Surprise! Surprise! - Byron Wien Lists Top Predictions for 2013

January 2, 2013 3:52 PM EST Send to a Friend
In 2012 some investment ideas succeeded well beyond expectations, while others failed miserably. In all cases, with surprises lurking around virtually every corner, investors certainly had their fill of high drama. By nature surprises are unexpected, but this doesn't mean that they have to be unanticipated. On the contrary, successful investors are always ready for change, while others, it seems, are perpetually blindsided.

With this in mind, Byron R. Wien, Vice Chairman, Blackstone Advisory Partners, today issued his annual list of Surprises for 2013. Wien 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 percent likelihood of happening.

Before reading the following list investors are advised to be prepared. Some of Byron's likely scenarios may come as a shock. That, of course, is the point.

Now onto the surprises...

Is your portfolio ready for a nuclear Iran? If you haven't considered this as a possibility in 2013, you might want to take a moment, pause, and reflect on the possibility. Wien thinks there is a chance Iran will announce it has adequate enriched uranium to produce a nuclear-armed missile and the International Atomic Energy Agency will confirm the claim. The world must now deal with Iran as a nuclear threat rather than talk endlessly about how to prevent the nuclear capability from happening. Both the United States and Israel will have to shift to a policy of containment rather than prevention.

Suppose one day Democrats in Washington wake up and decide 'To heck with it. Let's drill baby drill'. Is it really so unlikely? Energy production, infrastructure and housing are key job creators and a change of policy is not out of the questions. If so, Democrats may decide to sponsor a vigorous program to make the United States independent of Middle East oil imports before 2020. This could cause the price of WTI crude to fall below $70 per barrel as the Administration proposes easing restrictions on hydraulic fracking for oil and gas in less populated areas and allowing more drilling on Federal land.

In 2012 drought caused major crop failures in the U.S. This led to a rise in commodity prices, such as corn. Will 2013 be any different? Wien thinks there is a chance climate change will contributes to another year of crop failures, resulting in grain and livestock prices rising significantly. The spike in corn in wheat prices might be supported by increased demand for grains in developing economies. In this scenario, corn rises could rise to $8.00 a bushel, wheat to $9.00 a bushel and cattle to $1.50 a pound. If this happens 2013 could be the year agricultural commodities become a respectable "asset class".

In total, Wein lists 10 surprises scenarios he views as probably. In addition to the ones mentioned above, they also include: The S&P 500 trades below 1300; Financial stocks have a rough time, reversing the gains of 2012; a Republican reversal on immigration; the price of gold reaches $1,900 an ounce; a China crackdown on corruption; a breakout in Japanese equities; and structural problems of Europe remain largely unresolved and the mild recession that began there in 2012 continues and European equities decline 10% in sympathy with the U.S. market.

Wien also lists 5 "also rans" that didn't make the Top 10. Interesting less than likely scenarios include: the VIX Volatility Index surges 33% to 30, providing a bonanza for traders; Congress does something about gun control; a value-added tax and wealth tax slowly gathering momentum in Congress; a fee designed to slow down frenetic activity and protect against "flash crashes" and glitches is imposed to curb high-frequency and other computerized algorithmic-based trading; a "saturation of technology" that leads to a decline in semiconductor, software and other tech stocks.

The full list can be see here


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