September 6, 2011
Byron Wien is a senior managing director and vice chairman of Blackstone Advisory Partners, the largest alternative investment firm in the world with $140 billion under management. He spent 21 years at Morgan Stanley as its chief U.S. strategist and later as a senior strategist. He has been in the investment business since 1965 and has written over 1,000 essays on various aspects of investing.
Larry Siegel interviewed Wien on August 31, 2011.
The recent market panic has been very hard to interpret. The apparent problem is that governments are struggling to pay their debts, yet investors have rushed to sell equities to buy government debt. What is behind this behavior? Is it rational? And can we make money by doing the opposite — for example, selling Treasury bonds to buy equities?
I'm in the camp that we are in the process of making a bottom here. Bonds are very expensive, and stocks are cheap. Maybe the market can go lower, because – as we have all experienced during our careers – the market is not totally rational. But the reason that Treasury yields are so low is that people are risk averse, and they are parking their money in Treasury securities. They don't intend to be there long, but they want to earn some yield while they are waiting for their risk appetites to improve.
So the reality is not as bad as the market is saying it is.
I hope you are right. Moving on to Fed policy, Ben Bernanke finally said something sensible last week about economic stimulus, in my opinion. Instead of promising endless stimulus going forward, he warned of the dangers of unlimited stimulus and forecasted a normal economy. These forecasts evoke the well-known non-consensus forecasts which you disseminate in your annual “Ten Surprises” essay, a Byron Wien tradition since 1986. Last December, you forecasted 1,500 on the S&P and the unemployment rate below 9% by the end of this year. Are those forecasts still realistic? And what do you think of Bernanke's new position? Does he fail to recognize the seriousness of our economic problems?
Bernanke very clearly recognizes the problem. My 1,500 forecast was probably too ambitious, but I believe the market will be higher at year-end than it was at the beginning of the year. So this is likely to be an up year. It is almost there now, almost at breakeven now. Maybe 1,400 is the goal. The unemployment rate will be lower, below 9%. I thought it would be in the low 8s, maybe the high 7s by the beginning of the year, and it won’t get there.
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