NEW YORK (CNN/Money) -
Stocks up big again, Osama nabbed, the Fed on hold and gold spiking to $500.
That's what the world will look like this year, according to Morgan Stanley's veteran market strategist Byron Wien.
Wien, who's put out annual forecasts for 19 years now, also thinks the mutual fund scandal will die out in 2004, the dollar will rebound, the Nikkei will rally, and Vice President Dick Cheney won't run for re-election with President Bush.
Wien made some surprisingly accurate predictions for 2003, including the big rally in stocks, a return to solid economic growth, oil prices hitting $30, and Microsoft, among other companies, starting to pay dividends.
This year, for the first time, Wien made a second, alternative list of more bearish predictions but said they do not mean he doesn't believe in the first set.
"I am doing this because I think a strong case can be made for either set and because I think it is constructive to try something new," Wien said in his "10 Surprises for 2004" report.
"Don't think I'm copping out. I'm committed to the positive set and if the year turns out negatively, I promise not to pull out the bearish surprises and say I had the right idea all along, but just went a little bit astray when I announced my bullish preference in January."
Wien's bullish outlook
Wien expects the Standard & Poor's index of 500 stocks to surge another 18 percent to about 1,300 this year. He accurately predicted last year's stock rally -- the S&P 500 rose 26.4 percent versus his forecast for a 25 percent gain.
He said the Federal Reserve will hold short-term interest rates steady all year, with inflation staying low, and predicted that the yield on the 10-year Treasury note yield will stay below 5 percent. It hovered around 4.40 percent Monday.
“ In spite of a strong economy, the Federal Reserve does not increase short-term interest rates at all during the year. ”
Byron Wien, Morgan Stanley strategist, predicting 2004 events.
But despite strength in stock and bond prices -- as well as in the dollar -- investors will flock to precious metals as they seek greater returns. Wien sees gold hitting $500 an ounce and silver soaring to $8 an ounce. Gold hit a 14-month high of about $418 an ounce Monday while silver jumped above $6, its highest in about 5-1/2 years.
Wien also predicted that Osama bin Laden will be captured, and that no major terrorist attack will hit the United States this year.
The mutual fund scandal will drop out of the spotlight as companies adopt stricter restrictions, avoiding a pullout by investors, he said.
He claims budget problems in Germany and France will hurt the euro, and that the dollar will rebound against the European currency. He sees the euro buying $1.05 versus about $1.26 currently, near its highest ever.
Among the top stock performers of 2004: Pfizer (PFE: Research, Estimates), Wyeth (WYE: Research, Estimates), and Bristol-Myers Squibb (BMY: Research, Estimates), due to the presidential candidates touting the need for more innovative drugs and research.
Wien also said multinational stocks would come back into favor, especially high quality companies such as General Electric, (GE: Research, Estimates) Microsoft (MSFT: Research, Estimates), Honeywell (HON: Research, Estimates), Coca-Cola (KO: Research, Estimates), and Altria (MO: Research, Estimates).
ConocoPhilips (COP: Research, Estimates) and BP (BP: up $0.50 to $49.90, Research, Estimates) will be big-cap outperformers after oil moves above $40, he said, due to deteriorating political conditions in Saudi Arabia.
Elsewhere, Wien said stocks will rise in Japan, boosted by the economy, with the Nikkei rising to 13,000 from about 10,825 Monday.
On the political front back home, he said Cheney won't run for re-election with President Bush, but will be replaced on the ticket by Senate majority leader Bill Frist. Meanwhile, Defense Secretary Donald Rumsfeld and his deputy Paul Wolfowitz will resign, saying their work is essentially done, he predicted.
An alternative prediction
But in his more bearish take on the new year, Wien focuses on increasing inflationary pressures and their impact on stocks, bonds and currency.
Among his alternate predictions: The S&P 500 runs out of fuel after an early rally and falls back to 1,000, the 10-year Treasury yield jumps to 6 percent, the dollar falls further and the Fed jacks short-term rates up to 4 percent.
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And despite bin Laden being captured, a terrorist attack in the United States temporarily increases the risks for investors and slows the Bush re-election campaign.
While Wien made some surprisingly accurate picks a year ago, he also made some predictions that never came to light, including the resignation of German Chancellor Gerhard Schroeder, a Hillary Clinton bid for the presidency, the resignation of former Iraqi leader Saddam Hussein, and the resignation of Fed Chairman Alan Greenspan.
Wien also missed when he said the Fed would raise rates this year and the 10-year Treasury yield would hit 5.5 percent.