At the beginning of 2014, Blackstone Group vice chairman Byron Wien released his 10 surprise predictions for the markets and the economy.
Wien is a legend on Wall Street, and his predictions are widely read and circulated at the beginning of the year.
But with 2014 winding down and people starting to look ahead to what 2015 holds, it is only right that we take a look back and see how Wien did this year.
Wien calls his predictions “surprise” predictions that the average investor would only assign a 1-in-3 chance of happening. And following form, Wien got some of these calls really right, some of them really wrong, and only a few were anywhere in-between.
We scored Wien’s predictions simply: 0 points for wrong predictions, 1 point for correct predictions, and 0.5 for predictions that were right down the middle.
Wien more or less nailed this one.
In January, Wien wrote that we'd experience a 'Dickensian market with the best of times and the worst of times.' And not only have we seen the S&P 500 gain more than 10% again and the bond market rally, but there is a very good chance you're not happy about it!
We saw steep correction in tech stocks in March, a similar plunge in oil & gas stocks recently, the price of oil has cratered, and in October we got our first 10% correction in two years during a violent few weeks for the market.
But then we gained it all back and then some. Quickly.
We only ding Wien a point because he saw total returns for the S&P 500 this coming in at 20%: right now they're at about 14%.
Wien saw the US dollar strengthening in 2014, with the dollar eventually trading below $US1.25 against the euro and buying 120 Japanese yen.
Currently, the dollar is at $US1.23 against the euro and 119.6 against the yen, and overall the dollar has enjoyed a huge bull market all year.
So this one was just dead on.
Alright, so Wien predicted that Japanese Prime Minster Shinzo Abe would continue his aggressive fiscal and monetary policies in 2014.
This has proven correct, as Abe announced additional quantitative easing measures in late October. Wien predicted that an increased sales tax and an ageing population would result in a market correction in Japan, which hasn't come through, although the country did post a disastrous second quarter GDP number.
And so as Wien predicted, Abe would continue to follow Dick Cheney's advice that deficits don't matter.
But we deduct a chunk of points for the call of a 20% second half correction Japanese stocks: the exact opposite has happened.
Chinese GDP has slowed during 2014, but in the third quarter the economy grew at a 7.3% pace, better than the 6% that Wien called for.
Wien also looked for a disappointing year for Chinese mainland traded equities, but as we highlighted recently, year-to-date, the Shanghai Composite is the best performing equity index in the world year-to-date.
Wien expected China's leaders to basically hold firm on their plan to shift away from investment and towards consumer growth; in contrast, Chinese leaders have acted more than expected.
KIND OF RIGHT
Wien saw investing in emerging markets to 'continue to prove treacherous,' but did single out Mexico and South Korea as markets that should see significant stock market gains.
This call hasn't come through.
But emerging markets like Russia and Brazil have been a complete disaster this year, and the 'EEM' ETF that tracks the broad performance of emerging markets is down about 5% this year.
So, as Wien said, investing in emerging markets does continue, more or less, to prove treacherous.
Crude oil has been the worst investment in the world this year.
West Texas Intermediate crude is now below $US70, and people in the market are becoming resigned to a new era of lower oil prices.
Wien wrote in January that despite the increase of supply created by the US shale boom, oil prices would hold up. US oil production has boomed, but it has caused prices to crater.
This one is just wrong.
Commodity prices won't stop falling.
Wien wrote that he expected a rising standard of living around the world to create more demand, spurring a reversal of the broad decline in commodity prices seen over the last couple years, specifically calling for corn to go to $US5.25 a bushel, wheat to go to $US7.50, and soybeans to move to $US16.00.
That hasn't happened at all.
Crude oil prices have dropped considerably this year, and while many have looked to an increase in global supply as the reason for this decline, but given that the entire commodity complex remains weak, some have asked if we're not merely looking at lower global demand.
This has been a popular misfire for 2014 predictions.
We recently highlighted 14 strategists that got the call for higher interest rates wrong, and as MarketWatch noted earlier this year, in April all 67 economists surveyed by Bloomberg saw interest rates rising over the next six months: they subsequently fell.
Wien retains a few points for some improved performance of Obamacare, which in the spring appeared to be beating some enrollment expectations.
Though recent news from the CBO appears less encouraging, with Obamacare enrollment now expected to fall between 9 and 9.9 million in 2015, down from prior expectations for 13 million.
The midterm elections, which Wien thought might not be a disaster for Democrats, were, well, a disaster.
Ultimately, it wasn't a great year, but also not a terrible year for Wien's predictions.
Wien got three predictions dead right, got partial credit on two others, and was wrong on half of his calls.
But predicting the future is hard, and after getting just 2.9/10 last year, the marked improvement is not only something to your hat on, but leaves something to strive for next year.
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