25 Surprises, Part II

Editor's Note: This is Part 2 of Doug Kass' list of 25 surprises for the coming year; Part 1 appeared yesterday, click here to read it.

Every December Kass prepares this list of events that have a reasonable chance of occurring despite a general perception that the odds are long. The purpose is to consider positioning a portion of one's portfolio in accordance with these outlier events -- with large payoffs. But not all of them are stock- or market-related; Kass also delves into some popular-culture issues in the business world to mix things up.

This was originally published on Street Insight on Dec. 11.

14. A well-known corporate raider finds himself with a concentrated portfolio of illiquid investments and suffers large losses. ESL's Ed Lampert cagily watches the early-year private-equity euphoria and does nothing, opting to shore up his liquidity. But as equity prices drop in the second half, he is joined by several previous corporate partners in making a large acquisition in the entertainment/media field by year-end.

15. America's growing dependency on convergence and connectivity (computers control power delivery, communications, aviation and financial services) becomes a battleground and launching pad for a series of cyberterrorism acts by a terrorist group in early 2007.

The first few virtual attacks are ignored and have no effect on the market or on the Internet. However, during a chaotic weeklong period after the July Fourth holiday, an attack renders the Internet partially ineffective, threatening to eradicate crucial information storage bases and to stop commerce and communication.

16. There are several political surprises in 2007. Most significant is that New York Sen. Hillary Clinton, citing personal issues, announces that she will not run for the Democratic presidential nomination in 2008 and that she will throw her support to former Vice President Al Gore's candidacy. Democratic hopefuls Barack Obama, John Kerry, Evan Bayh and Joe Biden do not pursue the nomination, leaving Senator John Edwards as Gore's only viable competition.

On the other side of the ledger, Newt Gingrich is an early aspirant to the Republican nomination and, surprisingly, is in a dead heat in early polls against the favorite, Sen. John McCain, with Mitt Romney and Condoleezza Rice far behind. Rudy Giuliani does not enter the race after a New York Times investigative report uncovers some questionable business dealings.

17. After New York Yankee baseball team owner George Steinbrenner falls seriously ill, SAC Capital Partners' legendary Steve Cohen acquires a majority control of the New York Yankees and, at year-end, retires from active management at his hedge fund.

18. Wal-Mart(WMT) fails to come out of its funk and reports five consecutive months of negative same-store sales. Overall retail spending follows the housing decline and briefly falls to levels that haven't been seen since the last recession as consumer confidence drops to lows not seen in more than 15 years. Purchases of discretionary items such as motorcycles, high-end kitchen appliances and jewelry suffer.