Byron Wien, the respected Wall Street strategist, issues his annual list of "ten surprises" every January. Our crystal ball is not as clear as Mr. Wien’s is, but for fun, we shall mimic his New Year’s tradition and post our surprises for 2013. We do not see these surprises as high probability events, but merely the ones within the realm of probability and not often discussed.
• US equities will break out to an all time high after a correction in 1st quarter. This will primarily be led by rising discretionary consumption and real estate development. The US market suffers a substantial correction later in the year, as unemployment rate drop below 7%. This will fuel worries that the Fed may retreat from the QE programs. The US stock market will end in 2013 close to the flat line.
• Interest rates of long dated treasuries will spike higher in the summer of 2013 as investors sell bonds to shift money out to riskier assets. Investment grade bonds and perpetuals also experience notable declines. The specter of higher interest rates will leave buyers of high yield bonds and REITS from early 2013 underwater.
• Shares of Apple will break down in the 1st quarter, after sales momentum of the iPhone 5 and iPad Mini taper off sooner than expected. This will leave stuffed channels and disappointing Q2 and Q3 sales. Large mobile phone operators also rebuffed at the subsidies long demanded by Apple. The breakdown in Apple stock drags NASDAQ and other technology sectors with it. However, Apple shares will rebound considerably later in 2013, as investors realize that the Apple and Android duopoly will dominate the cellphone market for a lengthy period. In addition, a large 5-inch upsized iPhone display will garner favorable buzz.
• Samsung will be besieged by numerous Asian competitors in the Android cellphone market. The South Korean giant will lose market share to LG, Lenovo, HTC, ZTE and Huawei, as Android phones are increasingly commoditized. Lenovo will replace Samsung as the top Android phone seller by focusing on the low end and exporting OEM models to mobile phone operators.
• A major stock market will undergo a “Flash Crash”, when algorithmic trading programs execrate a downtrend into a -5% intraday plunge. The SEC will respond by proposing new regulations on program tradings.
• Cyber terrorists will strike Saudi Arabia, shutting off electricity, petroleum refining and exporting capacity. This unprecedented attack will prompt governments to examine critical infrastructures’ vulnerabilities to cyber attacks.
• A former leader of China will pass away after suffering a stroke, paving the way for CCP General Secretary Xi Jinping to consolidate power. Party bosses of several cities/provinces and major State enterprises will then be “promoted” to ceremonial posts.
• Next Media of Hong Kong will get a buyout by a consortium of private equity funds mostly owned by Taiwanese and HK businesspersons. Democratic council members will protest that the buyout will tighten Beijing’s control of Hong Kong’s press freedom. New management will reaffirm that the buyout is purely an investment decision, though most editors of Next Media will soon be purged in corporate reorganizations.
• The Japanese Yen will depreciate -15% against the USD, setting off a series of competitive devaluations in South Korea, Taiwan and Thailand. Japanese Prime Minister Shinzo Abe will become the first Japanese Prime Minister to have a tenure lasting more than 18 months since 2006.