Will Wien's prognostications prove right?

Byron Wien, the strategist whose New Year's predictions have influenced investors for a quarter century, said the US economy will fall into a recession and stocks will tumble 10 percent this year.

The Standard & Poor's 500 Index will rally in 2008's second half after a decline that meets the common definition of a market "correction", Wien, chief investment strategist of Westport, Connecticut-based hedge fund Pequot Capital Management Inc, wrote in his 23rd annual list of 10 "surprises".

Wien, whose stock market forecasts proved wrong the past two years, expects the Federal Reserve to cut its benchmark interest rate to less than 3 percent from 4.25 percent as the unemployment rate climbs above 5 percent for the first time since 2005. He says his predictions have at least a 50 percent chance of coming true, while the consensus view is one-third odds.

"It's going to be a tough year to make money," said Wien.

"People underestimate the significance of what's going on in the housing business and the credit market."

The S&P 500 gained 3.5 percent last year after posting the first fourth-quarter decline since 2000.

The measure ended the year at 1,468.36, after climbing to a record 1,565.15 in October. A year ago, Wien said the benchmark for American equities would surpass 1,600 in 2007. His 2006 forecast that the S&P 500 would lose 5 percent also proved inaccurate after the index gained 14 percent.

He was on target for 2005, predicting that the S&P 500 would be little changed. It went on to rise 3 percent, the smallest move since 1994.

Central bankers lowered their economic growth outlook for 2008 and agreed to be "exceptionally alert" as they decided to reduce interest rates by a quarter-point, according to records released of the policy-setting Federal Open Market Committee's December 11 session.

Traders increased bets the Fed will lower the target rate for overnight loans between banks by a half-point to 3.75 percent this month.

The likelihood rose to 24 percent, from zero a week ago, based on contracts quoted on the Chicago Board of Trade. Futures show a 76 percent chance of a quarter-point move.

Agencies

(China Daily 01/04/2008 page16)