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Editor's Note: This column is a special bonus for readers, written by Doug Kass. This piece originally appeared on Street Insight on Nov. 24, and RealMoney Nov. 26. To sign up for Street Insight, where you can read Doug's commentary regularly, please click here.

A year ago, I

prepared a list of 25 possible surprises for 2003. These were not intended to be forecasts or predictions, but rather were intended to represent "overlays," meaning events that might have a reasonable chance of occurring despite very long odds. Let's call these 25 "possible improbable" events!

I have long felt that developing a variant view (read: surprise) remains an integral part of differentiating one's investment returns. Mainstream expectations are just that, and in most cases are deeply imbedded in today's prices.

The purpose of this endeavor is to consider positioning a portion of my portfolio in some part based on outlier events. After all, Wall Street research is still very much convention and groupthink, despite the reforms over the past several years. If I succeed in making you think about outlier events, the exercise has been successful.

Some of my surprises were on target last year; to be precise, about one-third of the "possible improbables" came true. In particular, the following events had a familiar ring for readers of my "2003 surprises":

  • We saw a 3.25% yield on the 10-year Treasury note.
  • There was further deterioration in AOL's (TWX) subscriber base, and Steve Case was ousted.
  • The European economy was moribund during 2003's first half.
  • The New Jersey Nets basketball team enjoyed surprising success.
  • General Electric (GE) - Get General Electric Company Report had lower earnings guidance.
  • Democratic aspirant Al Gore bowed out of the presidential race.
  • There were no major terrorist acts in the U.S.
  • U.N. inspectors found no evidence of a weapon buildup in Iraq.

Here is my list of possible surprises for 2004:

1. A revolution in Venezuela overcomes the existing regime in early 2004 (four South American presidents have been toppled over the past four years!), cutting off oil production in that region and forcing crude oil to trade over $50 a barrel. The consumer is paralyzed, and retail sales nosedive. Rising energy prices and other cost push pressures (like health care and insurance) cause a minipanic in the world equities markets, and share prices plummet by more than 15% in a brief three-week period. At the same time, the U.S./China rift widens, and all-out trade war ensues (albeit briefly), crippling the U.S. apparel business.

2. Interest rates plummet and the yield on the 10-year Treasury note makes a new low, briefly breaking below the 3.00% mark by midyear. We end 2004 at about the same levels that exist today.

3. Facing rising energy prices, the automobile industry's fortunes erode dramatically as the consumer is nonresponsive to further incentives.


(F) - Get Ford Motor Company Report

loses more than $1 billion in the second quarter of the year. William Ford Jr. steps down.

4. With the cost of capital declining to unprecedented low levels, a relatively quick restoration of order in South America and the emergence of an overall calm in Iraq (as

President Bush

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orders more troops in to stabilize that country), merger activity explodes and stock prices follow suit. The world equities markets end the year nearly 30% higher than the May lows and close at about 15% higher than year-end 2003 levels. Financial stocks and, briefly, oil stocks are the principal market leaders, but technology stocks languish throughout the entire year (portability proves to be a nonevent) and end the year slightly lower than at 2003's year end.

Internet stocks prove to be one of the worst performing sectors of the market, after New York Attorney General Spitzer sues


(EBAY) - Get eBay Inc. Report



(AMZN) - Get, Inc. Report

for nonpayment of state sales taxes.

Despite a widespread belief that housing activity will fall off the cliff, the rise in home prices (fueled by ever-lower mortgage rates) continues apace and begins to resemble the bubble in the


of the late 1990s.

5. Beginning at midyear,

Genworth Financial

, the General Electric spinoff, embarks on a series of high-profile acquisitions (which include

CNA Financial

(CNA) - Get CNA Financial Corporation Report


Fidelity Financial


H&R Block

(HRB) - Get H&R Block, Inc. Report

), spurring an unprecedented round of industry consolidation in the financial sector.

6. After the minipanic in the markets in the first half, and in response to Genworth Financial's takeover announcements, the following acquisitions are announced and consummated:

7. The IPO and secondary markets launch a meaningful comeback during the second half of the year. Indeed, the IPO market heats up and, like rising home prices, begins to resemble the bubble of 1999-early 2000 (something no one presumed likely!).

8. Fidelity goes public in an IPO that doubles in the first day of trading.

9. A well-known and large hedge fund fraudulently misprices its portfolio of private investments and has a run on its assets. Calls for stricter regulation of hedge funds gain momentum as the Senate conducts public hearings.

10. Time Warner sells its AOL division to

Kohlberg Kravis Roberts

in a leveraged buyout during the third quarter after settling SEC charges in early January 2004 and as subscriber losses moderate.


Marsh & McLennan

(MMC) - Get Marsh & McLennan Companies, Inc. Report

sells its Putnam subsidiary to Warren Buffett's

Berkshire Hathaway


. Marsh shares rise by more than 50% in the aftermath of the sale.

12. A low-cost airline carrier, which turned out to scrimp on maintenance and pilot training, crashes.


Tiger Management's

Julian Robertson re-emerges as a major force in the hedge fund community -- after raising more than $5 billion for a new partnership.

14. Eliot Spitzer announces that he has no intention to run for public office and enters the private sector.

15. Robert Rubin leaves Citigroup and replaces an aging Hank Greenberg as


(AIG) - Get American International Group, Inc. Report


16. A unified Democratic Party rallies behind Mass. Sen. John Kerry after three state primaries. However, President George Bush wins the presidential election in one of the largest pluralities in history as Sen. Kerry wins only two states in the general election.



(STI) - Get SunTrust Banks, Inc. Report

distributes its 122 million shares of


(KO) - Get Coca-Cola Company Report

in a secondary offering.


Freddie Mac's


former executives are jailed, precipitating more restrictive rules governing derivative accounting at government-sponsored agencies and at other financial institutions. Rudy Giuliani is appointed FRE's chairman.

19. Bernie Ebbers, Dennis Kozlowski and Scott Sullivan receive maximum-length jail sentences.



(DIS) - Get Walt Disney Company Report

Michael Eisner is replaced by an executive at

Procter & Gamble

(PG) - Get Procter & Gamble Company Report


Federal Reserve

Chairman Alan Greenspan resigns owing to poor health.

21. The

New York Stock Exchange

, in a stunning reversal , goes fully electronic by year end. John Reed remains as chairman and orchestrates the transformation.

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

takes a $6.7 billion goodwill impairment charge off its 2000 acquisition of

Spear Leeds

, and



liquidates its assets.

22. Henry Blodgett is hired as a research analyst by a second-tier Wall Street firm.

23. There are no major terrorist acts in the U.S. and limited disturbances outside our country during the year.

Doug Kass is the manager of two hedge funds, Seabreeze Partners and Kass Partners, and reknowned for his emphasis on a short-selling strategy. Prior to that, he was a portfolio manager at hedge fund Omega Advisors, and head of institutional equities at First Albany and J.W. Charles. At time of original publication, Kass and/or his funds were short Citigroup, Goldman Sachs, LaBranche, Ford, J.P. Morgan and Wachovia, and long General Electric, Time Warner, First Tennessee, Marsh & McLennan and Alliance Capital, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kass appreciates your feedback and invites you to send it to

Doug Kass