7. Concerned over rapid money supply growth in the developed world, investors buy the currencies of countries that seem to be managing their economies sensibly. Scandinavian currencies, the Australian and Singapore dollar and the Korean won benefit.
8. Congress decides its dysfunctionality is harmful to both parties and acts before the November election to deal with the failure of the Super Committee to develop a program to reduce the U.S. budget deficit by $1.2 trillion over ten years. Both defense and Medicare are cut significantly; subsidies for agriculture are reduced and tax deductions for oil, gas and real estate partnerships are modified. Obama pledges to let some aspects of the Bush tax cut program continue if he is reelected.
9. The Arab Spring finally overcomes Bashar al-Assad and his family's rule over Syria ends. While Assad's fall might have been inevitable, it has important ripple effects throughout the region weakening Hamas, Hezbollah and further isolating Iran.
10. After two years of poor stock market performance while their economies came through with high single-digit real growth the emerging markets finally have a good year. Growth slows somewhat but favorable valuations enable China, India and Brazil indexes to appreciate 15-20%.
Below are several "also rans" which did not make the Ten Surprises list because (a) I did not think they had a more than 50% probability of happening and/or (b) they were not as important to investors as the ten I ultimately chose:
11. Housing starts to pick up significantly. The strength in the economy coupled with record affordability encourages the consumer to come back into the market and make long term commitments. The overhang of vacant homes begins to be absorbed.
12. The yield on the 10-year U.S. Treasury note rises to 4% as China continues to invest heavily in hard assets and raw materials and pulls back from putting reserves into the bonds of developed nations.
13. After correcting sharply toward the end of 2011 gold rebounds to $1800 during the year. Accommodative monetary policies throughout the developed world cause a renewed migration to hard assets by individual investors and sovereign wealth funds. Silver benefits also, rising to $40.
14. Fiscal discipline at the state and local level allows the drop in yields for municipal bonds to continue.
Byron Wien is vice chairman of Blackstone Advisory Partners, and is the former chief U.S> investment strategist for Morgan Stanley.
