Barron's roundtable is having trouble discerning a strong trend in 2007's economy and securities markets. The Goldman Sachs Group's (NYSE:GS) market analyst Abby Joseph Cohen, who accurately guessed that the S&P 500 would end 2006 at 1,400 -- it actually closed at 1,418 -- expects a 9% rise to 1,550 by the end of 2007. This precision masks significant confusion about the factors driving 2007's prospects.

I always enjoy reading Barron's annual roundtable, which pits savvy money managers against each other to predict what will happen to the economy and the market before they pick stocks for the coming year. This year's debate pits Fred Hickey, a New Hampshire newsletter writer, who thinks that a housing collapse and sluggish tech sales will lead to a big correction, against Cohen and others money managers -- who believe that global liquidity will bail us out.

Alan Abelson, Barron's editor, spent much of 2006 supporting the housing collapse school of thought. As I've posted here, here, and here, the housing collapse theory seemed persuasive. But I am now questioning the housing collapse argument because, although the economy has slowed down, it hasn't collapsed. There are at least three possible explanations:

1. The housing collapse is too small a part of the overall economy to sink it;
2. The collapse is taking longer than expected and it will play out in the future; or
3. Global liquidity is offsetting the impact of the housing collapse.

At this point, I am leaning towards explanation three, with a dash of one and two thrown in for good measure.

During the holiday season, a friend of mine sent me a copy of Sam Zell's holiday greetings, which you can see at www.yieldsz.com. It was the only New Year's card I received that contained both a stock market forecast and a potential top 10 musical hit (at least on Wall Street that is).

You must have heard of Sam Zell, the real estate billionaire, who recently sold part of his empire for a boatload of money. He is the real thing! Donald Trump may have the hair, but Sam Zell has the real estate.

Thus, I listened to Sam's holiday greeting with great interest. His basic thesis is that the world is bursting with liquidity chasing returns. This means that there is plenty of money out there to keep the stock market from collapsing. Take note any bears lurking in the bushes.

However, there is a downside to this situation. As Sam puts it, this means that returns in general will be a bit low until corporate growth allows us to catch up. Based upon the meager returns of the S&P 500 since 2000, he does have a point.

Liquidity, especially the enormous amount created by the Fed and the other global Central Banks, has a huge effect on world-wide equity returns. Based on our research, it is the single biggest factor determining equity returns.

Being in the right type of equities (large or small, growth or value) will be the key to beating the market for the next several years. This is the primary thing that you need to get right, even more so than the choice of the individual stocks themselves.

This concept forms the basis of my investment research at www.followthefed.com as well as the view of other well-known investment strategists and academic scholars. Don't take my word. Listen to the music of Mr. Zell's holiday greetings. In the words of the great Humphrey Bogart, play it again Sam!

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.