Stuart's 2006 predictions

Having been reading around the web what everyone thinks is going to happen this next year, here are my takes, below the fold. My chance to be grossly in error! Overall, I think 2006 is going to be like 2005, but a bit more negative.

Oil Supply

85mbpd +- 1 mbpd. I'm anticipating basically flat production, give-or-take. Efficiency gains in western economies and fuel switching away from oil to coal for power production will compensate for continuing increased driving in the wealthier developing countries. SUV sales will continue to be poor, and sales of smaller vehicles and hybrids will gain momentum.

Oil Price

$65 +- $20. I think we'll see high volatility, with the overall average a little higher than in 2005. I expect the average pace of price increase of the last few years to drop off a little as demand-side responses really start to take hold.

Natural Gas

NG will continue to have increasing price and increasing price volatility. US production will continue slight decline despite herculean efforts at drilling. Gas-to-liquids for transport fuel is going to start to look like a bad idea, because we're going to need all the gas we can develop for the current uses of natural gas. I do not anticipate actual delivery interruptions to end-customers in the US (nor even in Europe, though the chances there have to be somewhat higher given the Russia-Ukraine wildcard).

US Housing Market

I think we'll continue to see slowing in the housing market, and more stories like this one:
When she bought her two-bedroom condominium in Mira Mesa in mid-2004, Elizabeth Eure didn't envision herself one day sleeping on an egg-crate mattress in an empty unit. The furniture was gone in December because Eure was preparing to move, awaiting the close of escrow. After living there less than a year and a half, she had sold her home to cut her losses. Her monthly mortgage payment of $2,500 was too much for her to handle.

"It was a mistake," Eure, 29, said of the purchase. "If I could do it all over again, I would have rented an apartment."

There are $2.5 trillion in creative loans that start to increase payments beyond the initial teaser rates by the end of 2007. I expect to see further gradual slowdowns in the housing market in 2006, but real pain only appearing from 2007 onwards. I rent my house currently and I don't anticipate making any effort to buy a house again until the 2009 timeframe at the earliest. I think the US housing crash will occur in slow motion over 5-10 years. Young real estate agents should start working on plan B.

Overall economy

I expect worldwide economic growth to slow in 2006, but probably not to go into outright recession (I think the latter is pretty likely by 2007). Rural economies will hurt earlier and worse than urban economies (something those of you planning on "going local" should bear in mind).

Auto Companies and Airlines

At least one major US automaker will go into Chapter 11. At least one major airline will go into Chapter 7. In general, these and other corporate sectors will continue to shed their pension and health care obligations to employees and retirees.

Stock Market

Dow at 9000 +- 1000 by December 2006.

IT sector

I think the IT (information technology) sector will do better than most sectors other than the energy sector. There will be a gradual shift to using IT to save energy that will start to become more evident in 2006 but will not hit full stride for several more years.


Conditions will continue to deteriorate for the poorest of the poor in developing countries. This will lead to further increased attempts to immigrate illegally to wealthy countries, adding to the political tension we saw over this issue in 2005 (eg the riots in Paris, and the Minutemen taking matters into their own hands in the US).


2005 was either the hottest or 2nd hottest year on record, depending on who does the analysis (check out the RealClimate coverage). I'm sure 2006 will be hot too. I expect several landfalling hurricanes in the US. I don't anticipate quite the level of hurricane damage of 2005 though - some reversion to the mean is in order. I expect evidence to continue to emerge that the climate situation is a little more urgent and alarming than the 2001 IPCC consensus suggested, particularly with respect to ice-sheet changes and positive feedback loops in the climate system. I don't anticipate much political progress in addressing the issue, however.


I think we'll see the US declaring victory and withdrawing some, but not all, troops for political reasons before the US election and we'll see Iraq run by an increasingly barbaric Shiite theocracy with de-facto Kurdish autonomy continuing, and worsening insurrection by the Sunni minority. Oil supply from Iraq will not improve.


Allah has not chosen to share his mind with me here. Almost anything could happen between the idiot they elected for President, the idiot we elected for President, and trigger-happy Israelis.

US Politics

Lord Acton's law that "Power Corrupts. Absolute power corrupts absolutely" is alive and well in the Republican party. The explosion of scandal will continue and grow. However, Democrats will struggle to take advantage of it as they still lack any coherent political theory of what they should be doing. I do not anticipate true resurgence of the Democratic party until the country is in deep crisis.


I'm bullish on Russia. Geopolitical power is going to shift away from consuming countries like the US and towards Russia, Venezuela, etc. I don't foresee open warfare between the great powers any time soon - nuclear war looks no more like a useful policy option now than it did fifty years ago.

Civilization Collapse, Rapture, Alien invasion, etc

I estimate the probability of any of these events in 2006 as being negligibly small.

Wild Cards

These are long shot but possible events that could change everything:

  • Saudi revolution leading to massive oil shock. Alternatively, Venezuelan civil war.
  • Ultra cheap nanotech solar panels
  • Cold fusion becomes reliable energy source.
  • Coup in China
  • Al-Qaeda pulls off another major attack. I think those guys have been slow to recognize the potential for cyber-attacks on western interests, but it's hard to predict when they'll get around to it.
  • Bush forced to resign after losing support of Republican senators in worsening scandals.
even though it is not your forte health care in the united states and the lack of it for millions will come the front burner as more and more MIDDLE CLASS persons realize the lack of health care in this country
Wow! Stuart. Compared to Kunstler you're forecast is rosy. I think we are going to have nervous markets all through hurricane season. I think NG is about to get ugly. And I suspect we will see strong market stimulation by late spring to offset the housing slowdown.

Politically, after the slime dissapates from lobby-gate, we are going to see new battle lines. We are overdue for a green movement. The need to further exploit coal combined with  the reality of tar sands and oil shales will disturb everyone.

Russia just did us a big favor flexing muscle in Ukraine. Otherwise, I think we'd see significant pressure on the dollar. Still might.

I read Kunstler's 2006 predictions just before finding Stuart's.  I like Kunstler's much better, as they're so much easier to ridicule.  (I just love his prediction that the DOW will hit 4,000 or below in 2006.  Yowza.)

In general I think Stuart is right on the money.  I expect to the IT sector picking up the slack a little quicker than he does, and I'm not convinced any US carmaker will go into bankruptcy.  Although if it happens, I'm betting it will be GM, who is showing yet more signs of being so utterly frickin' clueless as to be beyond parody.  (See the GCC article for news about GM's incredibly lame efforts in hybrid technology.)

I notice that Stuart seems to be expecting that energy prices will be more notable for their volatility than absolute level, another detail I agree with.  The energy markets will be strung tighter than piano wires throughout 2006, and every little blip will send prices on another wild ride.  (In terms of giving people an incentive to be more energy efficient, this is almost as effective as high prices; volatile prices will induce a lot more uncertainty into energy costs, something people, institutions, and companies most definitely don't like.)

I was disappointed by the lack of mention of future pirates.  Those were cool.
Kunstler at his most delusional:

This will represent a moment of painful clarity for market professionals, as they realize that an industrial economy and the finance that serves it must be based on the expectation of generating real future wealth, not on zero-sum rackets, games of monetery musical chairs, or casino legerdemain.

Hah.  If the dot-com bust didn't teach them that, nothing will.  

I predict we will limp along for years, if not decades.  Tinkering with interest rates, tax laws, federal programs, etc., wondering why nothing seems to work.

I see the dotcom bust as only the first leg down and the partial recovery since late 2002 as a dead cat bounce. The next leg down should include the point of recognition of the new trend (the uh-oh effect) and should take us well below DJIA 7500. Kunstler's DJIA 4000 is probably a reasonable target for the next leg down, but I'd say it was more likely to reach that point in 2007. I'm also expecting a US dollar implosion over the same timeframe. Downward spirals of positive feedback can be very rapid as they are driven by fear, which is a very sharp emotion.
Politicians who preside over market crashes and subsequent economic collapse are highly unlikely to escape serious political consequences. I would therefore expect Bush to be ousted, one way or another, before completing his term in office.
Whoa!  Now that's a daring prediction.  

Though if things get really bad, I could see the GOP looking for any excuse to use Bush as a scapegoat and throw him overboard.  And there sure are plenty of reasons they could use.  Looks like Abramoff is going to sing...

I doubt very much that the Republican party will survive in its current form. The political fallout from the financial and economic debacle to come on their watch should be enough to tear it apart. I expect their successors on the political right to be even worse - fundamentalist, xenophobic, fascist etc.

The economic decline should last long enough to take out the Democrats as a party as well, remaking the political landscape entirely over the next decade or so. After all, with so many grossly unrealistic expectations to be shattered (to put it mildly) no matter who is in power, it would be naive to assume there would be no political upheaval as a result.


Take a look at Dick Morris' analysis - you seem to be in the same self-delusional bubble that many Democrats have created for themselves the last few years:

Remember that Dick Morris was, roughly, Bill Clinton's Karl Rove for many years.  He's got a hard-boiled understanding of real world politics.  He's not very likable but he usually has something cogent to say.

Frankly, it's the Democratic Party that is risking irrelevancy although I'd think that premature to assert dissolution or replacement of either party.

I agree with your general prediction that the political center will shift away from liberalism, political correctness, and multiculturalism as the challenges to the American way of life grow stronger and more visible.  The Democratic Party seems to want no part of that shift and so will be the relative loser.  We are in for a period of political turmoil but politicians are either adaptable or become FORMER politicians quickly in a democracy.

However, your use of the word "fascism" is inappropriate.  Suggest you read Boswell's recent biography of Mussolini to see why.

I am neither a Republican, nor a Democrat, and have little respect for either party. Fortunately, as I am not an American, I will never have to vote for either of them.
Stoneleigh is predicting the obliteration of both parties.  I think he's right.  Neither the Democrats or the GOP have the answers to the problems of peak oil.  And whoever is in power at the time TSHTF is going to get the brunt of the outrage.  
If the Kos energy proposal we've discussed on this board is representative of the Democratic Party's approach, and I think it is, then we have two broad philosophic alternatives:

Democrats - tax and spend and regulate

Republicans - let the market work

Of course, in power neither would be able to implement a purist approach but I'd think they will follow these general approaches.

In this case, I'd argue that the Republican approach would be more effective in allowing the economy to adapt with the least pain.  We have the experience of the Carter years to show that the Democratic approach certainly has its problems.

I will agree in advance that even the Republican approach will still require a reduction in standards of living and a lower economic growth rate. However, the central planning approach of the Democrats would surely lead to maladaptations and snafus at the system level.  I think American voters understand that.

IMO, you're arguing about who will do a better job of rearranging the deck chairs on the Titanic.  

As for what the voters will think...Stoneleigh's right: they will support whoever is NOT in power.  Whenever times are bad, they "throw the rascals out."  

Based on what has happened in other collapsing societies, I expect taxing, spending, and regulating to increase no matter who is in power.  The government has grown more under Bush and a GOP congress than it has since FDR; the GOP has not had real Libertarian leanings since Newt Gingrich was ousted.  

People and corporations say they want less government, but it's not true.  They want government programs, especially when times are bad.  They want their jobs and markets protected.  They want infrastructure built, to generate jobs and help business.  

The Great Depression resulted in the New Deal, and I'd bet the farm something similar will happen again.  

Of course, it won't work this time, but I seriously doubt any party that tries to "let the market work" will gain any traction when "the market" is letting children starve and little old ladies freeze to death.  

The important point, as you say, is that the party in power takes the blame. The problem is larger than any party and has been building for decades, during which both parties had spells in office. The electorate, however, seems to blame the party in power whether or not it is reasonable to do so (and whether or not the opposition has a viable alternative plan).

For instance, I don't think Herbert Hoover deserved the reputation he ended up with for presiding over the Great Depression. He couldn't prevent it, but no one else would have been able to do so either. It was the inevitable aftermath of the roaring twenties. In the current case, the party in power has acted as the aggressor in a 'pre-emptive war', disregarded the Geneva Conventions and undermined the rule of law, among other dubious activities. They seem far more deserving of their fate than Hoover.

Neither party has a viable strategy to address the coming crisis. Both are completely out of touch with reality in my opinion. Both are likely to try and fail in turn, and both will probably disintegrate. My fear is that a vengeful electorate determined to blame the rest of the world for their continuing misfortunes (probably not realizing that others are sharing in those misfortunes) may eventually chose a complete maniac - some sort of populist strongman bent on maintaining American hegemony at any cost. It's hard to imagine a rational Powerdown scenario under those circumstances.

Re:  Kunstler & his Dow 4000 Prediction

The Dow Jones index was at 4,000 only 10 years ago, in 1995.   Assuming that the stock market reflects the estimated discounted present value of profits, what happens to those profit estimates as energy costs continue to increase?  

Also, consider the fact that we have a net negative national savings rate.   The American consumer is facing higher energy costs, higher health care costs, greater competition for jobs and higher interest rates.  What effect will forced reductions in consumer spending have on corporate profits?

GM is estimating an improvement in fuel economy of 25%, thereby taking the Tahoe into the low- to mid-20s mpg US range.

...Wow, dad....a tahoe!.. can we get one?

Kunstler knows how to write some fun destruction.  His columns are a roller-coaster ride.

Statistically, the safest bet would be to say that next year will be a replay of the last, with minor changes.  That's the case most of the time.

The trick is predicting the game-changer, the 1929, or as a closer parallel to oil, the 1973 or 1979.

I think such things are unpredictable, but that you can make a perfectly good living by predicting them ;-)

I'm already caught between a building committee that wants lots more roof insulation and a construction management firm that tells us that rigid insulation costs have spiked.
Let them eat cake, er use flexible insulation instead of rigid.
Batt insulation works well fitted between wood joists at 16" or 24" on center, but we have open-web metal joists at 54" on center.  You can run bands or wires along the lower chords of the joists to carry taped-together batts, but you won't have much of a vapor retarder, and any strong wind may toss your batts around above the ceilings

I am proposing that my firm proactively reevaluate our insulation practices now, before all our clients ask for more insulation.

Well, I see I'm off to a good start. The NYT reports that Independence Air to Shut Down. I don't think we can call them "major" however, so perhaps I can't score a point yet :-)

Yeah, I am kind of bummed about that.  It was a good airline and I flew them a couple of times.

I am figuring it will be one of United, American, Delta, or Northworst that will die.  Several of these are already in chapter 11, but the purpose is mainly to allow them to renegotiate the labor contracts and shed the pension obligations.

I will be interested in seeing how the sales of the new Airbus behemoth actually go.  The Boeing dreamliner seems like a better bet in the short term.  In the long run who knows.  I used to have a professor who would say "In the long run, we are all dead".

Coal for transportation fuels is not a bad idea, as anyone from South Africa can tell you (or just Google Sasol Fischer-Tropsch).  It's a proven technology and arguably the best post-peak transition for the U.S. with all its coal and its dependency on the internal combustion engine.

The link you provide is for a coal upgrading technology.  It reminds me of my graduate thesis which was all about drying high moisture coals.  It may be useful for coal companies if the economics are right, but it will not produce transportation fuels.

Oh, thanks for reminding me that coal is not a transporation fuel.  I had forgotten that these were nuclear:
Sorry BabyPeanut, but the little engine on the right is designed to be fueled with wood.  One can tell by the spark catcher smoke stack that's not needed with most coals.

Nuclear-power rail transport is used in the San Francisco Bay Area and elsewhere when one electrifies the railways.  The nukes contribute to the electric power supply.

The "green fuel" coal from Silverado is intended to go in a "heat engine" which most definately is used for transporation.
There are many countries today that hold
billions of U.S. dollars.  How long will
they continue to accept our dollars?  
2006 may be the year that we see one of
these countries start asking some
difficult questions.
Frankly, this is the one economic issue that keeps me up nights.  I think it's a delicate balancing act--how long can the US keep convincing countries like Japan and China that it's in their best interest to keep shoveling billions in our direction?  Eventually they will reach a point where they say enough is enough, and they start seriously reducing their addition purchases of US securities.  (I doubt we'd ever reach a point, short of all-out economic war, where they would start liquidating a large portion of their holdings in a short time frame.)

For those who like to wallow in numbers (and who doesn't?), here's the US Treasury page that shows the monthly totals of US securities held by various countries:

(Notice that Japan's holdings have hardly changed through October 2005, and China's have grown about 10% in the same period, while the UK's have grown about 85%.)

I agree this is a really bad problem in the long term, but it seems to me we are probably some way from our credit limit yet. Eg check out Menzie Chinn's analysis here. Govt interest payments/GDP are quite modest by historical standards.
You may be interested in this article louGrinzo, albeit 18 months old, which tries to describe aspects of various money flows and their implications:

There has been considerable debate over what certain of the TICs data actually reflect. One general consensus is the increase in UK holdings is due to it acting as proxy for excess oil revenues, mostly Middle East. Perhaps more contentious is the Caribbean whose holdings have almost doubled in 2005 - hedge funds and possibly the Fed indirectly purchasing its own debt have been suggested. UK and Caribbean account for well over 50% of additional foreign holdings in 2005, unusual to say the least.

The problem is that if one country started dumping large amounts of dollars, there would be something like a run on the banks like the world had never seen before.  Most of the other countries that hold dollars would lose a lot in the process, and China in particular would end up losing the market for the cheap consumer crap that they produce.

Little countries like Venezuela can get away with it.  China and Europe hold far too much debt.

My guess is that other countries will try and apply increasing pressure for the U.S. to get its act together in order to defuse the situation.  I don't know offhand what sorts of pressure they could apply that would be effective.  Given the stubbornness of the Preznit, we would probably have to wait until 08 before anything of substance happens.  Either this or we Chimpeach - not terribly likely this year.

When you have the most powerful military that the world has ever seen, a lot of people will do things that don't seem to be in their best interest just to not get on your bad side.

I'm not so sure. A lot of countries cannot be bullied around. Remember the controversy in Europe before the Iraq war started? A number of European allies in the Iraq war have bailed out by now, and I assume 'learned a valuable lesson'.

IMHO, a big army doesn't buy you much outside your own border. This is also in line that most actions involving military force 'go wrong' in the medium/long run. The history of military conflict is very long and very clear on that: I rarely works. Especially in todays timeframe: a lot of people do not think that resolving a conflict by military force is a viable option.

The US is still attempting to fight Clausewitzian war, which is doomed to fail under the conditions prevailing in Iraq (as the Soviets discovered in Afghanistan). For a fascinating discussion of the evolution of war and the increasing dominance of low intensity conflict see The Transformation of War by Martin Van Creveld. For a historical overview of the ever-shifting balance of power between larger and smaller political accretions see the opening chapters of The Great Reckoning by James Dale Davidson and William Rees Mogg.

Large war machines intended for war between states are dinosaurs. They reflect the realities of wars of the relatively recent past (like the two world wars) as the generals are always fighting the last war. Modern armies are far too expensive, cumbersome, inflexible and technologically dependent to face a determined but amorphous insurgency for any length of time without crumbling. The morale of their own troops is inevitably destroyed in the process.

Bubba, the military power depend upon the economic power and not the contrary.

When the classical period ended the Roman Legions made a strike because the Emperor stoped to pay them the wages and the barbarians were free to use the roman's roads (built to make the Roman Legions have easy and fast access to any portion of the Empire) to pillage all non-protected cities they found and Rome itself.

And the economic factor can be more important to the military power's mantainance at the modern times than at the ancient times. The Roman Legions lost a lot of military power because the Empire not had money to buy better equipment to the legions long before the Empire finally fall (the legions's armor were worse at the 2nd and 3thr centuries than the armor they used at the Caesar's time), but this time the things can go faster becasue now there is two new factors:

1- the natives don't use spears, they use AK47 - the not so advanced thecnology is disponible to rich and poor countries and that make a great leveling factor, see you if the zulus used rifles and not spears the British Empire's army had no chance at that distant bridge construction's site and if the American Natives had guns the "west" never was to be conquered by the US Army;

2- the modern weaponry waste a lot of money, so any economic problem can simply stop a modern army that relie strongly at advanced thecnological weapons.

Look at these two factors and you see why Iraq is a qaqmire for the US Army and you will see why if an economic crisis happen (for example, the dollar hard landing that a lot fo economists think will happen) that qaqmire will be worse.

By the way, sooner or later the shia will want the oil profits for themselves and not for the US, I think that we will see the Theocratic Shia Iraq's government demanding that the US troops get out and the Ayatolah Sistani writing a "fatawah" with the same demand  maybe now at 2006. I guess that if 20% of the Iraq's population (the sunni) fighting the US troops is bad, 60 % of the population (the shia) will be worse. And not hope the kurds will help, they too want the oil profits to themselves....

Sorry my bad english, my native language is portuguese.

Venezuela's Central Bank is dancing away from the dollar towards the euro and in October last year withdrew its central bank foreign reserves out of U.S. banks.  A small ripple in the pond.
Well, I think that the dollar landing is problable to happen at 2006 and that we will see the hard landing.

Boy, that will be the CHAOS. Not the end of civilization, but the thing will be ugly.

By the way, maybe you can add "zombies hunting people for brains" to your wild predictions. That fit after the Alien Invasion...

"Don't you feel safe now that you know we will be protected by waxed coal particles?"

Great! I'll take a wainfull!

Re:  Housing Markets & Total Debt Divided by GDP

Option ARM's allow borrowers to make a negative amortization payments (increasing their debt every month); or pay interest only;  or pay interest + principal.  In the past year, about 75% of all new Option ARM borrowers were making the negative amortization payment (increasing their debt every month).  

Our total debt divided by GDP is now at about 304%, exceeding the 294% that we saw in Thirties, when GDP collapsed.  

Today, a majority of Americans live off the discretionary income of other Americans.  In the Thirties, it had to be less than 10%, probably less than 5%.  

If we look at total debt divided by nondiscretionary GDP, it has to be a huge number.  In other words, a very small number of actual producers in this country are supporting a vast amount of debt.  Much of our economy is just fluff--just transfer payments with no real economic purpose, e.g., Las Vegas, Orlando, etc.  

In addition, the discretionary economy consumes a vast amount of energy, again with no real economic purpose.  There are however a lot of jobs in these markets, but they are going to be the first to disappear.

Anybody who presumes to know the future is a fool - and will be shown to be such when the future finally arrives.

What will come will come; and half will be right, and half will wrong. So, what is the point?

The Future is known to no man.

I believe you are half right.
To date the only reliable law of futurism was made by the British dystopian writer J.G. Ballard who said "If enough people predict something, it won't happen."
The flipside of this would be: "If enough people predict something won't happen, it will"
Be not afraid young Jedi! Use the force...... to examine the future.

presuming the future is one thing, but making an educated guess of the future is quite another thing. are there variables? sure there are. anything can happen, (chaos theory) but really when you stand back and look at things, what are the odds?

Short term predictions based on educated guesses with good information are more accurate than long term predictions simply due to the dynamics of how things play out. Temporary revisions of short term as well as long term predictions are necessary when the variable has changed course.
Next Dec. may or may not play out as predicted. But as time moves forward, and the changing variables have been examined, there may be a dozen versions of the prediction but the last version will be the most accurate. maybe not 100% but better than 60% or 70%. Unless we have some visionarys in here that truly can read the future.

The point would be, if one has any significant responsibilities in life, that one has to make decisions about what to do. Like it or not, those must be based on ones best theory about the future, such as it is. In real life, we have to act on uncertain information (while of course recognizing the uncertainty). Your stance guarantees that you will never be wrong, but also makes you of no use to your fellow struggling humans.
The serious answer (for an evolutionist) is that we are driven to predict the future, and will do so right up to the limit of our data ;-).

At that point we turn on the TV (or the blogs) and watch the talking heads predict with unimpeachable surety.  It's not that we really believe them, but we are future-junkies by our wiring.

I think there are conservative bets we can make, and your predictions represent some.  The interesting social responses come further out, in areas that are inherently difficult (next year's closing DOW) or merely perceived as such (climate modeling, resource depletion).

Yes, exactly!  I can only hope that by learning as much as I can and paying attention, that I will be as prepared as I can be.  It is my responsibility.  The game would be a whole lot easier without the big step changes that could well occur:  Iran, Venezuela, Climate/severe weather, Housing market collapse, etc.  Frankly, it's the political ones that are hardest to predict.

My 2006 prediction is non-specific - only that I believe 2006 will be a pivotal year, where many of the things I've been watching for some time begin to show up more concretely.  It may not yet be apparent to the masses, but I think it will be to those who are paying even a little attention.  I think there's a very good possibility for a new military misadventure, if only because there has been so much effort put in to preparing the way for one, and we're losing the game diplomatically.  And I think that's one of the reasons we're changing the conversation towards pulling troops out of Iraq quickly.  

Simultaneously, I think were at a crossroads in the US politically.  Either Bush and his thugs will be thrown off, or they will consolidate power.  I don't think it is stable as it is, so change must come.  It all depends on how much he scares the big money, or rather if other things scare them more.  

I figure to see more violent weather, more high water temps and powerful storms.  I'll be watching the information about Gulf Stream circulation with much interest - I hope there is more data!

Oh, I agree that from time to time we all have to make educated guesses in order to make rational decisions.  But I really don't call that making a 'prediction'.  

A prediction, in my view, is a clear specific statement that such and such will happen during such and such a time. The statement: "The US will start a war with Iran in March 2006", is a prediction.

A projection, in my view, is more along the lines of extrapolating an existing trend to some future time frame.  It doesn't imply a firm statement about the future, but rather constitutes a sort of 'if-then' analysis.  The statement: "If oil depletion from such and such fields continue at X percent per annum, by 2010 global oil production will be Y", is more of a projection than an outright prediction.

An educated guess, in my view, is more of a hunch based partly on hard facts and partly on the way things seem to be going. The statement: "I'm going to trade in my SUV and buy a hybrid because the price of gas is likely to get more expensive", is an educated guess.

I suppose the reason I am rather down on predictions is that I have  a very poor track record as a futune-teller. And what scares me the most is that many of the important things in my life, both good and bad, were in hindsight totally unpredictable.

So, projections can be very useful, but outright predictions are next to worthless.  

Ah, grasshopper Joule, anyone who presumes to know what another man knows about reality is a fool also. Some peoples' perception of reality may include more of the future than does yours.

But I do think that the future is not fixed, merely probablistic, hence is difficult - and, in some ways, maybe impossible - to know with certainty or great accuracy.

Note The Big Picture (who is significantly more bearish on the DOW than I) has a nice graph of a survey of online WSJ readers - who tend much more bullish:

It seems we are in a minority then, Stuart. But almost everyone thought the DJIA would be above 11,000 by now when asked a year ago, even more than the 58% in the above survey. Just found this table of stock indices' predictions, only 4 of 76 predict a DJIA level below 10,000 at yearend 2006 and only 3 others said below 11,000, the consensus is clustered around 11,500:

Your and my predictions on many of the economic items you mention are pretty similar: I'm 500 more bearish on the DJIA, $5 more bullish on oil. I agree with your assessment of GDP too: I predict 2% growth in first half, 0% in 2nd half, though, if one used the GDP measures of 10 years ago 2% growth as measured now would be about 0% then.

I, too, expect the US housing market to decline fairly gently unless something biggish triggers a more sharp downturn. That has been the pattern in both Australia and UK in the last couple of years and they seem to be ahead of the US in that aspect of the economic cycle atm. However, this is likely to translate into some recently hot areas declining by up to 20% while other areas may continue to grow by up to 10%.

I'm still working on my more general, non-economic, predictions - festive alcohol tends to interfere, LOL. Late March troubles me as much as ever but I think there is a slightly less than 50% probability of something dramatic happening then. If it does I feel Israel is specifically involved but I don't think (or is that just hope?) it is a direct attack on Iran. Neither Bush nor Cheney are in power at the end of this presidential term but I called it too early last year, we could well see the beginning of their end before this year is out.

I don't expect the House of Saud to fall in 2006 unless external events markedly increase that chance. Would the US foster a Venezuelan civil war? Surely that would be utter folly; I see no internal reasons for Venezuela to descend into war without US instigation. Iran taking its oil off the world open market is a more probable event.  

The Iraq question is more about whether they will agree to have virtually autonomous regions or they will bloodily disagree about it. I expect the US to reduce its forces to about 50,000 (I don't think the US wants to reduce them more, for strategic reasons) and 'declare victory' regardless of reality.

Kunstler is much more pessimistic than me, it would take some pretty seismic events for him to be anywhere near right on 2006. By 2008 his 2006 predictions will be looking more accurate, methinks.

Well, Walmart's holiday, err sorry Christmas, sales came in only 2.2% above last year, at the low end of their expected range of 2%-4%. So at least lower income consumers are being a bit cautious. Nice early evidence for your 2% H1 06 prediction.
Yes, I spotted that on Marketwatch this evening (my prediction was made last week). Anecdotal reports suggest that shoppers are selectively buying bargains so, although volume is holding up reasonably well the profitability of retailers may suffer.

One of the big questions of 2006 is: will the US consumer cut back on spending and, if so, how soon and by how much? Increased energy costs and credit card repayments may make it happen quite soon... unless uncle Ben (Bernanke) gets his helicopter out and throws money to all and sundry.

Most forecasters seem to be predicting GDP growth of 3% or just above in 2006, rather more than my 1%, but my gut feeling is that the US is quite likely to enter recession before 2006 is out and my forecast may be a tad on the high side.

One of the big questions of 2006 is: will the US consumer cut back on spending and, if so, how soon and by how much? Increased energy costs and credit card repayments may make it happen quite soon...

These two things together might force down consumer spending which in turn would push us into a recession...

More on Walmart... p;siteid=mktw

Including the real explanation for their poor results:

On Nov. 1 Wal-Mart began blasting TV and cable stations with a "Home for the Holidays" campaign that featured celebrities in high-quality ads -- a stark contrast to its bouncing happy-face ads in which store managers and sales associates were the prominent speakers.

Ah, the bouncing happy faces fool them US consumers every time, Walmart should have known that high-quality wouldn't work.

As I type the DJIA is down 20 at 10,700 having opened at 10,760 90 minutes ago (ISM survey was worse than expected) and the US$ is down over 1%. The major stock indices (DJIA, Nasdaq, S&P) are a very critical point now, if they can't stay above these levels for the next few days then the odds are for a break down of 5%+ by early February. But why I'm really writing this is a quote I saw a few minutes ago...

"An end to Fed rate hikes, benign inflation, more acceptable energy prices, higher capital spending, decent job growth, and potentially some better news out of Iraq should benefit the equity markets," in 2006 said Tobias Levkovich, equity strategist at Citigroup.

Levkovich holds a "conservative" year-end 2006 target of 1,400 for the S&P 500 and 11,900 for the Dow.

Such is the myopia of most US financial strategists, in many ways it has much in common with EIA forecasts. I agree with him that the Fed will stop raising interest rates by May 2006 but disagree on everything else. GW Bush and Dick Cheney have more chance of being 'raptured' (Oh, bless the Lord, please make it so) than such absurd forecasts coming true.

With all due respect, Stuart, your comments on Iraq and Iran are way off the mark:  

What's the evidence for the "barbaric Shiite theocracy"?  
The "barbarism" we saw last year was the sado-sexual torture of U.S.-held prisoners in Abu Ghraib, Guantanamo, and Baghram, and of course the Wahabi/Salifi terrorism with its beheadings and bombing of Shiite civilians.

I realize that it's fashionable to make fun of Muslims these days, but the "Allah hasn't chosen to share his mind" comment is more ignorant than funny.  Why not use the English word "God" instead of the Arabic word for it?  Afterall, Iranians do not speak Arabic and nor do most of the readers of this site!

Other than that, a great analysis of the year to come!

I agree the American record on torture is disgraceful. I agree some of the insurgents have been barbaric. But the Shiite dominated Iraqi government has been making up for lost time. See eg here, and here. I anticipate the trend will worsen as the US draws down it's strength. There'll be less US abuse because there'll be fewer US troops, and more Shiite abuse as they try to put down the insurgency.

I'm disappointed to see you refer to our Commander in Chief as an "idiot."  My understanding is the word comes to us from the Greek which referred to those citizens who did not participate in the public/political life of the city state.  Bush is most certainly participating.

To clarify then,  let's refer to our Leader as the  "moron."

A Bushian Riddle for the New Year:     The big moron and the little moron were sitting on a fence.  The big moron fell off.  Why didn't the little moron?

Cuz he  was a

little more on!

Brothers, sisters, come together. For once cant we just agree to call bush a moronic idiot.

r.i.p. Bill Hicks

Out of curiosity do you subscribe to the magazine "Mental Floss"?
Predicting anything is extremely difficult, especially the future. You mention an al Qaeda attack as a wild card. But here I'm with Colin Campbell - 9-11 wasn't an al Qaeda job. Guess who he (and I) believe did it? Might they do it again to get us into Iran? Yes.

One of the biggest things that makes things so unpredictable is that one or more of the wild cards are highly likely to come into play. Peak oil students can track what we know about energy resources---these things move relatively slowly and gradually. But geopolitical factors can operate very quickly and chaotically, making it really impossible to predict very much short term---beyond trouble.

Having said that, I'll venture a wild guess and say that there will be a big geopolitical move this year, and that it will widen the war scene. I don't think the crew in Washington can survive otherwise---and they are intent on surviving, much like that German shock-and-guy --- what was his name?

First, you should be careful what you say, as they are listening.
Second, I completely agree with your prediction. I remember in Mr. Bush's last press conference one of the reporters questioned him as to what damage incorrect information on WMD's in Iraq had caused to his reputation, and ability to cry wolf in the future. Politically, I think this was the most revealing question of the entire conference, as Bush's damaged credibility represents the greatest challenge to momentum toward war with Iran. Nonetheless, alot of people don't understand nuclear weapons technology, or the issues involved, so it works as an effective scare tatic. Personally, I think the administration has a better chance saying "Ok, cheap oil is disappearing. If we don't control all the remaining oil in the world, America is fucked. So, we are going to invade Iran, Saudi Arabia, and possibly somewhere else in South America within the year. Go America!" - I think the average Joe could understand that.
Third, I've talked with alot of the 9-11 people, and personally find the government's story about as credible as the conspiracy (Neither has my favor; the thermal calculations of the tower fire and steel are just too fudged in the conspiracy) My question is your take on what hit what; plane, missile... and finally, if it wasn't the flights we were told, where are the people who were supposedly on those flights?
Finally, what type of attack do you see to spur the Iran war? Large or small? Bloody or toxic?

Housing is going to be a big one this year, I think.  One commentator was commenting about how some mortgage brokers were trying to find "the cream of the crap", and offer them these horrible mortgages.  It will take a little while for these people to realize that the are in way over their heads, and then you will start to see some forclosures.

I own my house - I bought a few years back and have a fixed-rate mortgage, so a bit of a retreat in prices wouldn't kill me.  As long as I can remain employed I should be in decent shape.  I am also only 2 miles from a subway station, which is something that all of those folks in the exurbs won't be able to say.  One thing I am thinking about is replacing my gas furnace with a high-efficiency heat pump with gas backup.  My electricity is currently still relatively cheap (5.9cents/kWH).  I don't know how much of the local generating capacity is from gas turbines though.

Health care is getting to be a big issue though.  There seems to be more and more agreement that what we have is completely broken.  Companies don't want to provide it as it is so damned expensive, and every doctors office has a paper-pusher whose job it is to fill out crap that gets sent to another paper-pusher at the insurance company.  The insurance company then looks for any excuse at all to reject the claim, which makes more work for the patient and the doctor's paper pusher.  The right-wing will complain that any form of universal health care would involve rationing of care - what they don't get is that we already have rationing.  If you cannot afford it, you don't get care.

All right, Stuart, I generally agree (sigh) but you have given yourself some large error margins.

Re: "I'm bullish on Russia"

Not me. I think Putin and his bureaucracy have gotten that situation so screwed up that we may see diminishing (or at best flat) production (oil) from there all next year.

Re: "Civilization Collapse, Rapture, Alien invasion, etc.
I estimate the probability of any of these events in 2006 as being negligibly small."

Here, you are way off. I regard any of these as reasonably high probability events, not so much the collapse of civilization but there's a good bet for us being Left Behind or an Alien invasion.

best, Dave
I meant I was bullish on Russian power and their economic growth. I don't necessarily think their oil production will increase too much (though there's some chance of it). As to the aliens, the invasion isn't scheduled till 2012, so we don't have to worry in 2006 :-)



How clear do we need it to be? This all seems pretty obvious....

Meanwhile, Vladimir contemplates his next move....

Isn't it obvious? The Prince of Darkness runs this world. Always predict on the down side, you will never be wrong.
Oil wont fall to $40 this year OPEC and russia know they have complete control of the down side and they wont let it slip to much below its current price. If the Saudis production is slipping sweet light spread will continue to increase over the heavy stuff +$20 and lack of refiners will continue to be blamed for high oil prices. A supper spike is going to continue to haunt this market everyone knows that capacity is  real tight. $100 a barrel sometime this year is very likley.

Look for food to climb this year wheat, corn, beans all near record lows this cannot continue with production costs sharply increasing.

Gold is going to continue its march up nice safe bet IMO.

Stay safe this year everyone and enjoy life......

If we compare Kunstler's and Stuart's predictions for 2006 there is good debate as to which is more accurate.  From looking at the comments above we find many on both sides.  What I find interesting.....who cares?  Why are people wasting time on this issue?  It reminds me of the same train of thought of the passengers on the Titanic bickering over when the ship was going to sink.  Who cares...its going to sink.

If one follows Kunstlers assumptions and thoughts, it does not matter if what he says happens in 2006, 2007, or even later.  When the American system for daily life starts to unravel, it will be too late to bicker about such nonsense.  

The American public as well as many of the commentors on this blog do not fully understand the ramifications of REVERSE LEVERAGE in the agricultural, energy and financial sectors.  If one asks your typical Joe-Bag-of-Doughtnuts about peak oil and natural gas, the typical response is..."Who knows....we have to just wait and see."

Matthew Simmons has been on my favorite comedy show (CNBC) a few times in the past few months.  It amazes me how such an important topic can be debated for a few minutes.  The one thing he said that stuck out, was that in the late 90's many of the leading energy economists were saying oil would reach 5 bucks a barrel and stay there for the next decade.  How can anyone continue to pay advice from morons like that is besides me.

The one thing is certain in 2006 oil, gas and commodities will be used up more and will cost more.  I hear alot of people talking about Gold.  Gold is nice....if your an amateur.  By that, I mean any one with a 3rd grade education can figure golds a good deal and buy some.  But those who really do their research, understand Silver is probably the best investment going.

Silver has been in a structual deficit for over several decades drawing down Govt, commercial stocks over 2-3 billion ounces.  Thats right, supply is not meeting consumption.  Do to the manipulation on the Comex, no other commodity has the largest short position in history.  Historically, up until just recently, Silver and Gold have had a 15-1 ratio.  This comes from the fact that there is about 15 times more Silver in the earths crust than Gold.

Today the Gold and Silver ratio is about 60-1.  Most of the Gold that was ever mined, sits comfortably, in vaults and storage facilities in Banks and Governments all over the world.  What is that most of all Silver that has been mined...has been consumed and is gone.  Matter-a-fact....Silver is now more rare than Gold.  

When the manipulation of the Gold and Silver markets comes to an end....we will see Silver go far above 100 dollars an ounce.  Today if you can buy silver for about 9 bucks...thats a great deal if you can hold on to it for a while.

I'd add a couple of points to Stuart's analysis:

  1.  The announcements of at least 6 new, large nuclear reactors on specific sites in the US.  Elsewhere in the world, at least twice as many will be announced, some in the UK.

  2.  The Mainstream Media (MSM) which apparently shapes the political opinions of many here will continue its slide in mindshare, revenues, and general credibility.  You can fool all the people some of the time.....

  3.  Putin will discover pushback for his strong arm tactics of late and will be doing some retrenching or else will see Russia increasingly treated as an untrustworthy international partner.

  4. the Republican Party will increase its position in both houses of Congress in the elections of 2006 as Americans are increasingly digusted with the cultural suicide policies of the Democratic Party. (See pseudo-scandals above by the MSM.)

  5. Housing prices will slide in many areas but stablize in the San Francisco Bay Area.

  6. as for GTL being a bad idea, the Qatarians and other potential exporters of methane resources don't give a hoot - they will go with the method that gives the biggest profits - and if the US disagrees, what can we do about it? - ban GTL imports?
I'm suggesting the prices for natural gas will be high enough that the losses inherent in the GTL process will not make sense.

That's a reasonable point.

I see the problem as having four variables - 1)  price of gasoline (or GTL equivalent, a very clean diesel), 2) market price of wholesale gas at user's pipeline, 3) cost of the GTL processes and transport, and 4)  cost of LNG processes and transport.  Both GTL and LNG would sell into existing end-market distribution channels.

Transport fuels (like GTL) sell at a considerable premium to wholesale natural gas in the pipeline on a BTU basis.  Most users of natural gas have alternatives, like heating oil or electricity.  In the longer run (beyond 2020), electricity from nuclear puts a competitive cap on most natural gas consumption while hydrogen from nuclear won't impact transport fuel markets for decades.  In many areas of the US, electric heat pumps on grids with lots of nuclear are already competitive with natural gas heating.  Petrochemical markets like ammonia, methanol, and carbon black have no substitutes but seem to have lower growth rates than wholesale energy.

So if you're Qatar or another owner of substantial stranded natural gas reserves, how do you make your decision as to what to do with your gas?  Where are the larger, quicker, profits, the lower barriers to entry, the least capital requirements and least financial and technical risk?

I suspect that many owners will hedge and develop a mix of LNG, GTL and petrochemicals.  While my analysis of LNG is more developed than my understanding of the GTL, I still have a hunch that GTL would be more profitable but I welcome further references to the problem.

He has a point. If the liberal voters can redefine homosexuality from a horrible crime to a lifestyle choice, why be surprised when conservative voters redefine embezzling as smart business practice?
And they have. Ask them about Enron, General Motors, or any other MSM scandal du jour. They don't blame the Republican controlled House, Senate, Presidency, Federal Reserve, or Judiciary. They really don't. It's all those idiots making a fuss that puzzle them.
Oh yeah, lots more reactor orders are being announced.
China seems to be convinced about global warming and acid rain as real problems.
As for the foreign holdings of our national debt there is a saying: If you owe the bank a thousand dollars and can't pay it back that's your problem. If you owe the bank a billion dollars and can't pay it back that's the bank's problem. Like hundreds of thousands of other Americans who have recently experienced a drop in income I went Chapter 7. These bancruptcies are a trivial matter to the financial community. A US default is something the world's Central Banks will go to even greater lengths to avoid. A bancruptcy of GM is something the US government will go to great lengths to avoid. Government and corporate debt is a different animal than personal debt. Remember Chrysler in back in the 70s. If anything Wall Street controls the government much more than it did back then and it will force loan gaurantees from the government and a serious change in the products GM sells.