10 outrageous predictions with massive business ramifications for 2019

December 17, 2018 12:30 pm


Will this be the year when Germany enters a recession, Apple “secures funding” for Tesla, Trump tells Powell “you’re fired” and Labour sweeps to a resounding victory and names Jeremy Corbyn as prime minister sending GBPUSD to parity?

Saxo Bank, the Fintech specialist focused on multi-asset trading and investment, has released its 10 ‘Outrageous Predictions’ for 2019. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across financial markets.

While these predictions do not constitute Saxo’s official market forecasts for 2019, they represent a warning of a potential misallocation of risk among investors who typically see just a one per cent likelihood to these events materialising.

The Outrageous Predictions for 2019 are:

1. EU announces a debt jubilee

2. Apple “secures funding” for Tesla at $520/share

3. Trump tells Powell “you’re fired”

4. Prime Minister Corbyn sends GBPUSD to parity

5. Corporate credit crunch pushes Netflix into General Electric’s vortex

6. Australian central bank launches QE on housing bust Down Under

7. Germany enters recession

8. X-Class solar flare creates chaos and inflicts $2 trillion of damage

9. Global Transportation Tax (GTT) enacted as climate panic spreads

10. IMF and World Bank announce intent to stop measuring GDP, focus instead on productivity

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Commenting on the Outrageous Predictions, Chief Economist at Saxo Bank, Steen Jakobsen said:

“We have been publishing Outrageous Predictions for more than a decade and think this year’s list is both fascinating and shocking while encouraging investors to think outside the consensus box. It is important to underline that the Outrageous Predictions should not be considered Saxo’s official market outlook, it is instead the events and market moves deemed outliers with huge potential for upsetting consensus views.

“This year’s edition has a unifying theme of “enough is enough”. A world running on empty will have to wake up and start creating reforms, not because it wants to but because it has to. The signs are everywhere. We think 2019 will mark a profound pivot away from this mentality as we are reaching the end of the road in piling on new debt and next year will see us all beginning to pay the piper for our errant ways. The great credit cycle is already showing signs of strain in late 2018 and will rip through developed markets next year as central banks are sent back to the drawing board. After all, their money printing efforts since 2008 have only dug a deeper debt hole, and it has now grown beyond their mandate to manage.

“If some of these outrageous predictions see the light of day, we might finally see a healthy shift toward a less leveraged society, with less focus on short-term gains and growth, and a new focus on productivity and new economic revolution back toward globalisation with a fairer playing field after the immediate moment of crisis. On the negative side, we could see considerable worsening of central bank independence, a credit crunch, and big losses in the asset where everyone is too long: real estate.”

The Outrageous Predictions 2019 publication is available here and an excerpted list of Saxo Bank’s Outrageous Predictions for 2019 reads (list ranks maintained):

2. Apple “secures funding” for Tesla at $520/share

Apple realises that if it wants to deepen its reach into the lives of its user base, the next frontier is the automobile as cars become more digitally connected. After all, the late Steve Jobs showed that a company needs to bet big and bet wild to avoid complacency and irrelevance. Acknowledging that Tesla needs more financial power and Apple needs to expand its ecosystem to the car in a more profound way than that represented by the current Apple CarPlay software, Apple goes after Tesla. It secures funding for the deal at a 40% premium of $520 dollars a share – acquiring the company at $100/share more than Elon Musk’s errant “funding secured” tweet.

3. Trump tells Powell “you’re fired”

At the December 2018 Federal Open Market Committee meeting, Federal Reserve chair Jerome Powell signs on with a slim majority of voters in favour of a rate hike – one too many and the US economy and US equities promptly drop off a cliff in Q1 2019. By the summer, with equities in a deep funk and the US yield curve having moved to outright inversion, an incensed President Trump fires Powell and appoints Minnesota Fed President Neel Kashkari in his stead. The ambitious Kashkari was the most consistent Fed dove and critic of tightening US monetary policy. He is less resistant to the idea of the Fed serving at the government’s pleasure and is soon dubbed ‘The Great Enabler’, setting President Trump up for a successful run at a second term in 2020 by promising a $5 trillion credit line to buy Treasury Secretary Mnuchin’s new zero-coupon perpetual bonds to fund Trump’s “beautiful” new infrastructure projects and force nominal US GDP back on the path it lost after the Great Financial Crisis. Inflation reaches 6%, is reported at 3%, and the Fed policy is stuck at 1%. That’s deleveraging you can believe in via financial repression to the great detriment of savers.

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5. Corporate credit crunch pushes Netflix into General Electric’s vortex

2019 proves the year of credit dominos toppling in the US corporate bond market. It starts with General Electric losing further credibility in credit markets, pushing the credit default price above 600 basis points as investors panic over GE’s $100 billion in liabilities rolling over in the coming years at the same time as the firm sees deteriorating cash flow generation. The carnage even spreads as far as Netflix where investors suddenly fret the firm’s fearsome leverage, with a net debt to EBIDTA (earnings before interest, taxes, depreciation, and amortization) after CAPEX (capital expenditure) ratio of 3.4 and over $10bn in debt on the balance sheet. Netflix’s funding costs double, slamming the brakes on content growth and gutting the share price.

To make things worse, Disney’s 2019 entrance into the video streaming industry trims Netflix growth further still. The negative chain reaction in corporate bonds sets off massive uncertainty in high-yield bonds leading to a Black Tuesday for exchange-traded funds tracking the US high-yield bond market where exchange-traded fund market (ETF) makers are unable to set meaningful spreads, forcing a complete withdrawal from the market during a tumultuous trading session. The fallout in the ETF market becomes the first warning shot of passive investment vehicles and their negative impact on markets during turmoil.

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7. Germany enters recession

A global leader for decades, Germany is struggling to upgrade its leveraging of modern technology. The crown jewel of the German economy, representing a cool 14% of GDP, is its car industry. The German car industry was supposed to be a growth juggernaut, registering 100 million sold cars in 2018. In the end, it only managed to unload 81 million cars, a mere 2% more than 2017 and well down from the 5-10% yearly growth rates from 2000s and forward. By 2040, 55% of all new global car sales and 33% of the stock will be EVs. But Germany is only just starting the transformation to EV and is years behind, and stiffer US tariffs won’t make things any better for German supply chains or exports. 2019 will be the peak of anti-globalisation sentiment and will create a laser-like focus on costs, domestic markets and production, and the further use of big data and reduced pollution footprint – the exact opposite of the trends that have benefitted Germany since the 1980s. As such, we see a recession arriving as early as Q3 2019.

9. Global Transportation Tax (GTT) enacted as climate panic spreads

The world suffers another year of wild weather with Europe again experiencing an extremely hot summer, setting off panic alarms in capitals around the world. With the international aviation and shipping industry enjoying substantial tax privileges, they become the targets of a new Global Transportation Tax (GTT) that introduces a global ticket tax on aviation and a capital “tonnage” tax on shipping with the price linked to carbon emission footprints. The new tax charge is set to $50/ton of CO2 emissions which is twice previous proposed levels and significantly above the 2018 average of $17/ton under the European Union’s Emissions Trading System.

The new GTT pushes up air travel ticket prices and maritime freight, increasing the general price level as the new tax is passed on to consumers. The US and China have previously contested fuel taxes on aviation, citing the 1944 Chicago Convention on International Civil Aviation, but China changes its stance as a natural progression of its fight against pollution. This forces the US to reluctantly join forces in a global transportation tax on aviation and shipping. Stocks in the tourism, airline, and shipping industries plunge on increased uncertainty and lower growth.

10. IMF and World Bank announce intent to stop measuring GDP, focus instead on productivity

In a surprising move at the International Monetary Fund and World Bank spring meetings, chief economists Pinelopi Goldberg and Gita Gopinath announce their intent to stop measuring GDP. They argue that GDP has failed to capture the real impact of low-cost, technology-based services and has been unable to account for environmental issues, as attested by the gruesome effects from pollution on human health and the environment in India and elsewhere around the world. Productivity is certainly one of the most popular, and yet least understood, terms in economics. Simply defined, it refers to output per hour worked. In the real world, however, productivity is a much more complex notion. In fact, it can be considered as the greatest determinant of the standard of living over time. If a country is looking to improve people’s happiness and health, it needs to produce more per worker than it did in the past. This unprecedented decision by the IMF and the World Bank also symbolises the transition away from the central bank-dominated era that has been associated with the collapse in global productivity since the global financial crisis.

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AMEinfo Staff
By AMEinfo Staff
AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.



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