Mr. Wien is Vice Chairman of Blackstone's Private Wealth Solution. It was either him or "Explaining recessions via interpretive dance".And the latest, from Blackstone, January 6, first a look back:
Oh God, now he's gonna put out a contract on me. Dude's a stone cold killer.
KillerI meant no disrespect sir.....
Byron Wien and Joe Zidle Announce the Ten Surprises of 2020
In this
edition of the Surprises – a series Byron has been publishing since 1986
– the strategists outline unexpected events that could shape the
political, economic and financial landscape in 2020.
The Ten Surprises of 2019 worked out plenty well. While we don’t go through this process with the objective of getting a high score, knowing that you have been able to anticipate some of the generally unexpected events that are going to influence the financial markets during the coming year is gratifying. The real goal of the Surprises is to stretch our thinking and yours about high-impact investment events over the coming twelve months. The definition of a Surprise is an event which a professional investor would assign a one out of three probability of happening, but which we think is probable, meaning it has a better than 50% of taking place. Usually we get five or six pretty much on target, but last year we did better than that.....MUCH MORE
In looking back over 2019, the most positive factor was the accommodative monetary policy provided by the United States and other countries, which had a favorable impact on the economy and the financial markets. The most negative factor was the uncertainty created by the lack of resolution of Brexit in the United Kingdom and continued trade tensions between the U.S. and China, which drove down manufacturing activity and held up capital spending throughout the developed world. Even though both conflicts had positive developments in December, these issues are likely to persist next year.
In the first Surprise, we said the Federal Reserve, which had increased rates four times in 2018 (a Surprise we got right that year), would stop raising rates. They actually cut rates three times (a controversial move). Inflation remained subdued, as we suggested, and longer-term interest rates actually came down (we thought they would stay low but not drop as far as they did). The yield curve inverted briefly, but then turned positive, and has remained so through today.
For the second Surprise, we said that the Standard & Poor’s 500 would rise 15%. We thought we were showing our optimism by picking a number above the consensus, but we didn’t go far enough. At its peak, the index rose close to 30%. The fact that the Fed cut rates three times was an important contributor to the sharp appreciation. Ample liquidity fueled the move. Earnings did not improve significantly; rather, multiple expansion resulting from lower rates was the key factor in the market’s performance.
For the third Surprise, we said that capital spending and housing would be disappointing as economic drivers during the year. The economy would have to depend on the consumer and government spending. The consumer really came through, but government spending, which resulted in a near–trillion dollar deficit, was a factor as well. While many observers were concerned that the poor market performance during the fourth quarter of 2018 was a precursor to a recession in 2019 or 2020, we thought that the next recession would be in 2021 or later. We considered it unlikely that we would experience a serious downturn in an election year. The economic indicators we were looking at suggested that growth of about 2% would persist throughout 2019.
In the fourth Surprise, we thought 2019 would be a tough year for gold. Since we expected both the stock and bond markets to do well, we thought investors would turn away from gold, which had a cost to carry and no return. As a result of global political uncertainty and a cloudy economic outlook, gold had a good year along with the financial markets, and we got this one wrong.
In the fifth Surprise, we expected the emerging markets to perform well as a result of vigorous spending by the growing middle class in those countries. With the exception of China and Mexico, this didn’t happen as broadly as we anticipated, but the Shanghai Composite was up 25%, as we forecast, Brazil did well also in spite of the country’s problems. The Emerging Market Composite was up about 10% compared to more than 20% for the All Country World Index.....
*****..... Byron and Joe's Ten Surprises for 2020 are as follows:
1. The economy disappoints the consensus forecast, but a recession is avoided. Federal Reserve Chair Powell lowers the Fed funds rate to 1%. Without a comprehensive trade deal in hand, President Trump exercises every executive authority he has to stimulate growth and ward off recession. He cuts payroll taxes to put more money in the hands of consumers.
2. Inequality and climate change become important election themes, but centrist ideas prevail. The House of Representatives sends articles of impeachment to the Senate, but Donald Trump is not convicted or removed from office. Enough information is revealed in the proceedings to cause some of his supporters, as well as many independents, to throw their support to liberal candidates in 2020 state races. The Democrats take the Senate in November.
3. There is no comprehensive Phase Two trade deal that limits China’s ability to acquire intellectual property. National interests result in the balkanization of technology. The development of separate standards for 5G and other tech hardware proves to be bad news for the future of world economies. The move toward “decoupling” gains traction in negotiations with China. US economic co-dependence with China erodes. Both China and the US keep their hands off Hong Kong and let the protest settle down by itself.
4. The prospect of a self-driving car is pushed further into the future. A series of accidents with experimental vehicles causes a major manufacturer or technology company to issue a statement that it is no longer developing self-driving technology.
5. Emboldened by the pain of economic sanctions, Iran takes advantage of America’s unwillingness to intervene and steps up acts of hostility against Israel and Saudi Arabia. The Strait of Hormuz is closed and the price of oil (West Texas Intermediate) soars to over $70/barrel.
6. Even though some observers believe valuations are stretched, a surge in investor enthusiasm pushes the Standard & Poor’s 500 above 3500 at some point during the year. Earnings increase only 5%, and S&P 500 multiples remain elevated because monetary policy is easy and investors become more comfortable that intermediate interest rates will rise slowly. Volatility increases and there are several market corrections greater than 5% throughout the year....
In 2019 things were going so swimmingly that Wien posted a follow-up within weeks of the original Surprises list:
March 13
Blackstone's Byron Wien reflects on his 10 Surprises of 2019.
And the following month:
April 25
UPDATED—Blackstone's Byron Wien: "There Is a Favorable Fundamental Background to the Markets"
You can probably tell, we are fans.
