2010 – Surprises
1. The US economy grows at a 5% real rate and unemployment drops below 9%.
2. The Federal Reserve hikes the fed funds rate to 2% by year-end.
3. Ten year treasury yields rise above 5.5%.
4. The US dollar rallies against the yen and the euro.
5. The S&P rallies to 1300 in the first half of the year, declines to 1000, then settles around 1115.
6. Japan becomes the best performing market.
7. President Obama endorses nuclear power development.
8. The Obama administration becomes energized via US economic improvement.
9. Financial service legislation will be passed (but in a softer form than originally feared).
10. Civil unrest in Iran peaks.

2009 — 2009
1. The Standard and Poor’s 500 rises to 1200. It made it to 1115. Close enough for me, as it was up over 20% on the year. Given the index bottomed at 666 in March, this rally is clearly related to the stimulus.
2. Gold rises to $1,200 per ounce. It did make that magic number. Again, I see this as a stimulus-related call as there has been a rush into commodities due to worries about dollar weakness on the back of the flood of money from the Fed.
3. The price of oil returns to $80 per barrel. Another accurate prediction. The call he makes here is a more bullish version of my view of a structural supply constraint at present prices. This supply constraint creates price whiplash and forces oil up even in a weak economic environment.
4. The yen goes to 75 and the euro to 1.65. Too dollar bearish. Wien underestimated the weakness of Japan and the Eurozone.
5. The ten-year U.S. Treasury yield climbs to 4%. This too is accurate, as the 10-year made it to 3.93% in June. Obviously, this call was predicated on recovery, which we now have. You should note that Treasuries have really been clobbered since November when the Ten-Year yield reached a low of 3.20%.
6. China’s growth exceeds 7% and its stock market revives. Accurate. Growth was even higher, actually. This prediction, which depended on economic recovery.
7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcy and other states and municipalities follow. This is head-scratchingly bearish given his other views. New York took its lumps, but the real damage was in California (especially given the market-induced tax implications of Wall Street bonuses for New York). This story is not over, though.
8. Housing starts to 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. This is what happened.
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. Exactly.
10. Barack Obama …meaningfully increases U.S. military presence… 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. Pretty much on the money.