In the 1990s I worked at Morgan Stanley. In fact, I did my training in and around their head office in Times Square. Nowadays, many people are very critical of the banks. I certainly think that there are huge institutional failings in our entire political and financial system , and this is one of the reasons I decided to work for myself . But there were also many honest and hardworking folk there. And more importantly for my later development it was the start of my career as a futurist.
My initial job was based on a trading floor but it involved monitoring and enabling information flow around the global organisation. I got to speak with so many fascinating and insightful people. With an organisation of ten of thousands of people I was encouraged to pick up the phone to anyone around the world (despite being a clueless ‘new grad’): it was like having a corporate CIA at your fingertips. One of my favourite moments was when the strategists and economists like Byron Wein and Barton Biggs released their 10 surprises for the year as it was so distinctly different from much of the more linear thinking one sees in analysis. It was partly done for fun but Byron Wien also said he did it to expand his mind. Many other people started to copy the Morgan Stanley team, who were seen as the strongest macro team on Wall St. Personally I always found it a very powerful exercise but I thought it was strange that even more effort wasn’t put in to looking at events that were deemed to be highly unlikely but would have an immense impact on investments – and indeed many other aspects of one’s life. Who would have know in those days this would end up being my full time career! Although now our forecasting models are not limited to a simplistic list for the coming year.
Byron Wien continues to put out his list, although he has since moved on to become Vice Chairman of Blackstones. Here is his 2017 Surprises:
1. Still brooding about his loss of the popular vote, Donald Trump vows to win over those who oppose him by 2020. He moves away from his more extreme positions on virtually all issues to the dismay of some right wing loyalists. He insists, “The voters elected me, not some ideology.” His unilateral actions throw policy staffers throughout the government into turmoil. Virtually all of the treaties and agreements he vowed to tear up on his first day in office are modified, not trashed. His wastebasket remains empty.
2. The combination of tax cuts on corporations and individuals, more constructive trade agreements, dismantling regulation of financial and energy companies, and infrastructure tax incentives pushes the 2017 real growth rate above 3% for the U.S. economy. Productivity improves for the first time since 2014.
3. The Standard & Poor’s 500 operating earnings are $130 in 2017 and the index rises to 2500 as investors become convinced the U.S. economy is back on a long-term growth path. Fears about a ballooning budget deficit are kept in the background. Will dynamic scoring reducing the budget deficit actually kick in?
4. Macro investors make a killing on currency fluctuations. The Japanese yen goes to 130 against the dollar, stimulating exports there. As Brexit moves closer, the British pound declines to 1.10 against the dollar, causing a surge in tourism and speculation in real estate. The euro drops below par against the dollar.
5. Increased economic growth, inflation moving toward 3%, and renewed demand for capital push interest rates higher across the board. The 10-year U.S. Treasury yield approaches 4%.
6. Populism spreads over Europe affecting the elections in France and Germany. Angela Merkel loses the vote in October. Across Europe the electorate questions the usefulness of the European Union and, by the end of the year, plans are actively discussed to close it down, abandon the euro and return to their national currencies.
7. Reducing regulations in the energy industry leads to a surge in production in the United States. Iran and Iraq also step up their output. The increased supply keeps the price of West Texas Intermediate below $60 for most of the year in spite of increased world demand.
8. Donald Trump realizes he has been all wrong about China. Its currency is overvalued, not undervalued, and depreciates to eight to the dollar. Its economy flourishes on consumer spending on goods produced at home and greater exports. Trump avoids punitive tariffs to prevent a trade war and develops a more cooperative relationship with the world’s second largest economy.
9. Benefiting from stronger growth in China and the United States, real growth in Japan exceeds 2% for the first time in decades and its stock market leads other developed countries in appreciation for the year.
10. The Middle East cools down. Donald Trump and his Secretary of State Rex Tillerson, working with Vladimir Putin, finally negotiate a lasting ceasefire in Syria. ISIS diminishes significantly as a Middle East threat. Bashar al-Assad remains in power.
I think some of these scenarios are very worthwhile exploring. I shall leave it at that…
You can get access to some of our forecasts and scenarios through our boutique forecasting unit Emerging Future Forecasting and in my newsletter “Adventures of a Futurist”.
After our forecasts for Brexit, Trump, and many other events in 2016 the pressure is on!
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