[January 03, 2019] |
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Byron Wien Announces Ten Surprises for 2019
Byron R. Wien, Vice Chairman in the Private Wealth Solutions group at
Blackstone, today issued his list of Ten Surprises for 2019. This is the
34th 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 that 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 2019 are as follows:
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The weakening world economy encourages the Federal Reserve to stop
raising the federal funds rate during the year. Inflation remains
subdued and the 10-year Treasury yield stays below 3.5%. The yield
curve remains positive.
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Partly because of no further rate increases by the Federal Reserve and
more attractive valuations as a result of the market decline at the
end of 2018, the S&P 500 gains 15% for the year. Rallies and
corrections occur but improved earnings enable equities to move higher
in a reasonably benign interest rate environment.
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Traditional drivers of GDP growth, capital spending and housing, make
only modest gains in 2019. The expansion continues, however, because
of consumer and government spending. A recession before 2021 seems
unlikely.
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The better tone in the financial markets discourages precious metal
investors. Gold drops to $1,000 as the equity markets in the United
States and elsewhere improve.
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The profit outlook for emerging markets brightens and investor
interest intensifies because the price earnings ratio is attractive
compared to developed markets and historical levels. Continuous
expansion of the middle class in the emerging markets provides the
consumer buying thrust for earnings growth. China leads and the
Shanghai composite rises 25%. The Brazil equity market also comes to
life under the country's new conservative leadership.
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March 29 comes and goes and there is no Brexit deal. Parliament fails
to approve one and Theresa May, arguing that a chnge in leadership
won't help the situation, remains in office. A second referendum is
held and the U.K. votes to remain.
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The dollar stabilizes at year-end 2018 levels and stays there
throughout the year. Because of concern about the economy, the Federal
Reserve stops shrinking its balance sheet, which is interpreted
negatively by currency traders. The flow of foreign capital into
United States assets slows because of a softer monetary policy and a
lack of need for new capital for business expansion.
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The Mueller investigation results in indictments against members of
the Trump Organization closest to the president but the evidence
doesn't support any direct action against Trump himself. Nevertheless,
an exodus of Trump's most trusted advisors results in a crisis in
confidence that the administration has the people and the process to
accomplish important goals.
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Congress, however, with a Democratic majority, gets more done than
expected, particularly on trade policy. Progress is made in preserving
important parts of the Affordable Care Act and immigration policy. A
federal infrastructure program to be implemented in 2020 is announced.
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Growth stocks continue to provide leadership in the U.S. equity
market. Technology and biotech do well as a result of continued strong
earnings. Value stocks other than energy-related businesses disappoint
because of the slowing economy.
Every year there are always
a few Surprises that do not make the Ten because either I do not think
they are as relevant as those on the basic list or I am not
comfortable with the idea that they are "probable."
-
Geopolitical tensions increase. Iran continues to destabilize the
Middle East and Kim Jong Un fails to live up to his North Korea
denuclearization promises. Secretary of State Pompeo and National
Security Advisor Bolton make statements indicating the United States
may take pre-emptive action in both places, thereby causing one of
several sharp market sell-offs. But in spite of hostile rhetoric, the
United States does not go to war with anyone as we approach the 2020
election. Trump's tough talk on some issues like trade works, however,
and leads to successful diplomatic negotiations on national security.
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In desperation China engages in ambitious infrastructure programs to
bolster its economy. China grows at 6.5% real, but the increased debt
causes concern around the world and has a negative impact on the
renminbi.
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China announces, "We want to be the world leaders in free trade." It
sends envoys around the globe to negotiate better bilateral trade
terms in order to offset the losses from the ongoing U.S.
disagreements. Joint ventures in which foreign companies control the
majority share are initiated in all sectors, from industrials and
autos to raw materials. As China's influence around the world becomes
greater, the U.S. further isolates itself.
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The European Central Bank is forced to restart quantitative easing in
response to a defiant Italy, a weakening Germany and Brexit. Thwarting
expectations that Brexit would bring the rest of Europe closer
together, Italy realizes that it can break all fiscal rules without
any fear of punishment from the E.U. As a result, the Italian economy
falls into recession, debt spreads surge and the ECB is forced to
liquefy the system again.
About Blackstone
Blackstone is one of the world's leading investment firms. We seek to
create positive economic impact and long-term value for our investors,
the companies in which we invest, and the communities in which we work.
We do this by using extraordinary people and flexible capital to help
companies solve problems. Our asset management businesses, with $457
billion in assets under management, include investment vehicles focused
on private equity, real estate, public debt and equity, non-investment
grade credit, real assets and secondary funds, all on a global basis.
Further information is available at www.blackstone.com.
Follow Blackstone on twitter @Blackstone.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190103005548/en/
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