More on Byron Wien’s Ten Surprises for 2010
Byron Wien was amazingly accurate last year in his economic predictions even though his annual list is an attempt to build a non-consensus list of likely outlier events. So, I was eager to see Byron Wien’s 2010 surprises, which were unveiled earlier today. Please read his list in the previous link as background.
Reviewing 2009 predictions
When Wien made his 2009 calls, the big difference between his view and mine was his move to see a second-half recovery, something I wasn’t prepared to call until April. For example, Wien saw the S&P at 1200, Gold at $1200 and oil at $80 by year’s end – forecasts which turned out to be uncannily accurate.
However, in my view, the second-half recovery is a tenuous one which depends heavily on fiscal and monetary stimulus and huge bailouts for the financial sector. Without these extraordinary steps, the year would have been much different. Without them in 2010, the recovery will not be as robust.
- The Standard and Poor’s 500 rises to 1200. It made it to 1115. Close enough for me as it was up over 20% on the year. Given the index bottomed at 666 in March, this rally is clearly related to the stimulus.
- Gold rises to $1,200 per ounce. It did make that magic number. Again, I see this as a stimulus-related call as there has been a rush into commodities due to worries about dollar weakness on the back of the flood of money from the Fed.
- The price of oil returns to $80 per barrel. Another accurate prediction. The call he makes here is a more bullish version of my view of a structural supply constraint at present prices. This supply constraint creates price whiplash and forces oil up even in a weak economic environment.
- The yen goes to 75 and the euro to 1.65. Too dollar bearish. Wien underestimated the weakness of Japan and the Eurozone.
- The ten-year U.S. Treasury yield climbs to 4%. This too is accurate as the 10-year made it to 3.93% in June. Obviously, this call was predicated on recovery, which we now have. You should note that Treasuries have really been clobbered since November when the Ten-Year yield reached a low of 3.20%.
- China’s growth exceeds 7% and its stock market revives. Accurate. Growth was even higher actually. This is prediction which depended on economic recovery.
- Falling tax revenues from the financial sector cause New York State to threaten bankruptcy and other states and municipalities follow. This is head-scratchingly bearish given his other views. New York took its lumps but the real damage was in California (especially given the market-induced tax implications of Wall Street bonuses for New York). This story is not over though.
- Housing starts reach bottom ahead of schedule in the fall, and house prices stabilize after dropping 15% from year-end 2008 levels. The Obama stimulus program proves effective and a slow growth recovery begins before year-end. Third and fourth quarter real gross domestic product numbers are positive. This is what happened.
- The savings rate in the United States fails to improve beyond 3%, as most economists expect. The concept of thrift seems to have vanished from American culture. Peak job insecurity and negative growth drive increased savings early in the year, but spending resumes as the economic growth turns positive in the second half, making Christmas 2009 the best ever. Exactly.
- Barack Obama …meaningfully increases U.S. military presence… In a hawkish speech he states that the threat of terrorism forces the United States to maintain a strong military force in this strategic area. Pretty much on the money.
This is as close to 100% as you are going to see.
2010 list predicated on recovery
The first thing to note about his predictions is that they are predicated on a very strong economic recovery. He is clearly bullish. His first prediction is that the U.S. will grow 5% this year. That is a V-shaped recovery, folks. I see the following elements as very much dependent on a strong US economic recovery.
- The Fed starts hiking rates a la 1994.
- 10-year hits 5.5%.
- S&P goes even higher to 1300, basically doubling from March 2009 lows.
- Japan has a recovery pushing the Nikkei to 12,000.
- The Democrats only lose 20 house seats in the mid-term elections.
The other elements are not predicated on a V-shaped recovery and are pretty idiosyncratic. I can’t say I disagree with anything at this point since I also see a (U-shaped) recovery. Even, the non-recovery based predictions seem plausible. I agree most with his calls about how industry-friendly financial services regulation and healthcare reform is likely to be.
In general, as last year, it is the bullish bias that I disagree with. I see a lot more downside risk than Wien does. And my predictions would reflect this. Even though past performance is not necessarily indicative of future results, his accuracy in 2009 certainly makes one pay attention to what he says for 2010.