Doug Kass 20 Surprises.

Doug Kass over at Realmoney.com yearly comes out with a list of 20 surprises. Since he was spot on with many of these last year, including nailing the banking crisis, these are at least worth a read. Kass describes his yearly surprises this way. "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. I call these "possible improbable" events.

The real purpose of this endeavor is to consider positioning a portion of my portfolio in accordance with outlier events -- with the potential for large payoffs. After all, the quality of Wall Street research has deteriorated (in some measure because of brokerage industry consolidation) and remains, more than ever, maintenance-oriented, conventional and "groupthink," even despite the mandated reforms over the past several years. Mainstream and consensus expectations are just that, and in most cases they are deeply imbedded into today's stock prices. If I succeed in at least making you think about outlier events, then the exercise has been worthwhile."

Here in an abbreviated version are Kass's surprises.

Without further ado, here is my list of 20 surprises for 2009. In doing so, we start the new year with the surprising story that ended the old year -- the alleged Madoff Ponzi scheme.
1. The Russian mafia and Russian oligarchs are found to be large investors with Madoff.
2. Housing stabilizes sooner than expected. President Obama, under the aegis of Larry Summers, initiates a massive and unprecedented Marshall Plan to turn the housing market around.
3. The nation's commercial real estate markets experience only a shallow pricing downturn in the first half of 2009.
4. The U.S. economy stabilizes sooner than expected. After a decidedly weak January-to-February period (and a negative first-quarter 2009 GDP reading, which is similar to fourth-quarter 2008's black hole), the massive and creative stimulus instituted by the newly elected President begins to work.
5. The U.S. stock market rises by close to 20% in the year's first half.
6. A second quarter "growth scare" bursts the bubble in the government bond market. The yield on the 10-year U.S. Treasury note moves steadily higher from 2.10% at year-end to over 3.50% by early fall, putting a ceiling on the first-half recovery in the U.S. stock market, which is range-bound for the remainder of the year, settling up by approximately 20% for the 12-month period ending Dec. 31, 2009. Foreign central banks, faced with worsening domestic economies, begin to shy away from U.S.
7. Commodities markets remain subdued. Despite an improving domestic economy, a further erosion in the Western European and Chinese economies weighs on the world's commodities markets.
8. Capital spending disappoints further.
9. The hedge fund and fund of funds industries do not recover in 2009.
10. Mutual fund redemptions from 2008 reverse into inflows in 2009.
11. State and municipal imbalances and deficits mushroom. The municipal bond market seizes up in the face of poor fiscal management, revenue shortfalls and rising budgets at state and local levels. Municipal bond yields spike higher. A new Municipal TARP totaling $2 trillion is introduced in the year's second half.
12. The automakers and the UAW come to an agreement over wages.
13. The new Administration replaces SEC Commissioner Cox.
14. Large merger of equals deals multiply.
15. Focus shifts for several media darlings.
16. The Internet becomes the tactical nuke of the digital age. The Web is invaded on many levels as governments, consumers and investors freak out.
17. A handful of sports franchises file bankruptcy.
18. The Fox Business Network closes.
19. Old, leveraged media implode. The worlds of leverage and old media collide in a massive flameout of previous leveraged deals. Univision and Clear Channel go bankrupt. The New York Times (NYT) teeters financially.
20. The Middle East's infrastructure build-out is abruptly halted owing to "market conditions." Lower oil prices, weakening European economies and a broad overexpansion wreak havoc with the Middle East's markets and economies.

Source: Real Money 12.29.08 (Subscription required).