Blackstone Group's Byron Wien: Ten Surprises For 2010

Byron Wien, Senior Managing Director at The Blackstone Group pens an annual list of surprises each year and below are his predictions for 2010. Although the information was released earlier this year, many outlets just covered the bullet points of his predictions and not the entirety of his research presentation. As such, we wanted to post up the full piece for those interested. Wien of course was previously the Chief Investment Strategist at hedge fund Pequot Capital before they shut down. His list now joins the rest of our 2010 crystal ball coverage as we'd previously posted up Doug Kass' 2010 predictions as well as a prediction of the top 10 investment themes for 2010.

Here is the brief summary of Wien's 2010 predictions that you may have seen floating around the internet:

1. The US economy grows at a 5% real rate and unemployment drops below 9%.

2. The Federal Reserve hikes the fed funds rate to 2% by year-end.

3. Ten year treasury yields rise above 5.5%.

4. The US dollar rallies against the yen and the euro.

5. The S&P rallies to 1300 in the first half of the year, declines to 1000, then settles around 1115.

6. Japan becomes the best performing market.

7. President Obama endorses nuclear power development.

8. The Obama administration becomes energized via US economic improvement.

9. Financial service legislation will be passed (but in a softer form than originally feared).

10. Civil unrest in Iran peaks.


An interesting set of predictions from Wien, and you can already see how some of them are playing out like he predicted as the S&P marches higher and treasury yields have started to jump as well. We'll watch with interest to see if some of his second half of the year predictions come true. As always, take these with a grain of salt. Below is the presentation in its entirety from Wien and The Blackstone Group. It's chalk full of research that illustrates the macro factors he examined to draw his conclusions. Here is the embedded document:



You can directly download a .pdf here.

For more crystal ball gazing, check out the top 10 investment themes for 2010 as well as Doug Kass' 2010 predictions. And for those of you interested in some of Wien's previous work, we've posted some of his past market commentary while at hedge fund Pequot as well.

Doug Kass' List of 20 Possible Market Surprises in 2009

Noted short-seller and hedge fund manager Doug Kass has recently published his annual list of Surprises for the coming year over on TheStreet.com. What's interesting is that he has been getting better over time in terms of accuracy. One third of his surprises came true in 2003, nearly 50% of them were true in 2004, nearly 50% were true for 2007, and 60% of his 2008 surprise predictions came true. Now that we're in 2009, we thought it was appropriate to highlight some of the major ones.

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Old, leveraged media implode. The worlds of leverage and old media collide in a massive flameout of previous leveraged deals. Univision and Clear Channel go bankrupt. The New York Times (NYT) teeters financially.

State and municipal imbalances and deficits mushroom. The municipal bond market seizes up in the face of poor fiscal management, revenue shortfalls and rising budgets at state and local levels. Municipal bond yields spike higher. A new Municipal TARP totaling $2 trillion is introduced in the year's second half.

Mutual fund redemptions from 2008 reverse into inflows in 2009. The mutual fund industry does not suffer the same fate as the hedge fund industry. In fact, a renaissance of interest in mutual funds (especially of a passive/indexed kind) develops. Fidelity is the largest employer of the graduating classes (May 2009) at the Wharton and Harvard Business Schools; it goes public in late 2009 in the year's largest IPO. Shares of T. Rowe Price (TROW) and AllianceBernstein (AB) enjoy sharp price gains in the new year. Bill Miller retires from active fund management at Legg Mason (LM).

The hedge fund and fund of funds industries do not recover in 2009. The Madoff fraud, poor hedge fund performance and renewed controversy regarding private equity marks (particularly among a number of high-profile colleges like Harvard and Yale) prove to be a short-term death knell to the alternative investments industry. As well, the gating of redemption requests disaffects high net worth, pension plan, endowment and University investors to both traditional hedge funds and to private equity (which suffers from a series of questionable and subjective marking of private equity deal pricings at several leading funds). Three of the 10 largest hedge funds close their doors as numerous hedge funds reduce their fee structures in order to retain investors. Faced with an increasingly uncertain investor base, several big hedge funds merge with like-sized competitors in a quickening hedge fund industry consolidation. By year-end, the number of hedge funds is down by well over 50%.

Capital spending disappoints further. Despite an improving economy, large-scale capital spending projects continue to be delayed in favor of maintenance spending. Technology shares continue to lag badly, and Advanced Micro Devices (AMD) files bankruptcy.

The U.S. stock market rises by close to 20% in the year's first half. Housing-related stocks (title insurance, home remodeling, mortgage servicers and REITs) exhibit outsized and market-leading gains during the January-to-June interval. Heavily shorted retail and financial stocks also advance smartly. The year's first-half market rise of about 20% is surprisingly orderly throughout the six-month period, as volatility moves back down to pre-2008 levels, but rising domestic interest rates, still weak European economies and a halt to China's economic growth limit the stock market's progress in the back half of the year.

A second quarter "growth scare" bursts the bubble in the government bond market. The yield on the 10-year U.S. Treasury note moves steadily higher from 2.10% at year-end to over 3.50% by early fall, putting a ceiling on the first-half recovery in the U.S. stock market, which is range-bound for the remainder of the year, settling up by approximately 20% for the 12-month period ending Dec. 31, 2009. Foreign central banks, faced with worsening domestic economies, begin to shy away from U.S. Treasury auctions and continue to diversify their reserve assets. By year-end, the U.S. dollar represents less than 60% of worldwide reserve assets, down from 2008's year-end at 62% and down from 70% only five years ago. China's 2008 economic growth proves to be greatly exaggerated as unemployment surprisingly rises in early 2009 and the rate of growth in China's real GDP moves towards zero by the second quarter. Unlike more developed countries, the absence of a social safety net turns China's fiscal economic policy inward and aggressively so. Importantly, China not only is no longer a natural buyer of U.S. Treasuries but it is forced to dip into it's piggy bank of foreign reserves, adding significant upside pressure to U.S. note and bond yields.

Commodities markets remain subdued. Despite an improving domestic economy, a further erosion in the Western European and Chinese economies weighs on the world's commodities markets. Gold never reaches $1,000 an ounce and trades at $500 an ounce at some point during the year. (Gold-related shares are among 2009's worst stock market performers.) The price of crude oil briefly rallies early in the year after a step up in the violence in the Middle East but trades in a broad $25 to $65 range for all of 2009 as President Obama successfully introduces aggressive and meaningful legislation aimed at reducing our reliance on imported oil. The price of gasoline briefly breaches $1.00 a gallon sometime in the year. The U.S. dollar outperforms most of the world's currencies as the U.S. regains its place as an economic and political powerhouse.
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Make sure to view the full list here.