration's response to the crisis will lead to a stunning victory by Democrats and independents in the midterm elections, sparking optimism for political and economic stability in the 2007-2008 period. Stocks will trace out a bear market loss of 20% as forecast in the pioneering work of the reclusive independent institutional analyst Robert LaMorte; virtually all sectors and market-cap groups are hit hard except for Big Pharma and biotechs.

Don't agree with this forecast? Send me an email with your own 2006 forecast, and I will highlight the most compelling ideas in a future column. Put the word SURPRISE in the subject field.

Get Jim Cramer's picks for 2006.

At the time of publication, Jon Markman was long Exxon Mobil, although positions may change at any time.

Jon Markman, writer of TheStreet.com Value Investor, is publisher of StockTactics Advisor, an independent weekly investment research service. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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