A preface: This business never ceases to amaze me. Its simply astounding that so many people who follow the Markets waste so much time and energy at "forecasting" and "prediction making." It has been unequivocally demonstrated that NO ONE has been able to consistently, accurately forecast markets -- either theoretically or in real time.

Sure, sometimes you get the direction right, or the timing or a turn correctly, but nobody -- NOBODY -- does both on a regular basis. (There's tons of Mathematical Analysis demonstrating this). Here's the classic example: Between now and year end, all the major financial magazines will be running predictions as to where the Dow and the S&P500 and the Nasdaq will a year from now. Its a pointless exercise, totally irrelevant to investors. What's more, the best known and most quoted experts" are stunningly wrong.

As Chief Market Strategist of a firm managing nearly 5 Billion dollars in assets, I take a different, more tactical perspective. What our clients need to know is simply this: What are the likely probabilities, and how should we position ourselves in front of those varied possibilities? What do we do when -- not if, but when -- we are wrong? What is our plan if and when an unanticipated course of events arise?

I believe one of the secrets of successful investing is not "always being right;" Rather, it is having the ability to recognize when you' re wrong, and quickly reversing yourself before serious damage occurs. From my perspective, it's about good planning -- and mopre importantly, actually executing that plan; It is not, in my humble opinion, about "flawless forecasting." Unfortunately, that' s a lesson too few learned in the 90s.

With that weasely hedge in place, here are my forecasts:

The Bull Market returns! The Nasdaq doubles, and happy times are here again!

-Sorry; I was only kidding - but for a split second, you really wanted to believe that, didn' t you? (That' wishful thinking is actually part of the reason for the market's bipolar ways lately).

Here's the more likely scenario: The major indexes remain range-bound for several years, with an occasional sell-off followed by vicious Bear Market rallies. Sector rotation and asset allocation are what drive money flows in and out of the market.

By 2004, Stocks are roundly despised by Main Street; Interest rates have stayed low enough (due to overseas deflationary factors, especially form China) that bonds remain an unattractive alternative. The silver lining is that instead of investing, families spend more on big and little ticket items: they take more vacations, spend more on their homes, buy lots of toys (cars & boats, iPods & TiVos, and the like). The widespread hatred of stocks, combined with this continued spending is what precedes the Bull Market of 2009.

-Revenge of Rainman: The rising tide does not raise all boats - the dismal 2002 Christmas season finally delivers the knock out punch: K-Mart does not survive its bankruptcy process and dissolves. KM' s demise benefits Target and, of course, Wal-Mart.

-Long term deteriorate: The big Banking houses continue to lose clients, assets and employees. By the time 2005 finishes, once mighty Merrill is almost halved: At its 2000 peak, they had over 20,000 brokers and 1.3 trillion dollars in assets under management; They slim down to about 12,000 and just under a trillion dollars. Brokers depart for smaller, more personalized asset managers - or leave the business altogother. Morgan Stanley and Smith Barney suffer similar fates. Surprisingly, none of this affects investment banking very much when it finally returns in 2005.

-Big Hat, No Cattle: SEC Chair Harvey Pitt finally succumbs to the effects of his own hubris and incompetance. He resigns or is forced out during some scandal of Summer '03. Amazingly, the even more odious Attorney General John Ashcroft manages to stay on as AG for the entire Bush presidency, and avoids legal trouble his entire tenure, much to the chagrin of Civil Libertarians everywhere.

-A long time coming: Microsoft loses its first major private lawsuit in many years. The winner? Burst, a tiny San Francisco streaming media company who is presently suing for patent and anti-trust violations. The damages against the software giant are in the 100s of millions of dollars, but what really causes headlines are the huge punitive damages the "visibly annoyed" judge decrees.

-Like Father, like Son: Bush's once formidable poll numbers slip throughout his entire presidency. His failure to grasp the significance of the nation's economic woes - or to do much about it - is his undoing. He loses the presidency in a landslide '04 to a relative unknown.

-Dead or Married:
DEAD: By 2005, one from each of the following pairs goes buh-bye: Lucent/Nortel; VA Software/RedHat; Dynegy/Calpine;
MARRIED: By 2005, one from each of the following pairs gets taken over: Gateway/Apple; Yahoo/C/Net; Borland/Novell; E*Trade/Ameritrade; Citrix/Neoware.

Finally, my "long shot" predictions of the possible but doubtful; (These are almost a wish list of sorts):
-Congress finally "gets it," and outlaws Spam;
-The Supreme Court overturns the seemingly never-ending copyright extensions, recognizing that the intent of the constitution was to establish limited copyrights for the benefit of authors, not corporations.
-Lastly, the heads of both the RIAA and MPAA resign in disgrace. (A boy can dream, can't he?) )

Full Disclosure: I'm a political independent who supported McCain last presidential election - so please don' t mistake my views for partisanship; I don' t merely dislike Pitt and Ashcroft, I'm also an attorney -- so I find them both to be professional embarrassments, also; Lastly, I'm on the Board of Directors of Burst.

-Barry Ritholtz
November 1, 2002

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