Every year, Blackstone Advisory Partners Vice Chairman Byron Wien creates his list of 10 surprise predictions coming for the stock market, and he puts his money where his mouth is with a $1 million bet.
In a recent interview with Think Advisor, Wien went in-depth with the list and said he creates it through “a lot of reading” and some computer modeling, but the list is “impressionistic” and “not derived statistically or with any scientific method.”
“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,” Wien said. “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.”
For the year 2019, Wien’s predictions netted a cool 28% profit.
Among his actionable 2020 predictions, Wien’s list notes: “The economy disappoints the consensus forecast, but a recession is avoided.”
He bases this prediction on the labor force’s low unemployment pushing wages up, and companies having a hard time finding employees with so many people already working. And he made this prediction before the coronavirus outbreak.
“That alone could explain why the economy would be weaker,” Wien said.
However, he still isn’t predicting a recession to hit in 2020, even with fears of the coronavirus mounting.
“The kinds of things that contribute to a recession just aren’t in place. Recessions are (born) out of excess,” Wien explained. “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.”
Wien, however, is predicting several market corrections of 5% or more throughout the year, and he’s projecting earnings will come in at 5% instead of the 10% consensus.
“There’s going to be more volatility. We’re setting ourselves up for (a correction) right now,” Wien said. “(Investors are) verging on euphoria, (but) there are a lot of bad things happening (politically and economically).
“It’s consistent with the idea that the economy will slow,” he said as far as his earnings projection. “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. 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%.”
Wien then pointed out how often the consensus is flat wrong, yet it continues to predict the same margins of growth.
“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%,” he said. “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!”
Wien also said he’s bullish on gold for 2020, even though he didn’t mention it in his list because he doesn’t make predictions around the same subject two years in a row.
“Last year I said gold would go down and it went up,” he said. “That was one of the things I got wrong in 2019.”
The reason gold will rise is because of “geopolitical turbulence,” Wien added.
Those were the high points of the rather extensive interview. Click here to read about some of Wien’s other predictions and why he made them.
Click here to read Wien’s full list of Top 10 Surprises for 2020.