Stock Market -- What Am I Smoking?

SP 500: 1267

Well, here I sit. Feeling like an old Wall Street tout.
The fundamental work I do implies 2006 will be an ok year
for the stock market, with the SP 500 closing out the
year around 1385 - 1405 for a gain in the range of 11 to
13%. I have also been fiddling around with business cycles
in terms of confidence, and this bit of experimental thinking
suggests 2006 will see the US at least with a sunnier
disposition.

The keys to what I suspect is an utterly mundane consensus
view are as follows: Moderate 7% topline sales growth, further
expansion of profit margins, increased share buybacks and an
inflation picture, which, while volatile, will wind up the year
at around 3.5% (CPI).

I am well aware of the of the four year cycle of important
bottoms in the market, and by my calculations -- based upon
SP 500 data going back through 1872 -- a typical or average
significant price low could come in the Jun / Jul interval
of this year. A number of well regarded chartists and
technicians are factoring in a substantial sell-off this
year with the Mar / Oct period common. May be, but my
reads of the fundamentals do not now support this view.

However, when I look at 2007, I see a rather negative picture
developing, with inflation pressure intensifying as the
economy closes in on effective capacity. In fact, I now
see 2007 as a down year for the market which could only be
rescued by a strong surge of capacity expansion to balance
off the growth of demand.

I also use a couple of models based on Federal Reserve Credit
and the Adjusted Monetary base. These models correctly forecast a
dull and minor advance in 2005, but have recently turned a little
rosier.

I use this little exercise as the basis for a game plan for the
year and then track the market and the key fundamentals against
it. I play close attention to the deviations in actual from
expected, because they are often the kernels of opportunity.