Okay, here are the Ten Surprises for 2015. The first one, and I’m — I’m just going to comment on these surprises, just give you the highlights. You can see them posted on, in their entirety, on the Blackstone website. The essay with the Ten Surprises and Analyses of last year will be out probably today.
So the first one is: The Federal Reserve act sooner rather than later. I know everybody thinks that is not likely. The consensus view is the Federal raise rates in June, I think they may do it in the First Quarter. You can say why will they do it with Europe in such terrible trouble? I think Europe, Mario Draghi will ease and that will encourage people to buy Euro but I think the momentum of the US economy is strong enough for the Fed to take the first step. You remember, the first step is going to be small — the goals from 0.25 % to 0.50%. Those rates are still pretty low.
The key thing about the first surprise is that the yield curve will flat and that long rates will go up in sympathy with short rates. I think that is an important money-making opportunity. The second one is: Our luck runs out on cyber terrorism. Hackers from abroad attack a major money center bank and force it to close for five business days while they resolve the accuracy of its deposits and withdrawals.
There is nothing that our foreign enemies want more than to hamper the US economy and there is no way to do that more effectively than closing down the banking system or at least a part of it. So I think this is — we all know what the hackers did to Sony and that is only a glimpse of what they could do. The thesis behind this one is that the people doing the hacking are smarter than the people doing the cyber security. So I think this is a serious one to worry about.
The third surprise is that in spite of all the things that are likely to go wrong this year, I think the US market is going to have another double-digit year. The consensus view in Barron’s was 10% and the Wall Street Journal was 8%. I think it could be as much as 15%. I will show you in terms of valuation, revenues and earnings. Revenues will be up 4 (%) earnings up to 8 (%). There will be some share buybacks to do that and I think there will be some hopeful expansion. So I think we could have another double-digit year in 2015.
I think Mario Draghi finally will do something in terms of quantitative easing. I think it will work at the beginning but not have long-term effects. So I am concerned that quantitative easing won’t have the same effects in Europe that it might have had in the United States, although I am skeptical too, and I think Germany is the engine of growth there and the real problem in Europe is that the structural improvements that they needed to make when times were better were not made.
Number 5, I think Japan will be in trouble. Also they will do everything possible to pull out of their recession that appeared in the third quarter but I still think Japan is going to have a tough time of it. I think that Nikkei 225 will be flat for the year but I think it will be down in dollars.
The sixth surprise is that China finally admits it is isn’t growing up 7%. It is going to do something about it. What it is going to do is more fiscal spending but not on housing and estate or enterprises and roads and airports. It is going to do the spending on pollution control — air, water and land.
