Saxo Bank’s Outrageous Predictions 2008

Discussion in 'Economics' started by Pekelo, Dec 31, 2007.

  1. Pekelo


    Saxo Bank’s Outrageous Predictions 2008
    If you’ve read Saxo Bank’s yearly Outlooks over the last few years, you’ll know we don’t hold back in our
    annual attempt to predict the black swan sightings in global markets for the year ahead.
    Remember though, these predictions are made more in an attempt to provoke thought than at accuracy!
    This year, we have to mention our predictions are a bit on the pessimistic side – so let’s hope that we’re
    very wrong with the gloomiest of them.

    1) Ron Paul elected President of the United States
    We’re starting with the most outrageous first! One would imagine that a party with the least popular
    president to inhabit the White House – ever – wouldn’t stand a snowball’s chance in Texas of getting a
    new candidate elected to the presidency. But Ron Paul is no George Bush Jr., even if he is a Republican like
    Bush and is from Texas like Bush. His libertarian, anti-war platform is about three standard deviations away
    from the platform of any other Republican candidate — or even Hilary Clinton, for that matter. Paul’s share
    in the Republican candidate polls has rocketed from 1 % to 6% in the space of a few months and there
    is the best part of a year to go until the election. As should be clear from this year’s Outlook, we are quite
    negative on the US economy in 2008. A general slowdown and stock market turmoil should increase the
    odds of a Ron Paul nomination as he has been the only candidate to speak frankly about the budget and
    current account deficits and the dollar crisis.

    2) S&P500 falls 25% from its 2007 high to 1182
    Why 1182? That would be an exact 25% drop from the 1576 high the S&P500 index reached in mid-
    October of this year. History shows that a stock market drops 15-30% when housing markets fail. “Easy
    Al Greenspan” and “the slice and dice any manner of junk and pass on the risk to your clients” investment
    banking paradigm triggered the biggest housing bubble in US history. The unwind from the height has
    already been severe – by some measures the most severe since the Great Depression – but it has further
    to go. So we are daring to forecast that the fall in the major US index would lie at the extreme end of the
    scale before we see the light at the end of the tunnel.

    3) EURSEK falls to 8.8000 (now 9.4000)
    In 2007, the SEK was a currency of many stripes. First, it was on a weak footing as the carry trade was in
    focus, and its low interest rate attracted interest in selling SEK as a funding currency. Then the Riksbank
    moved rates onto parity with the ECB for the first time in over two years and many speculated that it
    could become an even higher yielder. But then a few weakish numbers from Sweden and a bout of risk
    aversion have put the SEK on a weak footing as 2007 draws to a close. But we believe that 2008 could
    be a stellar year for the currency as the still new government’s continued, more liberal-minded policy
    initiatives support capital inflows and also because rate differentials offer relative support for SEK. As
    an added bonus, the country sports one of Europe’s largest current account surpluses as measured by
    percentage of GDP.

    4) USDSGD falls to 1.4000, but then rises back to 1.6000 (now 1.6000)
    The beginning of the righting of global imbalances has meant a stronger Singapore dollar over the last
    year. The Monetary Authority of Singapore (MAS) has allowed SGD to strengthen to help ease the pressure
    caused by strong capital inflows and inflation and as the country registered robust growth rates. This
    process could continue for a while into 2008 and take USDSGD toward 1.4000, but eventually the pair
    could rise sharply as Singapore has already taken a large share of the necessary adjustment to reflect
    global imbalances. SGD could also weaken as capital flows ease sharply and possibly even reverse when
    the market looks at the odds for a global growth slowdown and as Singapore’s own sovereign wealth fund
    continues to look for overseas investments as a way to recycle its massive reserves.

    6) At least three of the largest 10 US homebuilders will go bankrupt
    As 2007 draws to a close, many of the stocks for the largest home construction outfits in the US are rallying
    after Bush rolled out his desperate attempt to stem the subprime tidal wave by fiddling with rate reset
    mechanisms and implementing other measures that all seem like pumping medicine into a dead horse.
    These measures are too little and too late, as the last phases of the US housing boom were one of the worst
    examples of overextension by any industry ever – driven by excess liquidity (see S&P500 prediction above).
    Why is it that we think we need to abolish the economic cycle? The unwind of this bubble will continue
    and we think at least three of the largest US homebuilders could go bankrupt in 2008. If you are reluctant
    to go short stocks on this story, find companies that specialise in legal services. Why? This situation has the
    potential for endless lawsuits as this legal precedent-setting legislative proposal is guaranteed to produce
    a feeding frenzy for lawyers if no one else… To save you a bit of time, the tickers for the largest ten US
    home builders, as of this writing, are DHI, TOL, CTX, PHM, NVR, LEN, KBH, RYL, BHS, and MTH.

    7) Chinese stock market falls 40% by late summer
    The Chinese stock market bubble in 2007 saw one of the most remarkable accumulations of paper wealth
    in financial market history. The rise in Chinese equities is certainly due in part to solid fundamental
    underpinnings, including a liberalisation of markets and remarkable economic growth. But there are a
    number of factors that we believe may have resulted in an unhealthy overextension in equity prices that
    could mean an ugly correction in 2008 – possibly around the psychologically important 2008 Summer
    Olympics in Beijing. So what will provide the trigger for a sell-off? First, Chinese officialdom is showing
    an increasing willingness to clamp down on excessive growth with liquidity tightening. Second, some of
    the “fundamentals” in earnings are really a pyramiding of stock market gains as companies have booked
    profits stemming from stock market gains! Also, much of the bubble has been caused by capital controls
    that have kept too much liquidity bottled up in the domestic market. Signs are that those controls may
    be eased significantly to allow domestic capital to flow abroad and ease this pressure. So the Shanghai
    composite could fall as much as 40% or more in 2008. Look to buy any excessive fallout, however!

    8) Grain Prices to double – again!
    2007 saw the most spectacular gains in the grains complex in recent memory as wheat prices doubled
    and soybean prices rose to levels not seen since the wild grain markets of the 1970s. The story of grains is
    a simple one of supply and demand. Human population growth has slowed on a percentage basis, but per
    capita consumption of grain is accelerating as emerging markets switch to higher protein diets, which have
    a multiplier effect on the grain market. Every kilogram of beef requires 7 kilos of feed, for example. Chinese
    meat consumption has doubled per capita since 1990 and milk consumption has tripled since 2000. Most
    of the world that can be put to the till has been – this means that only pricing can stem demand in this
    most inelastic of all markets. Add to this the ethanol phenomenon, which many view as stealing food from
    people and putting into petrol tanks (watch for a growing ethics crisis in 2008 as the “starving stomachs
    vs. SUVs” debate grabs headlines). In short, the average price for the grains complex (Corn, Wheat and
    Soybeans) could double after having already doubled in the last 15 months. For those who would rather not
    trade grain futures, have a look at the ETF called the PowerShares DB Agriculture Fund.

    9) World oil prices accelerate to $175
    Much of the conventional wisdom on oil has been proven wrong over the past few years, as previously
    unimaginable new highs in the price of oil have only been a reflection of the strength of global growth,
    rather than an obstruction in its path. And with the weak USD and shrinking profit margins for refiners,
    the end consumer in many places throughout the world hasn’t noticed a difference between oil prices
    at 99 dollars compared to oil prices at 75 dollars. Even if global growth slows in 2008, it will continue to
    move ahead in the emerging markets of the world where marginal energy demand is growing the most.
    As “peak oil” becomes a widely accepted principle and supply and demand do a nervous dance, the price
    risk in energy remains firmly to the upside.

    10) UK growth turns negative
    The UK economy may go into a nosedive in 2008, weighed down by some of the same factors that have
    toppled the US. The UK housing bubble is possibly worse than the US bubble and has only begun to
    unwind. The Bank of England (BOE) has dragged its feet as the credit crisis has unfolded, which could
    worsen the situation compared with the Fed, where “Helicopter Ben” has replaced “Easy Al”. The UK
    consumer is even more overextended in terms of all forms of debt than his US counterpart. Need we say
    more? Okay, we will: the UK terms of trade are awful and getting worse and its most important industry
    – financial services – is likely to see its worst recession since the internet/telco blowup of 2000-1. By Q3,
    UK GDP growth may flop into the negative column.
  2. Bird flu finally mutates, easily spreading from human to human, causing a worldwide pandemic. Public life is greatly disrupted, schools are shut down, many public establishments such as restaraunts go out of business. This misery leads to the next changeover in society- the telecommuting generation. Even after the pandemic is over, companies have evolved to a telecommuting model and decide to stick with it, greatly reducing overhead of commercial real estate costs and transportation. Health care cost also become cheaper as less exposure to the masses in the office and less daily stress of commuting mean less sick days and over-all happier employees. Obviously commercial real-estate values drop substantially with mass excess of available space. Energy prices fall with several million barrels of gasoline demand gone from the daily drive.

    Man, I could write this story for the next several hours. Got to get back to work though.
  3. 1) can bring about 2), which can bring about 6), 7), & 10). 8) & 9) can't happen if 2) happens. I hope I'm partly correct. Was 5) an interest rate forecast?
  4. Pekelo


    #5 was EU Forex, but had to cut because of length limit, and that was the less interesting.
  5. Janed


    That's so funny its scary!

    Chris Ames,the journalist who put together the time-line of how we (the UK saps) were lied into war has this blog.In one of his latest posts,he describes his attendance at the Government's appeal against his Freedom Of Information request to release the first draft of the 'Sexed Up' dossier.He wasn't called to give evidence and had to sit through it as a 'non-person' while the advocate for release got dates and times wrong and was thus unable to put he Government to the sword.So much for democracy.
  7. in another life, I use to be well versed in biotech/genetics/biochemistry....

    this scenario is not far off field, the dangers in the biochemical knowledge is much greater then nuclear knowledge, mapping the human genome, the Chinese at one point were scared that a biochemically targeted virus would be unleashed wiping out populations with certain racial traits.
  8. ark


    I do know Saxo Bank would always push their trade recommendations through their platform via the chat feature.
  9. And now should we be scared of the converse?
  10. tradewiz


    11) china will initiate a war against taiwan on limited scale towards the end of 2008. PLA will take over 2 small islands currently occupied by taiwanese. US will stay on the sideline during the conflict.
    #10     Jan 3, 2008