When Do Surprises (Sometimes) = Forecasts?
Answer: When they’re put out by Byron Wien.
Wien is out with his Top Ten Surprises for 2010. Over the years I’ve come to appreciate the very nuanced beauty of Wien’s “surprises”: If they don’t come to pass, hey, what the heck, they were “surprises” — by definition, outliers — to begin with.
When they do come to pass, the media gets him on ASAP and says, “Well, Byron, you called this one back in January.” Win-win. Truly ingenious.
Without further ado:
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. market10. 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
Tweet
Facebook
Reddit
Digg this!
January 4th, 2010 at 5:26 pm
11. It is revealed that Santa Claus really is “real”.
January 4th, 2010 at 5:29 pm
1) is Wien smoking Obama hopium ? I’ll take the Reader Poll Results: Economic Outlook for 2010 from 4,518 generally very informed people here http://www.calculatedriskblog.com/2009/12/reader-poll-results-economic-outlook.html over Wien and Krugman
Many of the rest are a derivative of 1) so whatever
January 4th, 2010 at 5:30 pm
“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”
wow- what a stretch- this guy IS a fucking genius-
lol
January 4th, 2010 at 5:38 pm
People will sprout wings and develop the ability to fly. This leads to the demise of the airline industry.
January 4th, 2010 at 5:39 pm
Good one, Manny.
January 4th, 2010 at 5:43 pm
@MA: Actually, there was a recent “60 Minutes” piece done on some extreme sports dudes who have flying suits that allow them to float through the air like a human hang glider. Perhaps you are onto something here?
January 4th, 2010 at 5:48 pm
I think you’re being a little hard on Wien. He’s been doing this quite a long time, if I’m not mistaken, makes some interesting points. That said, his “surprises” this year do seem a little underwhelming. A 5.5% long bond? Hardly out of the question, IMHO.
From ground zero in the manufacturing heartland (sort of: Kalamazoo, Michigan folks), I can tell you that drumbeats of a serious pickup in manufacturing can be heard. Make that heartbeats. It could be just inventory restock at this point, but buyers are anxious…….and I my observations are not directly related to automotive, it’s general “stuff.”
Throw enough money at something………….
January 4th, 2010 at 5:50 pm
IMHO…. the direction ( not necessary the value) of the S&P, bonds and dollar seem possible, however without addressing the collapsing credit situation as banks begin to “eat” (absorb) 65% (or more) hair-cuts on their bad mortgages, his unemployment optimism seems ludicrous. Maybe he should have addedthe US and Europe to his civil unrest call.
January 4th, 2010 at 5:54 pm
Surprises? The only ones that would surprise me are 6, 7, and 8.
Keep in mind there’s a tsunami of stimulus cash ready to hit the economy. But Wien doesn’t seem to have noticed the foreshadowing of Obama and Orszag: In 2010 the War on The Rich will be waged on all fronts as higher taxes on “wealth” and “sins” are pursued as a means to reduce the deficit. The Dems will want to be seen as a deficit hawks by November, but their idea of reducing deficits is to raise taxes as fast as they think the recovering economy can swallow them.
January 4th, 2010 at 6:01 pm
To add to Mannwich:
12. We all party like its 1999.
And to km4′s point, almost all of them do derive directly from #1. Start with a premise for surprise strength and then think of how many ways you can give a consequence of that.
January 4th, 2010 at 6:17 pm
who the hell does this guy think he is? Nostradamus?
January 4th, 2010 at 6:21 pm
When Do Surprises (Sometimes) = Hallucinations?
January 4th, 2010 at 6:26 pm
Very negative sentiment in the comments………..hummmmm…………. Not suggesting the overall stock market will be good……….but maybe Mainstreet……….
January 4th, 2010 at 6:56 pm
2009 predictions (spot on)!!!!:
http://www.creditwritedowns.com/2009/01/byron-wien-ten-surprises-for-2009.html
January 4th, 2010 at 7:05 pm
There will be surprises but as Bob Prechter Jr. says.. In Bear markets, Surprises are to the downside.
January 4th, 2010 at 7:25 pm
5% growth … right, because edging over onto the decline slope of global petroleum production is going to make everything hunky dorey.
No way this democratic republic survives to 2020.
January 4th, 2010 at 7:25 pm
12. It is revealed that not only is Santa Claus real, printing money creates wealth. The country goes on a money-printing binge that makes 2009 a pale facsimile of all that can be accomplished by changing the accounting by dint of the currency. Obama directs Ben Bernanke to put his face on the new dollar bill, which is another accounting gimmick whereby the decimal places are moved three places to the left relative to the old ones, i.e., new dollars will be worth a thousand old dollars, except it’ll still take five or more to buy a triple latte at Starbucks. Houses in Detroit that once sold for under a thousand dollars will now be worth pennies.
January 4th, 2010 at 7:32 pm
It seems to me that those ten surprises are current consensus opinion/sentiment…scary!!
January 4th, 2010 at 7:36 pm
Last year the esteemable Byron Wein said the S&P500 would finish ’09 at 1,200…
http://www.morganstanley.com/views/gsr/archive/2009/20090113-Tue.html
Above Wein-disparagers, what were your predictions at the time? Links to BP comments would suffice.
January 4th, 2010 at 7:50 pm
Tend for most part to agree with Drewburn, only due some of “the best” also beginning to lean towards Wien’s expressed views…i.e. Japan (some superb Fund Managers are starting to overweight from way underweighted, as well as his thoughts on very possibly considerably better than present consensus on GDP, and Financials and Healthcare stocks outperforming due their NOT being so burdened as now feared? (Would Obama run as a Republican in 2004?)
PIMCO’s Gross echoed about the same re. Treasuries couple days ago…and were today’s MarketS, all echoing his thoughts for the FIRST half of 2010?
But as for PRECHTER (!…per “gurus ratings” has a 33% correct record…not so sure would be very attentive to!
January 4th, 2010 at 8:13 pm
Here is an excerpt from Wall Street Meat:
Good to see somethings never change!
January 4th, 2010 at 8:41 pm
MA said, “People will sprout wings and develop the ability to fly. This leads to the demise of the airline industry.”
Yes, Ueli Gegenschatz and his comrades have no need for the airlines:
http://www.ted.com/talks/ueli_gegenschatz_extreme_wingsuit_jumping.html
January 4th, 2010 at 8:44 pm
Andy Kessler thx for this read,
Like I said above Byron puts out a BS strawman in 1) and piles on the cow manure thinking that he won’t stink up the place. This clown should retire permanently for good !
January 4th, 2010 at 8:51 pm
In case you missed this on a later post…just repeating. Seems it goes along with what this post is talking about…so it fits.
—–
BR…I know how busy you are…but as a buyer and reader of your book …Hope you will take out time to check this one out from Chris Hedges. It’s long…but I think that as you say you are an open minded fellow and love contrarian views along with some radical stuff …..this one is for you.
It’st well worth the watch about America/Economy/Media/Branding/Sports/Markets/Celebrity. ….. (be sure you listen to all after the Michael Jackson stuff)…he goes back to that at the end. It’s really a Tour de Force…from Hedges who has much to say about where we’ve been, where we are and where we might be going if we don’t WAKE UP!
Well (to repeat) it’s just an incredible watch whether one agrees or disagrees what he says is some really serious stuff…I hope you will take the time to watch it “BR” because, I felt you might be a part to the great puzzle ( revealing on your blog and in your book), what Hedges so emphatically and passionately lays out about what faces all Americans…and how we got to this point. Really the whole thing is just incredible watch.
—————–
CHRIS HEDGES: “Empire of Illusion: The End of Literacy and the Triumph of Spectacle”
http://www.democracynow.org/blog/2009/12/18/chris_hedges
January 4th, 2010 at 9:00 pm
@VennData — You’re falling right into the trap. That Wien said the S&P500 would finish ’09 at 1200 was supposed to be a “surprise,” an outlier, by definition not likely to happen. Now, since it came relatively close, it’s tempting to say Wien predicted it. But he didn’t. He actually thought it unlikely — hence it was a surprise. You’ve inadvertently (I think) proved the intro to my post — it’s always a win-win for Wien.
January 4th, 2010 at 9:09 pm
A… bear trap?
http://thereformedbroker.com/2010/01/04/know-your-market-bears-a-field-guide/
January 4th, 2010 at 9:24 pm
I find 3, 5 and 7 very plausible. I’d like to add another…
11) Commodities crash Australia’s credit bubble implodes forcing the RBA to reduce rates.Everyone goes running for the exits on the AUD/USD carry.
January 4th, 2010 at 11:24 pm
My “top 2 surprises” for this year:
- It’ll be the best of times.
- It’ll be the worst of times.
Do I lie?? Do I lie??
January 4th, 2010 at 11:41 pm
wunsacon-
i think you nailed it
January 4th, 2010 at 11:57 pm
Thanks, Andy Kessler. That helped fill in some gaps.
January 5th, 2010 at 1:34 am
Outliers? I have read every one of those predictions elsewhere already.
January 5th, 2010 at 5:05 am
Good Comedy. But anything and everything could happen in this world.
January 5th, 2010 at 5:42 am
I’m surprised he didn’t provide an updated projection on gold, considering he was so accurate on it last year and it continues to stand out as one of the best performing sectors of the last decade. In my opinion, I think that despite what the markets are signalling right now, the economic recovery is not sustainable because of all the govt intervention. The Fed has backed itself into a corner where it can’t really slow much the rate of money printing, and foreign central banks are also on the path of debasing their currencies.
January 5th, 2010 at 6:07 am
The Semites in Israel will stop their joyless Hatfield/McCoy antics and start to behave like the Blood Brothers they are.
Brad Pitt will do another Tyler Durden movie with Jennifer Anniston as his co-star
Joe Cassano, Bob Rubin, Alan Greesnspan, and lesser scrutinized perps who somehow managed to escape radar detection, will, for amnesty, surrender to federal authorities and agree to tell where all the bodies are buried in CONgress, who got how much and when, and what country hosts their numbered accounts.
Some terrist group will take down 85 Broad on the very day that all partners are in town celebrating 2009 bonuses.
January 5th, 2010 at 6:36 am
Oh, and let’s not forget the Lew Ranieri, the Godfather of Mortgage securitization, who will give back all his gains by buying up the mortgages for underwater debtors and letting them live free.
January 5th, 2010 at 9:19 am
In most cases I think he is smartly betting on economic outcomes that can be superficially engineered by the US government. Surely, he will be right on at least three of them. #10 is a bold one, but perfectly in keeping with a rational view of Iranian politics. #9 I think is the least risky since we know that any new financial regulation will likely be a sham. That will get the ibanks to puff up the market again. #6 is his riskiest. Maybe I’ll park a little money in a Japan ETF just in case!
January 5th, 2010 at 10:23 am
Beano Cook is the long time ABC/ESPN college football analyst. In the 1970s and 1980s when Northwestern’s football team regularly went 0 and 11, Beano would always pick them to win the Big 10. When asked why he always picked Northwestern, he said that it is always better to forecast the unexpected. Nobody would remember when he was wrong, but one day he would be correct (he was in 1995) and the world would view him as Nostradamus.
Are Byron Wein and Beano Cook related?
January 5th, 2010 at 10:46 am
We’ve known Byron Wien for a long time — he was a formidable competitor while we were both on the sell side and in later years, a valued client and friend while he was on the buy side. He had a pretty good year in 2009, of that there is little doubt. But his just-released list again totally epitomized the consensus view — and it is useful to know this because as Bob Farrell told us in his Ten Commandments of investing, “When all the experts and forecasts agree, something else is going to happen” (the 9th commandment).
We won’t reprint Byron’s list here, though we were inundated with our views on it yesterday, but all the ‘surprises’ are on the upside as far as the economy, profits and interest rates are concerned. His whole piece involves world peace, a huge equity rally, massive bond selloff, Fed tightening, a dollar bull market, successful policy action on energy and financial sector reform. Nothing on double dip, deflation, renewed equity slide, Israeli military strike, 10% home price decline, sovereign default risk, Euro-area discord, or a Chinese relapse. These don’t seem to worry Byron — but then again, with the VIX index at 20 … the market seems unperturbed about downside risks as well.
Page
January 5th, 2010 at 11:10 am
With oil already over $80 in a very weak economy how about a scenario where the combo of a slight economic pickup, a weak dollar, and rampant speculation with free fedbucks produces record high oil prices (again) and puts us firmly back into the second recession dip.
Add some additional political turmoil in Iran, Iraq, Arabia or Nigeria and you have a scare forecast for really high oil prices and a depression.
January 5th, 2010 at 12:51 pm
[...] Vincent Fernando, “So here’s the secret to forecasting success — maintain an extreme, polarizing long-term view. Then adopt the exact opposite view, as a short-term trading idea, and blame governments for making it happen.” (The Money Game also Big Picture) [...]
January 5th, 2010 at 6:25 pm
ALL the so-called gurus due this more or less (including the blog author),
saying things like “I think the market is overpriced but market sentiment
could keep it going higher”. If stocks go down or up they get credit for
being “right”.