[January 06, 2020] |
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Byron Wien and Joe Zidle Announce Ten Surprises for 2020
Byron R. Wien, Vice Chairman together with Joe Zidle, Chief Investment
Strategist in the Private Wealth Solutions group at Blackstone, today
issued their list of Ten Surprises for 2020. This is the 35th 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. In 2018, Joe Zidle joined Byron Wien in the development
of the Ten Surprises.
Byron and Joe's Ten Surprises for 2020 are as follows:
1.
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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.
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2.
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Concepts of 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.
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3.
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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.
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4.
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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
they're no longer developing self-driving technology.
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5.
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Emboldened by the pain of economic sanctions, Iran capitalizes on a
lack of American leadership abroad by stepping up acts of hostility
against Israel and Saudi Arabia. The straits of Hormuz are closed
and the price of oil (West Texas Intermediate) soars to over
$70/barrel.
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6.
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Even though some observers believe valuations are stretched, a surge
in investor enthusiasm pushes the Standard and Poor's 500 above 3500
at some point during the year. Earnings only increase 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.
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7.
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Big tech companies face growing political scrutiny and social
blowback. Once the market leaders, certain FAANG stocks underperform
and the equal-weighted S&P 500 outperforms. There are popular plans
proposed to break up the largest social media platforms and increase
regulation and government oversight. This has greater success than
prior government efforts against Apple (News - Alert), Microsoft and IBM, because
it has widespread support from the American people. A millennial in
New York City puts their phone down and makes eye contact with
another human and finds it non-threatening and refreshing.
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8.
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Having secured a workable Brexit deal, the United Kingdom turns out
to be the winner in its divorce from the European Union. The equity
market rises and the pound rallies. The U.K. benefits from a long
transition period and growth exceeds 2% as foreign direct investment
resumes now that the outlook is clarified. The EU economy remains
soft, and European markets other than the UK underperform the US and
Asia.
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9.
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The bond bubble starts to leak, but negative rates continue abroad.
Even though the U.S. economy is slowing, the 10-year Treasury yield
approaches 2.5% and the yield curve steepens. Japan and China pull
away from the Treasury auctions. Rather than economic fundamentals
or inflation, supply and demand drive yields higher.
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10.
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The problems with Boeing's (News - Alert) 737 Max are fixed and deliveries begin.
The plane becomes a fixture around the world, enabling airlines to
operate more efficiently and increase profits. The stocks become
market leaders.
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"Also Rans"
Every year there are always a few Surprises that do not make the Ten,
because we either do not think they are as relevant as those on the
basic list or we are not comfortable with the idea that they are
"probable."
11.
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Fears of an economic crisis in India ameliorate. The emerging
markets continue to have uneven performance but India recovers from
decelerating growth. The Modi government continues business friendly
growth reforms, the economy grows at 6% and the market rises 20%.
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12.
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Artificial intelligence begins to be viewed as a paper tiger. The AI
jobs apocalypse fails to materialize, much like the Y2K bug failed
to undermine the US economy 20 years earlier. Manufacturing jobs
have already been automated and it proves harder to eliminate
service jobs by using computer-based applications.
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13.
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Economic problems in Russia intensify even though the price of oil
rises. As a result, social unrest begins to spread. Putin's cozy
relationship with his circle of oligarchs becomes an issue and his
influence as a world leader diminishes. He becomes closer to China
to maintain his stature on the world stage. In spite of serious
differences, China and Russia appear prepared to face off against
Europe and the United States.
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14.
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Populism and inward-thinking continue to spread globally,
particularly in emerging markets. Anarchy and disharmony spread
throughout the world, creating turbulence in financial markets
everywhere. Investors turn away from emerging market local currency
debt, forcing spreads higher.
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15.
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North Korea agrees to suspend its nuclear development program after
another meeting with President Trump, but does not give up its
existing stockpile. Kim Jong-un halts work on a long-range missile
capable of reaching the United States. North Korea continues to be a
threat, but not an imminent danger.
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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 we invest in, 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 $554
billion in assets under management, include investment vehicles focused
on private equity, real estate, public debt and equity, growth equity,
opportunistic, 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 (News - Alert) @Blackstone.
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