Last year at this time, I was still posting on Facebook. Here is a cut and paste from a year ago that explains “Blackstone’s Surprises” and gives a very revealing insight into just how zany 2021 actually was compared to some predictions. This is FOLLOWED by a cut and paste of the predictions for 2022 from the same source.
2021 From My Facebook Post (Predictions from Blackstone)
BLACKSTONE SURPRISES
(The Blackstone Group is the largest private equity investment firm in the USA. In other words, if you are super-rich and you need 3rd parties to help you invest your money or if you run a big pension fund or a giant insurance company, you always include Blackstone as one of your critical partners to help you manage so much money.)
So, this 88-year-old man who truly knows his shit named Byron R. Wien is a very big deal at Blackstone. I doubt that there are any billionaires on the planet who do not pay close attention to Mr. Wien – they probably all pay him a huge retainer fee.
For the rest of us, Mr. Wien releases “Ten Surprises” for each new year. Mr. Wien says that a surprise is something that most investors think is unlikely but he (and his analysts) believe that there is at least a 50% chance that the event will happen.
NOTE: Mr. Wien says that the 2021 list included a major cyber-attack by an Eastern European nation against the USA but they dropped that surprise because it already happened. Yikes!
Here are the surprises for 2021.
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. Treasuries maintain a positive yield and the carry trade continues.
OK then. Blackstone got some important stuff right but they were way wrong when they drifted outside of their financial sweetspot. In my opinion, that tells us less about Blackstone and a whole lot more about how insane the politics and the pandemics of 2021 actually were compared to what we were thinking heading into the year.
Blackstone’s Top Ten Surprises for 2022
I am cutting and pasting from Blackstone’s website. The original post is worth reading from the source.
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 US. 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 US, 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 US 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 US 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.
Blackstone threw in a couple of extra wild cards for 2022 and this is the one that grabbed my attention the most:
The digital economy gets a major boost when Jamie Dimon reverses his position on cryptocurrencies and J.P. Morgan seeks to become a leader in the space. Crypto becomes a major factor in the financial markets.
That was a lot to read. If you made it all the way to here, I hope you will comment with your opinions. Thank you.