The goal of them is not to get a high score. I know this is Wall Street and everybody keeps score and everything, but my idea with the Ten Surprises is to stretch my own thinking and get you to think about some things that perhaps you weren’t thinking about in a certain way. There are a couple of themes that run through the Ten Surprises. The first is that the decline in the price of oil is a positive. It is a positive for consumers everywhere, it is a negative for some producers but some of the producers, I think on a geopolitical basis, will respond favorably to it and we’ll get into that with the actual surprises. The second is that the dollar strength is not a negative. That the United States will in essence benefit from that. It may hurt our exports but exports are relatively small, maybe 12% of total GDP, so I don’t think it’s a profound negative. So let me get into it, but before we do that, it’s worth taking a brief review of 2014.
The Ten Surprises there started out with my saying it would be a Dickensian market with a pretty sharp decline. I had it at 10% and turned out to be 8% and I said the market would be up 20% on a total return basis and it was up 15% at the peak on the total return basis. So that one worked out pretty well. I also said that the US economy would be strong, growing a 3% in the final quarters were 5%. And I also said unemployment would go to 6% and it’s 5.8%. The riskiest of all the surprises, the one that came through, I had the dollar dropping from $1.37 to $1.25 against the Euro and going to 120 against the Yen and it got to both of those targets and actually seated the Won against the Euro. I also said Japan would get to 18,000. It’s at 17,790 I think. I also said that the economy would run into trouble later on the year. And the fifth one, I said China would slow. I think they are slowing. Almost every parameter I look at where China indicates that they are slowing but they are not reporting it.
They are reporting still 7% real growth. The sixth one is emerging markets to prove treacherous and that certainly was the case. So the first six came out pretty well, and then I ran into trouble. I said oil would go to $110 and actually, in June, went to $107 but then, as we all know, it collapsed. I said that commodities would do well because of emerging market demand and that wasn’t the case. The agricultural commodities declined in price. I also said that the 10-year Treasury Yield would rise to 4%. It started the year at 3% and dropped to 2%, so I got that one wrong. And finally, on the tenth one, I probably got that outright, I said the Affordable Care Act would have a remarkable turnaround. Everybody was pronouncing it dead at the end of 2013. It did have turnaround was nine million people signed-up but I thought that it would help but never pass in the November election and that didn’t turn out to be the case.
Okay so, here are the Ten Surprises. I’m sorry, The Also Rans for 2014. I’m not going to do all four of them but I am going to do one of them. Overcoming objections from the Cuban exile community, President Obama opens discussions on initiating trade and diplomatic relations with Cuba. A reduction in sanctions is proposed, as well as limited financial support in the form of bonds, quickly dubbed as “Castro convertibles.” So I got at least one of The Also Rans right.
