Byron R. Wien, Vice Chairman, Blackstone Advisory Partners, today issued
his list of Surprises for 2013. This is the 28th year Byron has given
his views on a number of economic, financial market and political
surprises for the coming year. Byron defines a “surprise” as an event
which the average investor would only assign a one out of three chance
of taking place but which Byron believes is “probable”, having a better
than 50% likelihood of happening.
Byron started the tradition in 1986 when he was the Chief U.S.
Investment Strategist at Morgan Stanley. Byron joined Blackstone in
September 2009 as a Senior Advisor to both the firm and its clients in
analyzing economic, political, market and social trends.
Byron’s Ten Surprises for 2013 are as follows:
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1.
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Iran announces it has adequate enriched uranium to produce a
nuclear-armed missile and the International Atomic Energy Agency
confirms the claim. Sanctions, the devaluation of the currency, weak
economic conditions and diplomacy did not stop the weapons program.
The world must deal with Iran as a nuclear threat rather than talk
endlessly about how to prevent the nuclear capability from
happening. Both the United States and Israel shift to a policy of
containment rather than prevention.
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2.
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A profit margin squeeze and limited revenue growth cause 2013
earnings for the Standard & Poor’s 500 to decline below $100,
disappointing investors. The S&P 500 trades below 1300. Companies
complain of limited pricing power in a slow, highly competitive
world economic environment.
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3.
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Financial stocks have a rough time, reversing the gains of 2012.
Intense competition in commercial and investment banking, together
with low trading volumes, puts pressure on profits. Layoffs continue
and compensation erodes further. Regulation increases and lawsuits
persist as an industry burden.
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4.
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In a surprise reversal the Democrats sponsor a vigorous program to
make the United States independent of Middle East oil imports before
2020. The price of West Texas Intermediate crude falls to $70 a
barrel. The Administration proposes easing restrictions on hydraulic
fracking for oil and gas in less populated areas and allowing more
drilling on Federal land. They see energy production, infrastructure
and housing as the key job creators in the 2013 economy.
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5.
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In a surprise reversal the Republicans make a major effort to become
leaders in immigration policy. They sponsor a bill that paves the
way for illegal immigrants to apply for citizenship if they have
lived in the United States for a decade, have no criminal record,
have a high school education or have served in the military, and can
pass an English proficiency test. Their goal for 2016 is to win the
Hispanic vote, which they believe has a naturally conservative
orientation and which put the Democrats over the top in 2012.
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6.
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The new leaders in China seem determined to implement reforms to
root out corruption, to keep the economy growing at 7% or better and
to begin to develop improved health care and retirement programs.
The Shanghai Composite finally comes alive and the “A” shares are up
more than 20% in 2013, in contrast with the previous year when
Chinese stocks were down and some developing markets, notably India,
rose.
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7.
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Climate change contributes to another year of crop failures,
resulting in grain and livestock prices rising significantly. Demand
for grains in developing economies continues to increase as the
standard of living rises. More investors focus on commodities as an
investment opportunity and increase their allocation to this asset
class. Corn rises to $8.00 a bushel, wheat to $9.00 a bushel and
cattle to $1.50 a pound.
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8.
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Although inflation remains tame, the price of gold reaches $1,900 an
ounce as central bankers everywhere continue to debase their
currencies and the financial markets prove treacherous.
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9.
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The Japanese economy remains lackluster and the yen declines to 100
against the dollar. The Nikkei 225 continues the strong advance that
began in November and trades above 12,000 as exports improve and
investors return to the stocks of the world’s third largest economy.
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10.
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The structural problems of Europe remain largely unresolved and the
mild recession that began there in 2012 continues. Civil unrest
subsides as the weaker countries adjust to austerity. Greece proves
successful in implementing policies that reduce wasteful government
expenditures and raise revenues from citizens who had been evading
taxes. European equities, however, decline 10% in sympathy with the
U.S. market.
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Every year there are always a few Surprises that do not make the Ten
because either I do not believe they are as relevant as those on the
basic list or I am not comfortable with the idea that they are
“probable.” Below are several “also rans” which did not make the Ten
Surprises.
“Also Rans”
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11.
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Having traded below 20 for most of 2012 the VIX Volatility Index
surges 33% to 30, providing a bonanza for traders. The decline in
the S&P 500 increases market volatility.
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12.
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The Newtown, Connecticut, massacre finally convinces Congress to do
something about gun control. As a first step they ban future
civilian purchases of automatic weapons, including handguns, with
clips of more than ten rounds and require more extensive background
checks on all gun purchases. “It should not be easier to buy a gun
than rent a car” becomes a slogan.
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13.
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Frustrated by an inability to increase revenues through raising
income taxes, Congress begins to consider different approaches.
There is more talk of a value-added tax as well as a wealth tax, and
these ideas appear to be slowly gathering momentum.
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14.
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Congress decides that high-frequency and other computerized
algorithmic-based trading practices are putting the individual
investor at a disadvantage. A transaction fee designed to slow down
frenetic activity and protect against “flash crashes” and glitches
is imposed on intra-day trades.
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15.
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The planet finds itself saturated with technology. Semiconductor
companies, software providers, social media favorites and personal
computer manufacturers all report disappointing earnings and provide
discouraging guidance. They lead the overall market lower. Users
finally agree the present state of the art is fast enough and
connected enough, and that they have more “apps” than they know what
to do with. Apple bucks the trend and trades above $700 as its
products continue to enjoy enormous success abroad.
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About Blackstone:
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Further information is available at www.blackstone.com.
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The views expressed in this commentary are the personal views of
Byron Wien of Blackstone Advisory Partners L.P. (together with its
affiliates, “Blackstone”) and do not necessarily reflect the views of
Blackstone itself. The views expressed reflect the current views of Mr.
Wien as of the date hereof and neither Mr. Wien nor Blackstone
undertakes to advise you of any changes in the views expressed herein.
