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    Wednesday, January 03, 2007


    2006 forecast review

    My 2006 forecast is here. I'm going to review them line by line and see how I did. It's important to remember that these were all contrarian calls at the beginning of 06. The average return of my forecast was 31% if it were equal weighted and you traded the mentioned stocks and currencies. It was better again if you traded the commodities. My results for the year were substantially better because I was weighted towards the stocks, took no currency position and held larger positions in the better performers.

    1. NASDAQ tanks - inverted yield curve, bull market long in the tooth, crazy valuations, presidential cycle, fed tightening all portend an economic slow down which will almost certainly drag the NASDAQ down

    6.7% loss! The QQQQ finished 2005 at 40.54 and trade today at 43.24. I still believe I'm early rather than wrong.

    2. Silver rises - silver demand has not been met by mine supply for decades, there is less silver in the ground than any other metal, silver is consumed by industrial processes, inflation. These have been the case for some time so I expect this to continue crawling in my direction

    41% gain. Silver finished 05 at around $9 and trades at 12.65 today.

    3. Oil doesn't drop - No big oil discoveries in decades, reserves have not been replaced by majors for a decade, Saudi Arabia has no more light oil, Alternative sources will come online but only at high prices. Canadian Oil Sands (COS.un COSWF) reaches a yield of 10% on today's price.

    Oil ended 05 at around 62 and trades today at 58.32. COS.un is not yet yielding 10% on 05 prices. I still like COS and it's up 25% on the year from $25.18 to $30.16 but the forward yield is still only around 7-8%.

    4. Lead (the metal) doesn't drop more than 10% - China, India, Brazil continue to grow at very high rates and consume lead products (cars, batteries), lead in deficit, decline of the dollar. Ivernia (IVW) does well in this environment.

    20% loss on IVW. Lead did very well moving from 50c a year ago to around 80c today. IVW, however, went from $1.84 to $1.47. IVW is worth more than it was a year ago but managements execution has been so poor that I'm not adding money.

    5. Uranium doesn't drop - High oil prices, increasing energy demands, Uranium is the cheapest source of energy, Uranium in deficit. STM doubles and is probably bought out (I'd rather it wasn't!)

    Up 86%. STM traded at $1.9 at the end of 05 and $3.53 yesterday. Uranium rose from around $35 to around $75 over the same period. STM is even more undervalued than it was a year ago.

    6. Coal doesn't drop as much as the experts expect - Coal is the second cheapest source of energy, coal is required to produce steel, over production of steel requires more coal (steel can drop and coal increases), supply constraints due to infrastructure, Australia is closest to China and India, developing technologies like hydrogen and coal gasification support coal demand. Felix resources up.

    A rise of 86%. FLX traded at 2.27 a year ago and $4.23 right now. Exact coal prices are difficult to come by but prices were the same to down 5% according to my research. Finishing at around $55USD.

    7. The drop in the NASDAQ scares the market and everything drops for a while and then commodity stocks revive without a revival in the NASDAQ.

    Well NASDAQ hasn't fallen so this is out the window.

    8. US Rates peak for this cycle and fall from that peak, USD falls against Canadian dollar, USD falls against AUD.

    Rates may well have peaked but didn't fall. USD has fallen against AUD moving from around .74 to nearly 80c a rise of 8%. USD has stayed about constant with the CAD after a decent fall during the year and then a rise back to late 05 levels.
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    Disclaimer and Disclosure Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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