Market Commentary

by Byron Wien

Blackstone is pleased to offer the following Market Commentary by Byron Wien to share his thinking on global economic developments, market insights and other factors that may influence investment opportunities and strategies.

Byron Wien is a Vice Chairman

  • Nov 03, 2014

    The Long-Awaited Correction and a Report from the Middle East

    All through the summer the United States equity market made new highs in spite of increasing turbulence around the world. The economy was continuing to grow modestly, earnings were coming through and the geopolitical problems were a long way away. The Ned Davis Crowd Sentiment Poll, which includes transactional data like the put-call ratio, showed that investor mood was very optimistic. Historically, the market is vulnerable to a correction when optimism is extreme. You don’t know what will cause the sell-off, but you have the uneasy feeling it’s coming. The market had gone through two years without so much as much as a 10% correction and we were due for one.
  • Oct 02, 2014

    So Much to Worry About

    The Standard & Poor’s 500 finally broke above 2000, but has now fallen (hopefully temporarily) somewhat below that level. Alibaba has had a successful initial public offering, with the stock closing 38% above its offering price on its first day of trading. Animal spirits still prevail, but there is concern that the biggest initial public offering ever may have sapped capital from the rest of the market. Federal Reserve Chair Janet Yellen has indicated that monetary policy will remain accommodative “for a considerable time” even though the bond-buying program of the last several years ends this month, and this suggests that the first increase in short-term rates will be later rather than sooner. The United States economy grew more than 4% in the second quarter after a dismal first and it now looks like second half real growth may trend toward 3%. Scotland voted to remain a part of the United Kingdom. Investors’ outlook reflects these favorable conditions; most surveys reveal an optimistic view.
  • Sep 02, 2014

    A Positive Outlook Amidst Geopolitical Turbulence

    Every summer for the past several decades I have organized a series of lunches for serious investors who spend their weekends on Eastern Long Island where the temperatures are cooler, the scenery is exceptional and ordinarily intense people are more relaxed. This year about 90 attended the four lunches on successive August Fridays. Many of the participants are well known and a number are billionaires. There are hedge fund managers, corporate leaders, activists, buyout specialists, real estate titans, private equity folk and venture capitalists, providing some diversity in terms of their daily activity. I am adding newcomers to lower the average age. The group was correctly positive during the past two summer sessions, so I was curious to see if their mood had changed with so much unrest around the world.
  • Jul 28, 2014

    Challenges to the Positive Outlook

    Since the beginning of the year, I have believed that the second half of 2014 would be positive for both the economies and the equity markets of the developed world. Like many, I was surprised by the weak first quarter in the United States – real Gross Domestic Product (GDP) was -2.9% – but I viewed that as a kind of mini-recession within an ongoing recovery and attributed it to severe weather conditions, accounting issues related to the Affordable Care Act and other factors. I expected that the following quarters would exhibit renewed momentum based on the economic data being reported.
  • Jul 02, 2014

    The Smartest Man in Europe Sees a New Industrial Revolution

    People often ask me if I have a mentor, someone who has influenced my thinking over my career. I have had many, but over the past thirty years I have learned a great deal about investing from the person I have come to refer to as The Smartest Man in Europe. The most important lessons he taught me were (1) that the primary force behind good performance is recognizing important changes before or just as they are starting to happen, and (2) when something significant is happening, put a lot of money behind it. Concentrate on the big ideas; don’t over-diversify.
  • May 30, 2014

    Better Times for the Economy Are Finally Here

    The worst winter in the United States since 1995–96 has finally ended and the economy is responding favorably. I never gave up hope. I believed the housing recovery and energy production were enduring positives, but even those areas were experiencing setbacks. Early favorable signs were the sharp increase in bank loans (up at an annual rate of almost 10%), which indicated improved business confidence, and a pick-up in rail car loadings, which reflected strong order books across a broad range of sectors. First quarter real growth was down 1%, however, showing the economy was at stall speed, but the late Easter may have contributed to that. Those cautious on the outlook point out that the harsh weather could only explain one percent or less of the overall Gross National Product shortfall, suggesting that the quarter was fundamentally weak without considering the weather factor. I still believe momentum will build as we move through the rest of the year, and as a result we should see better economic growth and earnings.
  • May 01, 2014

    Don’t Give Up on Emerging Markets

    At the beginning of the year, there were three potential areas of asset allocation that very few global portfolio managers wanted to consider seriously. As I traveled around the United States and elsewhere in the world, almost none of our clients wanted to hear about Japan, commodities or emerging markets. So far they have been wrong about commodities, which are a part of my radical asset allocation and have broken out of their trading range and headed higher. The standard of living continues to improve in the developing world, and one of the first things consumers do when their income increases is start to eat better. This means more meat and poultry where grains are used for feed as well as more consumption of grains by individuals. As a result of continuing growth in the developing world and flat to uneven agricultural production because of variable weather, prices for corn, wheat and soybeans have risen.
  • Apr 02, 2014

    The Inequality Issue

    President Obama has said that rising income inequality and a lack of economic mobility is “the defining challenge of our time.” He is advocating raising the minimum wage, extending unemployment benefits and making sure workers get paid for overtime. Those measures may provide some relief, but in my view they do not come close to dealing with the fundamental problem. Enhancing the Earned Income Tax Credit may be a better approach.
  • Feb 28, 2014

    Getting to Tomorrow

    We started off the year with a scare from the emerging markets. The Argentine peso was devalued by more than 20%, but other currencies in the developing world had declined sharply as well. Equities in these countries fell also, with many markets down 10% or more. In the developed world equities declined about 5%, but in Japan fell twice that. At the beginning of the year I feared a sell-off and when people asked me why, I fumbled for a credible answer. My thinking was that sentiment was much too optimistic. Everyone had made money in the stock market in 2013, although few had done as well as the Standard & Poor’s 500. People were generally positive about the outlook for 2014 and there was a background of complacency. When these conditions prevail, something always comes along to shake confidence. It is just hard to see what it is going to be in advance.
  • Jan 07, 2014

    The Surprises of 2014

    The purpose of The Ten Surprises is to stretch the thinking of investment professionals so they consider events beyond the prevailing perceptions that could have an impact on the financial markets in the year ahead. My definition of a surprise is an investment-influencing event that most money managers would only assign a one-out-of-three chance of happening but which I believe is “probable,” meaning the event has a better than 50% chance. Not all of the Surprises are contrarian. Some are in the direction of the consensus but more extreme.
  • Dec 06, 2013

    Reflections at Year-End

    I think most investors would agree that as the year began they did not expect the Standard & Poor’s 500 to have risen 27% by Thanksgiving. Stocks have continually worked their way higher with the only meaningful corrections occurring in June, August and October when the talk of reducing the $85 billion a month monetary easing program picked up (June, August) and the government shut down (October). All of this has taken place without the help of especially strong earnings or declining interest rates. The U.S. economy has struggled to grow at 2% and the much-anticipated year-end acceleration has failed to materialize. The individual investor has become less enchanted with bonds and has been buying stocks, but it has not yet become a tumultuous shift. Corporations have been purchasing their own stock back, but nothing much beyond normal levels. Washington continues to be dysfunctional so nothing has happened there to increase confidence. Geopolitical issues have improved, but we are not yet at a point where we can feel comfortable about the Middle East, Europe or the South China Sea.
  • Nov 06, 2013

    A Portfolio for 2014

    The U.S. government is open for business once again after giving employees a two-week paid vacation and the debt ceiling has been temporarily raised. Both of these will come up for further review at the beginning of next year because, in its typical fashion, Congress could not reach agreement on a more permanent solution, but at least we’ll get through Christmas with a minimum of Washington anguish. What is more troubling is the third-quarter earnings season results so far. With half of the Standard & Poor’s 500 companies having reported, almost 70% are “beating” their earnings forecasts; however, the estimates had been revised downward continuously as we moved closer to the reporting date. There have also been some notable disappointments like IBM, McDonald’s and Caterpillar. What’s more, companies that do provide guidance to analysts are encouraging them to lower their estimates. Revenues have consistently risen much more slowly than earnings, which could be a profit warning for 2014. That’s disappointing in an economy where the Federal Reserve is providing a trillion dollars of monetary stimulus this year.
  • Oct 01, 2013

    The Wall of Worry Becomes an Easy Climb

    We all had plenty to brood about over the Labor Day weekend. President Obama was contemplating sending missiles into Syria to punish President Bashar al Assad for using chemical weapons against his own people and to discourage him from using them again. The President also had to choose a successor to Federal Reserve Chairman Ben Bernanke and his preferred choice, Larry Summers, faced opposition in the Senate, threatening his confirmation. The Federal Reserve, by the way, had indicated in May that it might reduce its $85 billion bond-buying program in the fall, causing interest rates to rise and creating turbulence in the emerging markets. Everyone awaited the Fed’s decision on how much restraint they would implement. The nation’s debt ceiling loomed in October with the Republicans taking the position that unless the Affordable Care Act was deprived of funding, they would not agree to raising the borrowing limit. Finally, as if the political situation in the Middle East were not complicated enough, Iran proceeded with its nuclear weapons development program.
  • Sep 05, 2013

    A Complacent Group without Table Pounders

    Every August for the past several decades I have organized a series of Friday lunches for serious financial professionals who spend their summer weekends in eastern Long Island. What started as a single lunch for half a dozen people has grown to four lunches at different locations for more than eighty. Participants include many well-known names, of whom some are billionaires, but others, though widely respected for their intellect and insights, have a net worth that may be more modest. They are a reasonably diverse group and include hedge fund managers, private equity people, activists, buyout specialists and venture capitalists. This year I tried to include some younger people who I thought might bring a fresh perspective to the discussions. Last year the tone of the lunches was correctly positive about the rest of 2012 and 2013 this far, so I was particularly curious about how they viewed the outlook from here.
  • Sep 05, 2013

    Blackstone Webcast Featuring Byron Wien: Oct 3rd at 11:00 am ET

    Blackstone Webcast Featuring Byron Wien: Can Macro Problems Scuttle The World Recovery? – Oct 3rd at 11:00 am ET
  • Aug 01, 2013

    Worried About the Second Half

    At the beginning of the year most economic observers had a realistic view of the pace of economic growth for the United States. As usual there were positive and negative cross-currents, but the consensus was that real growth would be about 2% for 2013. The Federal Reserve was engaged in a vigorous program of monetary easing, however, and a substantial amount (perhaps three-quarters of the total) of that money flowed into financial assets, driving the price of equities higher and keeping interest rates low. As a result of the strong stock market performance, some economists increased their growth estimates for the second half and the full year. Now, with two quarters behind us, it is time to take a hard look at how the year is playing out.
  • Jul 11, 2013

    Asia Is Reaching a Turning Point

    I spent almost two weeks in Asia in June and in some ways it was an eye-opener. In past years there was a sense of optimism everywhere you went. Now you get a feeling of uncertainty touched by apprehension. My trip covered a great circle starting in Singapore and going on to Kuala Lumpur, Taipei, Hong Kong, Beijing, Seoul and Tokyo. Spending only one day in each city, my observations were more impressionistic than analytical. I talked with sovereign wealth fund managers and other major investors. Most concerns related to China’s outlook and whether the financial system there was overextended. As we all know, China is the engine of growth for the region and any problems there are felt everywhere else. In contrast to last year, Japan was also a major topic of interest.
  • Mar 05, 2013

    Money Is Everything

    It is hard to believe but as recently as 2009 the entire balance sheet of the Federal Reserve was less than $1 trillion. Today it is just under $3 trillion, and the Fed is buying $85 billion of Treasury and mortgage-backed securities a month, so if it maintains purchases at that rate, the Fed balance sheet will grow by more than $1 trillion in 2013 alone. The Wilshire 5000 index, the broadest measure of U.S. stock market performance, has risen from 8,000 in 2009 to almost 16,000 today, proving once again there is a high correlation between monetary policy and stock market performance. The Fed hopes that the money it pours into the economy through bond purchases will stimulate growth and create jobs. That doesn’t seem to be the way the world works, however. A significant portion of the money would appear to flow into financial assets. You could argue, though, that the Fed’s objective is at least partially being fulfilled because the Fed balance sheet has tripled while the stock market has only doubled in the last four years, but all this monetary expansion has not gotten the United States on a strong growth path.
  • Feb 04, 2013

    Serious Hurdles Ahead

    The Ten Surprises of 2013 got off to a rocky start in the first half of January. The United States equity markets surged in the first week after Congress was able to pass legislation avoiding an increase in taxes on more than 90% of employed Americans. When you take a hard look at the deal, it was very disappointing. The original proposals by both President Obama and House of Representatives Speaker Boehner asked for $2.4 trillion in different proportions of revenue increases and spending cuts over ten years. The final deal amounted to $600 billion, mostly from raising taxes on high income earners; spending cuts were minimal. What’s more, the 2% payroll tax holiday expired; I had thought it would be phased out gradually. This will reduce paychecks for all those employed and is bound to have an impact on consumers. In my view the Republicans were out-traded. They were fearful that they would be blamed by everyone if all the Bush cuts expired, so they agreed to a deal that was far from the one they originally offered.
  • Nov 02, 2012

    Four Major Problems

    The pace of the United States economy is improving from the disappointing performance of the first three quarters. Initial jobless claims have declined and both the manufacturing and the service sector purchasing manager indexes are above 50, indicating the economy is expanding. Automobile production is strong, housing is bottoming, and retailers are gearing up for a robust Christmas season. In Europe every effort is being made to hold the European Union together and keep the euro as the continent’s basic currency. Central banks in Europe and the United States are expanding money supply vigorously, but in spite of that, inflation is tame in the developed world and interest rates are low in the U.S., the U.K. and Germany. China is applying both fiscal and monetary stimulus to ensure a “soft landing.” In spite of the recent correction, the equity market in the United States is up in double digits, so why should I be worried?