Thursday, January 03, 2008
Byron Wien's "top ten surprises," and an eleventh
For years, as chief portfolio strategist for Morgan Stanley, Byron Wien produced a list of "top ten surprises" for the coming year. Wien has now left Morgan Stanley and its enormously high perch over the financial markets, but he still doggedly pumps out his list of supposedly surprising predictions.
This year, Wien's predictions -- reproduced below -- do not strike me as particularly surprising (with the possible exception of his bold guess regarding November's election, about which he is no more qualified to opine than ten or twenty thousand bloggers):
1. In spite of Federal Reserve easing, and other policy measures, the United States economy suffers its first recession since 2001 as housing starts stay soft and banks are reluctant to lend to anyone where a whiff of risk is apparent. Federal funds drop below 3%. The unemployment rate moves definitively above 5% and consumer spending is lackluster.
2. Standard and Poor's 500 earnings decline year-over-year and the index drops another 10 percent. Energy and materials stocks hold up relatively well in what is viewed as a correction rather than a bear market. Market conditions start to improve during the summer.
3. The dollar strengthens in the first half reaching $1.35 against the euro and weakens in the second exceeding $1.50. The European Central Bank begins an accommodative monetary policy. Foreign investors flock in to buy cheap assets in the U.S. early in the year but the dollar declines later as several countries holding large reserves diversify into other assets.
4. Inflation rises above 5 percent on the Consumer Price Index as higher commodity prices and oil finally begin to have an impact in spite of modest wage increases. The 10-year U.S. Treasury yield rises to 5 percent. Stagflation becomes a frequent presidential campaign and Op-Ed discussion topic.
5. The price of oil goes down early in the year and up later, sinking to $80 a barrel in the first half as western economies slow and inventories are drawn down, and rising to $115 in the second. Established wells continue to decline in production while China, India and the Middle East increase their consumption.
6. Agricultural commodities remain strong. Corn rises to $6 a bushel and cotton to 85 cents a pound. Gold reaches $1,000 an ounce as disillusionment with paper currencies spreads across Asia.
7. The recession in the United States slows the Chinese economy modestly but its stock market declines sharply. Investors recognize that paying biotechnology stock multiples for highly cyclical companies doesn't make sense. The Chinese revalue the renminbi by another 10 percent to control inflation and as a gesture to foreign governments participating in the Olympic Games who complain that Chinese terms of trade are unfair. Several long distance runners refuse to compete in certain Olympic events because of continuing air pollution problems.
8. The new Russian President Dmitry Medvedev, under the tutelage of Vladimir Putin, becomes more assertive in world affairs. He insists that Russian oil and gas be paid for in rubles and demands a Russian seat at major world conferences. Russia and Brazil stock markets lead the BRICs. The Gulf Cooperation Council markets begin to attract interest among emerging market investors.
9. Infrastructure improvement becomes an important election theme for both parties and construction and engineering stocks rally in anticipation of huge programs beginning after the new President's inauguration. Water becomes a critical problem world-wide and desalination stocks soar.
10. Barack Obama becomes the 44th President in a landslide victory over Mitt Romney. With conditions in Iraq improving, the weak economy becomes the determining issue in voters' minds. They want to make sure that gridlock ends and Congress gets something done for a change. The Democrats end up with 60 Senate seats and a clear majority in the House of Representatives.
Of these, #1, #5, and #6 strike me as the most likely by a wide margin, and #10 is a spin of the wheel. I, however, have an "eleventh surprise" to add to the mix:
11. Just as only Nixon could go to China, only George W. Bush can go to Tehran. He may not literally travel there, but I believe there is a better than 50% chance that the United States and Iran will agree to exchange ambassadors before the end of the year.
Discuss.
4 Comments:
By 
, at
Thu Jan 03, 07:27:00 PM:
Off-topic:
Allow me to express my profound disappointment that none of the right-wing bloggers (that I read) mentioned one of the most serious stories of the year, as encapsulated yesterday morning on OpinionJournal.com. Not only did Congress set new benchmarks for the nanny state, but it's going to have a real, demonstrable impact on the lives of everyone here.
You like your nice, soft, dim-able incandescent light bulbs? Say bye-bye!
I'd sure like to see your take on this, Tige. As the article points out, this is really raising the bar. And it's hard to tell which is scarier -- the bill, itself, the way no one's talking about it, or the ease in which it passed.
PA, if you're reading this, I'm seriously surprised Ace let this one slip by. This is raw meat for the gang over there.
Like the light bulbs, themselves, we are so screwed.
By , at
Thu Jan 03, 08:07:00 PM:
Hey, where's our Live Caucus Blog??
I just read something quite interesting on Iowahawk's site:
"Every four years, America kicks off its time-honored democratic ritual of selecting the next president of the United States. As always this process begins with the Iowa Caucuses, which will have an important say in determining the final nominees. And, as always, this process is marked by another time-honored ritual: millions of angry non-Iowans asking, 'who died and made that stupid state God?'"
About halfway down the page, Three Cheers for the Iowa Caucuses!
By , at
Fri Jan 04, 11:11:00 AM:
i disagree about #11; every president since C****r has tried to engage the iranians, but they are just too fanatical to be tempted. until there is regime change, things will continue as they are.
items 1 - 9 are kind of generic and not exactly the stuff of Nostradomus :) i kind of do see #10 happening though; people on both sides want someone who will provide contrast to the dourness of the last 8 years -- and that is what's going to kill hillary (she is one sour faced old bag).
By , at
Mon Jan 07, 09:29:00 PM:
I don't know of any investable pure-play desalination stocks. Does anyone
