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

  • Oct 22, 2012

    Webcast: Is the 2012 Market Ahead of 2013 Reality? With Byron Wien

    Listen to webcast, Thursday, October 25th
  • Sep 06, 2012

    A Constructive View as Summer Ends

    For several decades I have organized a series of “Benchmark” lunches on Fridays in August for serious investors who spend their summer weekends in eastern Long Island. About 75 attended the three sessions, including leaders in hedge funds, private equity, real estate and venture capital. There were many billionaires and many others whose net worth hasn’t quite gotten there, but whose views are widely respected throughout the investment community. For the past two years the mood has been decidedly downbeat, but, looking back on it, I have to wonder how much the performance of the equity market during the weeks leading up to the lunches had something to do with how the participants viewed the outlook. If you recall, the slogan “Sell in May and go away” worked pretty well in 2010 and 2011. This year, however, the United States market hit its recent low on June 1 and stocks traded higher during July and August.
  • Jul 12, 2012

    Webcast: Optimistic About the Outlook: Contrarian or Delusional? With Byron Wien

    Listen to webcast
  • Jul 02, 2012

    The Smartest Man is a Firedancer

    When the New Democracy party in Greece defeated the anti-bailout Syriza, I was anxious to learn what The Smartest Man in Europe thought of it all. The next day I flew across the Atlantic to meet him and we had a long discussion about the world financial outlook. Many of you remember The Smartest Man from earlier essays; I have been writing about him annually for more than a decade. He has been a friend for thirty years, and during that period he has shown an almost uncanny ability to see major events affecting the financial markets before other observers. Among these were the fall of Japan as an economic power in the 1980s, the economic changes in China and their significance the early 1990s, and the serious consequences of excessive borrowing in the developed world in the last decade.
  • Jun 05, 2012

    Into the Weeds of the European Debt Crisis

    I have just spent two weeks talking to our clients in Asia. Starting in Tokyo, I traveled to Seoul, Beijing, Hong Kong, Taipei, Singapore and Sydney. My objective was to better understand what was happening in the economies in the region, but I found that everyone wanted to talk about whether the European Union and the euro would survive. The Chinese were worried because Europe was an important market for them and everyone else was worried because their major exports were to China and if China slowed down seriously, they were in trouble.
  • Apr 03, 2012

    The Disbelievers

    One of my Ten Surprises was that the Standard & Poor’s 500 would reach 1400 sometime during 2012, and here we are at the beginning of the second quarter and it’s already there. When I wrote that, my objective was to have the most optimistic estimate among Wall Street strategists. I actually thought the S&P 500 could reach 1500 based on the generally achieved (but not last year) multiple of 15 times and operating earnings of $100. Estimates have been trimmed somewhat, but, at this point, I still think 1500 is likely. The real question is, “Why are investors so skeptical?”
  • Mar 05, 2012

    Where We Went Wrong

    Ever wonder how we got into this predicament? Academics and strategists have been analyzing our current financial situation endlessly, but I haven’t seen too much probing into the origins of our present problems. In my opinion, you probably have to go back to the end of World War II to understand how we got here. I think policy makers in the United States especially failed to recognize the significance of four important events that led to our current challenging set of circumstances.
  • Feb 03, 2012

    An Optimistic Outlook

    There is a nervous and gloomy mood out there. The Ten Surprises of 2012 have a positive tone, and for the past month I have been discussing them with our clients and others in large and small groups. Most investors believe the United States economy will grow at only 1% to 2% and the European sovereign debt crisis will remain unresolved, with Greece and possibly others being forced to withdraw from the Union. No progress will be made by Congress in reducing the budget deficit until after the November election. Emerging market economies around the world will slow, and we will have another difficult year for global equity market performance.
  • Jan 04, 2012

    The Surprises of 2012

    All this began to change in October. Data for the U.S. economy began to improve and the equity market moved back to where it had started the year. European leaders, recognizing the urgent need for a solution to the sovereign debt crisis, began to talk of a treaty change that would move the continent towards a fiscal union. By year-end the 2011 Surprises looked much better. A blogger, analyzing each of them and giving me partial credit for a few, came up with a score of 50%, which is consistent with my long-term average. Other reviewers were not so generous. My definition of a surprise is a market-influencing event that the average investor would assign only a one-out-of-three chance of taking place during the year, but that I believe is “probable,” i.e., that the event has a better than 50% chance of happening. Here is my review.
  • Dec 07, 2011

    Denial No Longer

    On both sides of the Atlantic, we have finally come to the point where if we continue on our present respective paths the outcome is not likely to be pleasant. In the United States the wake-up call was the failure of the Congressional Super Committee to come up with a credible plan to reduce the U.S. budget deficit by $1.2 trillion over ten years. In Europe it was the rise in the cost of raising government funds in Italy and Spain, culminating in November with the lack of bids for part of an auction of German debt and a sudden rise in interest rates there. Finally it appeared that doing nothing and muddling through were incompatible. The verdict was delivered in both the European and American stock markets by a resumption of the free fall in equity prices that we experienced in August and September.
  • Nov 07, 2011

    Revisiting Radical Asset Allocation

    In December of last year I suggested a “Radical” Asset Allocation program for institutional investors. I created it in reaction to the hours I had spent as a member of several investment committees where I had listened to and participated in discussions of the global investment environment, but which, in the end, only made very small changes in the asset allocation no matter how profound were their conclusions about the outlook. My investment philosophy is that making many small changes will produce disappointing results. It is the big ideas that make a difference and you should spend your time developing them.
  • Oct 03, 2011

    It’s Hard to Be an Optimist

    I still believed we could avoid a recession and a bear market, but I began to realize that there were some structural and secular problems that were holding the economy back. I had long thought the United States, Europe and Japan were mature economies that would have trouble growing much faster than 3% for any sustained period. I was now beginning to see that there are some impediments that might keep growth from even approaching that level.
  • Sep 02, 2011

    End of Summer Despair

    The mood of this year’s sessions was even more negative than in 2010. There was a clear lack of confidence in President Obama and his advisors, a belief that it was unlikely that Congress would be able to compromise sufficiently on deficit reduction and revenue increases to put the federal budget on a sound footing and initiate programs to create jobs, improve infrastructure and deal with the challenges of education, healthcare and competitiveness. The investors were also concerned that the sovereign debt problems of Europe, now that they have spread to Italy and Spain, would overwhelm the resources of the European Central Bank, the International Monetary Fund and Germany. While believing growth would continue to be relatively strong in Brazil, India and China many worried that tight monetary policies would slow even these emerging economies. Finally there was concern that the Arab Spring might suffer a second wave of unrest if a failure of the new regimes to provide jobs were to result in widespread disappointment.
  • Aug 02, 2011

    Looking Beyond the Twin Crises

    In spite of this, the financial markets began the third quarter by moving higher. The fundamental backdrop was hardly favorable. The employment report for June showed that the economy produced far fewer jobs than expected; auto production, which was expected to surge, only improved modestly; and consumer confidence declined sharply. For several months I have been making the case that the second half of the year would be stronger for the U.S. economy than the first, but the skepticism I have encountered has intensified.
  • Jul 08, 2011

    The Smartest Man in Europe Is Very Cautious

    Usually we have our discussions in hotels or offices, but this year I spent a weekend with him at his summer home on the Mediterranean in France. There, surrounded by his impressive paintings and sculpture, we talked about the current outlook for global investors. I wrote my first essay about these meetings in 2001 and it was called “The Smartest Man in Europe Is Upbeat.” His mood was very different this year.
  • Jun 01, 2011

    Time for a Pause

    Finally, however, the optimism began to wane. We have learned that the best time to buy stocks is when most investors are pessimistic. Points of extreme pessimism in terms of investor sentiment most recently occurred in March 2009 and August 2010, both important buying opportunities for U.S. stocks. As investor confidence improves and cash is employed, equities can have a sustained move. If investors are already positive, as they were at the beginning of 2011, stocks can still rise but it is likely that the energy of the market will dissipate and a correction will begin before too many months go by. The decline will be blamed on the factors that the market successfully plowed through during the upswing. The question then becomes: How vulnerable is the market and how far down will stocks go? Sentiment seems to be turning. Some survey-based indicators which were very optimistic (and therefore negative for the outlook) have shifted to neutral and the transaction-based Chicago Board Options Exchange put/call ratio is approaching a bearish reading which is favorable.
  • May 05, 2011

    The India / China Contrast

    Perhaps the most memorable experience of my trip to India was an early Sunday morning visit I made with my friend, the hedge fund manager Richard Chilton, and some of his team to a small village an hour and a half’s drive from Bangalore. I had long wanted to get direct exposure to the rural poor in India. The location was twelve kilometers off the main highway, and we went there to watch a meeting of a microfinance company with some of its clients. Two groups of 45–50 women each sat on the ground in circles before a representative of the company. Having taken off their shoes, they began with a chant about how they pledged to pay off their loans. It was almost like a religious ceremony. Each of the circles consisted of nine or ten subgroups of five, each of which had a leader who gave the company man cash representing their payment obligation. Then several applications for new loans were made and the whole circle gave a voice vote approving the loan.
  • Apr 07, 2011

    Some Thoughts about the Current Situation in the Middle East, North Africa and Japan

    The events in the Middle East and North Africa coupled with the earthquake and tsunami in Japan unsettled markets everywhere. There was a sudden rush to liquidity, and currencies, commodities and bonds responded irrationally. The Japanese yen strengthened even though the Bank of Japan was expanding the money supply vigorously, which, in effect, was debasing the currency.
  • Mar 02, 2011

    Off to a Good Start

    If you believe as I do that the market was put on earth by God to make fools of the greatest number of people, it would not be surprising to you that stocks rallied throughout the early part of the year. The fundamental background was positive. Retail activity was firm, automobile sales were surprisingly strong, fourth quarter earnings were mostly beating expectations, the European credit crisis was dormant for the moment, state and local governments were making an effort to control expenses and initial unemployment claims were trending downward. There were some negatives: the Federal budget deficit was running at an unprecedented $1.5 trillion rate and the United States was likely to run up against its debt ceiling by March. Inflation was beginning to become a serious problem in the developing world, casting some doubt on the potential profitability of companies operating in those markets. Political upheavals in Tunisia, Egypt, Libya and Bahrain raised the issue of stability in that critical oil-producing region. The January unemployment report came in at 9.0%, but that was more because of people dropping out of the work force than new jobs being created. As we moved into February investor optimism remained undaunted and those who were cautious began to buy again, recognizing that it was futile to “fight the tape.” Mutual fund buyers who had shunned equities in favor of bonds during 2010 bought more common stocks in January than in any month since 2003.
  • Feb 04, 2011

    It Could Be a Very Good Year

    If there is a theme in this year’s surprises, it is that more than half of them are in the direction of the consensus but go further. Understandably, investors tend to extrapolate current trends. Before September last year the United States market moved back and forth 165 times over its starting point of the Standard & Poor’s 500 at 1115, but stocks did very well in the fourth quarter. Historically forecasters usually expect the market to rise 10% in the following year almost regardless of what it had done in the previous period and that was also the case this year. The same was true for the economy, where observers were looking for a continuation of the modest growth we experienced in 2010.