If you believe he can and will, then you've got a squirrely first half of 2005 (with a lower dollar and a lower stockmarket) and a potentially booming economy some time late next year, early 2006.

Some things have changed fundamentally in our world -- which politics and government can't affect. They're important to understand because they're now an integral of the investment scene. There's far more money around than ever before. I don't know where it all came from. But it's here. There's far more money around than there are opportunities for that money to be gainfully employed. Hence, none of us will be earning in yields what we earned in the past. That's the bad news. The good news is that value of solid money-earning assets will soar. Item: German investors are snapping up U.S. commercial real estate at prices much higher than U.S. buyers can tolerate. As the dollar declines further (and it will -- Buffett has shifted over $20 billion of Berkshire's money into foreign currencies), many assets here will skyrocket, especially real estate. That's why I'm snapping up as many syndications of handsome commercial properties as I can find.

The second thing that's changed is that two gigantic countries -- China and India -- are taking off. This has three implications. First, they're flooding America in general (and Wal-Mart in particular) with cheap goods. If your invested companies are not using China or India, they'll soon be hurting. Second, these countries are using up more and more of the world's resources, driving commodity prices sky-high. Watch the price of sugar, cotton and orange juice in coming months. And three, finally, they're "investing" their earnings in American government treasuries. Without their money, our interest rates would have been much higher, which would have hurt real estate, and stymied the recovery. Thank you Asia for your confidence. There's some discussion of you switching allegiance to the Euro, away from the dollar. I bet some of this has happened already. But I bet you're smart enough to know you can't keep bidding the Euro up and up. You have to recognize that Europe, as an economy, is neither robust nor flexible, nor deserving of an expensive currency. Its population is too old. Its labor practices too rigid. It lacks the thriving venture capital and technology creation environment of the U.S. (and Israel). Yes, the dollar will fall some more. How much and how soon will depend on politics (see above) and the Iraq War, which we simply cannot afford much longer. Remember the one critical original premise of the War was that the rehabilitation of postwar Iraq would be paid by Iraqi oil revenues. Yet, despite a 37% increase in the price of oil in 2004, the administration keeps begging more and more money out of Congress. It's money which worsens our deficit and drives up the price of precious products in the U.S., like plywood. Increasingly I worry about the "Iraqi Payoff."

James Dobbins is Director of the International Security and Defense Policy Center at Rand. He was a U.S. Special Envoy in Kosovo, Bosnia, Haiti, Somalia, and Afghanistan. He writes in the Jan-Feb, 2005 issue of Foreign Affairs, "The recent American presidential campaign has had the perverse effect of postponing any serious national debate on the future U.S. course in Iraq. Electoral considerations placed a premium on consistency at the expense of common sense, with both candidates insisting that even with perfect hindsight they would have acted just as they did two years ago: going to war or voting to authorize doing so. The campaign also revealed the paucity of good options now before the United States. Keeping U.S. troops in Iraq will only provoke fiercer and more widespread resistance, but withdrawing them too soon could spark a civil war. The second administration of George W. Bush seems to be left with the choice between making things worse slowly or quickly. The beginning of wisdom is to recognize that the ongoing war in Iraq is not one that the United States can win. As a result of its initial miscalculations, misdirected planning, and inadequate preparation, Washington has lost the Iraqi people's confidence and consent, and it is unlikely to win them back. Every day that Americans shell Iraqi cities they lose further ground on the central front of Iraqi opinion. ...

In the eyes of the Iraqi people and of all the neighboring populations, the U.S. mission in Iraq lacks legitimacy and credibility. Only by dramatically recasting the American role in the region can such perceptions begin to be changed. Until then, U.S. military operations in Iraq will continue to inspire local resistance, radicalize neighboring populations, and discourage international cooperation."

I can't imagine that Bush, so concerned now about his "legacy" would want to perpetuate the present mess in Iraq. But I worry that widespread political pressures to end this war may still be years, many lives and billions of dollars away. It took years for effective political resistance to build up against an earlier, equally debilitating war -- the one in Vietnam. Ironically, Vietnam has now become a popular tourist attraction for all my rich Republican friends -- the ones who supported that war. I can see that happening here. Iraq has some neat biblical sites, a few of which haven't been destroyed. Personally, I'd like to see Iraq broken into three countries -- Kurd, Shiite and Sunni -- have us leave asap, irrespective of the likelihood of a civil war. For now, Iraq will become a ever larger drain on the US's resources and growth. Sadly, I can't predict any immediate solution. I don't see a serious reduction in the federal government's deficit until this sore is cured. Maybe Bush will pull off a miracle, or recognize the Iraqi folly.

None of this denies us investors moneymaking opportunities. Whether shorting the dollar, investing in commodities, investing in real estate or playing speculative stocks, all the standard caveats remain: Research, care, research and more; tight stop losses, should the tide turn against you. And cash for great opportunities, should they come along -- e.g. distressed real estate. And plenty of cash to tide you through a financial downturn. If the administration doesn't move fast enough, there is a possibility, perhaps as high as 20% -- that we will have a serious financial crisis, with an overnight 25% loss in the value of equities, a two to three hundred basis point rise in interest rates, tenants reneging on their rents, etc.

For now:

1. The dollar will decline more. Short it. Invest in overseas stock funds. Vanguard and T. Rowe Price have some interesting ones.
2. Short-term interest rates will rise. But long-term ones will stay roughly where they are today.
3. Oil has made its move -- up 37% for the year. It remains the investment of speculators. Not a game I understand or can afford to play.
4. Housing will boom in those areas where demand for housing is way higher than supply, e.g. Southern California.
5. Commodities will boom. The best to invest in are those we consume (sugar, cotton, OJ), not those we speculate in (gold, silver, platinum). I just bought Jimmie Rogers new book on commodities.
6. The Internet will continue to take more and more of retail sales. Choose carefully. One of my private equity deals -- which sells exclusively on the Internet -- may IPO this year. I may finally make some money on that private equity -- but only after every investment they made -- bar one -- collapsed. That one may bail us out, yet. I'm praying.
7. IPOs are coming, even more than last year. Some represent decent value. Searching them as they come is a good source of opportunities.
8. There'll always be hot stocks, like Taser, Interchange or the Chinese Internet stocks. Because there's so much money chasing so few opportunities, there'll always be money around for madness. Ride them while they last. Which is usually not long. I'll keep highlighting as I find them.
9. Small stocks will continue do much better than large stocks, which stumble more than they sprint. I'm actually looking at a couple of Vanguard's small and mid-cap mutual funds. Here are the top five money destroyers (courtesy BubbleVision-- CNBC) of 2004:

Thank God, I never recommended any of these five. In fact, I was pretty nasty to most of them, especially Coca Cola and Intel.

Nimbleness is the key to 2005. When wasn't it?

Reader Howard Mount offers these predictions:
1) Cash still remains King
2) Munis will be lackluster, with talk and the possibility not allowing State income deductions from Fed taxes
3) Bonds will be a bad place to invest next year (except ultra-short)
4) Small caps will still outperform large caps until latter part of year (small caps are underfollowed and underowned by the institutions compared to mega caps) Foreign stocks will continue to do well the 1Q of 2005 but after that ??
5) Unfortunately I think the potential for a terrorist car bombing will come to the US
6) Defense stocks will continue to do well in 2005 as will the metals
7) My barber and UPS driver will finally stop talking about stocks and giving me tips
8) I think the markets will end 2005 down 10-15% (could be conservative and I could be off by one year! but 2005-2006 not a good time in the markets IMHO)
9) It will still be a traders market of take your profits and run!!
10) Did I say Cash is still KING, but at least we will be paid more while we wait
11) I am pretty sour on 2005 and I could be wrong! But there are too many BULLS out there! I'm just a very cynical person when it comes to Wall Street and all those cheerleaders on "Bubblevision"

A story for tonight, New Year's Eve
Two buddies, Rog & Doc, are getting very drunk at The Stables (new place in Denver)when suddenly Roger throws up all over himself. "Oh, no... Now Barb will kill me!"

Doc says, "Don't worry, pal. Just tuck a twenty in your breast pocket and tell your wife that someone threw up on you and gave you twenty dollars for the dry cleaning bill."

So they stay for another couple of hours and get even drunker. Eventually Rog stumbles home and Barb starts in. "You reek of alcohol and you've puked all over yourself! My God, you're disgusting! Yada, Yada, Yada."

Speaking very carefully so as not to slur his words, Rog says, "Nowainaminit, I can e'splain everythin Itsh snot whatcha think. I only had a cupla drrrinks. But thiss other guy got ssick on me...he had one too many! and he juss koudin hold hizz liquor. He said he was verrry sorry an' gave me twennie bucks for the cleaning bill!"

Barb looks in the breast pocket and says, "But this is forty bucks.."

"Oh, yeah... I almos' fergot, he shhhit in my pants, too."

We did OK in 2004.
We made a little money. That was good.
But most importantly, we said NO to a lot of disasters we avoided. They would have cost us big-time.
All in all a good year. Michael got a job. Claire got into law school. We moved apartments. Susan is happier. My tennis improved, a little. Better yet, we're all alive and healthy.

Enjoy tonight. Kiss the spouse, the parents, the grandparents, the children... Hug the friends.

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons:
Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam.
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