Giving recognition to Byron Wien, the originator of the top 10 surprises issued every year in January, Morgan Creek Capital CEO Mark Yusko offered attendees at the ninth annual Inside ETFs conference in Fort Lauderdale his version of the unexpected events to look out for this year.
Yusko defined a "surprise" as a variant perception with a 50 percent chance of happening. The surprises follow below.
1. Economic growth surprises on the downside. One or more of the three major developed economies -- the U.S., Europe and Japan -- goes into recession. In America, the PMI is signaling a recession. Never has the
U.S. experienced year-over-year declines in profits without a recession and that looks like it is about to happen.
2. Two wrongs won't make it right. After raising rates in December, a humbled Federal Reserve launches QE Four in the second half of 2016. Personal consumption expenditures are closer to 0 percent than the 2 percent that the Fed is looking for.
3. Please save us Bank of Japan Governor Kuroda. The Japanese central bank weakens the yen further. Japanese stocks will outperform U.S. equities over the next decade by a margin of between 2-to-1 to 3-to-1. Few in America have noticed, but over the last three years, Japanese equities are up 100 percent and their price-to-earnings ratio is down.
4. Saudi Arabia ends its role as the world's swing producer of oil and recommits to increasing production. Incongruous as it may seem, the price of oil rebounds into the mid-$40 a barrel area in the second half of 2016, even touching $50.
5. A black swan alights in Europe. Giant commodity trading firms, maybe Glencore, goes bankrupt, causing several European banks to face insolvency. European equities, already breaking down, head further south. Glencore could potentially take big banks like Credit Suisse with it.
6. Welcome to 2000.2.0. U.S. equity markets begin the start of a slide reminiscent of the bursting of the tech bubble, when they fell 48 percent from peak to trough. That recession was shallow, but stocks got killed. Recent ISM data indicates the chance of a U.S. recession is 75 percent. Hedge funds could be the place to be like they were in 2001.
7. Dragons and tigers beat bears. China will save half a trillion dollars from lower commodity prices. Consumers in India and China reap the benefits of cheap commodities while their equity markets trounce America's. Over the last 15 years, EM stocks have beaten DM equities. Right now, EM stocks are cheaper and exhibit better growth. Ten years from now, India will begin a huge boom but now is a great time to get in.
8. King Dollar gets dethroned. It's an old story, buy the rumor, sell the news. Every time the Fed starts raising interest rates. the dollar falls.
9. The cure for low prices is low prices. Commodity prices finally find a floor, creating a generational buying opportunity for beaten-down assets like MLPs. Even BHP or Vale could be great buys. So could steel.
10. The bus stops here. Credit markets collapse from excessive debt. EM defaults soar but eventually distressed debt becomes a buy.
11. The bonus surprise. Unicorns in Silicon Valley survive. Uber and Airbnb maintain their stratospheric valuations.