Pequot’s Wien Surprised By Own ‘Surprises’

Jun 13 2008 | 2:00am ET

Sometimes, forecasters even surprise themselves.

Byron Wien, hedge fund Pequot Capital Management’s chief investment strategist, has been publishing his “10 Surprises” list since 1986, when he was Morgan Stanley’s chief investment strategist.

At the beginning of the year, Wien predicted that the U.S. economy would go into a recession, led by a weak housing sector and a struggling credit market. He also anticipated below-average consumer spending and an unemployment rate above 5%, due to high food and energy prices, with the Federal Reserve dropping the federal funds rate below 3%.

Wien also foresaw the 10-year U.S. Treasury bill rising to 5% and the term “stagflation” to be more widely used by presidential hopefuls and media pundits.

On the commodity front, Wien expected the price of oil to rise to US$115 in the second half of the year, corn to US$6 a bushel and cotton to US$0.85 a pound. He also predicted that gold would reach US$1,000 an ounce.

“I am surprised that oil is where it is because I didn’t think it would get there that fast,” said Wien, speaking at a dinner hosted by the New York Society of Security Analysts.

“I have been surprised at everything’s that’s  been revealed about the degree of leverage in the financial system.”

Wien added he’s “a little nervous about stagflation, but I think it’s here,” and “I don’t know as much as I did about Russia, so I don’t know if Russia will do so well, but I’m definitely enthusiastic about Brazil.”

Wien predicted that new Russian President Dmitri Medvedev, under the tutelage of his predecessor, Vladimir Putin, would become more assertive in world affairs. He also admitted that the infrastructure story might not be such a big deal after all, after guessing that it would be a big issue in the fall’s presidential campaign.

Other surprises Wien predicted were a sharp decline for Chinese stocks, long-distance runners refusing to compete in certain Olympic events in Beijing because of continuing air pollution problems, water becoming a critical problem world-wide and a landslide November victory for Sen. Barack Obama… over Mitt Romney.

Going forward, Wien is long energy and material stocks, but cautioned against consumer durables and financials. He said the housing sector is going to be in the doldrums for a while, and praised Fed Chairman Ben Bernanke for “starting to do a good after dragging his feet. He handled the Bear Stearns crisis well, punishing shareholders and employees, but not the customers.”

Wien also urged President Obama to implement a major program for alternative energy and to figure out a way to use nuclear power to become less dependent on fossil fuels.

“The idea gridlock is going to be the death of us and the one thing I’m worried about is that it’s so damned hard to get something through Congress.”


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