Byron Wien: What the Seer Sees in the Short Term
MARIA BARTIROMOSo many of your predictions for 2009 have been on the money, what's your sense of this market rally?
BYRON WIENI don't know whether the market is anticipating a better tomorrow in an excessive way, but my prediction for the year was that the S&P 500 would get to 1200, and I'm pretty optimistic that it will reach that point. At 1200, it's fairly priced. So I think it can make progress above 1200, but it'll be slow.
What is driving this momentum?
As far as the economy is concerned, I think businesses fired too many people, cut inventory back too far, and stopped capital spending. Now business is returning to normal on all three of those points. I think unemployment will peak in the first quarter of next year, more money will be spent on capital equipment, and inventories will be rebuilt. I also think housing has bottomed, and that's going to be a favorable thrust for the economy. As far as the market is concerned, people have been skeptical that it's been going up for the right reasons. Now they're finally giving up and saying they have to get on board.
So bottom line, would you recommend committing new capital to this market at these levels, or would you stay on the sidelines for a little while?
I would definitely not recommend being out of the market totally at this point. But if you've been lucky enough to be in the market for this run, I'd take a few chips off the table.
Do you see a strong market in 2010?
It's kind of hard to know. The stimulus is playing a role, but only about 24% of the stimulus has been spent. So for the first half of next year, I think the economy will be pretty strong. My hope is that investors and businessmen will then regain confidence and begin to invest more heavily. I don't think it'll be a boom year, but I do think we could have 3% growth.
But will we continue to see resilience in the economy and the recovery when the stimulus is gone?
That's something I don't really have the answer to. The purpose of the stimulus was to jump-start the economy, restore confidence, and have the economy build up a natural momentum. It's too early to tell whether that all happened. But I'm an optimist.
Will the Fed have to raise rates?
I think rates are going to stay low for a good part, if not all, of next year.
What areas of the world would you be recommending right now?
I'm still positive on the emerging markets—India, China, and particularly Brazil. But I'm positive on the U.S., too. I like technology. Believe it or not, I like health care, even though we're going to have a health-care bill and a lot of people are interpreting that negatively.
How do you read the mood in commodities?
In the case of oil, we're finding only as much oil as the reserves we're depleting. Also, right now the emerging markets and the Middle East are consuming about 20 million barrels a day, and they will be consuming 42 million barrels a day in 20 years. The reserves aren't going to go up that much, and I don't think alternatives are going to take their place. So I think the price of oil is going up. In the case of gold, the problem is that people have lost confidence not only in the dollar, but also in paper currencies generally, and they want to buy a little insurance. I don't see a dollar rally any time over the near term.
Do you worry that higher taxes next year could slow the recovery?
Well, it depends on what the taxes are. I'm not afraid of the capital gains tax and eliminating the dividend exclusion. I think I'm sort of against this health-care tax. I'm against taxes that destroy entrepreneurship, and to some extent the taxes I just talked about do that, but I don't think they're severe. I'd rather see taxes stay low because I don't think they'll raise that much more money anyway. But on the other hand, the proposals that have been advanced so far, by and large, I don't think will choke off the recovery.
Is inflation a concern?
I think you need wage pressure to produce inflation, and I just don't see any with an unemployment rate of 10% and a lot of people nervous about their jobs.
What are the big risks in 2010 from a global perspective?
The big event risk is if Israel attacks Iran. I'm hopeful some form of negotiation will provide a resolution, but I'm not optimistic about that. Iran is the big wild card in the geopolitical outlook for next year.