29 January 2007

Ten surprises for 2007

Every year since 1986, Byron Wien of Pequot Capital Management has issued his predictions for possible economic, financial and political surprises for the year. In previous years, more than half of the elements on his list have proven correct. The 2007 list is as follows.

1. The US stock market rises more than 10 per cent from current levels. Market volatility increases substantially.

2. China moves to a more accommodative attitude toward the United States and the West. China revalues its currency upward by 10%, and eases terms for Western partnerships with Chinese companies.

3. Despite a world-wide economic slowdown, crude oil remains in short supply because of Asian demand and the price per barrel returns to $80. Development of alternative sources of energy and sales of hybrid cars remain disappointing.

4. As the standard of living rises around the world, agricultural commodity prices continue to soar.

5. US company earnings grow by more than 10% for another year, exceeding analysts’ estimates. Profit margins hold their own as productivity continues to improve.

6. The Federal Reserve does not lower rates in the spring. Business defaults increase in a service oriented, competitive economy that is brutal to manufacturing companies.

7. The price of gold goes to $800 and silver approaches $18. The dollar is stable against the euro because of renewed economic growth in the U.S. and higher interest rates.

8. Economic conditions in Japan continue to improve. After being one of the worst equity markets in a developed country during 2006, the Nikkei index rises 15%.

9. The emerging markets of Asia take a rest. Attention shifts heavily to Latin America and Brazil stands out.

10. Neither of the current frontrunners for the 2008 presidential election in the U.S. proves to have staying power. Rudy Giuliani pulls ahead for the Republicans as fears of terrorism heat up again and Barack Obama gains momentum as he demonstrates that inexperience isn’t a terminal liability.

Via Martin Spring's On Target.

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