Macron Resigns, Another Brexit Referendum, Gold at $3,000 and The Death of Private Equity: Saxo Bank’s ‘Outrageous’ Predictions For 2023
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Every year, Saxo Bank predicts outrageous future events that would shake the foundations of today’s markets. But perhaps what’s more outrageous is that they often weren’t too far off from the truth.
The UK leaving the European Union, Germany entering a recession and Bitcoin tripling in value were outrageous predictions in 2015, 2019 and 2017, respectively, that all became fact.
Chief investment officer at Saxo Steen Jakobsen explained that this year’s predictions are based on the assumption that a return to the disinflationary pre-pandemic dynamic is impossible and that the Ukrainian invasion has brought a war economy mentality back to Europe, ultimately leaving it at the mercy of global powers such as the US and China.
“We have entered into a global war economy, with every major power across the world now scrambling to shore up their national security on all fronts; whether in an actual military sense or due to profound supply-chain, energy and even financial insecurities that have been laid bare by the pandemic experience and Russia’s invasion of Ukraine,” he said.
An unprecedented year such as 2022 only makes Saxo Bank’s creative efforts easier, and “if inflation is even modestly more than half of the peak 2022 rate by late next year, outrageous outcomes are nearly a guarantee”.
The UK backs down from Brexit with Labour in No10
Amidst the economic ruin, as prime minister Rishi Sunak’s brutal fiscal programme will throw the UK into a crushing recession, public demonstrations will break out in the UK, demanding snap elections due to the lack of a popular mandate.
“Labour leader Keir Starmer, noting the popular support for a second Brexit referendum, supports a second referendum to re-join the EU along the lines of the David Cameron deal struck before the original 2016 referendum,” the bank predicted.
“A Labour government takes power in the summer, promising an UnBrexit referendum for November 1, 2023. The ReJoin vote wins.”
French President Macron resigns
Failing to deliver on his flagship pension reform promise, Emmanuel Macron will follow Charles de Gaulle’s examples of 1946 and 1969 and unexpectedly resign, paving the way for the far-right contestant Marine Le Pen and dealing a further blow to European institutions’ stability.
The bank suggested: “In the June 2022 legislative elections, president Emmanuel Macron’s party and his allies lose their outright majority in parliament, and the government will have no other choice but to pass major laws and the 2023 budget by a fast-track decree.
“However, bypassing lawmakers cannot be a way to govern in a democracy. He will therefore understand that he will be a lame duck for the next four years and resign in early 2023.”
Europe founds its army by issuing European bonds
In 2023, it will become clearer than ever that Europe needs to get the union’s defensive posture in order, being less able to rely on the increasingly fickle US political cycle and facing the risk that the US will entirely withdraw its old commitment to Europe.
“In a dramatic move, all EU members move to establish the EU Armed Forces before 2028, to be funded with €10tn in spending, backloaded over 20 years,” the bank said.
“To fund the new EU Armed Forces, EU bonds will be issued, to be funded based on keys of each member country’s GDP. This will drastically deepen the EU sovereign debt market, driving a strong recovery in the euro on the massive investment boost.”
OPEC+, China and India walk out of the International monetary fund (IMF)
“Recognising the ongoing weaponisation of the dollar by the US government, non-US allied countries will move away from the dollar and the IMF to create an international clearing union (ICU) and a new reserve asset, the Bancor (currency code KEY), using Keynes’ original idea from the pre-Bretton Woods days to thumb its nose at the practices of the US in leveraging its power over the international monetary system,” the bank said.
“Non-aligned central banks will vastly cut their dollar reserves, with US treasury yields soaring and the dollar falling 25% versus a basket of currencies trading with the new KEY asset.”
Net-zero goals push a ban on all meat production in one country
To meet the target of net-zero emissions by 2050, one report estimates that meat consumption must be reduced to 24kg per person per year, compared with the current Organisation for Economic Co-operation and Development (OECD) average of around 70kg.
“In 2023, at least one country looking to front-run others in marking out its lead in the race for most aggressive climate policy, will move to heavily tax meat on a rising scale beginning in 2025 and plan to ban all domestically produced live animal-sourced meat entirely by 2030, figuring that improved plant-derived artificial meats and even more humane, less-emissions intensive lab-grown meat technologies, will have to satisfy appetites to help save the environment and climate,” the bank forecast.
Countries with legally binding net-zero policies such as Sweden, the UK, France or Denmark are the likeliest contestants.
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The energy transition goes private
Billionaires are an impatient breed. Sick of the lack of progress in the advance of clean energy, they will set up a consortium called Third Stone. The undertaking, reminiscent of the 1942 Manhattan Project that produced the first nuclear weapons, will raise over a trillion dollars to invest in energy solutions.
“In addition to pure research and development efforts aimed at realising the potential of current and ground-breaking new technologies, the fund will focus extensively on integration as well, the Achilles’ heel of current alternative energy solutions,” the bank predicted.
A ban on tax havens kills private equity
As the war economy mentality deepens further in 2023, and defence spending, reshoring and investments in the energy transition will prove expensive, governments will look for all available potential tax revenue sources and find some low-hanging fruits in haven-enabled tax dodgers.
“In 2023, the OECD will launch a full ban on the largest tax havens in the world. In the US, the carried interest taxed as capital gains is also shifted to ordinary income. The EU tax haven ban and US change to the carried interest taxation rule will jolt the entire private equity and venture capital industries, shutting down much of the ecosystem and seeing publicly-listed private equity firms dealt a 50% valuation haircut,” the bank said.
Price caps are introduced to tackle inflation
Nearly all wars have brought price controls and rationing, seemingly as inevitable as battle casualties.
“Governments will actively subside excess demand by capping heating and electricity prices for consumers. In France, utilities will go bankrupt and be nationalised. The bill is passed to the government, then to the currency via inflation,” the bank said.
“The thinking among policymakers is that rising prices somehow suggest market failure and that more intervention is needed to prevent inflation from destabilising the economy and even society. In 2023, expect broadening price and even wage controls, maybe even something like a new National Board for Prices and Incomes being established in the UK and the US.
“But controlling prices without solving the underlying issue will not only generate more inflation, but also risk tearing at the social fabric through declining standards of living due to disincentives to produce, and misallocation of resources and investment.”
Central banks fail to control inflation. Commodities and gold rally
The next outrageous prediction is that gold will rocket to $3,000, finally finding its footing after a challenging 2022.
The investment bank said: “The market will finally discover that inflation is set to remain ablaze for the foreseeable future. Fed policy tightening and quantitative tightening will drive a new snag in US treasury markets, forcing new sneaky ‘measures’ to contain treasury market volatility that really amounts to new de facto quantitative easing.”
China will do its part by abandoning its zero-Covid policy and unleashing a profound new surge in commodity prices. This will send inflation soaring, “especially in increasingly weak dollar terms as the Fed’s new softening on its stance punishes the greenback.”
“In 2023, the hardest of currencies will receive a further blast of support from three directions. First, the geopolitical backdrop of an increasing war economy mentality of self-reliance and minimizing holdings of foreign FX reserves, preferring gold,” the banks said.
“Second, the massive investment in new national security priorities, including energy sources, the energy transition, and supply chains. Third, rising global liquidity, as policymakers move to avoid a debacle in debt markets as a mild real growth recession takes hold.”
Japan pegs dollar-yen at 200 to sort out its financial system
Lastly, the bank said: “The pressure on the yen and the Japanese financial system will mount again on the global liquidity crisis set in motion by the vicious Fed policy tightening and higher US treasury yields.
“With the dollar-yen soaring beyond 180, the government and central will declare a floor on the yen at 200, announcing that this will only be a temporary action of unknown duration to allow for a reset of the Japanese financial system.
“The move puts the public debt on course to fall to 100% of GDP at the end of the BoJ operations, less than half its starting point. The BoJ policy rate is then hiked to 1% and all yield-curve control is lifted, which allows the 10-year rate to jump to 2%. Banks are recapitalised as needed to avoid insolvency and tax incentives for repatriating the enormous Japanese savings held abroad see trillions of yen returning to Japanese shores, also as Japanese exports continue to boom.
“In consequence, Japan’s real GDP drops by 8% on reduced purchasing power even as nominal GDP rises 5% due to cost-of-living increases, but the reset puts Japan back on a stable path and establishes a tempting crisis-response model for a similar crisis inevitably set to hit Europe and even the US eventually.”