As the year draws to a close, it is time for me to leisurely langour among thoughts of what next year may bring to global financial markets.  I usually do this over the whole month of December--in between trips to the Mall, the occasional drive out of the way to see some pretty lights, and my normal reflections on the significance of the Christmas holiday.  It's like walking through a forest that you have been in before, only to find, if you pay close attention, that the things around the forest, while familiar, have changed, in some cases quite a bit, from when you have seen them last.

It looks like we are going to end the year with about a 15% return, and will yet again beat the S&P 500.  This is my personal goal and something I have now achieved for the 11th consecutive year.  While I have not beaten the index by a wide margin since 2003 (53% vs 26%), I do take some comfort in the fact that I am performing with the index in a 25% cash position.  OK, I admit it--it kicks ass!

As far as my macroeconomic outlook is concerned, there is not much of a change.  I am still bullish on stocks, and, while not as bearish as I have been, I am no where near to being bullish on the dollar.  This once agin leads me to foreign markets, and for the third year in a row I am way overweight on Japan.  While this helped tremendously in 2005, Japan has been somewhat of an albatross around the portfolio this year.  I believe this to be a matter of timing and not faulty observations and expectations of the Japanese market. 

An argument against stocks, particularly in the United States, would be the belief that profits as a percentage of GDP have peaked.  While I do believe that the election of the Democrats to power in Congress makes this true, I do not believe it to be a bad thing for America or stocks.  The prophets of profit are no longer running the asylum where profits were more important than human life or human dignity; the idea that profits today are more important than clean air and clean water tomorrow is gone for the time being (in fact it is this kind of perverse nihilism plagueing our government and our corporations, this anti-Gospel, that has had me bothered the most, for it truly is nothing but bad news); I don't know what kind of crazy and moronic thing the Democrats are going to come up with, but it won't be profits above all else, thus I believe that profits as a percent of GDP will be down.  However it must be noted that during the months that follow a peak in this ratio stock multiples historically have expanded thus increasing stock prices, and leads me to feel pretty good about stocks in 2007.

One of the stocks I am beginning to like more and more for next year is Sony(SNE).  It's Japanese (my favorite region) and Tech (one of my favorite sectors).  I have not liked this stock's story for quite awhile, but two things have helped turn me around.  First is the launch of the PS3.  For the last year Sony has looked like a bunch of bumbling bamboons who were going to end up letting their incredible brand "Playstation" go the way of the Sega Genesis and the Intellivision, as Microsoft pummeled them from every angle with the XBOX 360.  This is not the case, and when comparing apples to apples Microsoft can't even compete on price, let alone machine speed and power.  The second part of the story I like has to do with Blu-Ray.  Since it became obvious that there was going to be a format war between the Blu-Ray and HD-DVD consortiums, I have wondered who was going to win out.  Since the days of betamax vs VHS, Sony has seemed to lose more of these than it has won, and in the beginning it looked like HD-DVD was winning the fight.  I'm beginning to believe Sony will win this one.  If you consider that Sony owns 50% of all the movies ever made, and the Blu-Ray consortium (Apple, Dell, etc.) owns 70%, that is enough to make me pause on HD-DVD.  It's still a ways to go, but I am liking Sony more and more.