Byron Wien, chief investment strategist for Pequot Capital, has once again published his annual list of economic, market and political surprises. Last year, he got about half of his predictions right. He predicted gold bullion at $800, oil at $80, surging grain prices, and the rise in Latin America’s economies.

Wien believes that his ten surprises have at least a 50% chance of success in 2008. Although not a very high probability, they still make for interesting reading. Here’s his list for 2008, courtesy of Portfolio.com.

1. In spite of Federal Reserve easing, and other policy measures, the United States economy suffers its first recession since 2001 as housing starts stay soft and banks are reluctant to lend to anyone where a whiff of risk is apparent. Federal funds drop below 3%. The unemployment rate moves definitively above 5% and consumer spending is lackluster.

I think this is highly likely to come true. I’ve been saying there’s a chance of recession for a while, so maybe I’m biased, but I think there’s a 90% likelihood of this prediction coming true.

2. Standard and Poor’s 500 earnings decline year-over-year and the index drops another 10%. Energy and materials stocks hold up relatively well in what is viewed as a correction rather than a bear market. Market conditions start to improve during the summer.

Again, I agree with most of this. If the economy does go into recession, S&P500 stocks will see their earnings shrink. I’m heavily weighted in energy and commodity and I think they’ll do well. Don’t know about the summer prediction though. I thought the market usually went through summer doldrums as everyone goes on vacation! Maybe due to the weak dollar, inflationary climate and recession people might not go on vacations this summer!!!!

3. The dollar strengthens in the first half reaching US$1.35 against the euro and weakens in the second exceeding US$1.50. The European Central Bank begins an accommodative monetary policy. Foreign investors flock in to buy cheap assets in the US early in the year but the dollar declines later as several countries holding large reserves diversify into other assets.

Not sure if the dollar will strengthen that much, but at the end of the year, I’m definitely expecting it to be weaker than it is today. It seems that me that most countries are in a race to weaken their currencies and so-far the US is “winning”. I think that foreign investors and sovereign wealth funds will definitely start to pick up US assets as their currencies become stronger. Not that its necessarily a wise thing to do, but it’ll probably happen anyway.

4. Inflation rises above 5% on the Consumer Price Index as higher commodity prices and oil finally begin to have an impact in spite of modest wage increases. The 10-year US Treasury yield rises to 5%. Stagflation becomes a frequent presidential campaign and Op-Ed discussion topic.

I agree with the inflation part. I think that the 10 year US Treasury yield will drop a little bit. Its currently at 3.9%. I think it’ll go to 3% rather than 5%. Stagflation is definitely on the cards.

5. The price of oil goes down early in the year and up later, sinking to US$80 a barrel in the first half as western economies slow and inventories are drawn down, and rising to US$115 in the second. Established wells continue to decline in production while China, India and the Middle East increase their consumption.

Very likely scenario. That’s why I’ve been buying Canroys on dips.

6. Agricultural commodities remain strong. Corn rises to US$6 a bushel and cotton to US$0.85 a pound. Gold reaches US$1,000 an ounce as disillusionment with paper currencies spreads across Asia.

Bush’s great ethanol idea will cause Corn prices spike. As more crops are replaced to plant Corn, they’ll start rising too. Since corn is used as animal-feed, milk prices might also increase along with meat prices. I definitely agree with Gold rising further. I’ve been bullish since it was $505/oz and I think it’ll eventually exceed $3,000/oz.

7. The recession in the United States slows the Chinese economy modestly but its stock market declines sharply. Investors recognize that paying biotechnology stock multiples for highly cyclical companies doesn’t make sense. The Chinese revalue the renminbi by another 10% to control inflation and as a gesture to foreign governments participating in the Olympic Games who complain that Chinese terms of trade are unfair. Several long distance runners refuse to compete in certain Olympic events because of continuing air pollution problems.

The Chinese market correcting definitely sounds plausible. Not too sure about the Olympic runners though. I think the Chinese Government will ban all polluting vehicles and industries 2 months before the games!!! Heck, they might even enforce a ban on cooking!

8. The new Russian President Dmitry Medvedev, under the tutelage of Vladimir Putin, becomes more assertive in world affairs. He insists that Russian oil and gas be paid for in rubles and demands a Russian seat at major world conferences. Russia and Brazil stock markets lead the BRICs. The Gulf Cooperation Council markets begin to attract interest among emerging market investors.

The Petro-Rubble? Well, why not? Seems like the smart thing to do!

9. Infrastructure improvement becomes an important election theme for both parties and construction and engineering stocks rally in anticipation of huge programs beginning after the new President’s inauguration. Water becomes a critical problem world-wide and desalination stocks soar.

After the bridge that collapsed in Mississippi, I hope infrastructure development does become more important. Water is probably the next “oil”.

10. Barack Obama becomes the 44th President in a landslide victory over Mitt Romney. With conditions in Iraq improving, the weak economy becomes the determining issue in voters’ minds. They want to make sure that gridlock ends and Congress gets something done for a change. The Democrats end up with 60 Senate seats and a clear majority in the House of Representatives.

I hope not! I’m keen on Ron Paul winning.