Sunday, February 7, 2010

Byron Wien Announces Top Ten Surprises for 2010

According to Stephen Leeb and a couple other blogs I checked out, Byron Wien has been pretty accurate with his forecasts. For example, he predicted Obama's Presidency before the Iowa Caucuses. I would not bet the farm on his prognostications, but, he should be considered seriously along with other sources you trust and your own analysis.

His US economy forecast for the beginning of the year fits my contrarian hunch at this time - everyone I know is so negative about the economy they must be wrong!

Blackstone Group's Byron Wien Announces Top Ten Surprises for 2010

2010-01-04 18:08:56 -

Byron R. Wien, Vice Chairman, Blackstone Advisory Services, today issued his list of the Ten Surprises for 2010. This is the 25th year Byron has given his predictions of a number of economic, financial market and political surprises for the coming year. He started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. Byron joined The Blackstone Group in September 2009 as a senior advisor to both the Firm and its clients in analyzing economic, political, market and social trends.

The Surprises of 2010

1. The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%. Exports, inventory building and technology spending lead the way. Standard and Poor’s 500 operating earnings come in above $80

2. The Federal Reserve decides the economy is strong enough for them to move away from zero interest rate policy. In a series of successive hikes beginning in the second quarter the Federal funds rate reaches 2% by year-end

3. Heavy borrowing by the U.S. Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%. Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries. Obama says, “The suits are finally listening”

4. In a roller coaster year the Standard and Poor’s 500 rallies to 1300 in the first half and then runs out of steam and declines to 1000, ending where it started at 1115.10. Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both the public and private level unsettle investors

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted. Longer term prospects remain uncertain

6. Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favorable for nuclear power development. Arguing that going nuclear is essential for the environment, will create jobs and reduce costs, Congress passes bills providing loans and subsidies for new plants, the first since 1979. Coal accounts for about 50% of electrical power generation, and Obama wants to reduce that to 25% by 2020

8. The improvement in the U.S. economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum. In the November Congressional election the Democrats only lose 20 seats, much less than expected

9. When it finally passes, financial service legislation, like the health care bill, proves to be softer on the industry than originally feared. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. Trading volume and merger activity increases; financial service stocks become exceptional performers in the U.S. market

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the U.S. and Europe begin but the country remains a nuclear threat. Pakistan becomes the hotspot in the region because of the weak government there, anti-American sentiment, active terrorist groups and concerns about the security of the country’s nuclear arsenal

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1 comment:

Keith said...

I'd say it is pretty easy to agree with what most of Byron Wien forecasts here. The markets already seem to be functioning in a narrow range. I think most investors are more optimistic than negative about the economy, keeping the DOW above 10000, but sensitive to the potential for inflation keeping it below 11000. I have both cheered strong up days and cheered sharply down days, buying some of those issues mentioned by Leeb and W&G. Last week was a great opportunity.
The climate/energy issue continues to support my premise that the entire Global Warming momentum is motivated by increasing the portion of the energy pie towards nuclear energy. What do the reductions in the mix for coal mean for companies like FCL and investment in that portion of the energy sector?
I can easily see that inspite of Tea Party candidates and their publicity, that the Republicans have little hope of swaying Independents away from voting for Democratic ticket because the Tea Party and any other 3rd Party at the moment continue to carry the smell of extremist fringe elements as long as the likes of Sarah Palin are still their spokesmen (women?). If improvements in the economy are realized by the election it is more likely voters will stay the course fearing a drastic change will result in higher risk to the still fragile recovery.

The Iran prognostication is interesting especially if these type of predictions reach the Iranian people. Almost a coded signal of support to those militant anti-Armadinejadi's to shake things up. It is surprising that there is no mention of our own elephant in the living room -Afghanistan. Or perhaps there will just be no change there - can we say quagmire?
Net-net I am glad 2009 is behind us and we have moved away from 2008.