During our last radio show, I mentioned to co-host, George Gamble, that in order to gauge a proper feel for the current economy one must liken it to accelerating a car while simultaneously applying the brakes. The U.S. economy is torn between two counter-revolving forces-consumer spending and liquidity are accelerating the economy, while the housing crash and rising energy costs impede its progress.

The cost of living is outpacing rising wages in that wages cannot keep up with price inflation. Consequently, consumers' discretionary income is increasingly shrinking. The amount of money the average consumer is able to spend is quickly diminishing and will continue to shrink if the condition worsens.

The shortage in average disposable income, where consumer spending accounts for 70-75 percent of GDP in a wartime economy, could throw the U.S. into recession sometime in late 2006 or early 2007. The reason why I project the later date is because it takes approximately three quarters of negative GDP growth before the economy is described as being in recession.

Since the U.S. economy is already about one month into its second quarter, a 2006 recession is not in the tealeaves, unless the second quarter begins to shut down in the next several weeks. Given the variables-excessive liquidity, historically high mergers and acquisitions, and wartime spending-the odds do not favor recession. However, they do favor stagflation for 2007 or 2008. Stagflation is a combination of high prices, low income and, slow growth. The only thing that would affect this projection is three or four more Fed Funds Rate hikes as an attempt to avoid dollar weakness and price inflation.

For the past few years, I have had considerable difficulty delivering winning pro-picks portfolios during the first four to five months of the year. But I have always come back during the second half of the year. Hopefully, 2007 will be no exception. Remember, I am not losing any money; I am just not making any money. My pro-picks portfolio would have made money had I traded stocks once they signaled weakness.

ANO was up 54 percent (in six weeks) as of May 14, 2007. There has been profit taking since then. I will sell if it drops below its 30 percent gain. Then, I will restructure the pro-picks portfolio over the next several weeks. I will sell on weakness. Stay Tuned!