• 04 Jan 2013 at 6:15 PM

Wien Pronounceth. Invest Accordingly.

Assent. Dissent. Abjure. Embrace. Mock. Mock each other’s mocking. Generally talk among yourselves.

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

For good measure, have a go at Wien’s go-around from last year. He may have failed to account for gerrymandering, Todd Akin and Congress’ whole-hearted embrace of its dysfunctionality, but didn’t do too bad on the economic front, given his own “better than 50% chance” benchmark.

1. The extraction of oil and gas from shale and rock begins to be a game changer. The price of oil drifts back to $85 a barrel and the United States becomes less dependent on Middle East supply. Deposits in Poland, Ukraine and elsewhere prove promising as well. Increased production from Libya and Iraq and reduced demand resulting from the slowdown in world-wide economic activity contribute to the price decline.

2. Earnings for American corporations continue to move higher driving the Standard & Poor’s 500 above 1400. Raw material prices continue soft and business leaders successfully adjust to slower economic growth by using technology to reduce the labor and logistical component of goods and services sold; profit margins stay high.

3. The U.S. economy gets its second wind. Real growth exceeds 3% and the unemployment rate drops below 8%. Recession fears and even “the new normal” view of prolonged slow growth are called into question. Capital spending, exports and the consumer drive the economy, overcoming fiscal drag. The drop in the price of oil and the rise in the stock market improve both consumer confidence and spending patterns.

4. The recovering economy and the declining unemployment rate help President Obama convince the voters that he didn’t do such a bad job in his first term after all. He is viewed as a good speaker but a poor leader who is running against Mitt Romney, viewed as uninspired and whose positions on many issues are unclear. Democrats take back the House of Representatives but lose the Senate in an anti-incumbent wave.

5. Europe finally develops a broad plan to deal with its sovereign debt problem and moves closer to fiscal cohesion. The European Central Bank, the International Monetary Fund, the European Financial Stability Facility and the European Union band together to keep all the countries within the Union and to continue the euro as the Continent’s currency. Greece has a major restructuring of its debt; Spain and Ireland strengthen their finances during the year, but Italy suffers a “voluntary” restructuring. A meltdown of the banks is avoided, but imposed austerity causes Europe to suffer a recession.

6. The computer replaces conventional armaments as the principal weapon of terrorists and geopolitical adversaries. Eastern European and Asian hackers invade the data banks of major international financial institutions causing temporary bank closures. An alarmed G-20 meets to address the problem.

7. Concerned over rapid money supply growth in the developed world, investors buy the currencies of countries that seem to be managing their economies sensibly. Scandinavian currencies, the Australian and Singapore dollar and the Korean won benefit.

8. Congress decides its dysfunctionality is harmful to both parties and acts before the November election to deal with the failure of the Super Committee to develop a program to reduce the U.S. budget deficit by $1.2 trillion over ten years. Both defense and Medicare are cut significantly; subsidies for agriculture are reduced and tax deductions for oil, gas and real estate partnerships are modified. Obama pledges to let some aspects of the Bush tax cut program continue if he is reelected.

9. The Arab Spring finally overcomes Bashar al-Assad and his family’s rule over Syria ends. While Assad’s fall might have been inevitable, it has important ripple effects throughout the region weakening Hamas, Hezbollah and further isolating Iran.

10. After two years of poor stock market performance while their economies came through with high single-digit real growth the emerging markets finally have a good year. Growth slows somewhat but favorable valuations enable China, India and Brazil indexes to appreciate 15-20%.

Byron Wien Announces Predictions for Ten Surprises for 2013 [Blackstone PR]
Byron Wien Announces The Ten Surprises for 2012 [Blackstone PR]

Comments (5)

  1. Posted by Quikding | January 7, 2013 at 8:26 AM

    I knew this was Shitzar

  2. Posted by Oy vey | January 7, 2013 at 9:19 AM

    It's funny – when Matt's posts are this long, he's the author of more than 2% of the content.

  3. Posted by Lord Brian | January 7, 2013 at 11:28 AM

    Any regular reader of the WSJ could make these predictions. I hope Blackstone isn't paying this guy too much.

  4. Posted by sohbet | May 12, 2013 at 6:49 PM

    telling these little stories, here's a good idea: Have a point. It makes it so much more interesting for the listener.

  5. Posted by Arwana Red | January 16, 2014 at 12:47 PM