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2023-01-01 at 17:57 #387791Nat QuinnKeymaster
Denmark-based Saxo Bank has published its 10 outrageous financial predictions for 2023.
Continuing almost two decades of tradition, experts at the bank have made the predictions as ‘consensus-smashing forecasts’ that would ‘send shockwaves through the markets’ – but only if they come to pass.
Several of the group’s predictions for 2022 were scarily on the mark – though not exactly for the reasons the analysts jotted down.
This is largely because much of the year has been dominated by the Russian invasion of Ukraine – which wasn’t on the list of predictions – but the social and economic fallout from this black swan event still had the same effect.
Notably, Saxo predicted high levels of inflation hitting the US in 2022. This was supposed to be due to a wage-price spiral driven by companies trying to secure top-notch talent but instead came about by the aforementioned war and continued fallout from the Covid-19 pandemic. US inflation also got sticky around 7.0%, far below the prediction of 15%-plus.
The bank’s experts also saw the green energy rush stumbling and being pushed out further. In many respects, this did happen – but again, not for the reasons predicted. The Russian war put Europe into an energy crisis that saw key economies return to fossil fuels like coal for energy production.
But even with this major setback, the spending on green energy projects hasn’t let up – and South Africa is a big beneficiary of this.
Another close call was the prediction that Facebook would faceplant. Saxo experts saw a massive exodus of youth from the platform as being the driver behind this. While Facebook did indeed faceplant in 2022, it was mainly due to its founder, Mark Zuckerberg, tinkering with VR and spending billions on non-core projects.
Some predictions didn’t quite land. The experts expected upheaval and chaos in the US mid-terms – but this ended up with a more-of-the-same outcome and, actually, a few key wins for the Democrats, despite a surge in right populist rhetoric from the Republicans.
Saxo also predicted a medical breakthrough adding 25 years to the human lifespan – but I think we can all agree that the stresses of 2022 likely wiped a few years off.
Outrageous predictions for 2023
For 2023, the Saxo experts have put the War Economy into sharp focus, with its outrageous predictions for the year looking at how the world will respond to the ongoing conflict in Ukraine, and what crazy scenarios could emerge.
“Our Outrageous Predictions are not our baseline forecasts for what will happen in the new year. Rather, they are meant as an exercise in provoking thought on what unanticipated developments can shock our world and financial markets. All large market moves, after all, are brought about by something outrageous because a big market move requires a big surprise,” the bank said.
1. Billionaire coalition creates trillion-dollar Manhattan Project for energy
The constantly growing global need for energy drives the world’s richest to huddle up and launch a R&D project in a size the world hasn’t seen since the Manhattan Project gave the US the first atomic bomb.
In 2023, owners of major technology companies and other technophile billionaires 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.
2. French President Macron resigns
The political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
When President Emmanuel Macron won a second term in May 2022, he believed he could lead France on a royal road to carry out reforms. However, this was before the June 2022 legislative elections when his party and his allies lost their outright majority in Parliament, thus forcing Macron to make compromises. Needless to say, this is something he is not familiar with.
3. Gold rockets to $3,000 as central banks fail on inflation mandate
As markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of $3,000.
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. It turns out that the key in holding down gold’s potential was the market’s mistaken consensus bet that inflation would prove transitory. Central banks largely anticipate that inflation will fall back to target within a mere couple of years, and even the market’s own forward pricing of inflation risks predicts the same.
4. Foundation of the EU Armed Forces
With continued challenges in the region and a US military that isn’t aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
Any real economic and political union must rank national security as one of its highest priorities, particularly when war looms on that union’s very borders. Since the end of World War II, Western Europe found itself under the comforting umbrella of the US Armed Forces, both directly and via widespread participation in NATO. Since the end of the Cold War, national defence priorities faded further.
5. A country agrees to ban all meat production by 2030
In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
More than a third of the cereal grains grown globally are used for animal feed and around 80 percent of global arable land is used for grazing animals, some of it claimed from former forest and even rainforest areas. This drives a staggering loss of biodiversity, together with other local environmental impacts like soil erosion and pollution of local water resources from both animal waste and excess fertiliser use on feed crops.
6. UK holds UnBrexit referendum
Following a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
The record brief tenure of UK Prime Minister Liz Truss in 2022 made the UK policy dilemma clear: supply side tax cuts and demand-boosting subsidies for energy are a toxic cocktail for a country’s bond and currency markets when that country runs massive twin budget/trade deficits. Taking over from the Truss-Kwarteng duo in 2022 was the Rishi Sunak-Jeremy Hunt duo, who only deliver depressing fiscal austerity via tax hikes and spending cuts. Does it increase the sustainability of the UK debt trajectory? For a time, maybe.
7. Widespread price controls are introduced to cap official inflation
History tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
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.
8. OPEC+ and Chindia walk out of the IMF, agree to trade with new reserve asset
Sanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don’t consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
While less than a fifth of international trade is destined for the US, over a third of international trade is invoiced in USD and nearly 60 percent of global foreign exchange reserves are USD. The ban on transactions with Russian sovereign entities in February 2022 after Russia’s invasion of Ukraine sent shockwaves across countries not allied militarily with the US as the magnitude of the ban far exceeded sanctions on Iran, Venezuela and other countries in recent decades. These countries wonder whether their US assets—and even EUR, JPY and GBP assets—could be subjected to freeze orders imposed by the US Treasury and other US allies overnight.
9. Japan pegs USD/JPY at 200 to sort out its financial system
Following the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Japan mobilised hundreds of billions of USD in its currency reserves in 2020 to defend the Bank of Japan’s (BoJ) unmoved monetary policy and the JPY itself as the BoJ refused to hike the policy rate from -0.1 percent or to lift the yield cap on 10-year Japanese government bonds at 0.25 percent. As 2022 rolls into 2023, the pressure on the JPY 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.
10. Tax haven ban kills private equity
With the war economy comes an increased focus on national interests and sovereign nations’ ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
In 2016, the EU introduced an EU tax haven blacklist identifying countries or jurisdictions that were deemed ‘non-cooperative’ because they incentivize 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. However, that blacklist excluded the biggest tax havens, in part due to effective lobbying. Thus, the global tax haven ecosystem continues to thrive.
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