Investment Strategies

Tax Haven And Meat Bans, Surging Gold And Energy Project – Saxo's "Outrageous Predictions"

Editorial Staff 7 December 2022

Tax Haven And Meat Bans, Surging Gold And Energy Project – Saxo's

A familiar end-of-year event is when the Danish wealth management and trading platform sets out bold predictions, reflecting its biases, hopes and ideas about what might be possible. Designed to entertain and also stimulate thinking, here are the 10 predictions for 2023.

Prediction is difficult  But whatever the difficulties, having some idea of what the future might hold is important for wealth managers when trying to set asset allocation and frame clients' expectations. A firm which is not afraid to make bold predictions – even if they are “outrageous” – is Denmark’s Saxo Bank. The team know that some of their ideas might not pan out at all, but the point is to prompt fresh thinking, and be willing to challenge preconceived ideas. And, as the firm likes to point out, some of its predictions have turned out to be on the money. 

“This year’s Outrageous Predictions argue that any belief in a return to the disinflationary pre-pandemic dynamic is impossible because 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,” Steen Jakobsen, chief investment officer, Saxo Bank, said. 

Here are Saxo’s predictions for 2023:

Billionaire coalition creates trillion-dollar Manhattan project for energy
“In 2023, owners of major technology companies and other technophile billionaires will grow impatient with the lack of progress in developing the necessary energy infrastructure that would allow them to both pursue their dreams as well as address the needed energy transition. Teaming up, they create a consortium code-named Third Stone, with the goal of raising over a trillion dollars to invest in energy solutions.”

"Market impact: the companies that partner with the Third Stone consortium and can help realise its vision soar in value in an otherwise weak investment environment."

French President Macron resigns
“The June 2022 legislative elections saw President Emmanuel Macron’s party and his allies lose their outright majority in Parliament. Confronted with a strong opposition from the left-wing alliance NUPES and Marine Le Pen’s far-right National Rally, the government has no other choice but to pass major laws and the 2023 budget by a fast-track decree – triggering the constitution's Article 49.3. Nevertheless, bypassing lawmakers cannot be a way to govern in a democracy. He therefore understands that he will be a lame duck for the next four years and he will not be able to pass his signature pension reform. Following the example of Charles de Gaulle in 1946 and 1969, Macron unexpectedly decides to resign in early 2023. Macron’s resignation opens the door of the Élysée Palace to the far-right contestant Le Pen, thus causing a wave of stupefaction throughout France and beyond and setting up the latest existential challenge to the EU project and its shaky institutional foundations.”

Gold rockets to $3,000 as central banks fail on inflation mandate
“In 2023, gold finally finds its footing after a challenging 2022, in which many investors were left frustrated by its inability to rally even as inflation surged to a 40-year high. 2023 is the year that the market finally discovers that inflation is set to remain ablaze for the foreseeable future. Fed policy tightening and quantitative tightening drives a new snag in US treasury markets that forces new sneaky ‘measures’ to contain treasury market volatility that really amounts to new de facto quantitative easing. And with the arrival of spring, China decides to pivot more fully away from its zero-Covid policy, touting effective treatment and maybe even a new vaccine. Chinese demand unleashed again drives a profound new surge in commodity prices, sending inflation soaring, especially in increasingly weak dollar terms as the Fed’s new softening on its stance punishes the greenback. Under-owned gold rips higher on the sea-change reset in forward real interest rate implications of this new backdrop.”

In 2023, the hardest of currencies receives a further blast of support from three directions. First, the geopolitical backdrop of an increasing war economy mentality of self-reliance and minimising holdings of foreign FX reserves, preferring gold. Second, the massive investment in new national security priorities, including energy sources, the energy transition, and supply chains. Third, rising global liquidity as policy makers move to avoid a debacle in debt markets as a mild real growth recession takes hold. Gold slices through the double top near $2,075 as if it wasn’t there and hurtles to at least $3,000 next year.”

Foundation of the EU armed forces
“Russia’s invasion of Ukraine brought the largest ‘hot war’ to Europe since 1945, and the 2022 US midterm elections saw a strong surge in the right-wing populist Republican representation in Congress, with former president Trump declaring his candidacy for the presidency in 2024. In 2023, it becomes 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, perhaps after a Ukrainian-Russian armistice.

“In a dramatic move, all EU members move to establish the EU Armed Forces before 2028, with the aim of establishing a fully-manned and deployable land, sea, air and space-based operational forces, to be funded with EUR 10 trillion in spending, backloaded over 20 years. To fund the new EU armed forces, EU bonds are issued, to be funded based on keys of each member country’s GDP. This drastically deepens the EU sovereign debt market, driving a strong recovery in the euro on the massive investment boost.”

A country agrees to ban all meat production by 2030
“To meet the target of net-zero emissions by 2050, one report estimates that meat consumption must be reduced to 24 kg per person per year, compared with the current OECD average of around 70 kg. Countries most likely to consider the food angle on climate change will be those that have legally binding net-zero emissions targets. Sweden has pledged to reach carbon neutrality by 2045, while others like the UK, France and Denmark are aiming for 2050.

"But a carrot and stick approach rarely works, and in 2023, at least one country looking to front-run others in marking out its lead in the race for most aggressive climate policy, moves to heavily taxed meat on a rising scale beginning in 2025. In addition, it plans 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.”
 


UK holds UnBrexit referendum
“In 2023, Rishi Sunak and Jeremy Hunt manage to take Tory popularity ratings to unheard-of lows as their brutal fiscal programme throws the UK into a crushing recession, with unemployment soaring and, ironically, deficits soaring too as tax revenues dry up. Public demonstrations break out, demanding that Sunak call snap elections because of the lack of a popular mandate. Amidst the economic ruin, polls even in England and Wales indicate second thoughts on the wisdom of Brexit. Sunak finally caves and calls an election, resigning to allow a new Tory profile to take charge of the battered party. 

“Labour leader Keir Starmer, noting the popular support for a second Brexit referendum and the Lib Dems surging in the polls as they clamour for a new referendum, runs on a platform of non-alignment on the Brexit question but supports a second referendum to rejoin the EU along the lines of the David Cameron deal struck before the original 2016 referendum. A Labour government takes power in Q3, promising an UnBrexit referendum from 1 November 2023. The ReJoin vote wins.

“Market impact: after a weak performance in early 2022, sterling recovers 10 per cent versus the euro and 15 per cent versus the Swiss franc on the anticipated boost to the London financial services sector."

Widespread price controls are introduced to cap official inflation
“Inflation will remain a challenge to control as long as globalisation continues to run in reverse and long-term energy needs remain unaddressed.

“Nearly all wars have brought price controls and rationing, seemingly as inevitable as battle casualties. 2022 has also seen early and haphazard initiatives to manage inflation. Taxes on windfall profits for energy companies are all the rage while governments are failing to use the classic tool of rationing supplies. Instead, they are actively subsidising excess demand by capping heating and electricity prices for consumers. In France, this simply means that utilities go bankrupt and must be nationalised. The bill is passed to the government, then to the currency via inflation, and then we have the likely doomed effort by western officials to cap Russian energy prices from 5 December. The intent is to starve Russia of revenue and hopefully cheapen crude oil export prices everywhere, but it will likely do neither.

“In a war economy, the government hand will expand mercilessly as long as price pressures threaten stability. 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 the outcome will be the same as it is for nearly every government policy: the law of unintended consequences. 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. Only market-driven prices can deliver improved productivity and efficiency through investment.”

OPEC+ and Chindia walk out of the IMF, agree to trade with new reserve asset
“Recognising the ongoing weaponisation of the dollar by the US government, non-US allied countries 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 for leveraging its power over the international monetary system.

“Market impact: Non-aligned central banks vastly cut their dollar reserves, US Treasury yields soar and the dollar falls 25 per cent versus a basket of currencies trading with the new KEY asset.

Japan pegs USDJPY at 200 to sort out its financial system
As 2022 rolls into 2023, the pressure on the yen and the Japanese financial system mounts again on the global liquidity crisis set in motion by the vicious Fed policy tightening and higher US treasury yields. Initially, the BoJ and Ministry of Finance deal with the situation by slowing and then halting currency intervention after recognising the existential threat to the country’s finances after burning through more than half of central bank reserves. But as USDJPY rises through 160 and 170 and the public outcry against soaring inflation reaches fever pitch, they know that the crisis requires bold new action. With USDJPY soaring beyond 180, the government and central bank swing into motion.

“…In consequence, Japan’s real GDP drops by 8 per cent on reduced purchasing power even as nominal GDP rises 5 per cent 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. Market impact: USDJPY trades to 200 but is well on its way lower by the end of the year.

Tax haven ban kills private equity
“In 2016, the EU introduced an EU tax haven blacklist identifying countries or jurisdictions that were deemed ‘non-cooperative’ because they incentivise aggressive tax avoidance and planning. This was in response to the leaked Panama Papers, a trove of millions of documents that revealed tax cheating by wealthy individuals including politicians and sports stars. As the war economy mentality deepens further in 2023, national security perspectives turn increasingly inward to industrial policies and the protection of domestic industries. As defence spending, reshoring and investments in the energy transition are expensive, governments look for all available potential tax revenue sources and find some low-hanging fruits in haven-enabled tax dodgers. It is estimated that tax havens cost governments between $500 and $600 billion annually in lost corporate tax revenue.

“In 2023, the OECD launches 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 jolts the entire private equity and venture capital industries, shutting down much of the ecosystem and seeing publicly listed private equity firms dealt a 50 per cent valuation haircut.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes