Possible Improbables

Doug Kass is out with his annual list of long shot events that have a better chance of occurring than most people expect. They are, as always, quite intriguing and thought provoking.

Interestingly, almost half of Kass’ last year’s improbable surprises came to pass (up from 33% in 2006 and 20% in 2005).

Its subscription only, but will eventually get moved to the free site. Consider this a teaser — these are just the headlines, without the  full analysis/explanation.

Without further ado, here is the excerpted list of 20 improbable surprises:


Kass’ 20 Surprises for 2008

1. The Housing Depression of 2007 morphs into the Retail Spending Depression of 2008.

2. Corporate profits drop by 10% in 2008.

3. The S&P 500 Index falls by 5%-10% in 2008.

4. Volatility pushes even higher. Daily moves of 1%-2% become commonplace.

5. The Federal Reserve eases monetary policy in 2008, with nearly every meeting accompanied by a 25 bp cut.

6. Growth in the Western European economies deteriorates.

7. The Chinese juggernaut continues apace. Chinese stock market doubles again in 2008.

8. The Japanese market puts on a surprising resurgence.

9. The housing bust accelerates. High profile bankruptcies in 2008 include Countrywide Financial (CFC), Beazer Homes (BZH), Hovnanian (HOV), Standard Pacific (SPF), WCI Communities (WCI) and Radian Group (RDN).

10. Financial stocks fail to recover.

11. Research in Motion (RIMM), Apple Computer (AAPL) and Google (GOOG) move into bubble status and their shares double in 2008.

12. Yahoo! (YHOO) and eBay merge. So do Amazon (AMZN)and Overstock.com (OSTK).

13. General Electric (GE) will sell NBC Universal to Time Warner (TWX), which will not sell or spin off AOL.

14. U.S. dollar’s value falls by over 10% in 2008; Gold rises to over $1,000/oz.

15. The price of crude oil eclipses $135/barrel.

16. Acts of cyberterrorism occur that compromises the security of a major government. Financial markets will be exposed to hackers.

17. The Hedge fund community are disintermediated in 2008. Outflows accelerate.

18. There are several Enron-like accounting scandals in 2008.

19. Democrats Clinton/Kerrey and Republicans McCain/Crist represent their parties in the Presidential/Vice Presidential contest in November. Democrats grab the White House.

20. Sovereign Wealth Funds become targets of American politicians.


Thanks for putting this together, Doug. It’s a terrific, fun exercise in creative thinking.  (The full version can be seen at Real Money Silver).



Kass’ 20 Surprises for 2008
Doug Kass
Real Money Silver, 12/31/2007 7:56 AM EST   

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What's been said:

Discussions found on the web:
  1. ken h commented on Dec 31

    So what’s the bad news?

  2. Crazy Uncle commented on Dec 31

    I would add a couple to this list.

    1. Many pension fund managers get fired due to the large amount of bad debt that is found to be held by the pension funds.

    2. Pension costs will help to hammer earnings as actuaries (with help from their auditors) realize that bond funds are not going to realize a 9.5% return.

  3. Eric Davis commented on Dec 31

    Great list,

    I say he is off on 5, Maybe the fed lowers rates 2 of the next 3, then every other, till October, and they start again….

    But I’ll hold out some hope for some tightening action, cause we always have to have hope.

    9, add ACA and possibly MBIA

    13, how if Time Warner just allows AOL to finally collapse

    19, I’d vote for McCain.

  4. dblwyo commented on Dec 31

    Thanks for posting that. A fascinating list. Will you put up the full discussion when it becomes available ?
    And is last year’s available anywhere as well ? That’d be interesting to see how it turns out.

    A couple of this years are real surprises but the first six look to me as if they’re very well grounded and based on available data and analysis, e.g. CalculatedRisk.

  5. Mark E Hoffer commented on Dec 31

    He just might bat 1.000 this year. Though, what would AMZN want with OSTK? And, wouldn’t 1., 6., & 14. put a pinch on 8. ?

  6. Mr. Obvious commented on Dec 31

    The first thing that comes to mind is the section from “Inside the Investor’s Brain – The Power of Mind Over Money,” page 177: “When an outcome is possible, but not probable, people tend to overestimate its chance of occurring . . . When an outcome is likely, people tend to underestimate its odds.” It would be interesting to see probability assignments from Doug and others.

  7. Mike G. commented on Dec 31

    I think #8 is the least likely to come true. If anything, Japan looks to be slumping back into their hole. What new stimulus hits Japan in ’08? China? I said “new” stimulus. A strengthening dollar (and quasi pegged yuan) vs. yen, perhaps, but I don’t think that’s in the cards either. Lower oil might give it a bit of a boost but we’ll see $100/bbl oil before $70/bbl oil so they’ll be digging out of an even deeper hole. Perhaps there will be a massive tourist wave of people stopping in after their China stay to compare and contrast? No.

  8. russell120 commented on Dec 31

    He seems to be avoiding the geopolitical: fair enough.

    But there are any number of long shot scenarios in that theater that would be very bad if even one of them came true. If you consider that whole stock markets have disappeared in the past, most of the huge disasters in finance are related to the geo-political spectrum. The US because of its historical (but not present) isolation managed to avoid many of them.

    You also have a few positive long shots as well: Iraq is on the cusp of (sort of) working itself out.

  9. Deepish Thinker commented on Dec 31

    In order to be a surprise something must be surprising. Would, “Sovereign Wealth Funds become targets of American politicians.”, seriously shock anyone?

  10. stckpkr7000 commented on Dec 31

    I disagree with #3 as a 20% correction is WAY overdue and needed at this point. A total wash out…….. Isn’t this the lonest market run without a 20%+ pullback ever?

  11. Boom2Bust.com commented on Dec 31

    Every year, the strategy team at Danish investment bank Saxo Bank also puts together a list of ten long-shot predictions for the new year. In addition to crude oil at $175 a barrel, the UK economy taking a “nosedive,” and a major Chinese stock market correction, Saxo is predicting a Ron Paul victory in the 2008 U.S. presidential election…

    “Investment Banks Predicts Ron Paul Victory As Economy Weakens”

  12. Eric Davis commented on Dec 31

    Re: Japanese recovery….

    I’ve thought seriously about this as a great contrarian play…..

    but The reason Japan did so well for so long was because they had China building all their crap, and would play middle man to the U.S…… Problem with a recovery is they have to re-invent their roll in the global economy… Maybe more high end roll in electronics and Cars.

    Cause China/walmart just cut them out of the Pie.

    So… how about japan in 2009.

  13. Datanerd commented on Dec 31

    I think that #6 and the first part of #14 won’t both happen, unless you’re denominating a falling dollar in something other than Euro. I think the Euro will be dropping due to #6, and the dollar will be less weak than the Euro (How’s that for an endorsement).

    Also, with declines in US and European economies, and the implications this has for China, oil will drop to somewhere around $65-70 a barrel.

    As for #19, I think it will be Edwards/Someone else (Dodd possibly, probably not Obama, definitely not Clinton) and McCain/Huckabee.

  14. MAS (Seattle) commented on Dec 31

    Datanerd is right about oil.

    I’m amazed at how many predictions I see which say the economy is going to hell – yet oil will continue to soar in price. Major asset deflation and rising oil? Really? Do people believe that or they just hedging?

    And if Kass believes we are heading for a retail Depression, how does that equate to a doubling of the China market? Don’t we get a large chunk of our retail from there? Reads like another hedge to me.

  15. Stuart commented on Dec 31

    There’s a transition of money flows underway in China. Less spending on US treasuries and more internally to increase local consumption.

  16. fatbear commented on Dec 31

    I suggest someone smarter than me go over to Intrade and open up 20 contracts – let’s see what the hoi polloi (and those traders are more polloi-y than we are here) make of Kass.

  17. Smelli Cartelli commented on Dec 31

    One thing for sure, whatever happens the brilliant morons that run most hedge funds will have some convoluted bs answer for this or that. Hours and hours of entertainment on cnbc.

    Isn’t it really all about your education being completed inside the cave, where the shadow bearers brought you up and nurtured you in their beliefs, but suddenly the light of day breaks through and the shadows of your once “reality” become testament to your slavery?

  18. Mike B commented on Dec 31

    AMZN would never, ever merge with Overstock. Ebay and Yahoo makes much more sense, although I think GOOG or AMZN will buy/merge with ebay.

  19. michael schumacher commented on Dec 31

    sorry Dougie…you lost me when you complained about the costs of you’re vacation under the guise of how costs have increased for americans abroad.

    Who pays $24 for a Belini?? Only a hedge fund manager…

    i hope no one fell for his “I’m shorting Amazon because profit margins will be down”

    Earth to Kass: Amazon cooks it’s books with it’s receivables (and just bought another way to pad that stat) along with basically operating a retailer in disguise of a hedge fund.

    Kass is fast becoming the Cramer of the short side.


  20. Eric Davis commented on Dec 31

    The part of the amazon trade that I haven’t heard, is that it’s the price of gas. Even if you have the time to run around buying crap, when you realize that you can sit in your office and order stuff and even with shipping it’s less than that gas would be, and it’s more efficient with your time….
    so… oil goes to $50 short amazon.

    Doesn’t make as much sense in NYC, but when you get into the urban sprawl of America, $5 bucks in shipping, is much less than gas.

    But as long as gas stays up stay long amazon.

    Now for the real business of the day.What was Barry’s guess on the S&P for 2007? 1450??? that’s doable….

  21. m3 commented on Dec 31


    Major asset deflation and rising oil?

    obviously, oil isn’t a financial asset, it’s a commodity. commodities and financial assets have little to no price correlation.

    if commodity prices deflated between 1980-2000, while financial assets inflated, why can’t the opposite happen? the 1970’s had inflating commodity prices within a stock bear market, remember?

  22. jab commented on Dec 31

    Not sure a 5% correction in the S&P is a “long shot”

  23. donna commented on Dec 31

    1 is not a surprise, it is a certainty. 2 is a likely follow on from that.In fact the whole list certainly looks possible, at least.

    If these are considered supposedly “improbable”, it’s no wonder most of Wall Street doesn’t seem to get it lately.

  24. scm0330 commented on Dec 31

    i’m not sure who has changed more, me or dougie, but when i’d read his predictions in years past i would find them truly provocative. they’d make me stop and question things. this list reads like conventional wisdom. it also feels like he has deliberately set a low bar for himself, so that we can all be treated to a mid-year victory lap on how smart and prescient he was/is. not sure why he gets all the attention that he does, frankly; it reminds me of the woody allen observation that 90% of life is showing up.

  25. John commented on Dec 31

    If the Dems grab the White House as you
    predict, Nov. and Dec. 2008, alone, could
    be worth 5 to 10 negative S&P percentage

  26. Pat Gorup commented on Dec 31

    “Kass is fast becoming the Cramer of the short side”.

    Speaking of the latter; I predict that he will miss his closing number for the DOW more in 2008 than in 2007. His prediction for 2007 was 14,548 (short by about 9%).

  27. Unscripted Thoughts commented on Dec 31

    How about high profile bank failure(s) provoking a derivatives avalanche that pushes 1-4 & #10 over the edge?

  28. blam commented on Jan 1

    Yes – 1,2,3,4,5,6,9,10,14,17,18,19
    NO – 7,8,11,12,13,15,16,20

    60 pct

    Remember kids – if you play the game based on Doug Kass’s public statements – you will get creamed.

  29. rickrude commented on Jan 1

    I like Kass, my portfolio is almost exactly aligned with his outlook.

    I love his outlook.

    With pain, comes opportunity.

  30. Greg0658 commented on Jan 2

    ummm – some scary thoughts –
    loose lips sink ships
    words can form convoys

  31. Scott Brooks commented on Jan 2

    1. Level 3 assets and the $500 trillion in derivatives are my wild card for 08′

    2. Sugar And Cotton play “catch up” in 08′

    Does anyone on the board have an opinoin on the research by Satyajit Das?

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