Disaster has a way of not happening,” says Byron Wien. It is perhaps a surprising comment from someone who was born during the Great Depression and then orphaned shortly after World War II.
But as he sits in his office high above Manhattan’s Park Avenue, the 79-year-old dean of Wall Street forecasters is able to take the long view. And right now he is surveying a troubled world for individual investors. U.S. shareholders, already bruised by more than a decade of disappointing returns, a financial crisis and an anemic recovery, have lately received more reasons for doubt.
“You don’t have any heroes,” says Mr. Wien, vice chairman of Blackstone Advisory Partners. “You pick up the paper and you read about Peregrine,” a futures brokerage where the CEO allegedly stole millions of dollars from clients.
Mr. Wien ticks off other scandals, including the effort by bankers—with the knowledge of government officials—to manipulate reported interest rates. “It just seems like the whole system is corrupt. And so that has to have an effect on confidence,” he concludes. “I think this is a real problem and it’s going to linger for a while.”
Of course, recent financial headlines have not been entirely devoted to scandal. They have also noted the passing of Mr. Wien’s longtime colleague Barton Biggs. Over several decades at Morgan Stanley, Biggs must have sometimes seemed like a hero to investors. He called the coming bull market in U.S. equities in 1982, warned people away from Japanese stocks in the late 1980s—and from Internet stocks in the late 1990s.
Mr. Wien, for his part, launched an annual report predicting 10 “surprises” likely to come to pass within the year. After nailing a series of calls in the mid-1990s, he landed on the cover of our sister publication Barron’s. “But I never did it to keep score. I did it to stretch my own thinking and other people’s thinking,” he says.
There were plenty of big blown calls, too. But Biggs and Mr. Wien built a powerful role for market strategists at the big Wall Street houses by offering provocative and entertaining opinions about market trends. Even when their advice wasn’t followed, it was often appreciated by a portfolio manager wrestling with his own investment thesis.
After the bursting of the dot-com bubble in 2000 and a bear market in stocks, people were less enthralled with market gurus at the giant firms. Also, revelations that some Wall Street research analysts had publicly touted stocks while privately disparaging them resulted in a legal settlement between the major investment banks and former New York Attorney General Eliot Spitzer. Banks subsequently limited spending on in-house research of various kinds, including strategy. The benefits of the settlement have proven elusive, while other issues have come to dominate investor concerns.
Today, Mr. Wien says that stock trading has replaced investing, with the average holding period for stocks going from eight years in 1960 to seven months today. “I think the public feels that professionals have taken over the market and the playing field isn’t level for them,” he says, adding that as a result many investors in recent years have piled into bond funds where they perceive a better deal. “And the only thing that would change that is if the stock market started to perform very well again. Then they would feel that they’re missing something. Right now they don’t feel they’re missing anything.”
Yet Mr. Wien believes that they aremissing something. He says stocks are likely to outperform bonds, and he thinks that a lot of investors will get over their concerns about the financial system once the market is rising again. Part of his optimism lies in the fact that he isn’t sure the system is as rotten as it may seem.
Speaking of recent financial scandals, he says, “I don’t think it was any better 50 or 100 years ago. It’s just we seem to know more about it because of you.” So more media coverage is the reason so many scandals are in the news?
Give Mr. Wien credit for not succumbing to the temptation of an easy answer. Blaming an unmeasurable rise in some sort of greed quotient doesn’t help prevent the next financial crisis or scandal, nor does it necessarily help an investor decide on asset allocation. Since the 2008 crisis, some Wall Street old-timers have loudly yearned for the days when bankers had a selfless devotion to clients, though it’s not clear such days ever existed.
For his part, Mr. Wien has identified several causes of the 2008 crisis, including “the dumbest idea in the economic history of the United States.” That would be the federal policy that “every American should own their own home.”
The related problem was too much debt, to fuel a lifestyle beyond our economic capabilities, he continues. “The American people aren’t satisfied with 2% growth, so we provided leverage for them, just the way we at Blackstone sometimes borrow money on the companies we buy. Well, that happened on a national scale and we grew faster than we probably should have been growing. The same thing happened all around the world. That’s part of the explanation for Europe’s problems.”
But at least on this side of the Atlantic, he now sees reasons to be bullish. “I’m actually kind of positive on the U.S. because I think some good things are happening.” Housing has been a drag on economic growth since the crisis. But now that the bloated inventory created during the bubble years has been reduced, he expects housing to be a contributor to growth in 2013.
Thanks to fracking, a boom in domestic energy production is enriching states like North Dakota and keeping prices low for consumers nationwide, allowing them to spend more on other goods.
He expects that whoever is elected, the U.S. economy will largely avoid the “tax cliff” that includes massive federal tax increases scheduled for the end of this year. Short term he doesn’t see bad news from Europe preventing a U.S. rally, because he expects that the Europeans will postpone the inevitable break-up of their currency union at least for a while. Mr. Wien says societies generally find a way to solve their problems.
Clearly Mr. Wien has found ways to solve his. “My life has turned out so much better than I ever expected in every way,” he says, reflecting on his humble beginnings in inner-city Chicago. When he was nine years old, his father died. His mother passed away five years later. He moved in with an aunt but money was tight, so from the age of 15 he was working after school and on weekends.
One day in high school he was summoned to the principal’s office and asked whether he owned a suit and tie. When the young Byron Wien replied that he did, the school’s guidance counselor said: “We can send one kid downtown” to meet someone from Harvard’s admissions office. The college was searching for talented kids from modest backgrounds, and “you’re our pick,” said the counselor. “And Wien, when you go down there, don’t make a fool of yourself.”
“I remember it like it was yesterday. It changed my life,” Mr. Wien recalls. Once on campus, “I wanted to know everything about everything.” He wrote for the school paper and majored in chemistry and physics. He took courses in several of Harvard’s graduate schools as well, and completed an MBA.
He wanted a business career that involved writing, so after a brief and unenjoyable stint in advertising, he became a securities analyst and then a portfolio manager. In 1984, Biggs recruited him to Morgan Stanley by telling him that the firm’s management had decided he would be the perfect person to lead investment strategy for the U.S.
“Later on I learned that I was the seventh person that Barton approached with that line,” says Mr. Wien. But he was still happy to have the job. “I was going to be able to write every week and get published.”
Still, one gets the impression that it wasn’t the world’s easiest assignment. “I was fired 11 times at Morgan Stanley,” reports Mr. Wien.
The cliche is that Wall Street’s market gurus are permanently bullish stock touts, but to be clear, Mr. Wien is only optimistic relative to many of today’s sour institutional investors.
“Look, everybody longs for the days from 1982 to 1999, when stocks compounded at 15% or more. Those days are not returning any time soon,” he says.
The bad news, he adds, is that while America is the best of the developed economies, “we’re a mature country. We should only grow at about 2%” adjusted for inflation. Add in 2% inflation and 1% annual productivity gains and he says corporate earnings should be growing at 5%, down sharply from the annual average of 8.4% since 1945.
Real GDP growth of 2% is the bull case? “The world is just plain a more competitive place,” explains Mr. Wien. And he thinks it may get much more competitive. He’s bullish on emerging markets and adds that while we may think of China, for example, as a place that simply assembles our inventions like the iPad, that could easily change. “China is filing lots of patents these days. There are a lot of smart Chinese and eventually they’ll become innovators too.”
He also discusses massive federal debts in the U.S., our persistently high unemployment, and the possibility of “social unrest” as a result. He notes that there are more Americans who have been unemployed for 27 weeks or more than ever before in our history.
As it becomes difficult for me to remember what the optimistic part of his argument was, Mr. Wien says that in order to achieve robust growth, “this country has to go through almost a convulsive change.” That includes wholesale reform of U.S. education and an overhaul of the U.S. health-care system, so it becomes “oriented toward results instead of services.”
As we’re wrapping up the interview, Mr. Wien offers another perspective. “In 2007 I gave a talk in London called, ‘America has peaked.’ I didn’t give it in the U.S. because I thought I’d be stoned. . . . I said I wasn’t really worried about it because I thought it was a gradual process,” and “I thought the standard of living in London peaked in 1912 and life looked like it was still pretty good in London.”
When Mr. Wien finished his remarks, a member of the audience approached him and said that he had just flown in from Amsterdam “and I just want to tell you one thing: Holland peaked in 1617 and life is still pretty good.”
Maybe, but perhaps Americans still aren’t satisfied with 2% growth. And if the alternative is Holland, they might just opt for convulsive change.