Blackstone’s Byron Wien announces the top ten surprises for 2010

Byron Wien has been giving his predictions about the US economy, financial markets and politics every year since 1986. According to critics, he has a good feel for the economy and for politics with a slightly bullish bias and it is this bias which blindsided him when it came to the housing bubble

Byron R Wien, vice chairman, Blackstone Advisory Services, who has been giving his predictions about the US economy, financial market and politics since 1986, has unveiled his ten surprises for this year making 2010 the 25th year of his predictions.

Mr Wien began the tradition in 1986 when he was the chief US investment strategist at Morgan Stanley. He joined The Blackstone Group in September 2009 as a senior advisor to both the firm and its clients in analysing economic, political, market and social trends. Here is a list of his predictions and surprises for 2010.

The Surprises of 2010

1. The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%.  Exports, inventory building and technology spending lead the way. 

2. The Federal Reserve decides the economy is strong enough for it to move away from a zero interest rate policy. In a series of successive hikes beginning in the second quarter, the Federal funds rate reaches 2% by year-end.

3. Heavy borrowing by the US Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%.  Banks loan more to corporations and individuals and pull away from the carry trade, thereby reducing demand for Treasuries. President Obama says, “The suits are finally listening”.

4. In a roller-coaster year the Standard and Poor’s 500 rallies to 1,300 in the first half and then runs out of steam and declines to 1,000, ending where it started at 1,115.1.  Even though the economy is strong and earnings exceed expectations, rising interest rates and full valuations present a problem. Concern about longer term growth and obligations to reduce leverage at both the public and private level unsettle investors.

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted. Longer term prospects remain uncertain.

6. Japan stands out as the best-performing major industrialised market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium-sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000.

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favourable for nuclear power development. Arguing that going nuclear is essential for the environment, will create jobs and reduce costs, Congress passes bills providing loans and subsidies for new plants, the first since 1979. Coal accounts for about 50% of electrical power generation, and Mr Obama wants to reduce that to 25% by 2020.

8. The improvement in the US economy energises the Obama administration. The White House undergoes some reorganisation and regains its momentum. In the November Congressional election, the Democrats only lose 20 seats, much lesser than expected.

9. When it finally passes, financial service legislation, like the healthcare bill, proves to be softer on the industry than originally feared. There is greater consumer protection, more transparency, tighter restriction of leverage and increased scrutiny of derivatives, but the regulatory changes for investment bankers and hedge funds are not onerous. Trading volume and merger activity increases; financial service stocks become exceptional performers in the US market.

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khameini pushes out Mahmoud Ahmadinejad in favour of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides. Talks with the US and Europe begin but the country remains a nuclear threat. Pakistan becomes the hotspot in the region because of the weak government there, anti-American sentiment, active terrorist groups and concerns about the security of the country’s nuclear arsenal.


IL&FS Investsmart to discontinue insurance broking business

IL&FS Investsmart Insurance Brokers will surrender its insurance broker licence to IRDA following its decision to exit the insurance broking business

Financial services provider HSBC InvestDirect (India) on Wednesday said that its subsidiary IL&FS Investsmart Insurance Brokers Ltd (IIIBL) will discontinue the insurance broking business, reports PTI.

The board of directors at their meeting held on 5th January have approved to discontinue the insurance broking business by IIIBL, HSBC InvestDirect (India) said in a filing to the Bombay Stock Exchange.

The company would surrender its insurance broker licence to the Insurance Regulatory and Development Authority (IRDA).

HSBC InvestDirect (previously known as IL&FS Investsmart Ltd), owns 45% in IIIBL. "This is with a view to align the business with the long-term strategy of HSBC InvestDirect," the company said.

HSBC InvestDirect (India) provides varied range of services through its subsidiaries to individual and corporate customers.

In 2008, HSBC had acquired a 73.2% stake in IL&FS Investsmart, a leading retail brokerage house in India.


Osian Art Fund failed to live up to expectations, says Tuli

In 2006, Osian Art Fund closed with a total corpus of more than Rs102.40 crore, but at the time of redemption it disappointed investors with poor returns. Neville Tuli, chief advisor, Osian Art Fund and chairman, Osian’s-Connoisseurs of Art Pvt Ltd, talks to Amritha Pillay from Moneylife on art funds and art markets in India

Amritha Pillay (ML): The Osian Art Fund failed to produce impressive results. Was the three year lock-in too short a time for the Fund?
Neville Tuli (NT):
It is not only about the three year lock-in being too short, but the fact that market conditions were extraordinary and the scale of the meltdown (in prices, volumes, liquidity and confidence terms) was a reflection of the nascent financial infrastructure for art and culture. Many more institutional players need to enter this sphere of work for the framework to reach global standards of awareness and information flow. Further, the performance of the Fund was very good given the state of the art market, but relative to expectations in 2006 and the opportunity cost in other investments, it was a genuine disappointment.

ML: What are the main issues involved while trying to sell a work of art, in a depressed market? In such a market, how much can the value of the work of a mid-level artist go down from the peak?
Historical significance of the artwork and the artist is first and foremost the most critical parameter in understanding valuation, if not everything. Remember always that the high quality art object has been the world’s most expensive object for over 5,000 years across all periods of civilization and history—this is no short-term pedestal which gets broken with ‘technicals’. The desperation to sell is the real problem, thus holding power is critical.

Further, an artist does not become ‘historically significant’ overnight, a minimum of twenty-thirty years of critical due diligence goes into becoming a notable artist, which allows the bad periods to be absorbed with credibility and the next fertile phase to be anticipated. Changes in taste then only impact within a band; the floor is always established with immense credibility. Most people look at the highs in understanding a market, the key is only to see the changes in the floor levels which become irreversible over time. This is pivotal to understanding art as an asset idea.

ML: Should one consider the best way to invest in art is buying artworks cheap, holding them for a longer period and then selling them?
It is far from that simple. Most artworks bought by the public without appropriate knowledge, which do not hold relative historic significance, will be ‘worthless’ when they try to sell them. Everything old is not of value.

‘Art’ itself is too vague a definition when speaking about ‘art as an asset’. For every 1,000 artworks one may qualify for an investment/asset potential in the sense that it can be traded in a systematic manner at relatively fixed intervals at a price which one reasonably expects. 
ML: Financial investments usually have earnings attached to them which can be used to arrive at the intrinsic value. However, the only factor determining the earning of a work of art is what others are willing to pay for it. This value in turn is purely based on what the market mood is. How can an art fund overcome this handicap?
This is not true, though in a major meltdown much behaviour comes closer to such assumptions. As the art market becomes more efficient with a greater flow of authentic information and awareness, a greater number of institutional players, options for discounting, collateralisation and underwriting facilities, with clear regulatory guidelines, the chances of well managed art funds succeeding will very much improve. Imagine the stock markets ten years ago, without so many systems and frameworks in place, the art ‘industry’ is very much at that early stage of development. In the medium to long run, the well-managed regulated art fund will be the ideal vehicle for India to monetise and bring to the white economy the vast cultural artefacts, most of which still exist in the cash underground economy. A few hiccups and failures should not discourage anyone; one must see the stage of growth and accordingly understand that India can still become a world leader for institution building for the arts and culture, if only the system supports rather than fights the processes of greater transparency.

ML: One of the reasons why the Osian Art Fund, one of its kind in alternative investments, produced lacklustre results is the lack of liquidity of its assets. Can funds based on an illiquid underlying product ever succeed?
  Once an institutional framework emerges which tackles some of the issues raised above, such as bill discounting, collateralisation of the asset, underwriting with deeper insurance covers, option contracts which are legally effective, greater daily flow of authentic information, a stock exchange kind of a platform, appropriate regulatory frameworks which understand the unique nature of art and culture as an asset and the like, then you will see how our cultural artefacts emerge from the dark into a credible asset for India and our people.

ML: Do you still believe an art market in true trading terms exists, since buyers disappear so easily in a downturn?
  Of course, these are very early days, the nascent pioneering stage of the process. Three years from now, it will be radically different, as the knowledge of our people and system increases and more opportunities, good and bad, are taken to task and are made to prove their worth. India cannot develop unless she finds credible platforms upon which her heritage is clearly monetised and made transparent for all to value and respect.

ML: What modifications are you planning for the next proposed art fund?
At present, let me complete all my obligations and the rebuilding process will naturally follow. To build new platforms of pride and credibility takes time, we must never lose hope but next time the planning and preparation will deeply understand both the down and up sides of the project with greater equanimity.



Sharat Jain

3 years ago

We have also not received the redemption proceeds from Osian's Art Fund. We have written on many forums, but till date no action has been taken against this scheme. It is very hard to digest that this type of schemens are first floated under the nose of our Govt., and then when the company is unable to pay back (for the reasons best known to them), they try to delay the matter for years & years on one pretext or the other. Sharat Jain. New Delhi.

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