Byron Wien Predicts: 10 Probable Investment and Economic Surprises of 2012

With the start of a new year, there are inevitably predictions being solicited by the news media and plenty of pundits falling over each other for the chance to get some publicity. With so many publications and media outlets doing year-ahead predictions, standing out in that crowd takes some effort and creativity.

Byron Wien, vice chairman of Blackstone Advisory Partners, breaks through the clutter with his "list of surprises for 2012" which he says he has been publishing over the past 25-years, a tradition he began while serving as chief U.S. investment strategist at Morgan Stanley. Blackstone went public in 2007 and bills itself as a "leading global alternative investment manager and financial advisor."

What's a surprise?

"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."

In the video below, you can listen to the puffed up introduction CNBC anchor Bill Griffeth gives Wien and saying of his prior year predictions, "...last year 8 of his 10 actually worked out." I knew as soon as I heard Griffeth make this statement that it wasn't accurate. Even Wien himself found it outlandish and he replied that Griffeth was being, "...too generous, even I didn't give myself eight correct."





When I saw Wien's 2012 predictions being published and cited all over the place in recent days, it got me wondering how good his prior prognostications turned out to be for investors who followed them.

I started with his year ago, 2011 predictions, which rather than having 80 percent accuracy as Griffeth stated, were about 50 percent accurate. Not horrible, but not great either. I went back and scored his 2010 predictions and those were abysmal - he only got one out of ten correct!

Most of the 2011 predictions he got correct were about specific commodity prices which he expected to trend higher which wasn't exactly going out on a limb. On stocks, bonds and the overall economy, Wien missed the boat.

Wien's 2011 Predictions  

Here are some of Wien's 2011 predictions:

The continuation of the Bush tax cuts coupled with the extension of unemployment benefits has put all working Americans in a better mood. Real Gross Domestic Product rises close to 5% in 2011 driven by improved trade and capital spending in addition to stronger retail sales. 

WRONG! Real GDP was horribly sluggish in 2011. The final numbers aren't yet in but for the year, real GDP growth has been running at about a 1.2% growth rate.  


The prospect of increasing Federal budget deficits and rising government debt finally begins to weigh on the bond market. The yield on the 10-year U.S. Treasury approaches 5% as foreign investors become more demanding.

WRONG! The 10-year Treasury yield, which began 2011 at about 3.5%, only rose as high as 3.7% before dropping most of the rest of the year and ending just under 2%.
 

Encouraged by renewed economic momentum the Standard & Poor's 500 rises close to its old high of 1500...With earnings improving, valuations seem low and individual investors return to equities for the first time since the financial crisis. Merger and acquisition activity becomes intense and the market reaches a blow-off euphoria. Stocks correct in the second half as interest rates rise.

WRONG! The S&P 500 rose only a few percent early in the year to 1360 before falling due to renewed debt concerns in Europe.
 

Although inflation remains benign, the price of gold rises above $1600 as investors across the world place more of their assets in something they consider "real." Sovereign wealth funds of countries with significant dollar reserves also become big buyers. Hedge funds keep thinking the price rise is becoming parabolic and sell their positions and some even short the metal but gold keeps climbing and they scramble back in.

CORRECT! Worth noting though that the last part of his prediction failed to happen as gold sold off strongly late in year and ended just above $1600.                 
 

Rising standards of living in the developing world seriously increase the demand for agricultural commodities. The price of corn rises to $8.00, wheat to $10.00 and soybeans to $16.00. Commodities become a component of more institutional portfolios.

CORRECT! But, wheat and soybeans didn't quite make Wien's price targets and commodity prices fell sharply late in the year.                 


Continuing demand from the developing world and a failure to bring onstream new supply causes the price of oil to rise to $115 per barrel. The higher price at the pump fails to discourage driving, increase sales of hybrid vehicles or cause Congress to initiate conservation measures.

CORRECT! But, prices fell off sharply after peaking in April, dropped below $80 before recovering to about $100 at year end.                


Frustrated by the lack of progress against the Taliban and the corruption of the Karzai government, President Obama concludes that whenever American troops return home, Afghanistan will once again become a tribal state ruled by warlords. He accelerates the withdrawal of most military personnel to the end of 2011. Coupled with the pullout of forces in Iraq, this will leave the Middle East without a major Western presence in the face of rising fears of terrorism.

WRONG! The U.S. still has a major presence in and continues to suffer high casualties in Afghanistan.