Saxo Bank yesterday released its annual "Outrageous Predictions". Among the unlikely events predicted by the bank are that Australia will go into recession, Basel III and regulation will force 50 bank nationalisations in Europe, and Apple shares will plummet 50 per cent from their high this year.
In its Outrageous Predictions, Saxo Bank focuses on events that are unlikely to occur but are at the same time far more likely than the market appreciates. The predictions are not meant as forecasts, but it is important for investors to consider events with under-recognised probabilities.
Saxo Bank's Outrageous Predictions for next year:
1 The stock of Apple plummets 50 per cent from its high this year
Apple will find itself faced with multiple competitors such as Google, Amazon, Microsoft/Nokia, and Samsung. Apple will be unable to maintain its market share of 55 per cent (three times as much as Android) and 66 per cent on the iOS and iPad.
2 EU declares extended bank holiday next year
The EU treaty changes this month prove insufficient to solve EU funding needs - particularly those in Italy - and the EU debt crisis returns with a vengeance by mid-year. In response, the stock market finally caves in and drops 25 per cent, prompting the EU to call an extended bank holiday - closing all European exchanges and banks for a week or more.
3 A yet-unannounced candidate takes the White House
In 1992, Texas billionaire Ross Perot managed to take advantage of a recessionary economy and popular disgust with US politics and reap 18.9 per cent of the popular vote. Three years of President Barack Obama has brought too little change and only additional widespread disillusionment with the entire US political system, and conditions for a third-party candidate have never been riper.
4 Australia goes into recession
A slowdown in Australia pushes other countries in the Asia-Pacific into recession. If ever there was a country dependent on the well-being of China, it is Australia, with its heavy reliance on natural resource exports. And as China's demand for these goods weakens, Australia is pushed into a recession, which is then exacerbated as the housing sector finally experiences its long overdue crash - a half decade after the rest of the developed world.
5 Basel III and regulation force 50 bank nationalisations in Europe
As the new year begins, pressure will mount on the European banking system as new capital requirements and regulatory pressure force banks to deleverage in a hurry. This creates a fire sale on financial assets as there are few takers in the market. A total freeze of the European interbank market triggers bank runs as depositors lose faith in deposit guarantees from insolvent sovereigns. More than 50 banks end up in government hands, and several known commercial bank brands disappear.
6 Sweden and Norway replace Switzerland as havens
As we saw with Switzerland, becoming a haven in a world of devaluing central banks presents a number of risks. The capital markets of both countries are far smaller than Switzerland's, but the Swiss are aggressively devaluing their currency, and money managers are looking for new, safer havens for capital. Flows into the two countries' government bonds on haven appeal becomes popular enough to drive 10-year rates there to more than 100 basis points below the level on German bunds.
7 Swiss National Bank (SNB) wins and catapults the euro-Swiss franc currency comparison to 1.50
Switzerland's persistence in fighting the appreciation of its currency will continue to pay off next year. With Swiss fundamentals - particularly export-related - continuing to suffer mightily next year from the past strength of the Swiss franc, the SNB and government bear down further to prevent more collateral damage and introduce extensions to existing programmes and even negative interest rates to trigger sufficient capital flight from the Switzerland to engineer a move in the euro-Swiss franc currency comparison to as high as 1.50 during the year.
8 US dollar-yuan rate rises 10 per cent to 7
As marginal returns from building million-inhabitant ghost towns diminish and exporters struggle with razor-thin margins due to the advancing Chinese yuan, China gets to the brink of a "recession", meaning 5 to 6 per cent GDP growth. Chinese policymakers come to the rescue of exporters by allowing the yuan to decline against the US dollar - buoyed by its haven status.
9 Baltic Dry Index rises 100 per cent
Lower oil prices next year could lead to an increase in the Baltic Dry Index, which tracks worldwide international shipping prices of dry bulk cargo, as operating expenses go down. Brazil and Australia are expected to expand iron ore supply, further leading to lower prices and therefore higher import demand from China to satisfy its insatiable industrial production. In combination with monetary easing, this leads to an immense increase in demand for iron ore.
10 Wheat prices to double next year
Wheat will double in price next year after having been the worst-performing crop last year. Wheat especially will rally strongly as speculators, who had built up one of the biggest short positions on record, will help drive the price back towards the record high last seen in 2008.
Steen Jakobsen is the chief economist at Saxo Bank
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