Thursday, January 8, 2009

Byron Wien Announces Ten Surprises for 2009

WESTPORT, Conn.--(BUSINESS WIRE)--Byron R. Wien, Chief Investment Strategist of Pequot Capital Management, Inc., today issued his list of Ten Surprises for 2009. Mr. Wien has issued his economic, financial market and political surprises annually since 1986. The 2009 list follows:

1. The Standard and Poor’s 500 rises to 1200. In anticipation of a second-half recovery in the U.S. economy, the market improves from a base of investor despondency and hedge fund and mutual fund withdrawals. The mantra changes from “fortunes have been lost” to “fortunes can still be made.” Higher quality corporate bonds, leveraged loans and mortgages lead the way.

2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern investors and a worldwide disenchantment with paper currencies drive the price of precious metals higher. In a time of uncertainty, investors want something they can count on as real.

3. The price of oil returns to $80 per barrel. Production disappointments and rising Asian demand create an unfavorable supply/demand balance. Other commodities also rise, some doubling from their 2008 lows. Natural gas goes to $9 per mcf.

4. Low Treasury interest rates coupled with huge borrowing by the Treasury send the dollar into a serious downward slide. Overseas investors become concerned that the currency printing presses will never stop. The yen goes to 75 and the euro to 1.65.

5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.

6. China’s growth exceeds 7% and its stock market revives. World leaders credit China’s authoritarian government for its thoughtful stimulus policies and effective execution during a challenging period. The Chinese consumer begins to spend more and save less and this shift is behind the unexpected strength in the economy.

7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcy and other states and municipalities follow. The Federal government is forced to step in and provide substantial assistance. The New York Post screams “When will the bailouts stop?”

8. Housing starts reach bottom ahead of schedule in the fall, and house prices stabilize after dropping 15% from year-end 2008 levels. The Obama stimulus program proves effective and a slow growth recovery begins before year-end. Third and fourth quarter real gross domestic product numbers are positive.

9. The savings rate in the United States fails to improve beyond 3%, as most economists expect. The concept of thrift seems to have vanished from American culture. Peak job insecurity and negative growth drive increased savings early in the year, but spending resumes as the economic growth turns positive in the second half, making Christmas 2009 the best ever.

10. Citing concerns about Iraq’s fragile democratically elected government and the danger of a Taliban-controlled Afghanistan, Barack Obama slows his plan for troop withdrawal in the former and meaningfully increases U.S. military presence in the latter. In a hawkish speech he states that the threat of terrorism forces the United States to maintain a strong military force in this strategic area.

Mr. Wien believes these surprises, which the consensus would assign only a one-in-three chance of happening, have at least a 50% probability of occurring at some point during the year. In previous years, more than half of the elements of the list have proven correct.


Wompeter said...

In previous years, more than half of the elements of the list have proven correct.

Past performance is no indication of future results.

pricedoutfornow said...

#9-...but spending resumes as the economic growth turns positive in the second half, making Christmas 2009 the best ever.

Yes, because all those people who declared bankruptcy earlier are suddenly flush with cash or newly issued credit cards!

Dream on dude! Sounds more like a wishful thinking list than predictions to me.

mohican said...

Mr Wien is well known for making these annual prediction lists of things that 'could' surprise us during the year. If any of the things on his list happened, I would be very surprised indeed!

mohican said...

Although numbers 5, 7, and 9 look plausible.

Chris said...

We've now had a little time to think about these and of course a little more time than Wien had when he made the predictions. A quick take:

#1 S&P rises. Possible but unlikely.

#2 Gold to $1,200. Quite possible.

#3 Oil to $80. Unlikely. Demand is just too hard hit.

#4 Dollar down Euro up. Unlikely. The Euro is just too f***ed.

#5 T-bills to 4%. Unlikely. The economy is going way down and is going to stay down for some time.

#6 China rocks on at 7% growth. Forget it. They've got real trouble.

#7 NY CA other states go bankrupt. Highly likely and in fact starting to happen already.

#8 House prices bottom out and start to recover before the end of the year. Dream on. House prices are going to keep on falling for years. The toxic mortgages haven't even begun to strut their stuff.

#9 Savings rates don't increase but the economy recovers for a big Xmas '09. Wrong 3X.

#10 Obama takes his time getting troops out of Iraq. Highly likely. A lot of other Bush policies are going to be around for a while because there's no good alternative.