The US stock markets – not to be confused with the international markets which make up a substantial part of every ISIS^® portfolio – have been whipsawed since early October, driven down by a “perfect storm” of factors like the exploding credit crisis (killing US banks’ profits by billions and compelling too many princely CEO’s to fall on their swords – or their boards’), an economy driven to the brink of recession by plunging real estate and a falling dollar, looming inflation fears driven by that same falling dollar (the dollar drops and oil, Toyotas, and even Chinese toys go through the roof), and pushing a freshman-Fed to that old rock-and-a-hard-place “er, George, do I fight inflation or recession…George??? George!”
We stand on the edge of a knife, and I have not been more troubled about the US economy since the winters of the last recession. The credit crisis has tumbled almost out of control, and the bankers still have no idea how much worthless paper their greedy ways have hung on a nearly-hapless world or on (fittingly* but frighteningly) themselves. The Fed is truly in a dilemma – dropping rates pumps the US consumer (it hopes, but no pulse yet) and so the US economy, but foreign interests are tempted to dump dollars and invest in countries with higher rates, further lowering the dollar and raising the price of imports, like oil and BMWs and vegetables from South America. (You have no idea how much food we buy from abroad these days – or how much US agriculture has been shifted to things like ethanol from corn.) This does not mean I am predicting a market crash or deep recession, only that the risk equation has shifted a bit toward the south.
Enough minutia, and on to the predictions you look for here, for there is some sunshine.
I think the US dollar is getting close to a bottom, and has been driven there by an insidious Federal policy that has ostensibly espoused a “strong dollar” policy but has sought to erase America’s profound trade deficit by devaluing the dollar, tantamount to a stealth trade war with China and others, about which they are not well-pleased. As US goods – and don’t forget that includes foreign investment in US equities like stocks! – get right cheap, I think that the trade deficit will improve, the US dollar and stock markets will rise, and inflation will abate as imported goods will cheapen with the rising dollar. I might as well add that I think oil is making a technical top near $100 and will fall – perhaps to $50-$60 if the dollar improves – as the world realizes it is not quite on empty, yet. Long term, we are clearly running out of oil, though if we can harness coal cleanly we may extend the petro-dance a bit longer, perhaps till the end of the century.
Anyway, absent a complete real-estate-driven credit melt-down – which remains a profound risk and the reason for my “edge of the knife“ melancholy – I still think things look pretty strong for our country’s economy and stock markets.
Hang on, things will probably turn up soon, and trust in ISIS^®, which hedges your bets across the investments world, just in case I am wrong. I am still expecting a strong year-end rally and a very profitable year for investors – especially ISIS^® clients – by the time 2007 rolls into the record books.

*The greed-driven, unscrupulous, unsuitable and odious lending that got us into this mess appears to continue unabated, and it ought to be a crime. Just yesterday I got a solicitation from Global Mortgage in a government-looking envelope promising to cut my payment by 75% with a “fixed payment rate” of 3.75%…and letting the mark (in this case me) believe, if they would, that this is a real interest rate, and not just hype for what is clearly an adjustable (and probably high) rate negative-amortizing (what you owe goes up each year, not down) piece of predatory garbage that is destined to blow up one day, dragging down borrowers, lenders, and the credit market liquidity on which we all depend in the modern age.