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Saxo's Outrageous Predictions For 2022, Nothing Short of "Revolting"

Jackie Bennion Deputy Editor 6 December 2021

Saxo's Outrageous Predictions For 2022, Nothing Short of

It's the time of year when Saxo delivers its annual Outrageous Predictions, giving the bank’s analysts and money managers license to mix plausible happenings with a few mythical liberties. “Revolution” is this year’s theme.

Online trading and investment specialist Saxo Bank has made releasing its 10 Outrageous Predictions an annual tradition. The top two items on the list this year see climate change efforts in the crosshairs with the prediction that ending the use of fossil fuels has taken “a rain check,” while FaceBook is heading for a “faceplant” as it hemorrhages younger users.

The Danish-based investment bank qualifies the list as “unlikely but under-appreciated events that could send shockwaves across financial markets” should they occur.  The list is compiled with enough plausibility and chutzpah to be enjoyable but with serious undertones about how we are doing collectively to improve our planetary state.

Saxo’s chief investment officer, Steen Jakobsen, said the group chose revolution as a theme this year because “there is so much energy building up in our inequality-plagued society and economy.

“Add to that the inability of the current system to address the issue and we need to look into the future with a fundamental view that it’s not a question of whether we get a revolution but more a question of when and how,” Jakobsen said.

With those provocations in mind, here is the headline summary of what Saxo has forecast for next year:
1. The plan to end fossil fuels gets a rain check
Summary: Policymakers kick climate targets down the road and support fossil fuel investment to fight inflation and the risk of social unrest while rethinking the path to a low-carbon future.

Market impact: The iShares Stoxx EU 600 Oil and Gas ETF surges 50 per cent as the whole energy sector gets a new lease on life.

2. Facebook faceplants on youth exodus
Summary: The young abandon Facebook’s platforms in protest at the mining of personal information for profit; the attempt by Facebook parent Meta to reel them back in with the Metaverse stumbles.

Market impact: Facebook parent company Meta struggles, down 30 per cent versus the broader market and is urged to spin off its components as separate entities, shattering Zuckerberg’s monopolistic dreams.
3. The US mid-term election brings constitutional crisis
Summary: The US mid-term election sees a stand-off over the certification of close Senate and/or House election results, leading to a scenario where the 118th Congress is unable to sit on schedule in early 2023.

Market impact: Extreme volatility in US assets as US Treasury yields rise and the US dollar drops on hedging against the existential crisis in the world’s largest economy and issuer of the world’s reserve currency of choice.
4. US inflation reaches above 15 per cent on wage-price spiral
Summary: By the fourth quarter of 2022, the wages for the lower half of US incomes will rise at an annualized 15 per cent clip as companies scramble to find willing and qualified workers who are increasingly selective on the back of a rising sense of entitlement as jobs are plentiful relative to the meager availability of workers at all skill levels.

Market impact: Extreme volatility in US equity and credit markets. The JNK high-yield ETF falls as much as 20 per cent and the VIXM mid-curve volatility ETF soars as much as 70 per cent.

5. EU Superfund for climate, energy and defense announced to be funded by private pensions
Summary: To defend against the rise of populism, deepen the commitment to slowing climate change, and defend its borders as the US security umbrella recedes, the EU launches a bold $3 trillion Superfund to be funded by pension allocations rather than new taxes.

Market impact: Bond yields harmonize across Europe, leading to German Bunds underperforming. EU defense, construction and new energy companies are some of the best performers.

6. Women’s Reddit Army takes on the corporate patriarchy
Summary: Mimicking the meme stock Reddit Army tactics of 2020 to 2021, a group of women traders launch a coordinated assault on companies with weak records on gender equality, leading to huge swings in equity prices for targeted companies.

Market impact: The movement gets real results as the broader market catches on to the theme and joins in, forcing targeted company prices to lower sharply, which will see companies scrambling to change their ways. It marks the beginning of a gender parity renaissance in markets.
7. India joins the Gulf Cooperation Council as a non-voting member
Summary: The world’s geopolitical alliances will lurch into a phase of drastic realignment as we have an ugly cocktail of new de-globalizing geopolitics and much higher energy prices.

Market impact: The Indian rupee proves far more resilient than its EM peers in a volatile year for markets. The bubbly Indian stock market corrects with other equity markets in early 2022 but proves a strong relative performer from the intra-year lows.

8. Spotify disrupted due to NFT-based digital rights platform
Summary: Musicians are ready for change as the current music streaming paradigm means that labels and streaming platforms capture 75 to 95 per cent of revenue paid for listening to streamed music. In 2022, new blockchain-based technology will help them grab back their fair share of industry revenues.

Market impact: Investors recognize that Spotify’s future is bleak, sending its shares down 33 per cent in 2022.
9. New hypersonic tech drives space race and new cold war
Summary: The latest hypersonic missile tests are driving a widening sense of insecurity as this tech renders legacy conventional and even nuclear military hardware obsolete. In 2022 a massive hypersonic arms race develops among major militaries as no country wants to feel left behind.

Market impact: Massive funding for companies like Raytheon that build hypersonic tech with space delivery capabilities and underperformance of “expensive conventional hardware” companies in the aircraft and shipbuilding side of the military hardware equation.
10. Medical breakthrough extends average life expectancy by 25 years
Summary: Young forever or for at least a lot longer. In 2022, a key breakthrough in biomedicine brings the prospect of extending productive adulthood and the average life expectancy by up by 25 years, prompting projected ethical, environmental and fiscal crises of epic proportions.

Jakobsen asserts that a culture war is raging where divisions are no longer simply between the rich and the poor. “It’s the young versus the old, the educated class versus the less educated working class, real markets with price discovery versus government intervention, stock market buy-backs versus R&D spending, inflation versus deflation, women versus men, the progressive left versus the centrist left, virtue signaling on social media versus real changes to society, the rentier class versus labor, fossil fuels versus green energy, ESG initiatives versus the need to supply the world with reliable energy. The list go on,” he ventures.

The bank commends the world for collaborating on COVID vaccines in 2020 and 2021 but suggests that a new "Manhattan Project" is now required that can set the marginal cost of energy - adjusted for productivity - on course to much lower levels and help eliminate the impact that energy generation is having on the environment.

“Such a move would unleash the most significant productivity cycle in history: we could desalinate water, make vertical farms feasible almost anywhere, increase computer powers to quantum states, and continue to explore new boundaries in biology and physics,” Jakobsen said.

Every revolution has winners and losers, he asserts: “But that’s not the point. If the current system can’t change but must, a revolution is the only path forward."

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