Ten outrageous predictions for 2014 – all of which are possible

Every December Saxo Bank publishes a list of ten outrageous predictions for the coming year. The idea is that the things on the list are unlikely and definitely not part of the consensus view, but that they are also possible. This year’s list is below.

Your comments and your own predictions underneath are very welcome, but here’s my thought: the ten might not be part of consensus thinking, but I can’t see Moneyweek readers being particularly surprised if any of them happened.

1. EU wealth tax heralds return of Soviet-style economy

Panicking at deflation and lack of growth, the EU Commission will impose wealth taxes for anyone with savings in excess of USD or EUR 100,000 in the name of removing inequality and to secure sufficient funds to create a ‘crisis buffer’.

It will be the final move towards a totalitarian European state and the low point for individual and property rights. The obvious trade is to buy hard assets and sell inflated intangible assets.

2. Anti-EU alliance will become the largest group in parliament

Following the European parliamentary elections in May, a pan-European, anti-EU transnational alliance will become the largest group in parliament.

The new European Parliament chooses an anti-EU chairman and the European heads of state and government fail to pick a president of the European Commission, sending Europe back into political and economic turmoil.

3. Tech’s ‘fat five’ wake up to a nasty hangover in 2014

While the US information technology sector is trading about 15% percent below the current S&P 500 valuation, a small group of technology stocks are trading at a huge premium of about 700% above market valuation.

These ‘fat five’ – Amazon, Netflix, Twitter, Pandora Media and Yelp – present a new bubble within an old bubble thanks to investors oversubscribing to rare growth scenarios in the aftermath of the financial crisis.

4. Desperate Bank of Japan to delete government debt after USD/JPY goes below 80

In 2014, the global recovery runs out of gas, sending risk assets down and forcing investors back into the yen with USD/JPY dropping below 80.

In desperation, the Bank of Japan simply deletes all of its government debt securities, a simple but untested accounting trick, and the outcome of which will see a nerve-wracking journey into complete uncertainty and potentially a disaster with unknown side effects.

5. US deflation: coming to a town near you

Although indicators may suggest that the US economy is stronger, the housing market remains fragile and wage growth remains non-existent.

With Congress scheduled to perform Act II of its ‘how to disrupt the US economy’ charade in January, investment, employment and consumer confidence will once again suffer. This will push inflation down, not up, next year, and deflation will again top the Federal Open Market Committee (FOMC) agenda.

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6. Quantitative easing goes all-in on mortgages

Quantitative easing (QE) in the US has pushed interest expenses down and sent risky assets to the moon, creating an artificial sense of improvement in the economy. Grave challenges remain, particularly for the housing market which is effectively on life support.

The FOMC will therefore go all-in on mortgages in 2014, transforming QE3 to a 100% mortgage bond purchase programme and – far from tapering – will increase the scope of the programme to more than $100bn per month.

7. Brent crude drops to $80 a barrel as producers fail to respond

The global market will become awash with oil thanks to rising production from non-conventional methods and increased Saudi Arabian ouput.

For the first time in years hedge funds will build a major short position, helping to drive Brent crude oil down to $80 a barrel. Once producers finally get around to reducing production, oil will respond with a strong bounce and the industry will conclude that high prices are not a foregone conclusion.

8. Germany in recession

Germany’s sustained outperformance will end in 2014, disappointing consensus. Years of excess thrift in Germany has seen even the US turn on the euro area’s largest economy and a coordinated plan by other key economies to reduce the excessive trade surplus cannot be ruled out.

Add to this falling energy prices in the US, which induce German companies to move production to the West; lower competitiveness due to rising real wages; potential demands from the SPD, the new coalition partner, to improve the well-being of the lower and middle classes in Germany; and an emerging China that will focus more on domestic consumption following its recent Third Plenum.

9. CAC 40 drops 40% on French malaise

Equities will hit a wall and tumble sharply on the realisation that the only driver for the market is the greater fool theory. Meanwhile, the malaise in France only deepens under the mismanagement of the Hollande government.

Housing prices, which never really corrected after the crisis, execute a swan dive, pummeling consumption and confidence. The CAC 40 Index falls by more than 40% from its 2013 highs by the end of the year as investors head for the exit.

10. ‘Fragile five’ to fall 25% against the dollar

The expected tapering of quantitative easing in the US will lead to higher marginal costs of capital from rising interest rates. This will leave countries with expanding current account deficits exposed to a deteriorating risk appetite on the part of global investors, which could ultimately force a move lower in their currencies, especially against the US dollar.

We have put five countries into this category – Brazil, India, South Africa, Indonesia and Turkey.

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7 Responses

  1. 18/12/2013, Andrew M wrote

    It’s worth comparing with Saxo Bank’s ten “outrageous predictions” issued last year:

    1. DAX plunges 33 percent to 5000
    2. Nationalisation of major Japanese electronics companies
    3. Soybeans to rise by 50 percent
    4. Gold corrects to USD 1,200 per ounce
    5. WTI crude hits USD 50
    6. USDJPY heads to 60.00
    7. EURCHF breaks peg, touches 0.9500
    8. Hong Kong unpegs HKD from USD, re-pegs to RMB
    9. Spain interest rates rise to 10 percent
    10. 30-year US yield doubles in 2013

    All except #4 are complete misses. #4 is an impressive success, with gold hovering very near that $1,200 mark. #10 is not completely wrong, as the 30-year yield is up from 2.9% to 3.9% on the year, but that’s hardly a doubling. In short these 10 predictions are interesting talking points but they most certainly do not constitute an investment recommendation.

  2. 18/12/2013, Warun Boofit wrote

    Some of the predictions are surely not that outrageous when compared to the 2013 predictions listed by Andrew M ? The only idea I think would not happen is a wealth tax on savings over 100,000 Euro, I suppose they think if Cyprus could get away with it. The CAC40 dropping by 40% does not seem outrageous, does anyone actually work in France, I worked there a long time ago but I never really saw anyone else doing anything resembling work, I suppose they make the foreign waiters and waitresses work hard though. The tech 5 hangover I can see that happening especially with Amazon, is it really a ‘tech’ company ? Seems more like a big warehouse employing cheap labour to me which is one reason why I have never bought anything from them. I see Amazon are using the logistics v retail pay rates to keep their German automatons under the thumb plus threats to move over the border.

  3. 19/12/2013, robin wrote

    No 1 is a bit overstated. I think a bunch of rich people are trying to protect property rights.

    I offer for the purposes of argument.
    1. A wealth tax is not mutually exclusive to a free market economy. It will suppress those with a lot of money, and therefore big companies, but big companies have advantages in terms of economies of scale unrelated to production, such as lobbying power, advertising budgets, legal muscle, copyrights etc. These efficiencies don’t produce better products, so maybe they should be countered.
    2. People with lots of money don’t make money work very hard. They make poor choices when the monies involved are of relatively little consequence to them. This is the fundamental mechanism of the free market; people with limited money making the best choice with consideration. This leads to price discovery and to businesses making sensible decisions. This is Adam’s Smiths invisible hand at work. My point here is that money adequately distributed among the populace is more efficient in a free market system than money distilated into a few hands.

    Unfortunately in the freemarket/capitalist system economies of scale lead to a gradual distillation of money to ever fewer people.

    I think Obama is right when he states that this disparity between the right and poor is the challenge of our age. The notion that we have to earn our money cannot overcome uncontrolled obsolescence in the labour markets through the advent of technology. In today’s world consumers (theoretically) can’t buy with money they don’t have. They therefore need to produce some new product that they can sell at obscene levels to the very rich. This is the persistent mantra of the capitalist; the unemployed will find/develop new products and services. What products and services I ask? What do these rich people need so much they will hand away their fortunes….?

  4. 19/12/2013, Giles Falcon wrote

    In response to the article, I think you really nailed it.

  5. 20/12/2013, marquis wrote

    Making predictions is pretty pointless in my view, although it’s good article filler of course. The key to building and protecting wealth is making sure your financial position can cope with a wide range of different scenarios, rather than hanging your hat on a few extreme scenarios.

    • 20/12/2013, tuesday wrote

      What would be great @Merryn is to see how last year’s Moneyweek predictions did:

      Property market crashing
      The Euro crashing
      Hyper inflation
      Property market crashing
      Gold beyond $2000
      Property market crashing
      The End of Britain…

      Keep it coming !!!

  6. 21/12/2013, Clarityseeker wrote

    robin, just above this post, chooses to opine about “prediction #1″, however, in doing so she appears to confuse what is a prediction for the EU and nefariously infer it as occurring within a “free market” economy—something nonexistent where the EU administers economic policy. It is therefore a moot point. Adding to the apples/oranges scenario, robin then injects American president, Baraka Obama’s position on economic “disparities”.
    That’s a lot of mixing and conflating, all in one. As for Obama’s knowledge (robin broached the subject, not anyone else) and actions in the economic area, he has more than sufficiently proven he knows nearly nothing about the entire subject of, Economics. However, there are still many who continue to ignore this proven fact.

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