Bearish Byron Wien Leaves Many Stocks and ETFs Vulnerable in 2013
Jan 3rd 2013 11:01AM
Byron Wien announced his predictions for 10 big surprises for 2013 this week to kick off the new year. Wien is now vice chairman at Blackstone Advisory Partners, and this was his 28th year in which he has offered his views on a number of issues for the coming year.
Mr. Wien is not bullish on stocks. 24/7 Wall St. issued a peak target of 14,590 for 11% upside in the DJIA (NYSEMKT: DIA). Wien sees the S&P 500 (NYSEMKT: SPY) falling in 2013. Wien assigns a one-in-three chance of each of his major surprises coming to fruition to an average investor, but with better than 50% likelihood of one happening, according to him.
We have not just regurgitated his predictions. We have added stocks to watch, ETFs that would come into play and other color if applicable on each. Byron's 10 Surprises for 2013 are as follows:
1. Iran announces it has adequate enriched uranium to produce a nuclear-armed missile and the International Atomic Energy Agency confirms the claim. Sanctions, the devaluation of the currency, weak economic conditions and diplomacy did not stop the weapons program. The world must deal with Iran as a nuclear threat rather than talk endlessly about how to prevent the nuclear capability from happening. Both the United States and Israel shift to a policy of containment rather than prevention.
2. A profit margin squeeze and limited revenue growth cause 2013 earnings for the Standard & Poor's 500 to decline below $100, disappointing investors. The S&P 500 trades below 1300. Companies complain of limited pricing power in a slow, highly competitive world economic environment. If Byron is right, then that is bad news for the SPDR S&P 500 (NYSEMKT: SPY).
3. Financial stocks have a rough time, reversing the gains of 2012. Intense competition in commercial and investment banking, together with low trading volumes, puts pressure on profits. Layoffs continue and compensation erodes further. Regulation increases and lawsuits persist as an industry burden. This would not be good for Bank of America Corp. (NYSE: BAC) as it was the best DJIA performer in 2012 with gains of 100%. Meredith Whitney raised her expectations and said Buy Bank of America at the end of 2012, but now investors have to hope for more price hikes and analyst upgrades for the run to continue.
4. In a surprise reversal the Democrats sponsor a vigorous program to make the United States independent of Middle East oil imports before 2020. The price of West Texas Intermediate crude falls to $70 a barrel. The Administration proposes easing restrictions on hydraulic fracking for oil and gas in less populated areas and allowing more drilling on Federal land. They see energy production, infrastructure and housing as the key job creators in the 2013 economy. This would be bad for United States Oil (NYSEMKT: USO) and the likes of Exxon Mobil Corp. (NYSE: XOM) due to price, but might be better for Market Vectors Oil Services ETF (NYSEMKT: OIH) for a recovery on volume.
5. In a surprise reversal the Republicans make a major effort to become leaders in immigration policy. They sponsor a bill that paves the way for illegal immigrants to apply for citizenship if they have lived in the United States for a decade, have no criminal record, have a high school education or have served in the military, and can pass an English proficiency test. Their goal for 2016 is to win the Hispanic vote, which they believe has a naturally conservative orientation and which put the Democrats over the top in 2012.
6. The new leaders in China seem determined to implement reforms to root out corruption, to keep the economy growing at 7% or better and to begin to develop improved health care and retirement programs. The Shanghai Composite finally comes alive and the "A" shares are up more than 20% in 2013, in contrast with the previous year when Chinese stocks were down and some developing markets, notably India, rose. This would be a base for the iShares FTSE China 25 Index Fund (NYSEMKT: FXI), but we would note that this is already at highs.
7. Climate change contributes to another year of crop failures, resulting in grain and livestock prices rising significantly. Demand for grains in developing economies continues to increase as the standard of living rises. More investors focus on commodities as an investment opportunity and increase their allocation to this asset class. Corn rises to $8.00 a bushel, wheat to $9.00 a bushel and cattle to $1.50 a pound. There are the Teucrium Corn (NYSEMKT: CORN), Teucrium Wheat (NYSEMKT: WEAT) and the iPath DJ-UBS Livestock TR Sub-Idx ETN (NYSEMKT: COW) exchange-traded products to follow here.
8. Although inflation remains tame, the price of gold reaches $1,900 an ounce as central bankers everywhere continue to debase their currencies and the financial markets prove treacherous. This would be a boom for SPDR Gold Shares (NYSEMKT: GLD) and other gold ETFs. $1,900 gold would translate to about $187 per share, rather than about $163 today.
9. The Japanese economy remains lackluster and the yen declines to 100 against the dollar. The Nikkei 225 continues the strong advance that began in November and trades above 12,000 as exports improve and investors return to the stocks of the world's third largest economy. The iShares MSCI Japan Index (NYSEMKT: EWJ) would be a focus, with CurrencyShares Japanese Yen Trust (NYSEMKT: FXY) as the device to hedge against a yen currency.
10. The structural problems of Europe remain largely unresolved and the mild recession that began there in 2012 continues. Civil unrest subsides as the weaker countries adjust to austerity. Greece proves successful in implementing policies that reduce wasteful government expenditures and raise revenues from citizens who had been evading taxes. European equities, however, decline 10% in sympathy with the U.S. market. The news is not great for CurrencyShares Euro Trust (NYSEMKT: FXE), and would be really bad news for Vanguard MSCI Europe ETF (NYSEMKT: VGK) and the SPDR EURO STOXX 50 (NYSEMKT: FEZ) ETFs.
Every year there are always a few surprises that do not make the top 10. Wien says this is because he either does not believe they are as relevant as those on the basic list or because he is not comfortable with the idea that they are "probable." Below are several "also rans" that did not make the top 10 surprises, along with issues to watch for each:
11. Having traded below 20 for most of 2012 the VIX Volatility Index surges 33% to 30, providing a bonanza for traders. The decline in the S&P 500 increases market volatility. iPath S&P 500 VIX ST Futures ETN (NYSEMKT: VXX) is close to the lows of the past year now with volatility so low.
12. The Newtown, Connecticut, massacre finally convinces Congress to do something about gun control. As a first step they ban future civilian purchases of automatic weapons, including handguns, with clips of more than ten rounds and require more extensive background checks on all gun purchases. "It should not be easier to buy a gun than rent a car" becomes a slogan. Smith & Wesson Holding Corp. (NASDAQ: SWHC) and Sturm, Ruger & Co. Inc. (NYSE: RGR) have been hit hard since the massacre but have recovered handily due to fears perhaps being overblown.
13. Frustrated by an inability to increase revenues through raising income taxes, Congress begins to consider different approaches. There is more talk of a value-added tax as well as a wealth tax, and these ideas appear to be slowly gathering momentum. While there is not an ETF for this, both are called a redistribution and penalty not just for success of the past. One is an incentive tax and one is a tax on the masses.
14. Congress decides that high-frequency and other computerized algorithmic-based trading practices are putting the individual investor at a disadvantage. A transaction fee designed to slow down frenetic activity and protect against "flash crashes" and glitches is imposed on intra-day trades. NYSE Euronext Inc. (NYSE: NYX) is already merging with IntercontinentalExchange Inc. (NYSE: ICE) ahead of the coming changes here. The move still leaves Nasdaq OMX Group Inc. (NASDAQ: NDAQ) out all alone, for now.
15. The planet finds itself saturated with technology. Semiconductor companies, software providers, social media favorites and personal computer manufacturers all report disappointing earnings and provide discouraging guidance. They lead the overall market lower. Users finally agree the present state of the art is fast enough and connected enough, and that they have more "apps" than they know what to do with. Sorry, but that is bad for the likes of Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG), Microsoft Corp. (NASDAQ: MSFT), Intel Corp. (NASDAQ: INTC) and it is even bad for Facebook Inc. (NASDAQ: FB).
Stay tuned to the outlooks this week and next.
JON C. OGG
Filed under: 24/7 Wall St. Wire, Analyst Calls, Economy, ETFs & Mutual Funds, Personal Finance Tagged: AAPL, BAC, CORN, COW, DIA, EWJ, FB, FEZ, FXE, FXI, FXY, GLD, GOOG, ICE, INTC, MSFT, NDAQ, NYX, OIH, RGR, SPY, SWHC, USO, VGK, VXX, WEAT, XOM