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Stocks: That is the hot topic in economic circles. After the general index soared 55 percent in 2003, and the TA-75 index of moderately heavy shares climbed 90 percent; and after high-tech companies dual-listed in Tel Aviv and Wall Street doubled or more in value, a lot of people are bitterly bewailing missing the boat. More practically, they want to know: Did they? Will the general public leap into the arena in 2004?

Prophecy is the privilege of fools, or of people who manage other people's money. Ask the experts; they'll say it all depends on whether corporate financial statements improve enough in 2004 to justify the gains already achieved.

Don't believe them. They know that the key parameter now is the price of money. If interest rates continue to fall, they'll come up with explanations why share prices should keep rising. In the long run, share prices are correlated with corporate performance. But that is in the very long run, about which nobody seems to care.

Nasdaq, Wall Street: That's the second power driving the Tel Aviv Stock Exchange and much of the high-tech industry. Half the gains in 2003 were generated by Nasdaq's astonishing leap back to 2,000 points.

Share prices on Nasdaq are inflated again, yet the mood is ebullient. The official explanation for the gains is the improvement in financial statements due to the eradication of surplus inventory and entire corporations that were built up in the bubble era. But the key point is that the Federal Reserve sent interest rates down toward zero, making it horrendously expensive to hold cash, thus inducing Americans to spend, spend, spend and to buy shares.

We wouldn't presume to guess Wall Street in the short run. In the long run, we might be in for some unpleasant surprises, because prices are already so high.

Interest rates: The fiscal restraint Finance Minister Benjamin Netanyahu is imposing, the loan guarantees that dramatically reduced Israel's risk premium, and the stability prices are evincing give the Bank of Israel room to lower lending rates even further, toward 4 percent or maybe even 3.5 percent.

The biggest threat to Israeli interest rates comes from the United States. The two biggest questions today are: 1. When will foreign investors start demanding higher and higher interest on the bonds the Fed is issuing at a dizzying pace to finance its record deficits? 2. When will Alan Greenspan raise interest, after two years of keeping the economy buoyant with easy money?

When U.S. rates start to climb, all the central banks around the world will have to respond. Israel, which has been almost entirely out of the game, will also have to adapt.

Inflation: The dollar's plunge sent the housing component in the CPI sliding by 7 percent in 2003, which was the chief factor depressing inflation last year. The dollar's slide wasn't just due to the shekel gaining ground, but due to its weakening against the euro in world markets.

Some of the processes that produced negative inflation in 2003 have already ended, it would seem. The Bank of Israel will be more receptive to expansionary monetary policy. We may assume that during 2004, inflation will rise a notch.

Real estate: It's been in decline for seven years. Finally, in 2004, we may see the trend reversing, or at least stabilizing.

The weak dollar that depressed housing prices in 2003 and dropping interest rates could actually stimulate demand for homes in 2004. Don't expect a steep climb in prices, because the market is crammed with would-be sellers. But we may see some kind of turnaround. In the arena of commercial real estate, surplus supply is still overwhelming.

Offerings: There are going to be a lot of them in 2004. After three years of financial crisis and high interest rates, Israel's companies and tycoons are ravenous for cash. In 2003 it was mostly Nochi Dankner, but he'll have lots of company this year. First they'll issue bonds - that in fact has already begun - then shares. They're so hungry for cash that price will be of secondary import.

The banks will bend over backwards to encourage the trend. They'd love to shove all that debt the companies accrued onto their and other banks' customers. The loans will move from the banks' credit portfolios to that of the institutionals who manage our money. Barring a downswing in the United States, the wave of offerings is what will hold back the stock exchange.

Growth: If the global capital market's positive trend is sustained, we will probably see Israel's wealthy get wealthier. The poor will have to wait. The ones reaping the harvest of the rising markets are mainly the rich who have most of the assets. High unemployment will continue to depress wages. Subsidy cuts will continue to depress living standards of the needy, who will have to wait for the economic upturn to trickle down. If exports continue to increase, growth may well pick up in 2005: the domestic market alone cannot restore growth to the high levels seen in the late 1990s.

Corporate profits: Expect improvement. The banks will benefit from the upsurge on the markets and continue taking tremendous charges for the silly things they did during the 1990s, without impairing their finances.

Some of Israel's companies cut back and posted huge write-offs already. Barring a dramatic decline in the stock market, it's time to start canceling those charges. When the market turns frothy, managements generally figure out how to present the figures alluringly enough to support further fundraising and shareholder sales.

Reforms: The merrier the economy, the less pressure there is to carry out genuine reforms. Remember the great Reform of the Ports? The workers with their Jaguars? Their sky-high salaries? The treasury's war to force competition down their throats? Hmm, the treasury's date for instituting its reform was December 31, 2003. That was the day before yesterday. Nothing happened, and probably, nothing will. Without a sword threatening the jugular and with no stench of crisis in the air, nobody over here ever does a thing.

Forecasts: This year, as happened last year, the markets and the economy will spring surprises. We will be influenced more than ever before by events in the United States and global arenas, so surprises, for good and bad, could come hard and fast from every conceivable direction.