This article was originally published in three parts on Street Insight on Dec. 27.

Every December, I take a page from former Morgan Stanley strategist Byron Wien and prepare a list of 25 possible surprises for the coming year.

These are not intended to be predictions, but rather events that have a reasonable chance of occurring, despite the general perception that the odds are very long. I call these "possible improbable" events.

The real purpose of this endeavor is to consider positioning a portion of my portfolio in accordance with outlier events -- with large payoffs. After all, Wall Street research is still very much convention and groupthink, despite the reforms over the past several years.

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

About a fifth of last year's predicted surprises actually happened, which was down from the prior two years -- nearly one-half of our prognostications proved prescient in 2004 and about one-third in 2003.

  • Two of our most accurate surprises related to markets and asset classes. We posited that the Tokyo Stock Exchange would be among the best-performing markets in the world. Several emerging markets outperformed Japan, but Japan was probably the best performer among the more liquid international indices.

    We suggested that the price of gold could briefly touch $575 an ounce (it hit $540) and would be the best asset class extant. Indeed, few markets rivaled gold in 2005.
  • Parts of Europe sank into a recession in the second quarter.
  • We said Hank Greenberg would unexpectedly retire from AIG; he did, though not voluntarily!
  • We thought the AOL division would be sold (to either Marc Cuban or Warren Buffett); recently a 5% position was sold to Google (GOOG).
  • We suggested that Unocal shareholders would vote to be acquired by Chevron and defeat Cnooc's bid. Coincident with that vote, we anticipated crude would make a yearly high of $65 a barrel (it briefly touched $70 thereafter), once again proving that markets make tops accompanied by good news.
  • We envisioned a flattening in home prices in the late summer (and a buildup in inventory of unsold homes); this has transpired.
  • Finally, we anticipated the amazing success of Jim "El Capitan" Cramer's Mad Money show on CNBC. We suggested the show would win a Peabody Award. Though that award has not yet been announced, who knows?
  • Let's move on to my list:

    25 Possible Surprises in 2006

    1. Anti-American rhetoric in South and Central America becomes kinetic in 2006 and has broad market and economic implications. Presidential elections in nine Latin American countries put a plethora of left wingers in power, causing consternation in the Bush administration. Coupled with more aggressive nationalistic moves by Venezuela's Hugo Chavez, we see a turn to sweeping anti-American policies.

    This new wave of socialism and left-wing presidents contributes to a series of moves to nationalize certain industries, and supply disruptions in certain countries in South America are destabilizing, resulting in much higher commodity prices during the year (including oil, natural gas, copper, tin and grain). The CRB Index approaches 375 (now at 326).

    Fears of stagflation befall economies and markets dependent on imports of goods from South America, like the U.S. Crude climbs to over $80 a barrel, and the Dow Jones Industrial Average bottoms at 9000-9250 during the early summer (and closes the year at the 10,000 level). Gold trades above $675/ounce sometime during the year.

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