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

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.