Byron Wien Announces Predictions for Ten Surprises for 2013
NEW YORK -- January 2, 2013
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:
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
1. 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
A profit margin squeeze and limited revenue growth cause 2013 earnings
2. 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.
Financial stocks have a rough time, reversing the gains of 2012. Intense
competition in commercial and investment banking, together with low
3. trading volumes, puts pressure on profits. Layoffs continue and
compensation erodes further. Regulation increases and lawsuits persist
as an industry burden.
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
4. 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.
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
5. 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.
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
6. 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.
Climate change contributes to another year of crop failures, resulting
in grain and livestock prices rising significantly. Demand for grains in
7. 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.
Although inflation remains tame, the price of gold reaches $1,900 an
8. ounce as central bankers everywhere continue to debase their currencies
and the financial markets prove treacherous.
The Japanese economy remains lackluster and the yen declines to 100
9. 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.
The structural problems of Europe remain largely unresolved and the mild
recession that began there in 2012 continues. Civil unrest subsides as
10. 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.
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.
Having traded below 20 for most of 2012 the VIX Volatility Index surges
11. 33% to 30, providing a bonanza for traders. The decline in the S&P 500
increases market volatility.
The Newtown, Connecticut, massacre finally convinces Congress to do
something about gun control. As a first step they ban future civilian
12. 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.
Frustrated by an inability to increase revenues through raising income
13. 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.
Congress decides that high-frequency and other computerized
algorithmic-based trading practices are putting the individual investor
14. at a disadvantage. A transaction fee designed to slow down frenetic
activity and protect against “flash crashes” and glitches is imposed on
The planet finds itself saturated with technology. Semiconductor
companies, software providers, social media favorites and personal
computer manufacturers all report disappointing earnings and provide
15. 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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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.
Blackstone (New York)
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