Outrageous Predictions: Congress to Block Fed's QE3
Apple will buy Facebook, Congress will block a third round of quantitative easing and the S&P will reach a new all-time high. These are just some of the outrageous predictions for 2011 put forward by Saxo Bank in its annual "Black Swan Exercise."
Saxo Bank, which has its main headquarters in Denmark, said that its predictions only act as a "thought exercise" and don't represent the bank's core view. But it did claim that in past years it has been right four out of ten times.
Congress Blocks QE3
Congress will stop the Federal Reserve from pursuing another round of quantitative easing, which will lead to a challenge of the central bank's dual mandate of tackling unemployment as well as inflation, Saxo Bank said.
"In the second half of 2011, the Fed is in the hot seat for having been the critical enabler of the U.S. housing debacle and resulting bank bailout and public-debt catastrophe," the report said.
The banks deemed too-big-to-fail will be "back in deep trouble again," it said.
Apple Buys Facebook
After fending off previous takeover attempts the social networking phenomenon will be swallowed up by Apple , according to Saxo Bank.
Apple’s Steve Jobs has previously said that the tech giant held partnership discussions, but that the talks didn't yield any results with Apple blaming Facebook for "onerous terms," Saxo Bank pointed out. But 2011 will be the year that Jobs takes control, the report predicted.
S&P 500 Reaches All-Time High
As the Fed continues to pump liquidity into the system, "investors realize the only strategy worth following is to buy the dips," Saxo Bank said.
"Corporate America doesn’t buy the euphoria that a healthy share price is a good indicator of health and continues the deleveraging process that leads to a proper recovery," the report said.
"The U.S. benchmark index sees the 2007 high in the rear-view mirror on its way to 1,600."
Dollar Index Tops 100
The dollar will start to look attractive in 2011 as the Chinese economy starts to slow, while the Japanese and euro zone economies remain in trouble, the report said. Investors will be forced to unwind positions, and this will result in the index jumping 25 percent to over 100 points in the third quarter, according to Saxo Bank.
"With the Chinese industrial base growing slowly this puts global risk appetite in a tail spin," the report said.
30-Year Treasury Yield Slides to 3%
Concerns over the European debt crisis will help to push investors into the safe-haven of U.S. government bonds, pushing the price higher and yields down, according to Saxo Bank.
"The dollar devaluation policy, with its roots in the 'currency wars' of 2010, force emerging markets to use more of their spare dollars on Treasuries," the report said.
Aussie-Sterling Dives 25%
The British pound will jump 25 percent versus the Australian dollar in 2011, according to Saxo Bank.
"The UK returns to its traditional values… and soon enough a surprisingly strong expansion in 2011 is underway. Australia on the other hand is struggling with a weakening economy as China steps harder and harder on the brakes to stop inflation," the report said.
Oil Gushes Before Correcting by One Third
The price of crude oil will surge to more than $100 a barrel in early 2011 as investors bet the U.S. economy has secured a stronger recovery, according to Saxo Bank. But the rise will give way to a "violent one-third correction lower," the report said.
Natural Gas Surges 50%
Increased industrial demand and historical cheapness in relation to oil and coal, coupled with a greater focus on U.S. gas exports and forward curve flattening will all help to boost the price of natural gas, Saxo Bank said.
"A cold snap leads to a rapid depletion of stocks, thus a one-in-25 year move up by 50 percent in 2011," the report said.
Gold Powers to $1,800
The price of gold will rally toward $1,800 per troy once as investors flee to the relative safety of metals, according to the report.
"The 'currency wars' return with a vengeance in 2011, driven by improvement in the U.S. economy. The U.S. trade deficit widens and pressure piles on China and as investors flee to metals," the bank said.
Russian Stocks Rally
Investors in the Russian stock market realize value in the RTS index, which nearly doubles to 2,500 in 2011, the report predicted.