Byron Wien and Joe Zidle Announce the Ten Surprises of 2021
January 04 2021 - 12:00PM
Business Wire
Byron R. Wien, Vice Chairman together with Joe Zidle, Chief
Investment Strategist in the Private Wealth Solutions group at
Blackstone, today issued their list of the Ten Surprises of 2021.
This is the 36th year Byron has given his views on a number of
economic, financial market and political surprises for the coming
year. Byron defines a “surprise” as an event that the average
investor would only assign a one out of three chance of taking
place but which Byron believes is “probable,” having a better than
50% likelihood of happening. Byron started the tradition in 1986
when he was the Chief U.S. Investment Strategist at Morgan Stanley.
Byron joined Blackstone in September 2009 as a senior advisor to
both the firm and its clients in analyzing economic, political,
market and social trends. In 2018, Joe Zidle joined Byron Wien in
the development of the Ten Surprises.
Byron and Joe’s Ten Surprises of 2021 are as follows:
1.
Former President Trump starts his own
television network and also plans his 2024 campaign. His lead
program is The Chief, in which he weekly interviews heads of state
and CEOs with management styles like his own. His virtual interview
with Vladimir Putin draws more viewers than any television program
in history.
2.
Despite the hostile rhetoric from both
sides during the U.S. presidential campaign, President Biden begins
to restore a constructive diplomatic and trade relationship with
China. China A shares lead emerging markets higher.
3.
The success of between five and ten
vaccines, together with an improvement in therapeutics, allows the
U.S. to return to some form of “normal” by Memorial Day 2021.
People are generally required to show proof of vaccination before
boarding airplanes and attending theaters, movies, sporting events
and other large gatherings. The Summer Olympics, postponed last
year, are held in July with spectators allowed to physically
attend.
4.
The Justice Department softens its case
against Google and Facebook, persuaded by the argument that the
consumer actually benefits from the services provided by these
companies. Certain divestitures are proposed and surveillance
restrictions are applied, but the broad effort to break them up
loses support, except in Europe.
5.
The economy develops momentum on its own
because of pent-up demand, and depressed hospitality and airline
stocks become strong performers. Fiscal and monetary policy remain
historically accommodative. Nominal economic growth for the full
year exceeds 6% and the unemployment rate falls to 5%. We begin the
longest economic cycle in history, surpassing the cycle that lasted
from 2010 to 2020.
6.
The Federal Reserve and the Treasury
openly embrace Modern Monetary Theory as their accommodative
policies continue. As long as growth exceeds the rate of inflation,
deficits don’t seem to matter. Because inflation increases
modestly, gold rallies and cryptocurrencies gain more respect
during the year.
7.
Even as energy company executives cut
estimates for long-term growth, near-term opportunities are
increasing. The return to “normal” increases both industrial
activity and mobility, and the price of West Texas Intermediate oil
rises to $65/bbl. Rig counts increase and energy high yield bonds
rally soundly. Energy stocks are among the best performers in
2021.
8.
The equity market broadens out. Stocks
beyond health care and technology participate in the rise in
prices. “Risk on” is not without risk and the market corrects
almost 20% in the first half, but the S&P 500 trades at 4,500
later in the year. Cyclicals lead defensives, small caps beat large
caps and the “K” shaped equity market recovery unwinds. Big cap
tech is the source of liquidity, and the stocks are laggards for
the year.
9.
The surge in economic growth causes the
10-year Treasury yield to rise to 2%. The yield curve steepens, but
a concomitant increase in inflation keeps real rates near zero. The
Fed wants the strength in housing and autos to continue. As a
result, it extends the duration of bond purchases in order to
prevent higher rates at the long end of the curve from choking off
credit to consumers and businesses.
10.
The slide in the dollar turns around. The
post-vaccine strength of the U.S. economy and financial markets
attracts investors disenchanted with the rising debt and slower
growth of Europe and Japan. Treasurys maintain a positive yield and
the carry trade continues.
“Also Rans”
Every year there are always a few
Surprises that do not make the Ten, because we either do not think
they are as relevant as those on the basic list or we are not
comfortable with the idea that they are “probable.”
11.
Cyber-attacks, mostly from Eastern Europe
and the Middle East, begin to have an economic impact. Bank account
information is invaded and distorted, patient records are lost at
hospitals and credit collection companies can’t keep track of
customer purchases. Those tampering prove to be more skillful than
those protecting the integrity of the data and the dislocation cost
becomes significant.
12.
Tesla acquires a major global auto
manufacturer in a transaction that involves a combination of cash
and stock. Elon Musk is the CEO and pledges to eliminate the
internal combustion engine by the end of the decade.
13.
Kim Jong-un threatens to explode his
latest long-range missile, capable, he says, of reaching Los
Angeles. Trump invites him onto TV and explains that Kim will be a
better person and the world will be a better place if he works with
other countries rather than threatening them. Kim agrees to stop
testing long-range missiles. Trump looks into the camera and says,
“People say I am the best negotiator.”
About Blackstone
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seek to create positive economic impact and long-term value for our
investors, the companies we invest in, and the communities in which
we work. We do this by using extraordinary people and flexible
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assets and secondary funds, all on a global basis. Further
information is available at www.blackstone.com. Follow Blackstone
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Kate Holderness Kate.Holderness@Blackstone.com 917-318-6818
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