(Reuters) - With the new year comes a new round of bold predictions for
financial markets.
Blackstone Vice Chairman Byron Wien, among Wall Street's best known
prognosticators, on Tuesday unveiled his latest crop of 10 "surprises" for the
coming year, such as oil prices plunging to $65 a barrel. BlackRock equity
strategist Bob Doll foresees double-digit U.S. stock returns, though corporate
earnings growth could lag
expectations. And one well-known forecaster declared 2012 too hard to
predict.
In the past -- before U.S. housing prices fell and kept falling for the first
time since the Depression or the future of Euro zone was at risk -- educated
guesses by these and other veteran market-watchers had a good chance of being
right.
But these days, volatility is the norm and far-flung political events can
send U.S. markets into a tailspin. Skeptics contend it is hard to predict what
the world will look like tomorrow, let alone 12 months from now.
That led Birinyi Associates' Laszlo Birinyi, whose stock market forecasts
were widely followed, to tell clients he would not be making predictions this
year.
"There are too many variables which are beyond our comprehension," he wrote
in a client newsletter.
Even Wien and Doll acknowledge this annual exercise has grown more difficult
in recent years, as unpredictable events -- like an earthquake and tsunami in Japan, the near collapse of the
euro zone and political upheaval in the Arab world -- throw Wall Street's
best-known seers for a loop.
PIMCO's Bill Gross, the manager of the world's largest bond fund, kicked off
2012 saying the "new normal" of slow growth has given way to the "paranormal,"
an environment characterized by credit risk and "zero-bound" interest
rates.
Forecasting has become "especially precarious," Doll wrote in his 2012
outlook note for clients.
Speaking to Reuters after a press briefing to review his 2012 outlook, Doll
said it used to be simpler to choose between stocks or to recommend sectors of
the economy, "but when it's the macro environment driving so many of these
things, I do think it is more difficult."
Wien, who served as U.S. strategist at Morgan Stanley for 21 years before
moving to Blackstone, and Doll, who was president of Merrill Lynch Investment
Management before it merged into BlackRock, have made their annual predictions a
widely anticipated event on Wall Street.
So have others, like Goldman Sachs Asset Management's James O'Neill and
former Merrill Lynch strategist Richard Bernstein, who now runs a self-named
investment management firm.
COIN TOSS?
But despite their experience and pedigrees, Wall Street gurus are wrong as
often as they are right.
CXO Advisory Group LLC, a research firm that tracks more than 60 market
"gurus," calculated the average forecaster is accurate only 48 percent of the
time -- roughly the same odds as a coin toss.
"You might find them interesting for other reasons, but I wouldn't put much
stock in their predictions," CXO Chief Executive Steve LeCompte said.
(To see some of the best and worst market gurus as graded by CXO, click on:
link.reuters.com/buk85s)
The Federal Reserve Bank of Philadelphia's Livingston Survey, which
summarizes economist forecasts, came within seven points of the year-end close
of the S&P 500 once in the past six years -- essentially spot on.
But it has also been off by more than 60 points three times and, in 2008,
when the banking system nearly collapsed, it was off by 147 points, or 9
percent, from the actual close.
Last year the survey predicted a close of 1298.5 points, which was 41 points,
or 3 percent higher, than the actual close. The S&P 500 was flat for the
year.
"I think forecasting has always been hard, but the market's volatility has
made it a bit harder," said Tom Stark, who oversees the Philly Fed
survey.
Wien last week told Reuters that over the years his forecasts have panned out
about half the time. Lately, though, Wien has been wrong more often: in 2010,
only two and a half of his 10 annual predictions came true.
He rightly said President Obama would endorse legislation favoring nuclear
energy and that financial services regulatory reform would be softer on Wall
Street than originally feared.
"Secular trends are much more fragile than they used to be, and that has made
forecasting much more difficult," said Wien,
"Who would have predicted the Arab Spring? That took everyone by surprise,"
he said, referring to a wave of protests that toppled rulers in Africa and the
Middle East last year.
Wien was five for 10 in his 2011 predictions, including four predictions that
were "partially correct."
For example, he said the price of corn would reach $8.00, while wheat and
soybeans would hit $10.00 and $16.00 respectively. Corn did hit the $8.00 mark
during 2011, but soybeans and wheat fell short.
LATEST PREDICTIONS
Wien's predictions for 2012 include his view that U.S. company earnings will
push the S&P 500 up 11 percent, Syria's Bashar al-Assad will lose power, and
that the U.S. Congress will finally come together and tackle the
deficit.
These forecasts are not a blueprint for investors, Wien said, but "are
designed to get people thinking about some issues they might not be thinking
about."
Doll predicts the European debt crisis will begin to ease, that the U.S.
economy will muddle through and that U.S. Treasury rates will rebound.
Over the past 10 years, Doll said he has been right between 70 percent to 80
percent of the time. Among his seven right predictions in 2010, he said U.S.
economic growth would exceed 3 percent.
For 2011, Doll predicted accelerating economic growth, double-digit stock
growth, 3 million new jobs and a record high for corporate earnings. While
fourth-quarter results are pending, the S&P 500 is on pace to set a new high
in earnings.
But his S&P 500 forecast was too optimistic by 100 points, growth slowed
in 2011 and by November only 1.45 million new jobs had been created.
Doll on Thursday said that his forecasts are intended to help organize the
way investors assess the markets.
"I don't have a monopoly on right answers," he said. "Hopefully I have a
perspective that can add some value to people as they think through what they
need to do."
CXO Advisors, which gives Doll an above-average accuracy rating of 54
percent, says his predictions focus on broad trends but are light on
specifics.
"It is relatively difficult to assess the accuracy of Mr. Doll's market
projections because of conditionalities and vagueness," the firm said.
(Editing by Jennifer Merritt and Walden
Siew)
