25 Possible Surprises in Store for 2007

Doug Kass puts together a terrific list each year. They are thought-provoking, and truth be told, kinda fun. These are just the headlines; The full details are here.

These are not intended to be predictions, but rather "events that have a
reasonable chance of occurring, despite the general perception that the odds are
very long."

The real purpose of this endeavor is to consider positioning a portion of my
portfolio in accordance with outlier events — with large payoffs. After all,
Wall Street research is still very much convention and groupthink,
despite the reforms over the past several years.


25 Possible Surprises in 2007

1. Private equity deals begin the year in a spectacular fashion with
two separate $50 billion dollar acquisitions announced in January.

2. Robert E. Rubin returns to his brokerage roots and becomes the CEO
and Chairman of Salomon Brothers/Smith Barney
after Citigroup (C)
decides to break up into three separate companies: a domestic money center bank
(Citibank), investment banking/retail brokerage (Salomon Brothers/Smith Barney)
and international consumer finance (Citiglobal).

3. Based on misleading government statistics, the housing market
appears to stabilize in the first quarter of 2007.

4. However, continued heavy cancellations of home contracts (which are
included in the government releases on homes sold and lead to an erroneous
inventory
of unsold units for sale) lead to (1) a dumping of homes on the
market in the spring, (2) to a quantum increase in the months of unsold housing
inventory and (3) to a dramatic drop in the average home selling price.

5. Foreclosures steadily rise over the course of the year to nearly 3
million homes in 2007 (vs. about 1.2 million in 2006).
 

6. The magnitude of the credit problems in mortgages takes its toll on
the hedge fund industry, which is much more exposed to real estate than is
generally recognized.

7. In a panic, Congress announces a series of hearings on the
derivative industry and the Federal Reserve reduces the fed funds rate by 50
basis points in each of three consecutive meetings.
 

8. Commodity prices begin to collapse even before the mortgage market
fiasco, but the onset of the decline is initially ignored by stock market
investors.

9. Corporate profits for 2007 end up being virtually flat
(year-over-year), but the pattern is very inconsistent.

10. Equity market volatility, like credit spreads, rise exponentially.

11. Stocks begin 2007 in the way they ended 2006 — very strong — and
the S&P 500 Index temporarily breaches the 1450 level in February.

12. Fidelity Management announces the introduction of its first
dedicated short equity product.
 

13. With confidence in the markets and economies ebbing,
merger-and-acquisition activity slows to a crawl by May.

14. A well known corporate raider finds himself with a concentrated
portfolio of illiquid investments and suffers large losses.

15. America’s growing dependency on convergence and connectivity
(computers control power delivery, communications, aviation and financial
services) becomes a battleground and launching pad for a series of cyberterrorism
acts by a terrorist group in early 2007.

16. There are several political surprises in 2007. Most
significant is that New York Senator Hilary Clinton, citing personal issues,
announces that she will not run for the Democratic Presidential nomination in
2008 and that she will throw her support to former Vice President Al Gore’s
candidacy.

17. After New York Yankee baseball team owner George Steinbrenner
falls seriously ill, SAC Capital Partners’ legendary Steve Cohen acquires
majority control of the New York Yankees and, at year-end, retires from active
management at his hedge fund.

18. Wal-Mart (WMT) fails to come out of its funk and reports five
consecutive months of negative same-store sales.

19. Google (GOOG) marches on, proving its skeptics wrong, and
dramatically exceeds sales, profit and cash flow expectations.

20. Saddam Hussein is assassinated in jail even before his appeal is
concluded.
Osama Bin Laden is found dead, and initial reports indicate that
he has been dead for over 12 months.

21. A series of corruption scandals in Russia hits the emerging
markets in 2007, which further exacerbates the impact of the uneven worldwide
economic conditions and difficulties in the mortgage markets.

22. A large hedge fund lowers its investment management fees (to 0.5%)
and incentive fees (to 10%).

23. With the hedge fund ranks diminished, commodities dropping in
value and the appeal for alternative investments (private equity, real estate,
etc.) moderating, the bullish chorus for a global liquidity case for
equities becomes a feint whisper.

24. Maria
Bartiromo
leaves CNBC to join Joy Behar, Rosie O’Donnell, and Barbara
Walters on ABC’s "The
View."

25. Amidst the early 2007 stock market euphoria, Jim "El Capitan"
Cramer’s "Mad Money" show goes primetime on CBS.
But it is cancelled during
the midyear market meltdown and returns to CNBC by the Fall. CNBC extends
the show to two hours by year’s end after Cramer, The Movie reaps $38
million in its first weekend.


Source:

25 Possible Surprises in Store for 2007
Doug Kass
Street Insight, 12/11/2006 10:10 AM EST
http://www.thestreet.com/newsanalysis/investing/10327100.html

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What's been said:

Discussions found on the web:
  1. toon commented on Jan 14

    We do not need market to go down to make money even on the short side.
    We are shorting BBY, SBUX, MOT, RIMM, GOOG.
    Just added AAPL, DELL to our short list.
    Traders are not bears or cows.

  2. Craig commented on Jan 14

    LOL! Cramer the movie? Who plays Cramer?
    My money is on Gary Bussey.

  3. DrToast commented on Jan 14

    Bussey would be good. Or the “inconceivable” guy from The Princess Bride.

  4. RW commented on Jan 14

    Sound’s like Kass thinks a major head-fake could precede nasty weather later in the year.

    Inconceivable!

    Ah yes, Vizzini, “[Y]ou fell victim to one of the classic blunders. The most famous is never get involved in a land war in Asia. But only slightly less well-known is this: Never go up against a Sicilian when death is on the line!”

    Vizzini was played by Wallace (Wally) Shawn, a very talented actor/writer: He could do Cramer w/ no problem.

  5. john commented on Jan 15

    please remember doug kass is the same guy shorting homebuilders 3 years ago 2 different times before they ran 100-300% and he’s the same guy shorting gs at $70 or so before it ran to $108 in 2003. his record is awful at best but then again so is any bears

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