Investor Agenda

The Most Surprising “Surprises” for 2010

’Tis the season for resolutions – and predictions. As we begin a new year, almost everyone has thoughts on what will happen in the coming 12 months. I’ve told you before that I certainly don’t have a crystal ball, but sometimes I wonder if Byron Wien does.

A couple of months ago, we went through Byron’s 10 surprises for last year and how amazingly accurate he was. Even he said he might not be that right again.

Still, this Vice Chairman of Blackstone Advisory Services is very smart and often right. He’s been issuing his surprises since 1986 when he was Chief U.S. Investment Strategist at Morgan Stanley, and I think it’s a good idea for all investors to know what Wien believes will happen. (You can read his full list here and see his interview on Closing Bell my CNBC colleague Amanda Drury.)

The most surprising surprise to me was this one: “Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000.”

As I’m sure you know, Japan’s economy and stock market have been hurting for decades. Over the last 10 years, the Nikkei is down about 40%, but there were signs of life last year, as it gained 19%. To put that in context, though, the gains came on the heels of a gut-wrenching 42% drop in 2008 as the financial crisis spread around the globe.

Byron sees it as a turnaround story. “Almost nobody is positive on Japan,” he told Closing Bell. “I can’t really find anybody who’s bullish on that market. My view is that the yen will weaken; exports will improve; sales to China will be strong. Nobody owns it, so if the fundamentals just stop getting worse and get a little bit better, there could be a lot of buyers.”

U.S. Economy Grows But Market Ends Flat

I also thought Byron’s prediction that the U.S. economy would grow “at a stronger than expected 5% real rate” during the year was interesting. That is definitely stronger than most people expect, and he believes it will happen as “exports, inventory building and technology spending lead the way.”

So would strong growth propel the market higher this year? Not necessarily. “In a roller coaster year the Standard and Poor’s 500 rallies to 1300 in the first half and then runs out of steam and declines to 1000, ending where it started at 1115.10,” he predicts. “Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both the public and private level unsettle investors.”

If he’s right, the S&P 500 would tack on another 16+% in the coming months before giving that back. The 70% or so run in the last 10 months is the biggest since the 1930s, so I think most investors realize it will have to slow down at some point, and that will surely be one of the most interesting stories we follow together in and on CNBC.



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