Early 2007 Thoughts

∙ Surprisingly, the Democratic takeover of Congress will probably result in greater budget restraint, as Republicans try to re-establish their limited government principles and Democrats hew to the center.

∙ President Bush may also veto overspending bills.

∙ Republican conservatives in the House may reach out to conservative blue-dog Democrats for spending caps.

∙ Both parties will attempt to woo budget-balancing independent Ross Perot voters.

∙ There may be a short-term indexing fix for the alternative minimum tax.

∙ Entitlement reform efforts by Treasury Secretary Henry Paulson will come to nothing.

∙ There could be a breakthrough on broad-based immigration reform.

∙ The Bush tax cuts on investment will stay in place.

∙ As the economy moves toward a Goldilocks soft landing, the Bernanke Fed will lower their policy target rate several times.

∙ On the Iraq war -- more U.S. troops are likely in 2007, along with additional U.S. military advisors embedded in Iraqi units. There is a strong chance that the CENTCOM generals will be replaced. Also, Iraq Prime Minister Maliki will likely be eased out.