By Byron Wien
FORTUNE -- In January 1986, Morgan Stanley investment strategist Byron Wien published a list of 10 "surprises" for the upcoming year. He is now vice chairman of The Blackstone Group's (BX) advisory practice, but is still making predictions.
For Wien,"surprises" are events that the average investor would only assign a one-out-of-three chance of taking place, but which he believes are "probable" (i.e., having a better than 50% likelihood of happening). What follows is his list of surprises for 2014.
1. We experience a Dickensian market with the best of times and the worst of times. The worst comes first as geopolitical problems coupled with euphoric extremes lead to a sharp correction of more than 10%. The best then follows with a move to new highs as the Standard & Poor's 500 (SPX) approaches a 20% total return by year end.
2. The U.S. economy finally breaks out of its doldrums. Growth exceeds 3% and the unemployment rate moves toward 6%. Fed tapering proves to be a non-event.
3. The strength of the U.S. economy relative to Europe and Japan allows the dollar to strengthen. It trades below $1.25 against the euro and buys 120 yen.
4. Shinzo Abe is the only world leader who understands that Dick Cheney was right when he said that deficits don't matter. He continues his aggressive fiscal and monetary expansion, and the Nikkei 225 rises to 18,000 early in the year, but the increase in the sales tax, the aging population, and declining work force finally begin to take their toll and the market suffers a sharp (20%) correction in the second half.
5. China's Third Plenum policies to rebalance the economy toward the consumer and away from a dependence on investment spending slow the growth rate to 6% in 2014. Chinese mainland traded equities have another disappointing year. The new leaders emphasize that their program is best for the country in the long run.
6. Emerging market investing continues to prove treacherous. Strong leadership and growth policies in Mexico and South Korea result in significant appreciation in their equities, but other emerging markets fail to follow their performance.
7. In spite of increased U.S. production, the price of West Texas Intermediate crude exceeds $110. Demand from developing economies continues to outweigh conservation and reduced consumption in the developed world.
8. The rising standard of living and the shift to more consumer-oriented economies in the emerging markets result in a reversal of the decline in agricultural commodity prices. Corn goes to $5.25 a bushel, wheat to $7.50 and soybeans to $16.00.
9. The strength in the U.S. economy coupled with somewhat higher inflation causes the yield on the 10-year U.S. Treasury to rise to 4%. Short-term rates stay near zero, but the increase in intermediate-term yields has a negative impact on housing and a positive effect on the dollar.
10. The Affordable Care Act has a remarkable turnaround. The computer access problems are significantly diminished, and younger people begin signing up. Obama's approval rating rises, and in the November elections the Democrats not only retain control of the Senate but even gain seats in the House.
Every year there are always a few surprises that do not make the Top 10 either because I do not think they are as relevant as those on the basic list or I am not comfortable with the idea that they are "probable."
How did Wien do last year? Check out his 2013 predictions here.
A constructive view as summer ends.
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By Byron Wien, contributor
Byron Wien, vice chairman of Blackstone Advisory Partners, today published his list of surprises for 2012 -- following a 25-year tradition he began while still chief U.S. investment strategist at Morgan Stanley.
Byron defines a "Surprise" as an event which the average investor would only assign a one out of three chance of taking place but which Byron believes is "probable," having a better than 50% likelihood of MOREJan 4, 2012 1:52 PM ET
Professional investors are united in their pessimism. Could they all be wrong?
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This year I organized three Benchmark Lunches on successive Fridays in August for serious investment professionals who spend their summer weekends in eastern Long Island. I summarized last year's discussions in an essay entitled Two Gloomy Afternoons. The 2010 sessions ended just before Ben Bernanke's Jackson Hole speech in which he alluded to the possibility of MORESep 6, 2011 11:51 AM ET
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