Amid the latest turmoil engulfing Europe, it is encouraging to hear one voice that is sanguine about the prospects for the continent’s recovery and for a benign resolution of its problems.
An open rift between Germany and France’s new president, Francois Hollande, over austerity measures, contingency plans being formulated by central banks for a Greek exit from the euro and mounting debt crises in Spain and Italy are hardly grounds for optimism.
Yet Byron Wien, vice-chairman of Blackstone Advisory Partners, sees light at the end of the tunnel. “Europe is on the verge of getting better,” he told FinanceAsia. It is one of “10 surprises” that the market veteran predicts for this year.
He expects that Europe will finally develop a broad plan to deal with its sovereign debt problem and move closer to fiscal cohesion. The major international and regional financial institutions will “band together to keep all the countries within the Union and to continue the euro as the continent’s currency”. Meanwhile, there will be major restructuring of Greek debt, Italy will undergo a “voluntary” restructuring, but Spain and Ireland will strengthen their finances during the year. However, although a meltdown of the banks will be avoided, imposed austerity will cause Europe to suffer a recession.
Wien’s voice matters because of his pedigree. He spent more than two decades as chief US investment strategist at Morgan Stanley, had a similar role at Pequot Capital and, among several other accolades, was named by New York Magazine in 2006 as one of the most influential individuals on Wall Street.
There is a caveat to Wien’s forecast that prevents his optimism from slipping into insouciance. Policymakers need to recognise the importance of economic growth in bringing Europe out of its malaise, and that can’t be neglected in favour of German prescriptions for pain, despite the requirement for structural changes further down the line.
But the liquidity injected into the banking system by the European Central Bank is an essential “palliative” that has staved off the worst ravages of economic decline and, most important, allowed governments to pay the salaries of state employees. Europe is now well placed to move to the next stage of sustained recovery.
Wien has been on a lecture tour throughout Asia, meeting clients and investors. He is enthusiastic about this region, envisaging a soft-landing for China’s economy — but persistent social unrest — and is even encouraged by the growth potential in Japan. His main concern is India, where he said the government keeps introducing policies that are unfriendly to business.
Elsewhere in the world, Wien expects the US economy to “get its second wind”, driven by capital spending, exports and the consumer (buoyed by a lower oil price and a higher stock market) — and hence overcoming the fiscal drag. Soft raw material prices and better use of technology should underpin corporate profits and send the S&P 500 above 1,400 points.
Real GDP growth, he forecasts, should exceed 3% and unemployment will drop below 8%. All of this will be good news for President Barack Obama, who will return to the White House in November with a Democrat majority in the House of Representatives, according to Wien. Before then, Congress is likely to develop a programme to reduce the US budget deficit by $1.2 trillion during the coming 10 years — putting partisan divisions aside for the greater good.
Wien expects other surprises this year. One of his main ones is that extraction of oil and gas from shale and rock “begins to be a game-changer”, reducing the US’s dependence on the Middle East for fuel supplies. On the other hand, the computer is likely to replace conventional armaments as the principal weapon of choice for terrorists, so the geopolitical landscape won’t necessarily get any safer.
Wien started making these pronouncements as long ago as 1986, and clearly is listened to and widely respected. Besides, how can you not heed the voice and respect the clarity of a man who, in 1995, co-authored a book with George Soros, and made some sense of the hedge fund billionaire’s otherwise impenetrable, pseudo-philosophical ramblings?