10 Surprises for 2011: Blackstone's Wien

NEW YORK ( TheStreet) -- The U.S. economy will grow 5% in 2011 and unemployment rate will drop below 9%. The S&P 500 will rise to its old high. The housing situation will improve. Those are some of the more pleasant surprises that could -- we repeat could -- be in store for investors in 2011.

For 26 years, Byron Wien, now Vice Chairman of Blackstone Advisory Partners ( BX) has given his predictions for a number of economic, financial market and political surprises for the year.

Wien 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 happening.
Byron Wien
Byron Wien, Vice-Chairman, Blackstone Advisory Partners

Mind you, his predictions last year missed the mark. In the beginning of 2010, Wien predicted, among other things, that real GDP would grow 5%, that the Fed would hike the funds rate to 2% and that 10-year treasury yields would rise to 5.5%. The U.S. economy grew only at half that pace last year. The Fed not only maintained near-zero rates but embarked on another round of quantitative easing. And 10-year Treasury yields did rise, but not as much as expected, and are hovering currently around 3.3%.

Regardless, Wien continues to reiterate some of his earlier predictions on GDP growth and rising interest rates. Real GDP could rise to 5%, he claims, aided by Bush tax cuts and extended unemployment benefits. Bond investors will also become more demanding in the face of rising federal budget deficits and government debt causing yields to rise to 5%.

The S&P 500 could also rise to its old close of 1,500. "With earnings improving, valuations seem low and individual investors return to equities for the first time since the financial crisis. Merger and acquisition activity becomes intense and the market reaches a blow-off euphoria. Stocks correct in the second half as interest rates rise," Wien wrote in his outlook.

Among the newer predictions is a bullish outlook for gold. "Gold prices will rise above $1,600 an ounce as investors across the world place more of their assets in something they consider "real," wrote Wien. He also predicts higher prices for agri-commodities, and sees the price of corn likely to rise to $8, wheat to $10 and soybean to $16. Oil could head to $115 a barrel, he says.

Housing could surprise in 2011, according to Wien, as oversupply is drawn down substantially. He predicts housing starts to rise above 600,000.

China will manage its currency more aggressively to counter inflation; President Obama will pull troops out of Afghanistan and Iraq; and European financial crisis will become less of a concern as German Chancellor Angela Merkel leads the way on European financial reform.

Wien also publishes an "also ran" list, which features a few surprises that are less pleasant. "A major state fails to pay interest on a municipal bond issue because of a lack of funds, causing havoc in the municipal bond market," predicts Wien.

And Pakistan and North Korea become new trouble spots while Afghanistan and Iraq cool down.

--Written by Shanthi Bharatwaj in New York

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