Kass: Checking In on Surprises Past

This blog post originally appeared on RealMoney Silver on Aug. 5 at 7:45 a.m. EDT.

Of all the columns I write, I have the most fun constructing my annual surprises lists.

For a little background, in late December/early January for each of the past six years, I have taken a page from my friend and former Morgan Stanley strategist Byron Wien (now the chief investment strategist at Pequot Capital Management) and prepared a list of possible surprises for the coming year.

"I'm astounded by people who want to 'know' the universe when it's hard enough to find your way around Chinatown."

-- Woody Allen

The real purpose of this endeavor is to consider positioning a portion of my portfolio in accordance with outlier events, with the potential for large payoffs, and to disprove Nietzsche, who said that we live the same life over and over again. After all, Wall Street research is still very much conventional, almost universally bullish and consisting of nonvariant "groupthink" despite the attempts of reform over the past several years.

Mainstream and consensus expectations are just that, and, in most cases, they are deeply imbedded into today's stock prices. If I succeed in at least making you think about outlier events, then the exercise has been worthwhile.

Here are some items from our surprises lists of 2008, 2007, 2006 and 2004 that have recently come to fruition.

Surprises for 2008

Surprise No. 4:

With a continuation of the credit and liquidity crises and an increased recognition that financial retrenchment will take years (not months), volatility pushes even higher. Daily moves of 1%-2% become more commonplace, serving to further alienate the individual investor.

As I have recently mentioned, last week's three consecutive days of 200-point moves in both directions (and, for that matter, similar action over the past few months) demonstrate that the market has too much tumult.

Surprise No. 6:

Growth in the Western European economies deteriorates throughout the year, and the markets in England and France drop at twice the rate of the U.S. market.

Over there, growth is weakening, and the declines in the European bourses have accelerated.