Christoph Gisiger, Finanz und Wirtschaft
Blackstone’s market maven Byron Wien warns that stocks are in danger of suffering a setback. But he also explains why investors should keep their calm and weather the impending storm.
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To expect the unexpected is the key to success in investing. That’s exactly what Byron Wien has built himself a unique reputation on: For more than thirty years the living Wall Street legend publishes a yearly list with ten surprises that will have a meaningful impact on the global financial markets.
People all over the world are aware of it and identify me with it», says the Vice Chairman in the private wealth group of Blackstone. «What they seem to like about it is that I put myself at risk by going on record and hold myself accountable at the year end», he adds.
So how accurate are Wien’s predictions for 2017 so far? Which developments could surprise investors during the rest of the year? And first and foremost: Where does the experienced market maven see the biggest risks and opportunities right now?
Mr. Wien, everybody on Wall Street knows you for your yearly prediction of ten surprises. What is for you personally the most astonishing development so far this year?
I would say I’m having an average year where I get five or six surprises right. Everybody calls them forecasts or predictions but they really are surprises. To me, a surprise is an event that the average investor would only assign a one out of three chance of taking place but which I believe has a better than 50% likelihood of happening. I never get them all right but I don’t do it for score. I do it to get people thinking.
Which surprises did you get right so far?
I said that the S&P 500 (SP500 2480.85 0.15%) would go to 2500 this year. It’s close to 2480 now and we are at the end of July. So I’m pretty optimistic about that one. I also said the price of oil would be lower than people thought and it is lower than people thought. So those are some of the highlights.
And what took you by surprise?
The drop in interest rates and the weakness of the dollar were the big surprises to me. I said interest rates would rise and they fell and I said the dollar would be strong and it’s been weak. So I definitely got those two wrong. The same is true for Donald Trump. I said correctly that he would soften his positions and he has reversed himself on a number of issues. But I didn’t think he would get so little done. So far he has gotten nothing done, nothing to show for. He spends way too much time on Twitter (TWTR 19.74 -1.15%) and he hasn’t even gotten the affordable care act revised. That’s a disappointment.
What’s next for the Trump agenda? Does his plan for a “huge” tax reform still stand a chance?
I think he will get it done. But as time goes by it’s threatening. If the Republicans don’t get an important part of the Trump agenda passed they could lose a lot of seats in the November 2018 elections. So this is the big risk the party is facing. Also (ALSN 124.2 1.06%), Trump has been very insular in his approach. He hasn’t reached out to Democrats and I don’t think he’s even solidified his own party. He spends most of his time with his own staff and his family but you don’t see him going out or having Congress people in for dinner or things like that. So here we have a guy who is president and who has control of Congress. But to get anything major done he needs 60 votes in the Senate and he’s barely getting 50 because there is anarchy in the Republican party.
The original plan of the Republicans was that the spending cuts from repealing and replacing Obamacare would help finance the tax reform. Are significant tax cuts still possible?
The United States is already running a $560 billion tax deficit. By my calculation, if Trump gets his tax reform through it will double the size of the deficit from around $500 billion to one trillion dollars. That is still not a disaster. The US is a $20 trillion economy. So a 5% deficit is not the end of the world.
So far the markets are taking Trumps inability quite lightly. How long will that last?
Donald Trump is a lucky guy. He is lucky because earnings are coming through better-than-expected. If the market was going down that would be trouble for him. But the market isn’t going down. So Trump has done almost nothing right and the market is up. He’s getting away with something.
What’s your take on the state of the stock market in general?
There are some wild cards out there: North Korea, the risk of Russia invading the Baltics and the Trump administration continuing to be in chaos. Those are negatives. But overall, the tone of the market is favorable and earnings are coming through better than expected. Investors are optimistic and everybody on Wall Street is having a good year. But in the real world out there most people are not doing so well. For example, the University of Michigan Consumer Sentiment Index is at a nine month low. Even though the employment numbers are good, average hourly earnings are only increasing at a rate of 2.5%. So wages aren’t increasing and that’s what is dampening consumer sentiment.
What’s your explanation for this discrepancy between Wall Street and Main Street?
The earnings of US corporations are increasing and that’s driving the stock market. Companies are doing everything possible to increase profitability. Also, there’s a certain amount of financial engineering going on. Many companies are using the cash on their balance sheet to buy their own shares back and to pay higher dividends.
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