Technology disappoints as it becomes clear by the beginning of the second quarter that "double ordering" inflated recent revenue gains as the weakening consumers' appetite for electronics founders. Rapidly growing biotech names are embraced as their P/Es grow high into the sky and they become the New Big Thing, and market leaders. Housing-centric equities continue to deflate and mop up the rear.

12. Although private-equity M&A activity remains moribund, 2008 is highlighted by numerous mergers of equals as a weak U.S. economy necessitates the need for a strategy that produces synergies and cuts costs. Yahoo! ( YHOO) and eBay ( EBAY) merge. So do Amazon ( AMZN) and Overstock.com ( OSTK).

13. A weakening economy will also hasten a number of divestitures. General Electric ( GE) will sell NBC Universal to Time Warner ( TWX), which will not sell or spin off AOL.

14. Reversing its recent strength, the U.S. dollar's value falls by over 10% in 2008 (and gold rises to over $1,000 an ounce). Despite the weak domestic economy, foreign reserve diversification efforts and the demand for higher interest rates cause the yield on the 10-year U.S. note to move higher throughout the year.

15. The price of crude oil, insensitive to a weakening world economy, eclipses $135 per barrel after an "exogenous" event of terrorism, supply disruptions or political upheaval. The $100 level becomes the new $70! Surprisingly, energy stocks react in a muted fashion to the rip in price as, by midyear, the Democratic Party's populist view of a windfall tax on energy companies gains increased acceptance.

16. The Internet becomes the tactical nuke of the digital age. The Web is invaded on many levels as governments, consumers and investors freak out. First, an act of cyberterrorism occurs that compromises the security of a major government (similar to the attacks this year emanating from the Chinese military aimed at the German Chancellery) or uses DoS against media and e-commerce sites.

Second, a major data center will fail and will be far worse than the 1988 Cornell student incident that infected about 5% of the Unix boxes on the early Internet.

Third, cybercrime explodes exponentially in 2008. Financial markets will be exposed to hackers using elaborate fraud schemes (like liquidating and sweeping online brokerage accounts and shorting stocks, then employing a denial of service attack against the company). Fourth, Storm Trojan reappears.

17. The hedge fund community (especially of a quant kind) is disintermediated in 2008. Outflows accelerate, abetting an already conspicuous trend of rising volatility in a market that behaves more like a commodity than ever.

18. There are several major Enron-like accounting scandals in 2008, causing investor confidence to plummet. These will come in some large financial and industrial (rollup) companies in Europe and the U.S.

19. Democrats Clinton/Kerrey and Republicans McCain/ Crist represent their parties in the presidential/vice presidential contest in November. Ron Paul becomes the Libertarian candidate. In a remarkably close election (reminiscent of the Bush/Gore battle of 2000), the Democrats grab the White House.

20. The politics of trade become more fractious (even in the Republican Party) as angst about globalization escalates in the U.S., reflecting inequalities and a cyclical contraction in our domestic economy. Doha dies. And the new Big Things (and the source of liquidity for the capital markets) -- Sovereign Wealth Funds -- become targets of American politicians (and suppress U.S. equities further).
At time of publication, Kass and/or his funds were short C, JPM, RDN, CFC, BAC, AMZN, and long AMZN puts and calls, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.

If you liked this article you might like

Head-shaking Times; Thoughts on Autos: Doug Kass' Views

Shorting Facebook; Top Rope Elbow Drop on Wells Fargo: Doug Kass' Views

Portfolio Risks; Look at Investor Bases: Best of Kass

The Stock Market Could Be Reduced to Rubble, Doug Kass Explains

I Cannot Be a Cheerleader Because I Am Blinded by a Sense of History