Byron Wien
It's a 35-year tradition: Byron R. Wien's "10 Surprises" list of economic, market and political investable events he thinks have a higher than 50% probability of occurring during the year but which the average investor would give merely a one-in-three chance of happening.
And every year Wien, vice chairman of Blackstone's private wealth solutions group, puts his money where his mouth is by investing $1 million of his own money in a portfolio based on his 10 predictions.
If 2020's results are anything like last year's, the veteran strategist, 87, will be pretty happy: His 2019 Surprises portfolio was up 28%, he tells ThinkAdvisor in an interview.
Wien launched the "10 Surprises" list in 1986, when he was Morgan Stanley's chief U.S. investment strategist. After 21 years with firm and a stint as chief strategist at Pequot Capital, he joined Blackstone in 2009.
In the interview, he shed light on the reasoning behind his carefully researched 2020 calls.
For the last two years, Joe Zidle, chief investment strategist in Blackstone's private wealth solutions group, has joined Wien in developing the list.
For 2020, the forecasts range from how the U.S. economy will fare to what's in store for top-tier tech stocks to market corrections to the November Senate elections to America's fraught relationship with China, plus much more.
In our conversation, Wien also discussed other cogent predictions he's made for this year but which he opted to leave off the list. He explains why.
ThinkAdvisor held a phone interview with Wien, based in New York City, on Feb. 13. Citing analysts' perpetually too-optimistic earnings forecasts at the top of every year, he commented wryly: "The investment business is a wonderful business: You can earn a living by being wrong all the time!" With his "10 Surprises" list, he always tries not to be.
Here are excerpts from our interview:
THINKADVISOR: Do you arrive at your surprises using computer modeling, or are they solely based on your own knowledge and logic?
BYRON WIEN: I have all kinds of sources. Each surprise is derived in a different way. I interview a lot of people; I do a lot of reading. There's some computer modeling, but this is an impressionistic list. It's not derived statistically or with any scientific method.
You've also indicated a few other surprises, which didn't make the "10 Surprises" list because you don't consider them as "relevant" or "probable," you say. One is: "Anarchy and disharmony spread throughout the world creating turbulence in financial markets everywhere." Please elaborate.
I definitely think that's happening. But it's hard to trade on that one. It wasn't as actionable as some of the ones I picked.
Actionable by whom — investors?
I didn't think it was investable. Every year I take $1 million of my own money and invest it in the "10 Surprises" because I want my money to be where my mouth is. I have a stockbroker at Morgan Stanley who creates a "10 Surprises" portfolio for me. [Blackstone] doesn't allow me to buy individual stocks, so I have to do it by investing in ETFs.
How did last year's portfolio of surprises perform?
It was up 28%.
That's impressive! How do your "Surprises" portfolios usually fare?
They're usually up — but not as much as that.
One of your 10 Surprises for this year is: "The economy disappoints the consensus forecast, but a recession is avoided." On what do you base that?
I was convinced there were enough signs in terms of the labor force: the low unemployment rate was either going to produce higher wages, or people would have trouble hiring employees. But, obviously, I didn't know about the coronavirus. That alone could explain why the economy would be weaker.
Why won't there be a recession?
The kinds of things that contribute to a recession just aren't in place. Recessions are [born] out of excess. Market or speculative excesses may be evident, but we don't have a buildup of inventory. We don't have the Fed raising rates. We don't have the kinds of things that ordinarily appear at the end of a business cycle.
Why do you predict "several market corrections greater than 5%" throughout the year?
There's going to be more volatility. We're setting ourselves up for [a correction] right now. [investors are] verging on euphoria, [but] there are a lot of bad things happening [politically and economically].
Part of your Surprise concerning corrections is that earnings will increase by 5%, the consensus being 10%. Why do you forecast only 5%?
It's consistent with the idea that the economy will slow. Growth in China is going to slow from 6% to 5%, and the impact of that will ripple across the world. In the U.S., it means that our growth will probably be below 2% — and that will be reflected in earnings. I have history on my side.
Meaning?
Usually whatever the analysts forecast at the start of the year erodes as we go through the year. If they call for 10%, which they were, it ends up being 5%.
Analysts always seem to be overly optimistic, but everybody knows they are.
One thing everybody knows is that regardless of whether the market was up 20% or down 20% in any given year, the consensus for the following year is almost invariably that the market will be up 10%. But the market is almost never up 10% — it's up 20% or down 5%. It never hits 10% — yet that's what people forecast over and over again. The investment business is a wonderful business: You can earn a living being wrong all the time!
You're forecasting that the Democrats will take the Senate in November. What are the implications to the economy and market?
If Bernie Sanders were able to defeat Donald Trump [for president], that would have significant market implications. But I don't think that's the way it will turn out. It's more likely that Donald Trump will get a second term. If I'm right about the Senate, then anything that comes out of the House [if the Democrats keep it] from the Senate would be vetoed by him.
