Outrageous Predictions: A Third-Party President?
An extended bank holiday in the European Union to halt a steep market fall, a third party candidate winning the race for the White House, and 50 European banks being nationalized are just a few of Saxo Bank's "outrageous predictions" for 2012.
The Danish investment bank launched its first "Outrageous Predictions" publication 10 years ago, looking at events that could change the outlook and performance of markets if they were happen.
The bank, which is keen to stress that the predictions are not intended as real predictions or forecasts, unifies them under a theme each year. For 2012, the theme is "the perfect storm."
Apple Stock Down 50 Percent
Faced with multiple competitors like Google , Amazon, Microsoft/Nokia and Samsung across its most innovative products – the iPhone and iPad – Apple will be unable to maintain its market share, according to Saxo Bank's analysts.
"In relation to current earnings, Apple is not expensive but expectations about future profit growth will come down hard as competition reaches insane levels and crushes Apple’s profit margins," they wrote.
EU to Save Markets by Extended Holiday
The recently-decided changes to the European Union Treaty, agreed by 26 of the 27 members, will prove insufficient to solve the euro zone's funding needs, particularly those in Italy, and the debt crisis will return with a vengeance by mid- year, according to the report.
"In response, the stock market finally caves in and drops 25 percent in short order, prompting EU politicians to call an extended bank holiday – closing all European exchanges and banks for a week or more," the report continued.
New, Third-Party President in the White House
In 2008, Obama promised "real change" from eight years of Republican rule in the middle of what many economists called the worst recession since the end of the World War II. "Now, three years of Obama has brought too little change and only additional widespread disillusionment with the entire US political system," the analysts at Saxo Bank wrote.
The Democrats are "in ideological disarray" and will get the blame for the continuing economic malaise, while the "favor-the-rich" Republicans will not win the popular vote, they predicted, leaving the race open for a third-party, as yet unannounced, candidate.
China Pushes Australia Into Recession
China's economy has been losing steam in 2011, with growth driven by investment and real estate becoming harder to come by, according to the report. China's slowdown in turn will send ripples through Asia Pacific and push other countries into recession, especially Australia, with its heavy dependence on mining and natural resources.
"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," Saxo Bank analysts wrote.
50 European Banks Nationalized
As recently as on Thursday, European Central Bank President Mario Draghi warned regulators not to create another credit crunch by putting pressure on banks to raise their capital.
In Saxo Bank's outrageous predictions, pressure will mount next year on the European banking system as new capital requirements and regulations force financial institutions to deleverage in a great hurry. This would create "a fire sale on financial assets as there are few takers in the market," the report said.
"A total freeze of the European interbank market forces nervous savers to make bank-runs, as depositors distrust deposit guarantees from insolvent sovereigns. More than 50 banks end up on government balance sheets and several known commercial bank brands cease to exist," it added.
New Switzerland(s): Sweden and Norway
After Switzerland had enough of being Switzerland and decided to put a lid on the appreciation of its currency, Sweden and Norway are now "at risk" of replacing it as the new safe havens, according to the report, which also lists the risks of such a position.
"The capital markets of both countries are far smaller than Switzerland, (the combined FX volume in Sweden and Norway being a mere fraction of Switzerland’s), but the Swiss are aggressively devaluing their currency and money managers are looking for new safe havens for capital," the analysts wrote.
Swiss National Bank Wins
The rapid rise in the Swiss franc before the central bank decided to put a cap on its appreciation was threatening to destroy the Swiss economy, and direct foreign exchange intervention in 2009 and earlier in 2010 failed.
Famous investor Jim Rogers said when the SNB introduced the limit for how much the Swiss franc can rise against the euro that the central bank's move was "a huge mistake." With the Swiss economy continuing to suffer next year from past strength in the currency, the SNB and the government will introduce extensions to existing programs and even negative interest rates, Saxo Bank analysts wrote.
This is done "to trigger sufficient capital flight from the traditional safe haven of Switzerland to engineer a move in [the euro against the Swiss franc] as high as 1.50 during the year, much to the chagrin of those who believe central banks can’t intervene successfully," they added.
Yuan Falls 10 Percent Against the Dollar
China faces a slowdown because returns from "building million-inhabitant ghost towns" decrease and exporters suffer because of the advancing renminbi, according to the Saxo Bank report.
"Chinese policymakers come to the rescue of exporters by allowing the [yuan] to decline against a US Dollar — buoyed by its safe-haven status amid slowing global growth and an on-going euro zone sovereign debt crisis — and send the pair up to 7.00 for a 10 percent increase," the report added.
Baltic Dry Index Up 100 Percent
The shipping and trade index that measures changes in the transport costs for raw materials by sea, thereby giving investors insights into global supply and demand, will spike, according to Saxo Bank.
"Lower oil prices in 2012 could lead to an increase in the Baltic Dry Index 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," the analysts wrote.
This, combined with monetary easing, would lead to a "massive spike" in demand for iron ore, they added.
Wheat Prices to Double
After being the worst performing crop in 2011, wheat prices could double in 2012, according to Saxo Bank. The fall in the price was brought about by farmers planting more wheat after the spike in prices in 2010 and by better weather in the former Soviet Union, a big wheat exporter.
"However with 7 billion people on the earth and money printing machines at full throttle, bad weather across the world will unfortunately return and make it a tricky year for agricultural products," Saxo bank analysts wrote.
"Wheat especially will rally strongly as speculative investors, 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," they wrote.