10 Surprises Part I

Following in the tradition of some very smart investors, namely former Morgan Stanley strategist Byron Wien and Street Insight commentator, Doug Kass, I have prepared a list of 10 possible surprises for 2006. To borrow the rationale for doing so from these gentlemen I will state in their words the reasons for going through such an analysis.

“These are not intended to be predictions, but rather events that have a reasonable chance of occurring despite the general perception that the odds are very long.” Kass calls such prognostications “possible improbable” events.

“The real purpose of this endeavor is to consider positioning a portion of a portfolio in accordance with outlier events. After all, Wall Street research is still very much convention and groupthink, despite the reforms over the past several years. Mainstream and consensus expectations are just that, and, in most cases, are deeply imbedded in today's stock prices.”

So with apologies to the above stated gentlemen here is my list. You can read Kass’s thoughts here. http://www.thestreet.com/comment/investing/10259674.html. In a couple of weeks, I’ll weigh in on what I think about predictions. I will publish the 1st of my 5 surprises this week and weigh in with the rest next weekend.


1. The size and scope of the destruction around New Orleans and the Gulf Coast makes the attempt at major reconstruction unfeasible. Federal focus shifts instead to property buyout programs for the residence all along the affected areas and towards long term infrastructure development particularly regarding the levee system in and around New Orleans. Long term redevelopment of the region shifts to plans for property purchased by the Federal government to be resold at some point to the private sector. The City of New Orleans remains a virtual ghost town. Many of its citizens accept the buyout offers and the city population one year later remains about 1/10th of its former size.

2. Unrest in Latin America ushers in many left of center newly elected governments. Many of the region's newly elected leaders style themselves as populists after Venezuela’s Hugo Chavez. Much is made in the American press of the “Bolivarian Revolution” sweeping through these countries. In Mexico the Mayor of Mexico City, Andres Manuel Lopez Obrador-a socialist-, is elected President. This comes about due to massive resentment over current President Vicente Fox’s accommodative polices with the United States. The fear of economic dislocation contributes to the rise of certain commodity prices during the 1st 8 months of the year. (Please note that I have borrowed from other writings to formulate this opinion which therefore is not entirely my own. These include the above mentioned Doug Kass & Jackson Diehl of the Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2006/01/01/AR2006010100387.html).

3. Owing to a colder than expected winter in the northern hemisphere, above stated renewed unrest in Latin America and worries about Russian energy stability, the price of both natural gas and oil continues to climb until the autumn. Gas reaches $3.50 a gallon in much of the US during the summer holiday and vacation season.

4. Concern over the development of nuclear weapons brings about a major crisis with the NATO nations (United States and Europe) finally bringing a case against Iran to the UN Security Council. Both the NATO nations & Israel leak plans of massive air assaults on Iranian reactors in the event that no settlement can be reached. Iranian President Mahmoud Ahmadinejad’s continuous verbal public assaults against Israel and hinted threats of nuclear retaliation do nothing to deter the crisis. Alarmed at this result Ahmadinejad is replaced in late September. A deal is brokered by the Russians enabling the Iranians to process plutonium in Russia thereby making it impossible for the material to be used for nuclear weapons. In exchange Iran is granted certain international research exemptions by the International Atomic Energy Agency {IAEA}and in a secret memorandum it is understood that the US will accelerate it’s timetable for troop pullouts from Iraq. This escalation leads to a sharp two week sell off world stock markets in mid September and a large rally in US treasuries and gold during that time.

5. There is a major political disturbance in China which forces its government to devote much more time to domestic issues. As a result there is little to no progress on western trade issues or currency revaluation. Chinese officials privately let it be known that much progress in these two areas is off the table until after the 2008 Olympics.