Key Predictions Shaping Markets in 2013

Blackstone Advisory Partners Vice Chairman Byron Wien has come up with forecasts of so-called “surprises” which, according to him, have a 50-50 probability of occurring within the year.

His forecast on China is optimistic.  His outlook for commodity traders, makers of drilling and mining machines, and gold investors is likewise somewhat rosy. However, for investors in Canadian oil sands, 2013 could present a challenge, especially if crude prices per barrel drop to $70.

Below are some possible scenarios in 2013:

The Atomic Energy Agency doesn’t deny Iran’s pronouncements that the latter can create nuclear missiles out of its rich supply of uranium. Economic instability, a weakening national currency and a string of sanctions fail to curtail Iran’s nuclear arms program. Negotiations with the country aimed at abolishing the program are futile. Israel and the U.S.’ change tactics by controlling Iran’s nuclear ambitions instead of blocking it.

Revenues narrow down and growth is very minimal. Revenues of the S&P 500 companies dip to less than $100, leaving investors worried more than ever.  There’s fierce competition among the world’s economies and firms are challenged by unfavorable pricing power.

Financial commodities traders are in for a bumpy ride. Banks and financial institutions strongly compete against each other, and poor trading volumes affect earnings. Employers continue to rely on a lean workforce as well as salary cuts to save on company expenses. More rules are implemented and legal claims hound commercial and banking sectors.

China’s new heads are bent on instituting changes aimed at abolishing corruption. Leaders also push for a 7%-and-above growth in their economy and look for ways to perk up retirement and health care incentives. Shanghai Composite makes a rebound from last year’s dismal performance. This year, a 20% increase in “A” shares is anticipated.

Shifts in the climate may result in poor crop performance, pushing up prices of livestock and grains all the more. Emerging economies experience better living conditions and grains consumption inevitably increase. More traders focus on commodities, which will comprise a bigger chunk of their investment portfolio.

Inflation rate isn’t as threatening, but there’s an increase in gold prices – up to $1,900 per ounce – as countries experience weaker local currencies.

The U.S. Democratic Party lobby programs that will help the country curtail its purchase of crude oil from the Middle in the long term. WTI crude oil prices slide to $70 per barrel. The U.S. government softens rules on crude oil and gas fracturing activities in regions where population density is low. Drillings increase on government land. Energy development, as well as housing and construction, help create new jobs this year.

Wien, a former Morgan Stanley strategist, has been turning out similar yearly forecasts since the mid 80s.