Author: Wall Street + Washington (Page 2 of 2)

At the beginning of each of the last 25 years, Byron Wien, the renowned investment strategist, has prepared a list of his top ten political and economic predictions for the year. Last year, he correctly predicted rallies in the S&P 500, gold and oil. Take a look at his 2009 predictions and you will be amazed at how many calls he got right! In January 2008, Wien also predicted Barack Obama’s victory in the U.S. presidential election as well as the Democratic Party’s majority in both houses of Congress. His most famous call: the interest rate cuts and recession of 2001.

Last month, Wien released his top ten surprises for 2010 (01/04/2010). Two months into the year, some of his predictions are already coming true. In number 7 of this year’s list, he predicts Washington’s funding of the first nuclear power plants in the U.S.  since 1979. Earlier today, President Obama pledged $8 billion in loan guarantees to help build the first U.S. nuclear reactors in nearly three decades. See this article.

For those interested, here are Wien’s Top 10 predictions for 2010:

The Surprises of 2010

1.       The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%.  Exports, inventory building and technology spending lead the way.  Standard and Poor’s 500 operating earnings come in above $80

2.       The Federal Reserve decides the economy is strong enough for them to move away from zero interest rate policy.  In a series of successive hikes beginning in the second quarter the Federal funds rate reaches 2% by year-end

3.       Heavy borrowing by the U.S. Treasury and some reluctance by 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.  Obama says, “The suits are finally listening”

4.       In a roller coaster year the Standard and Poor’s 500 rallies to 1300 in the first half and then runs out of steam and declines to 1000, 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 the public and private level unsettle investors

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

6.       Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve.  Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high.  The Nikkei 225 rises above 12,000

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 Khomeini 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

Abraham Tiamiyu

Steven Strogatz, a mathematician at Cornell,  has a really interesting piece in the New York Times titled The Enemy of My Enemy (02/14/2010). In the article, he argues that the mathematical rules behind negative numbers can also be seen playing out in social and political events. For example, something most people – including myself – take for granted, i.e., the multiplication of negative numbers, could help explain the allegiances between European countries in the run-up to WWI.

Also, there is a brief mention of the philosopher Sidney Morgenbesser. For those who don’t know of Morgenbesser, check out the following:

1.) The most celebrated Morgenbesser anecdote involved visiting Oxford philosopher J. L. Austin, who noted that it was peculiar that although there are many languages in which a double negative makes a positive, no example existed where two positives expressed a negative. In a dismissive voice, Morgenbesser replied from the audience, “Yeah, yeah…” (also, “Yeah, right”)

Source: http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=34425

2.) Sidney Morgenbesser walks into a restaurant, has dinner, and then asks the waitress what they have for dessert. She says apple pie and blueberry pie. Sidney Morgenbesser says he’ll have the apple pie. She comes back in a moment and says that they also have cherry pie. So Sidney Morgenbesser says “In that case, I’ll have the blueberry pie.” [Independence of irrelevant alternatives]

Source: http://itre.cis.upenn.edu/~myl/languagelog/archives/001314.html

3.) A policeman once approached Morgenbesser and told him there was no smoking on the subway. Morgenbesser responded that he was leaving the subway and hadn’t lit up yet. When the cop said, “If I let you do it, I’d have to let everyone do it,” Morgenbesser replied, “Who do you think you are — Kant?” The cop mistook the German philosopher for a vulgar epithet, and Morgenbesser had to explain it all down at a police station. [Categorical Imperative]

Source: http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=34425

.

Abraham Tiamiyu

In the nineteenth century, England was one of the few nations that had attained the level of prosperity that spawns surplus capital, which spills, in turn, across national boundaries in search of the highest return. For British investors, America was a richly tempting “Third World” country, one loaded with pitfalls and a boorish habit of defaulting on debts…In the 1840s, the rogues’ gallery of sovereign deadbeats included Pennsylvania, Maryland, and other U.S. states. (The most renegade offender, Mississippi, later went so far as to pass a state constitutional amendment prohibiting repayment of its bonds.) Faced with such recalcitrance, many European investors ruled America off-limits to further investing. When Washington dispatched U.S. Treasury agents to solicit a loan from Baron James de Rothschild in Paris in 1842, the banker brusquely expelled these aliens from the office: “Tell them you have seen the man who is at the head of the finances of Europe, and that he has told you that they cannot borrow a dollar. Not a dollar.”

Abraham Tiamiyu

• I have always known that deep down in every human heart, there is mercy and generosity. No one is born hating another person because of the color of his skin, or his background, or his religion. People must learn to hate, and if they can learn to hate, they can be taught to love, for love comes more naturally to the human heart than its opposite (Mandela, 1994: 542).
• I knew as well as I knew anything that the oppressor must be liberated just as surely as the oppressed. A man who takes away another man’s freedom is a prisoner of hatred; he is locked behind the bars of prejudice and narrow-mindedness. I am not truly free if I am taking away someone else’s freedom, just as surely as I am not truly free when my freedom is taken from me. The oppressed and the oppressor alike are robbed of their humanity (Mandela, 1994: 544).

Source: Mandela, N. A Long Walk to Freedom: The Autobiography of Nelson Mandela (Boston: Little, Brown & Company, 1994).

A Long Walk to Freedom

Abraham Tiamiyu