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Byron R. Wien and Joe Zidle of the Private Wealth Solutions group Blackstone have issued their list of “Ten Surprises of 2022.”
This is the 37th year Wien has given his views on a number of economic, financial market, and political surprises for the coming year.
Here’s the mechanism: Wien defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Wien believes is “probable,” having a better than 50% likelihood of happening.
Wien began doing this in 1986. He was then the chief U.S. investment strategist at Morgan Stanley.
Today, Wien, 89, is vice chairman of Blackstone’s Private Wealth Solutions group where he acts as a senior adviser to the firm and its clients in analyzing economic, social, and political trends to assess the direction of financial markets and thus help guide investment and strategic decisions. Wien has also held the position chief investment strategist for Pequot Capital. In past years, he has been rated as the most widely read analyst on Wall Street and in 2000 was ranked the No. 1 strategist by SmartMoney.com based on his market calls during that year.
Zidle is a senior managing director and the chief investment strategist. Zidle holds a bachelor’s in economics and history form Emory University. From 1993-2001, he served as a specialist in military intelligence for the U.S. Army Reserves.
In 2018, Zidle joined Wien in this enterprise … no, this institution of the “Ten Surprises.”
Without further ado …
- The combination of strong earnings clashes with rising interest rates, resulting in the S&P 500 making no progress in 2022. Value outperforms growth. High volatility continues and there is a correction that approaches, but does not exceed, 20%.
- While the prices of some commodities decline, wages and rents continue to rise and the Consumer Price Index and other widely followed measures of inflation increase by 4.5% for the year. Declines in prices of transportation and energy encourage the die-hard proponents of the view that inflation is “transitory,” but persistent inflation becomes the dominant theme.
- The bond market begins to respond to rising inflation and tapering by the Federal Reserve, and the yield on the 10-year Treasury rises to 2.75%. The Fed completes its tapering and raises rates four times in 2022.
- In spite of the Omicron variant, group meetings and convention gatherings return to pre-pandemic levels by the end of the year. While Covid remains a problem throughout both the developed and the less-developed world, normal conditions are largely restored in the U.S. People spend three to four a days a week in offices and return to theaters, concerts, and sports arenas en masse
- Chinese policymakers respond to recent turmoil in the country’s property markets by curbing speculative investment in housing. As a result, there is more capital from Chinese households that needs to be invested. A major asset management industry begins to flourish in China, creating opportunities for Western companies.
- The price of gold rallies by 20% to a new record high. Despite strong growth in the U.S., investors seek the perceived safety and inflation hedge of gold amidst rising prices and volatility. Gold reclaims its title as a haven for newly minted billionaires, even as cryptocurrencies continue to gain market share.
- While the major oil-producing countries conclude that high oil prices are speeding up the implementation of alternative energy programs and allowing U.S. shale producers to become profitable again, these countries can’t increase production enough to meet demand. The price of West Texas crude confounds forward curves and analyst forecasts when it rises above $100 per barrel
- Suddenly, the nuclear alternative for power generation enters the arena. Enough safety measures have been developed to reduce fears about its dangers, and the viability of nuclear power is widely acknowledged. A major nuclear site is approved for development in the Midwest of the United States. Fusion technology emerges as a possible future source of energy.
- ESG evolves beyond corporate policy statements. Government agencies develop and enforce new regulatory standards that require public companies in the U.S. to publish information documenting progress on various metrics deemed critical in the new era. Federal Reserve governors spearhead implementation of stress tests to assess financial institutions’ vulnerability to climate change scenarios.
- In a setback to its green energy program, the United States finds it cannot buy enough lithium batteries to power the electric vehicles planned for production. China controls the lithium market, as well as the markets for the cobalt and nickel used in making the transmission rods, and it opts to reserve most of the supply of these commodities for domestic use.