Blackstone’s Wien Sees GDP Growth, Unchanged Stocks (Update2)
Jan. 4 (Bloomberg) -- Blackstone Group LP’s Byron Wien, who correctly predicted rallies in equities, gold and oil last year, said U.S. gross domestic product will expand almost twice as fast as economists forecast in 2010 while the Standard & Poor’s 500 Index ends the year unchanged.
An advance in stocks in the first half will give way to losses as the S&P 500 drops as low as 1,000 before finishing 2010 where it began, Wien said in his annual “Ten Surprises” list, published since 1986. ["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." investmentnews.com] As real economic growth climbs toward 5 percent, the Federal Reserve will start boosting interest rates in the second quarter, pushing its target for overnight loans between banks to 2 percent, he said.
“Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem” for stocks, said Wien, 76. “Concern about longer- term growth and obligations to reduce leverage at both the public and private level unsettle investors.”
Wien’s prediction that a growing economy will boost earnings matches the outlook of most Wall Street strategists, who say the S&P 500 will rise about 10 percent in 2010, according to data compiled by Bloomberg. Wien, the former chief U.S. strategist for Morgan Stanley, breaks from the consensus with his prediction that government borrowing and higher valuations will snuff out equity returns.
Treasuries, Dollar
The 10-year Treasury note’s yield will surpass 5.5 percent during the year because of “heavy borrowing” by the government, Wien said. The dollar will strengthen to 100 yen and $1.30 against the euro, he added. The currency slipped 0.5 percent to 92.57 yen today as of 4:06 p.m. in New York, and lost 0.6 percent to $1.44 per euro.
The S&P 500 rallied 23 percent to 1,115.1 last year, pushing its price to about 24 times the combined earnings of its companies, data compiled by Bloomberg show. That’s the most expensive valuation since 2002. Strategists surveyed by Bloomberg forecast the index will end this year at 1,227. The gauge rose 1.6 percent to 1,132.99 today.
Wien picked Japan as the best-performing “major industrialized” nation this year, saying a weaker yen will help exports, pushing the Nikkei 225 Stock Average above 12,000, a 13 percent gain from the 2009 close.
Financial-service stocks will beat the market, Wien said. That view is at odds with his former colleague at New York-based Morgan Stanley, Barton Biggs, who said banks will trail the S&P 500 for five years. Biggs, 77, now runs Traxis Partners LP in New York.
Previous Predictions
Wien, vice chairman of Blackstone Advisory Services, a unit of New York-based Blackstone Group, predicted last year that the S&P 500 would gain 33 percent while gold climbed to a record $1,200 an ounce and oil advanced to $80 a barrel. Gold reached an all-time high of $1,227.50 on Dec. 3 and crude closed the year at $79.36 a barrel, up 78 percent.
While Wien was correct in foreseeing the dollar’s weakness, his projection that the currency would fall to a record $1.65 per euro and 75 yen didn’t come true. The dollar bottomed in November, trading at $1.51 per euro and touching 86.41 yen.
Wien, who was chief investment strategist for the Pequot Capital Management Inc. hedge fund from 2005 to 2009, says more than half of his predictions have turned out to be right.
He called the recession in 2001. With the Federal Reserve’s benchmark rate at a 10-year high of 6.5 percent, he predicted a series of interest rate cuts that began with a surprise reduction by the central bank on Jan. 3, 2001.
Less Prescient
He was less prescient during previous bull markets, saying the Dow Jones Industrial Average would fall in 1997 and 1998. The gauge advanced 23 percent in 1997 and 16 percent a year later.
For 2010, Wien predicts President Barack Obama’s reputation will improve along with the economy and Democrats will lose 20 seats in the November congressional election. Economists surveyed by Bloomberg last month forecast the U.S. economy will grow 2.6 percent this year, according to the median estimate.
Iran’s President Mahmoud Ahmadinejad will be replaced by “a more public relations-adept leader,” Wien said. Ahmadinejad’s disputed June re-election triggered the biggest street demonstrations in Iran since the 1979 revolution. |
