Sunset and Sunrise

Shortly after 7 pm last night, I walked along the dark sands of this semi-deserted, little-known beach on the coast of Brazil.

To the west-southwest, a sharp cliff rises abruptly from the waves.

And behind it, the sun sets slowly into the Atlantic, a metaphor of the year past.

This was a critical year in the history of the 21st century, a year that gave rise to new waves of inflation – in oil, copper, aluminum, silver and gold.

Some of these are soaring right now. Others are still in a corrective phase. But the ups and downs of recent days do nothing to alter the big picture:

A new phase of inflation has begun.

This was also the year that marked the end of the greatest real estate boom in history.

Unsold inventories of new homes began to bulge in the summer. Hot condo markets began to crack in the fall.

And just last week, we saw the sharpest decline in new home sales in fourteen years … followed by the news on Thursday that existing home sales have also plunged.

There are still pockets of strength in some real estate markets. But again, the big picture is clear:

A housing bust threatens to shake the foundation of the American economy.

Which will prevail in 2006?

To the east-northeast, another cliff rises sharply from the ocean.

And behind it, the sun comes up slowly around 6 am, inviting me to contemplate what lies ahead.

Will emerging inflation continue to be the primary driving force behind every financial market on the planet?

Will it continue to push up commodities and the value of companies that produce or process them? Will it continue to drive down bond prices and the financial companies that rise and fall in tandem?

Or will a bust in U.S. housing – and its economic repercussions – replace inflation as the dominant force in the world marketplace? And, if so, how soon?

Could we see a natural resource boom and a real estate bust at the same time? For how long?

Both cliffs are covered with jungle.

To traverse them we have the choice of walking up a steep and tortuous path … or scaling the rocks along the ocean.

Tomorrow, on the first day of the new year, I will do both … and on Tuesday, I’ll let you know how it goes.

In the meantime, I want to leave you with two messages, the first of which is quite urgent.

Tonight at midnight, at the close of 2005, is your last opportunity to renew or extend your subscriptions to our services before our new pricing goes into effect with the new year. The number to call is 800-291-8545. And I have asked our staff in Florida to stand by until midnight to take your call.

We will be closed on Monday. So our next issue of Money and Markets will be Tuesday, January 3rd, when I will give you my thoughts on what to expect in 2006.

For now, my family and my staff join me in wishing you a wonderful new year!

Good luck and God bless!

Martin

P.S. I took the photos included in this email at Praia da Jureia and at Praia do Engenho in the state of Sao Paulo, Brazil. Photography used to be a hobby, something for which, unfortunately, I now have far less time. I am attaching the high-resolution photos from which you can print and create your own prints. Please feel free to use the photos or share them as you see fit.

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Christine Johnston, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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