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Debt, Sterling And Trump - Saxo Bank's "Outrageous Predictions"

Tom Burroughes, Group Editor , 6 December 2018

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As a way of firing up debate and preparing for big change, the bank loves to issue its "outrageous" forecasts once a year. Some of these predictions may not look as extreme to some readers as to others.

Many banks and wealth management houses avoid making big forecasts – perhaps wisely mindful of the hubris of such endeavours – but a consequence is that a lot of the thinking about the future might hold can be, well, a bit on the dull side. At Copenhagen-listed Saxo Bank, however, there is no such reticence. In recent years the firm has put out a list of “outrageous forecasts” and, in some cases, the predictions have come quite close to the mark, but in most cases, they haven’t (see the predictions last year).

The bank defines as “outrageous” as “unlikely but under appreciated events which, if they were to occur, could send shockwaves across financial markets”. The bank argues that such predictions force readers to think about what sort of action they should take in such cases, and also is a good way to jolt investors into thinking though their financial position. 

“A world running on empty will have to wake up and start creating reforms, not because it wants to but because it has to,” chief economist at Saxo Bank, Steen Jakobsen, said. 

“The signs are everywhere". He believes that 2019 will mark a profound pivot away from this mentality as we are reaching the end of the road in piling on new debt and next year will see us all beginning to pay the piper for our errant ways. "The great credit cycle is already showing signs of strain in late 2018 and will rip through developed markets next year as central banks are sent back to the drawing board. After all, their money printing efforts since 2008 have only dug a deeper debt hole, and it has now grown beyond their mandate to manage,” he added.

On its first prediction, Saxo Bank has this to say: "In 2019, the unsustainable level of public debt, a populist revolt, rising interest rates from the European Central Bank tapering/lower liquidity, and sluggish growth reopened the European debate on how to get ahead of a new crisis. Italian contagion sickens Europe’s banks as the EU lurches into recession. The ECB resorts to new TLTRO and forward guidance to limit the carnage, but it’s not enough and when contagion spreads to France, policymakers understand that the EU faces the abyss. Germany and the rest of core Europe, which refuses to let the Eurozone fall apart, have no other choice than to back monetisation. The Economic and Monetary Union extends a debt monetisation mandate to the ECB for all debt levels over 50 per cent of GDP and guarantees the rest via a Eurobond scheme while moving the controversial Growth and Stability goal posts. A new fiscal rule allowing the first 3 per cent of GDP in deficits to be mutualised in 2020 is adopted by EMU countries, with everything beyond subject to a periodic review by the European Commission linked to the state of the EU economy."


The 10 predictions:

1. EU announces a debt jubilee; 
2. Prime Minister Corbyn sends GBP/USD to parity; 
3. Trump tells Powell “you’re fired”; 
4. Germany enters recession; 
5. Apple “secures funding” for Tesla at $520/share; 
6. Corporate credit crunch pushes Netflix into GE’s vortex; 
7. IMF and World Bank announce intent to stop measuring GDP, focus instead on productivity; 
8. Global Transportation Tax (GTT) enacted as climate panic spreads; 
9. X-Class solar flare creates chaos and inflicts $2 trillion of damage, and 
10. Australia launches “TARP Down Under” after nationalising the big four banks.

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