FORTUNE -- In January 1986, Morgan Stanley investment strategist Byron Wien published a list of 10 "surprises" for the upcoming year. He is now vice chairman of The Blackstone Group's (bx) advisory practice, but is still making predictions.
For Wien,"surprises" are events that the average investor would only assign a one-out-of-three chance of taking place, but which he believes are “probable” (i.e., having a better than 50% likelihood of happening). What follows is his list of surprises for 2014.
1. We experience a Dickensian market with the best of times and the worst of times. The worst comes first as geopolitical problems coupled with euphoric extremes lead to a sharp correction of more than 10%. The best then follows with a move to new highs as the Standard & Poor's 500 (spx) approaches a 20% total return by year end.
2. The U.S. economy finally breaks out of its doldrums. Growth exceeds 3% and the unemployment rate moves toward 6%. Fed tapering proves to be a non-event.
3. The strength of the U.S. economy relative to Europe and Japan allows the dollar to strengthen. It trades below $1.25 against the euro and buys 120 yen.
4. Shinzo Abe is the only world leader who understands that Dick Cheney was right when he said that deficits don’t matter. He continues his aggressive fiscal and monetary expansion, and the Nikkei 225 rises to 18,000 early in the year, but the increase in the sales tax, the aging population, and declining work force finally begin to take their toll and the market suffers a sharp (20%) correction in the second half.
5. China’s Third Plenum policies to rebalance the economy toward the consumer and away from a dependence on investment spending slow the growth rate to 6% in 2014. Chinese mainland traded equities have another disappointing year. The new leaders emphasize that their program is best for the country in the long run.
6. Emerging market investing continues to prove treacherous. Strong leadership and growth policies in Mexico and South Korea result in significant appreciation in their equities, but other emerging markets fail to follow their performance.
7. In spite of increased U.S. production, the price of West Texas Intermediate crude exceeds $110. Demand from developing economies continues to outweigh conservation and reduced consumption in the developed world.
8. The rising standard of living and the shift to more consumer-oriented economies in the emerging markets result in a reversal of the decline in agricultural commodity prices. Corn goes to $5.25 a bushel, wheat to $7.50 and soybeans to $16.00.
9. The strength in the U.S. economy coupled with somewhat higher inflation causes the yield on the 10-year U.S. Treasury to rise to 4%. Short-term rates stay near zero, but the increase in intermediate-term yields has a negative impact on housing and a positive effect on the dollar.
10. The Affordable Care Act has a remarkable turnaround. The computer access problems are significantly diminished, and younger people begin signing up. Obama's approval rating rises, and in the November elections the Democrats not only retain control of the Senate but even gain seats in the House.
Every year there are always a few surprises that do not make the Top 10 either because I do not think they are as relevant as those on the basic list or I am not comfortable with the idea that they are “probable.”
- Through a combination of intelligence, extremism, celebrity, and cunning Ted Cruz emerges as the clear front-runner for the 2016 Republican presidential nomination. Chris Christie and the moderates fade in popularity as momentum builds for fiscal and social conservative policies.
- In 2½ years the price of a Bitcoin has increased from $25 to $975. The supply of Bitcoins is fixed at 21 million with 11.5 million in circulation. Bitcoins lack gold’s position as a store of value over time. During the year Bitcoin’s acceptance collapses as investors realize that it cannot be used as collateral in financial transactions and its principal utility is for illegal business dealings where anonymity is important.
- Overcoming objections from the Cuban exile community, President Obama opens discussions on initiating trade and diplomatic relations with Cuba. A reduction in sanctions is proposed, as well as limited financial support in the form of bonds, quickly dubbed as “Castro convertibles.”
- Hillary Clinton decides not to run for President in 2016. She says her work with various Clinton non-for-profit initiatives is important and unfinished. Specifically, she explains that her health was not an issue in her decision. The Democratic race for the top seat becomes chaotic.
How did Wien do last year? Check out his 2013 predictions here.