Why Byron Wien Is An Optimist (And He Says Trump Might Win)
June 7, 2016
by Laurence B. Siegel
Einhorn’s FOF Re-positions Portfolio, Makes New Seed Investment In Year Marked By “Speculative Exuberance”
It has not just been rough year for David Einhorn's own fund. Einhorn's Greenlight Masters fund of hedge funds was down 3% net for the first half of 2020, matching the S&P 500's return for those six months. In his August letter to investors, which was reviewed by ValueWalk, the Greenlight Masters team noted that Read More
Byron Wien is vice chairman of The Blackstone Group, the largest U.S. alternative investments firm. Wien’s market commentaries over the last several decades have made him one of the most popular living writers on investments, finance and economics. His Ten Surprises, published each year since 1985, are the events he thinks have at least a 50% probability of happening in the next year but that, in the opinion of the average investor, have at most a one in three probability of occurring.
I spoke with Byron Wien on May 24, 2016.
Byron, having read your Ten Surprises for 2016, as well as your more recent market commentaries, I am struck by your uncharacteristically gloomy tone. I think of you as an optimist. What evidence, so far in 2016, do you think points to a negative view being right, and what if anything causes you to possibly change your mind?
When I wrote up my Ten Surprises last December, I was looking at the level of worldwide demand and how many people were tapping into it. I decided there wasn’t enough demand for U.S. companies to increase their “top line” [total sales]. In addition to that, they had very little pricing power. Moreover, productivity was not improving considerably.
I thought there would be very little top line growth. I thought some commodity prices, such as oil, would be rising – not in a material way, but oil wouldn’t stay at $26 barrel. [That was the low that it reached in February 2016.] More importantly, I thought that wages would be going up about 2.5% per year. I thought there would be a margin squeeze, an earnings disappointment. I thought analysts were too high in their earnings estimates, and as a result of that I thought the market would be under pressure. I didn’t think it was egregiously overvalued, but I did think it was vulnerable. And, of course, at the beginning of the year it really looked vulnerable.
What has happened since then?
The economy has picked up. It is hardly a boom, but the fundamentals are a little better. In the U.S., second quarter GDP growth will be 2.5% after 0.5% in the first quarter. [These are annualized quarterly rates of real GDP growth.] Europe is doing better. In China, nobody is worried about a hard landing any more. Japan is actually doing better.
The world is improving and, as a result of that, it looks like the market won’t be as vulnerable as I originally thought. But I am still holding with the view that the market is going to be down for the year.
Turning to politics, it is hard to think of anything other than Donald Trump. Why do you think Trump is so popular?
Let’s talk about both Trump and Bernie Sanders. A big segment of the American people are fed up because so little gets done in Washington. They don’t blame a single party; they blame both parties. They blame the polarization of parties for the inaction.
As I said in a recent Barron’s article, 20% of people in the United States are better off than they were in 2007, but 80% aren’t. It is among those 80% that somebody is standing up and saying, “I’m going to make America great again.” That really resonates, as does somebody saying, “Look, it’s time for socialism because the fat cats and Wall Street have gotten all the gains that we’ve made since the recession ended in June 2009.”
Half of America goes to bed scared every night. If you go to bed scared because you don’t have a job, or you don’t have a job that pays enough to cover the bills, or if you have a good enough job but you are worried that your company isn’t doing well and you might get laid off, then you are nervous. There are a lot of insecure people in this country, and they want a change. Both Sanders and Trump represent a change.
What kind of positive change do voters think that Trump and Sanders can deliver?
Oddly, the specific liabilities of each of those candidates contributed to their success: the fact that Trump took such extreme positions, that he was a blowhard, that he was willing to insult everybody including John McCain, a war hero. And there’s the fact that this is the first time in American history when the oldest candidate in the race, Bernie Sanders, has appealed to the youngest voters. Why? Because he wants to give them what they want: free education. He wants to give them an easier time and a life and they are ready to accept it.
It is the uneasiness of the American population that has been preyed upon by both Sanders and Trump.
People underestimate Trump – he can win. The reason is that his style of debating is very effective against a vulnerable opponent. Hillary Clinton is very vulnerable on her personal e-mails, on her role in Benghazi, on her performance as Secretary of State, on raising money for the Clinton Foundation while she was Secretary of State and on her relationship with her husband.
It would not surprise me to see Trump pull this out and become the next president.