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Oh, David...


I'm sorry, I just can't resist...

But first, a review of my 2004 predictions, which unless you subscribe to our research you didn't get to see...

Nothing in this article is intended as advice.

1. Short covering will drive a rally in the indices

Nope. Short interest soared and the indices went up. Forgive me if I double down on this one. I don't know when the short interest will matter, but I suspect its unraveling will be swift and breathtaking.

2. President Bush will lose

Nope, though it was much closer than anyone thought it would be when I wrote this prediction in October 2003.

3. Biotech sector had risk via FDA Commissioner McClellan leaving

I'm going to claim partial credit on this one. We were exactly right as to the effect, but wrong as to the cause. He left to work on Medicare reimbursement, not because his boss lost. The effect was the same, though the timing came early. In our minds, this was the biggest story of the year in biotech because it has rippled through so many of the other big stories.

4. NYSE tops out 10,000-10,500 with no successful challenge of the 11,000 level

Mostly correct, though we're above the 10,800 level as I write this.

5. NASDAQ gains 20-30%. NASDAQ 3000 possible

Nope. Short covering didn't come through. I'm tempted to double down on this one for 2005, though I'm not certain the rise of market neutral funds will allow such a large gain.

6. Until the Fed gets rates to 4%, the bulls won't care

So far, so good. I think the Fed gets to 4% by the end of 2005 or early 2006.

7. Early 2004 will see biotech deals that fell over from 2003

Wrong. I didn't account for the broad denial of big pharma about their pipeline problems, the hesitancy to sign deals without knowing who'd be in the White House, and the increased aggressiveness of biotech management teams looking to secure co-promotion/co-marketing deals and high overseas royalties. Now that Wall Street is audibly worried about pharma's pipelines, expect big pharma management to do something about it. I'll roll this prediction over into 1H-2005.

New prognostications

While in San Diego at the ASH conference, I made a dinner bet with a few analyst friends that the NASDAQ Biotech Index (NBI) would be up 50% by the time we sat down at ASH again in New Orleans (the NBI closed that day at 740). That's the kind of bet you make after a couple of beers when dinner among friends is the worst outcome. Such a move would put the NBI above 1100, something not seen since 2001. Like I said, the worst thing that can happen is I pay for dinner with friends. (I will note I'm 4-1/2 points towards that goal after three weeks!)

I do expect the NBI to be up significantly in 2005, but basing financial planning decisions on an expectation of an 1100 level on the NBI is folly - but you know that, right? Right?

I do believe a 50% move off the August low (622) could be within the realm of possibility, which would have the NBI around 950 in 2005. That's 25% from here, which I believe could be reachable in 2005.

The caveat here is such a move by the entire index will need macro market support. What we may get instead of a 25% move in the NBI is a demonstrably have/have-not market where profits will be gained from shrewd stock picking and not from participating in a rising tide that lifts all boats.

May 2005 find you happy and healthy regardless of the gains and losses in your portfolio.

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