Tags: Wien | geopolitical | stocks | M&A

Blackstone's Wien: There's Hope Among the Geopolitical Ruins

By    |   Thursday, 04 September 2014 10:33 AM

Byron Wien, vice chairman of Blackstone and a consummate Wall Street insider, took the pulse of 90 hedge fund titans and corporate stars at a series of private lunches this summer. What he found is that they "almost universally" believe that current geopolitical turmoil will not derail the U.S. economy or stock market.

The marked optimism came despite a rash of domestic and international problems that the group acknowledged in detail.

"All of these issues did not keep the assembled from believing that the Standard & Poor's 500 would finish 2014 above 2,000. . . . Most also thought real Gross National Product (GDP) growth would be about 3 percent in the second half of this year, with only a few believing 2 percent was more likely," Wien wrote in commentary on Blackstone's website.

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"Regarding Fed policy, most expected the Federal Reserve to increase short-term rates before June of 2015 in spite of the recent softness in the economy. No surprise here."

On specific issues, Wien said the top concern among some of America's top financial movers and shakers was that the Islamic State of Iraq and Syria (ISIS) has proven so effective militarily that the United States would be dragged into recommitting combat troops to the Middle East.

There was less concern than the ISIS crisis about the Ukraine-Russia conflict, except on the impact it could have on the broader European economy, and about China's expansionist behavior.

Wien's lunch companions also acknowledged there could be a downside to the current torrid pace of corporate buyouts.

"Most believed that the frenetic merger and acquisition activity going on was primarily strategic and would increase the competitive position of the acquiring companies, but a lot of jobs would be lost in the process as duplicate administrative functions were eliminated," he wrote.

"The most worrisome part of the merger and acquisition discussion was that corporations, in reviewing their options, had collectively decided that combining with a strategically positioned company was better than building a new plant and creating jobs. "

On the other hand, Wien's guests expect continued gains for society from technological advances, especially in the areas of healthcare, agriculture and energy.

As for alternative classes, Wien said he detected "almost no interest in gold," and said commodities in general were uninspiring for the group.

One area with a bleak outlook by the group, some of whom were probably billionaires and most of whom were likely 1 percenters, was income inequality.

"Most agreed it was likely to get worse as the educational demands of the workplace escalated. Programs to create more jobs would alleviate the problem, but many wondered where the new jobs would come from. "

Separately, a new Bloomberg analysis concluded geopolitical conflict is not a good reason to sell stocks.

Mouhammed Choukeir, chief investment officer at Kleinwort Benson, said, "It's easy to draw the conclusion that one's asset positioning should be defensive during times of heightened conflict or stress. However, financial history teaches a different lesson: geopolitics rarely impact equity markets over the medium to long term."

Bloomberg reported that of 16 geopolitical crises since 1950 that Choukeir reviewed, only four left the S&P 500 lower a year later. The conflicts he looked ranged from the 1962 Cuban missile crisis and 1979 Soviet invasion of Afghanistan to the 2003 U.S. invasion of Iraq.

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Byron Wien, vice chairman of Blackstone and a consummate Wall Street insider, took the pulse of 90 hedge fund titans and corporate stars at a series of private lunches this summer.
Wien, geopolitical, stocks, M&A
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2014-33-04
Thursday, 04 September 2014 10:33 AM
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