Headquartered in Copenhagen, Saxo Bank offers a trading platform to investors and institutional clients in foreign exchange, exchange traded funds , stocks, futures, options and other derivatives. The bank also manages money for the wealthy and retail investors. This is the 10th year that Saxo Bank has published its prophecies for the coming year.
Saxo Bank isn't completely serious with its far-out calls for 2012. Steen Jakobsen, the bank's chief economist, acknowledges that Saxo's annual list of outrageous predictions always has a negative bias to help encourage investors to think outside the box and be on guard for unpleasant surprises. The strategy team said it views the bank's outrageous predictions as a way of stress-testing a portfolio.
"Should some of the predictions come to pass, it would make 2012 a year of tremendous change," Jakobsen said in a statement. "Maybe, just maybe, our outrageous predictions can at least lead to a discussion on how we can prevent some of them from happening."
In terms of previous performance, Saxo Bank's 2011 predictions were a mixed bag. Most notably, the team swung and missed by a mile with its prediction that Apple would buy Facebook with its war chest. However, the bank points out that its predictions are less about making real calls and more about calling attention to under-recognized probabilities.
Among other predictions that didn't come to pass this year, Saxo Bank predicted U.S. Congress would block any attempt by Federal ReserveChairman Ben Bernanke on a third round of quantitative easing , the U.S. dollar index would top 100, natural gas prices would surge by 50 percent, the S&P 500 Index would reach an all-time high, the Aussie-Sterling "cross" would dive 25 percent and Russia's RTS Index would hit 2500.
Some calls for 2011 did come true. The bank rightfully predicted that the U.S. 30-year Treasury yield would slide to 3 percent, crude oil would surge above $100 and then collapse by a third, and gold would top $1,800 an ounce. TheStreet's Doug Kass had a slightly better performance with his 15 surprises for 2011, most notably with his prediction of the destructive force of partisan politics and a sideways market.
I detail the "2012 Outrageous Predictions" below:
1. Apple Shares Plummet 50 Percent From 2011 Highs
Apple shares reached an all-time high of $426.70 within weeks of the consumer technology gadget maker unveiling the new iPhone 4S handset as well as the death of co-founder and former CEO Steve Jobs. Every investor who is bullish on the stock points to how undervalued Apple shares are, with the stock trading at a price-to-earnings multiple that is much lower than the broader market when you exclude Apple's massive cash hoard.
Apple has several positive catalysts on the horizon, with rumors circulating that consumers will see a new iPad 3 tablet, a new iPhone 5 handset, and even an high-definition television released during 2012. Even so, Saxo Bank makes the outrageous prediction that Apple shares will be cut in half from its 2011 high, which means the stock would tumble to $213.35 at some point in 2012.
Saxo Bank's rationale is that Apple's lead in innovation will shrink as competition from rivals Google, Amazon, Microsoft and Nokia and even Samsung will cut into profitability.
"Going into 2012, Apple will find itself faced with multiple competitors such as Google, Amazon, Microsoft/Nokia, and Samsung across its most innovative products, the iPhone and iPad," Saxo Bank's strategists write. "Apple will be unable to maintain its market share of 55 percent (three times as much as Android) and 66 percent on the iOS and iPad."
As crazy as that prediction sounds, investors should keep in mind that Apple's share price was slashed in half in 2008, as the stock fell from nearly $200 a share to below $100 during the financial crisis. If competition hits a fever pitch as Saxo Bank predicts, Apple's profit margins could be crushed and future profit growth estimates would have to be ratcheted back.
2. EU Declares Extended Bank Holiday During 2012
With so many austerity measures being bandied about across Europe, it's hard to imagine Europeans getting time off from work. And yet, that's what Saxo Bank strategists are calling for with their prediction of an extended bank holiday next year.
By mid-2012, Saxo Bank predicts that the stock market will finally cave beneath the pressure of the unsolved European debt crisis, which will result in a fast 25 percent drop in equities. A decline of that magnitude in such short order will force EU politicians to call for an extended bank holiday, which will see European stock exchanges and banks closed for a week or more. During that time, EU leaders will gather and hammer out a "New Europe" and could see officials overstep their mandate with new burdensome command, the strategists predict.
"Regardless, this 'final' attempt leads straight to a popular overthrow of the old order and beginning of destruction of the sovereign debt time bomb," Saxo strategists write. "A period of pain is inevitable, but this will quickly allow a 'new EU' to regroup with new membership and a new base from which its economies and markets can start planning for the future, rather than dealing with the mistakes of the past."
3. A Yet-Unannounced Candidate Takes the White House
It doesn't matter if President Obama goes up against Newt Gingrich, Mitt Romney or even Ron Paul in the 2012 presidential elections. None of these current contenders will be sitting in the Oval Office in January 2013, if the strategists at Saxo Bank are right.
Much like the way Texas billionaire Ross Perot feasted on the disgust Americans had with U.S. politics in 1992 to land nearly 19 percent of the popular vote, Saxo Bank strategists predict that a new political order will be born after a third-party candidate wins the presidency in November 2012 by taking 38 percent of the popular vote.
"Going into the election in 2012, the incumbent Democrats are in ideological disarray and will get the blame for continued economic malaise and the favor-the-rich Republicans will never win the popular vote with the U.S. rich/poor gap at a record width and social tension rising," the strategists write. "In short, conditions for a third party candidate have never been riper. Someone smart enough to sense this and with a strong program for real change throws his hat in the ring early in 2012."
If that scenario comes to pass, it will have beaten the odds as a historical upset. Right now, InTrade.com has Obama with a 51 percent chance of landing a second term in office, with Romney given a 32.5 percent chance of beating Obama and Gingrich with a 3.7 percent chance of winning the presidency.
4. Australia Tumbles Into a Recession
The last time Australia's economy fell into a recession , the year was 1991 and Nirvana's Nevermind was about to knock Michael Jackson off the top of the Billboard charts. Saxo Bank, though, is predicting that the land down under's 20-year streak of positive GDP growth will come to an end in 2012.
Though this call qualifies as an "Outrageous Prediction" for Saxo Bank, there have been lingering concerns that Australia would face a recession since the financial crisis in 2008 and 2009. Most recently, the continent has dealt with earthquakes and floods, which have hit certain industries like coal mining particularly hard. Saxo Bank strategists are most concerned about Australia in light of slowing economic activity in China.
"The effects of the slowing up-and-coming Asian giant ripple through Asia Pacific push other countries into recession," the strategists write. "If there ever was a country dependent on the well-being of China it is Australia with its heavy dependence on mining and natural resources."
If China's demand for these goods weakens, Australia would face a double whammy because of the continent's overdue and likely housing market crash, the strategists add.
5. Basel III and Regulators Force 50 Bank Nationalizations in Europe
If investors shake in their boots at the threat of a bank downgrade by the credit ratings agencies, wait until they get a load of this prediction.
It should not come as a surprise that European banks are in trouble and likely need to be recapitalized. What's most surprising about this call is that the banks that won't just need to be recapitalized but nationalized in order to be saved. Saxo isn't talking about five, a dozen or even two dozen banks, but a whopping 50 banks that will be rescued by governments across Europe.
For the strategists, this outrageous call is easy to outline: Europe's banks will be hit with new Basel III capital requirements and regulatory pressures in 2012. These banks will be forced to deleverage quickly. That means we're likely to see a fire sale on financial assets with few buyers in the market. Troubled sovereigns, structural funding gaps and massive trading books set the scene for the largest bank rescue operation in Europe's history, the strategists argue.
"Politicians, eager to score points with the public, create a regulatory mob enforcing value destruction in the banking system 'in the name of greater good,'" the strategists write. "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."
6. Sweden and Norway Replace Switzerland as Safe Havens
Congratulations, Sweden and Norway: You're next in line to be the safe havens of the world's entire investor base! But while Saxo Bank is predicting that Sweden and Norway could be the next hiding place for investors, that forecast is more of a warning to those countries than a congratulatory note.
Switzerland has been the so-called quality for the flight of investors during this incredible time of volatility. With the euro crumbling as the debt crisis has persisted, investors sought the safety of the Swiss franc. Unfortunately, the franc's popularity with investors was bad for the country, forcing the Swiss National Bank to put a cap on the franc by promising to buy euros to keep its economy stable.
"As we saw with Switzerland, becoming a safe haven in a world of devaluing central banks presents a number of risks to a country's economy," the strategists write. "Flows into the two countries' government bonds on safe haven appeal becomes popular enough to drive 10-year rates there to more than 100 basis points below the classic safe haven German Bunds."
7. Swiss National Bank Wins and Catapults EUR/CHF to 1.50
Speaking of the Swiss National Bank, Saxo Bank is predicting that the central bank's war on currency appreciation will pay off big in 2012.
In September, the SNB put a cap on the franc at 1.20 to the euro, a level the bank has held through December even as the threat of weakening economic growth looms. By creating the cap, the SNB aimed to devalue its own currency in order to help the country's exports. Saxo Bank, though, says this won't be the last intervention we see from the SNB.
"With Swiss fundamentals — particularly export-related — continuing to suffer mightily in 2012 from past Swiss franc strength, the SNB and government bear down further to prevent more collateral damage and introduce extensions to existing programs and even negative interest rates to trigger sufficient capital flight from the traditional safe haven of Switzerland to engineer a move in EURCHF as high as 1.50 during the year," the strategists write.
7. USD/CNY Rises 10 Percent
While the U.S. would kill for GDP growth of 5 percent to 6 percent, you'd have to consider that level a recession for China's booming economy. And yet, that's what Saxo Bank strategists are calling for in 2012, which would boost the U.S. dollar/Chinese renminbi pair by 10 percent.
Saxo Bank notes that China's economy has been fueled by investment and exports. Any gain in the country's currency will mean that the returns from building million-inhabitant ghost towns will diminish and Chinese exporters will struggle with razor-thin margins.
The bank strategists argue that Chinese policymakers will rescue the exporters by allowing the reminbi to decline against the U.S. dollar "buoyed by its safe-haven status amid slowing global growth and an on-going Eurozone sovereign debt crisis."
The USD/CNY pair currently trades at 6.34, which means a 10 percent increase would launch the pair to 7. The last time the pair even came close to that level was Sept. 1, 2010, when the USD/CNY hit 6.81.
8. Baltic Dry Index Rises 100 Percent
Dry-bulk shippers endured an awful start to 2011 as the Baltic Dry Index plunged from roughly 2,000 in early January to nearly 1,000 by early February. Since then, the index doubled to more than 2,000 as oil prices sank from more than $110 a barrel to a low of $76 in October.
Even with this massive rebound in 2011, Saxo Bank strategists are calling for the Baltic Dry Index to double again as oil prices pull back further.
"Lower oil prices in 2012 could lead to an increase in the Baltic Dry Index as operating expenses go down," they write. "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. In combination with monetary easing, this leads to a massive spike in iron ore demand."
9. Wheat Prices to Double in 2012
For most of 2011, companies saw profitability dented by higher input costs. For food companies, that pain will continue in 2012 if Saxo Bank is correct in its prediction that wheat prices will double.
Weather will once again be the main culprit for a tricky year for agriculture products, Saxo Bank strategists argue, which could make the the price of CBOT wheat will double during 2012 after having been the worst performing crop in 2011.
"The drop was brought about due to a combination of farmers responding to high prices in 2010/11 and normalized weather in the Former Soviet Union," the strategists write. "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."
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