Byron Wien: March 2009 Commentary

Tuesday, March 24th, 2009

This article is a guest contribution from MarketFolly.com.

Here’s Pequot Capital Management’s March commentary from Byron Wien. We’ve covered Pequot’s Q3 holdings earlier, and are soon going to be covering their latest Q4 holdings so keep an eye out. In terms of recent movements, we’ve detailed those here. (RSS & Email readers may need to come to the blog to read).

Here is an excerpt:

“I wonder if we are too impatient with our new President. After less than two months in office the stock market is still declining, house prices continue to drop, the futures of the banking and automobile industries remain uncertain, corporate profits are shrinking, industrial production is falling and unemployment is rising. Did we really think he would come out with a flawless plan to reverse these conditions within the first 60 days? The programs announced so far are not bereft of positive aspects. You can criticize the stimulus package for having been written by various congressional committees who put their pet projects in the bill but the legislation contains programs for alternative energy, the environment, education and healthcare which were all promised by the President during the campaign. What’s more, support for the infrastructure projects at the state and local level creates jobs or keeps public employees from being laid off and attends to deferred maintenance projects that may have been on the books for years. More than $1 trillion dollars has already been committed and it may be several times that before we are done in a $15 trillion economy. That’s probably going to be a boost to the
gross domestic product (GDP) of five to seven percent starting this year and continuing into next in an economy that is shrinking at about five percent.”

“Even the pessimists think GDP will turn positive late this year or early in 2010. Nobody knows when the stock market will bottom, housing will stabilize, the banks will feel solid enough financially to start lending again, unemployment will turn down and fear among consumers and business people will dissipate. To assume that there are not a number of constructive aspects to the programs announced (and passed) to date is too harsh a judgment in my opinion. It took decades to create the problems we are facing and it will take years to solve them. The long-term implications of the debt we are taking on to accomplish our goals are another atter, but the economy was in free fall and a series of dramatic steps had to be taken.”

“So I remain one of the few optimists who believe the market will begin to anticipate a recovery in the economy sometime in the second half of this year. I am prepared for the fundamental backdrop for equities to get worse before it gets better. I expect earnings will be disappointing and company guidance will be revised downward and more layoffs and bankruptcies will take place. However, once the positive effects of this enormous stimulus program begin to be seen, I believe the stock market will have already anticipated the good news. Even if the fundamentals only show improvement in 2010 we could see a better stock market later this year.”

You can read the whole document here, by clicking the full screen button at the top right of the viewing pane.

You may also download the document here.

Tags: Alternative Energy, Array, Automobile Industries, Blog, Byron Wien, Congressional Committees, Corporate Profits, Creative Writing, Environment Education, ETF, Excerpt, GDP, Gross Domestic Product, House Prices, Infrastructure Projects, Maintenance Projects, New President, Pequot Capital Management, Pessimists, Pet Projects, Q3, Scribd, Short Stories, Stimulus Package, Stock Market, Trillion, Writing Music
Posted in Economy, Markets | No Comments »

Byron Wien: Ten Surprises for 2009

Tuesday, January 6th, 2009

Byron R. Wien, Chief Investment Strategist of Pequot Capital Management, Inc., today issued his list of Ten Surprises for 2009. Mr. Wien has issued his economic, financial market and political surprises annually since 1986. The 2009 list follows:

1. The Standard and Poor’s 500 rises to 1200. In anticipation of a second-half recovery in the U.S. economy, the market improves from a base of investor despondency and hedge fund and mutual fund withdrawals. The mantra changes from “fortunes have been lost” to “fortunes can still be made.” Higher quality corporate bonds, leveraged loans and mortgages lead the way.

2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern investors and a worldwide disenchantment with paper currencies drive the price of precious metals higher. In a time of uncertainty, investors want something they can count on as real.

3. The price of oil returns to $80 per barrel. Production disappointments and rising Asian demand create an unfavorable supply/demand balance. Other commodities also rise, some doubling from their 2008 lows. Natural gas goes to $9 per mcf.

4. Low Treasury interest rates coupled with huge borrowing by the Treasury send the dollar into a serious downward slide. Overseas investors become concerned that the currency printing presses will never stop. The yen goes to 75 and the euro to 1.65.

5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as the economy shows signs of recovery, economists and investors shift their mood from concern about deflation to worries about inflation. A weak dollar, rapid growth in money supply and record-setting deficits (over $1 trillion) are behind the change.

6. China’s growth exceeds 7% and its stock market revives. World leaders credit China’s authoritarian government for its thoughtful stimulus policies and effective execution during a challenging period. The Chinese consumer begins to spend more and save less and this shift is behind the unexpected strength in the economy.

7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcy and other states and municipalities follow. The Federal government is forced to step in and provide substantial assistance. The New York Post screams “When will the bailouts stop?”

8. Housing starts reach bottom ahead of schedule in the fall, and house prices stabilize after dropping 15% from year-end 2008 levels. The Obama stimulus program proves effective and a slow growth recovery begins before year-end. Third and fourth quarter real gross domestic product numbers are positive.

9. The savings rate in the United States fails to improve beyond 3%, as most economists expect. The concept of thrift seems to have vanished from American culture. Peak job insecurity and negative growth drive increased savings early in the year, but spending resumes as the economic growth turns positive in the second half, making Christmas 2009 the best ever.

10. Citing concerns about Iraq’s fragile democratically elected government and the danger of a Taliban-controlled Afghanistan, Barack Obama slows his plan for troop withdrawal in the former and meaningfully increases U.S. military presence in the latter. In a hawkish speech he states that the threat of terrorism forces the United States to maintain a strong military force in this strategic area.

Mr. Wien believes these surprises, which the consensus would assign only a one-in-three chance of happening, have at least a 50% probability of occurring at some point during the year. In previous years, more than half of the elements of the list have proven correct.

Pequot Capital Management is a private investment firm.

Source: Business Wire
http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20090105005763&newsLang=en

Tags: Authoritarian Government, Capital Management Inc, Chief Investment Strategist, Chinese Consumer, Corporate Bonds, Demand Balance, Despondency, Disenchantment, Downward Slide, Leveraged Loans, Overseas Investors, Paper Currencies, Pequot Capital Management, Pequot Capital Management Inc, precious metals, Price Of Oil, Printing Presses, U S Treasury, Unexpected Strength, Weak Dollar
Posted in Bonds, Commodities, Credit Markets, Economy, Gold, Markets, Oil and Gas | No Comments »