https://realmoney.thestreet.com/investing/doug-kass-my-10-surprises-of-2024-16140402
"Concentrate on finding a big idea that will make an impact on the people you want to influence. The Ten Surprises, which I started doing in 1986, has been a defining product. People all over the world are aware of it and identify me with it. What they seem to like about it is that I put myself at risk by going on record with these events which I believe are probable and hold myself accountable at year-end. If you want to be successful and live a long, stimulating life, keep yourself at risk intellectually all the time."
- Byron Wien
In this year's Ten Surprises List for 2024, I am paying homage to my dear pal Byron Wien who passed away two months ago. Here is my recent tribute to Byron.
In doing so I have abandoned my own format over the last 22 years in favor of adopting Byron's format -- from his style to the brevity and conciseness of his surprises over the last 38 years. (Here was By's Ten Surprises of 2023 Byron Wien and Joe Zidle Announce the Ten Surprises of 2023 - Blackstone). I even included several "also rans" surprises -- just the way Byron did!
My 10 Surprises of 2024 are as follows:
1. Donald Trump is convicted of obstruction and conspiracy.
In an agreement between the former President and the current President, Biden pardons Trump in exchange for Trump agreeing to leave the 2024 Presidential race. Governor Ron DeSantis finishes third in both the Iowa and New Hampshire primaries and drops out of the race -- with Nikki Haley capturing many of his supporters - closing the gap with Trump. Chris Christie drops out soon thereafter while Vivek Ramaswamy hangs on to the bitter end. Nikki Haley becomes the Republican Presidential nominee.
In early September, shortly after Biden wins the nomination, the President suffers a health emergency and, like Trump, leaves the race. If Trump indeed has left the race, Governor Gavin Newsom is selected as the replacement nominee for Biden. If Trump is still in the race (and not convicted) and Biden does have a health emergency, the Democrats draft Governor Gretchen Whitmer after first trying to attract Michelle Obama into the fray (she demurs). Whether the contest is between Haley/Newsom or Trump/Whitmer, the winner will be the first woman President...either Nikki Haley or Gretchen Whitmer.
2. In part due to fear that Democrats will continue to hold on to the Presidency, foreign powers step up military confrontations.
The West continues to lose patience with how the war is going with Ukraine as the U.S. backs off of its support. Negotiations on a territorial split begin and Ukraine is forced to give up the East of the country to Russia.
North Korea, with support from Russia, undertakes skirmishes in the Demilitarized Zone and makes threats to invade South Korea. Iran completes its nuclear buildup which provokes a direct attack from Israel. Though China doesn't invade Taiwan it continues with aggressive war game tactics in the South China Sea.
The global economy is more susceptible to supply shocks than is generally believed. With Russia and Saudi Arabia conspiring on production cuts, the price of oil exceeds $110/barrel and the price of a gallon of gasoline in the U.S. approaches $6. Shares of Exxon Mobil (XOM) , Occidental Petroleum (OXY) and Chevron (CVX) each rise by over one third next year.
3. There is neither a soft landing nor a hard landing -- just very sluggish real growth in the U.S. economy.
With no negative payroll prints, wages continue to grow at a three to four percent rate as unemployment stays below 4.50%. China's economy starts a surprising recovery causing commodity prices to begin to inflect higher and oil begins a slow but persistent recovery in price. Inflation fails to tick much lower, remaining well above the Fed's target. Nonetheless, with the polls tight and in an effort to influence the election, the Federal Reserve cuts rates twice before July.
These policy moves and conditions prompt a resurgence in headline inflation, and as discussed above, in a further spike in the price of oil in late summer -- complicating the Fed's desire to cut rates. Though domestic growth begins to trail off in the last six months of the year and unemployment moves higher, no further interest rate cuts occur over the balance of the year. It's slugflation (sluggish economic growth, sticky inflation), clear as day.
The yield on the 10-year Treasury, which today is at 3.91%, never declines below 3.75% and fluctuates between 3.75% and 4.75% most of the year. A developing US recession, late in the year, sends the budget deficit as a percentage of GDP to 10% or more -- overwhelming Treasury supply and sending the 10-year yield back above 5%.
The U.S. federal debt problem is no longer shrugged off by investors -- it looms larger in late 2024 and slowly becomes a serious systemic problem in the years ahead.
Creditors demand more to buy U.S. debt. After the 10-year Treasury yield touches 5.5%, the Fed ends QT and restarts, temporarily, QE - breaking its word of sticking to its inflation target.
4. The S&P Index never exceeds 4900 and drops to under 4100 in the oil price scare.
Despite all the macroeconomic, geopolitical and political drama, the trading range for most of 2024 is the narrowest in years. The S&P Index ends the year with about a 5%-10% decline. Led by the drop in the shares of Apple (AAPL) , the Nasdaq ends the year with a decline of between 10% and 20%. The market doesn't broaden out further and the Russell Index also exhibits a loss for the year as many components of the Russell face financial (debt rollover) and operating headwinds.
5. The biggest and most popular stock in the world, Apple, suffers a large percentage loss in 2024 as trade tensions with China escalate.
With China supporting Huawei, Apple loses substantial market share in that country and overall revenues decline again in 2024 (over 2023). Meanwhile, as a result of the Google Anti-Trust case, Google (GOOGL) stops paying Apple $18 billion in search fees. Apple's shares drop to below $130/share. Berkshire Hathaway (BRK.B) "doubles down" on its already large Apple stock holdings - raising its position to nearly two billion shares.
6. Fears of credit problems are realized and the banking industry, among others, suffers large loan losses.
Commercial real estate fails to recover in price. A wave of commercial real estate busts create another regional banking crisis and forces the FDIC to negotiate several bank mergers. In 2024, bank stocks return to their 2023 lows.
7. Wall Street's most vicious vultures -- private equity -- are about to get torn to shreds.
With still elevated interest rates, especially in the second half of the year, and a slowing global economy, loan rate resets contribute to a leader in private credit failing. Blackstone's (BX) shares drop by a third after BREIT (private real estate fund run by Blackstone) and (BXMT) come under new redemption pressures. Shares of other private equity stocks (Apollo (APO) and (KKR) ) plunge as the SEC opens an investigation into the failure of the private equity industry to realistically mark-to-market their portfolios in a timely manner.
8. What would a surprise list be without mention of Elon Musk?
It is revealed that Elon Musk suffers from a serious addiction. Entering an extended stay in rehab, Musk is forced to temporarily relinquish operating control over his companies. Tesla's (TSLA) shares fall back to the lows of 2023.
9. Warner Brothers Discovery (WBD) and Paramount Global (PARA) suffer operationally and financially ('profitless prosperity').
Streaming fails to fulfill optimistic expectations -- the total addressable market is over estimated, content costs remain high and profits are nonexistent.
On the brink of a liquidity crisis, Shari Redstone sells Paramount (at a discounted price) to private equity. Disney's (DIS) shares trade in the $70s and corporate raider Nelson Peltz sells out for a large loss. Bill Ackman's Pershing Square hedge fund purchases Peltz's shares.
10. JPMorgan Chase's (JPM) Jamie Dimon departs the bank and joins either the Haley or Whitmer Administration as Secretary of Treasury.
Marianne Lake becomes CEO of JPMorgan.
