Byron Wien’s Top 10 Predictions For 2010

Byron Wien, the 76 year old Vice Chairman of Blackstone Advisory Services and one of Wall Street’s best known veterans, has published his top 10 predictions for 2010. Mr. Wien has been publishing his list of economic, market and political surprises since 1986.

Here are Mr. Wien’s top 10 predictions for this year.

1. The U.S. economy grows at a stronger than expected 5% real rate during the year and unemployment levels drop below 9%. Exports, inventory building and technology spending lead the way and the S&P 500 operating earnings come in above $80.

2. The Federal Reserve move away from zero interest rate policy based on the strength of the economy. In a successive hike beginning in the second quarter the Federal funds rate reaches 2% by year end.

3. Heavy borrowing by the U.S. Treasury and the reluctance of foreign central banks to keep buying notes and bonds drives the yield on the 10 year Treasury above 5.5%. Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries.

4. In a roller coaster year S&P 500 rallies to 1,300 in the first half and then runs out of steam and declines to 1,000, ending where it started at 1115.10. Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both public and private level unsettle investors.

5. The dollar rallies against the yen and the euro as it is significantly undervalued on purchasing power parity basis. It exceeds 100 on the yen and the euro drops below $1.30 as long slide of the dollar is interrupted. Longer term prospects remain uncertain.

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favorable for nuclear power development. Arguing that going nuclear is essential for the environment, will create jobs and reduce costs, Congress passes bills providing loans and subsidies for new plants, the first since 1979. Coal accounts for about 50% of electrical power generation, and Obama wants to reduce that to 25% by 2020.

8. The improvement in the U.S. economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum. In the November Congressional election the Democrats only lose 20 seats, much less than expected.

9. When it finally passes, financial service legislation, like the health care bill, proves to be softer on the industry than originally feared. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. Trading volume and merger activity increases; financial service stocks become exceptional performers in the U.S. market.

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the U.S. and Europe begin but the country remains a nuclear threat. Pakistan becomes the hotspot in the region because of the weak government there, anti-American sentiment, active terrorist groups and concerns about the security of the country’s nuclear arsenal.