Saxo Bank has released its 10 Outrageous Predictions for 2019.
While – beyond “Apple buying Tesla” and Netflix crashing badly – they are not tech market-specific, much of Computer Business Review sees in the market is underpinned by high valuations for software companies: we deemed them fit to share.
(If the past few years have taught us something, after all, it is that “outrageous” does not necessarily mean “unrealistic” anymore).
The predictions – which the multi-asset trading specialist hastens to add do not constitute Saxo’s official market forecasts for 2019 – represent a warning of a potential misallocation of risk among investors, who typically see just a one percent likelihood to these events materialising, the firm noted as it released them today.
Here they are (edited for brevity by Computer Business Review).
10 Outrageous Predictions for 2019
1: EU Announces a Debt Jubilee
In 2019, the unsustainable level of public debt, a populist revolt, rising interest rates from European Central Bank tapering/lower liquidity, and sluggish growth reopened the European debate on how to get ahead of a new crisis. Italian contagion sickens Europe’s banks as the EU lurches into recession. When contagion spreads to France, policymakers understand that the EU faces the abyss. The Economic and Monetary Union extends a debt monetisation mandate to the ECB for all debt levels over 50% of GDP and guarantees the rest via a Eurobond scheme.
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. 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 – $100/share more than Elon Musk’s errant “funding secured” tweet.
3: Trump tells Powell “You’re Fired”
Federal Reserve chair Jerome Powell signs on with a slim majority of voters in favour of a rate hike – the US economy and US equities promptly drop off a cliff in Q1 2019. With equities in a deep funk an incensed President Trump fires Powell and appoints Minnesota Fed President Neel Kashkari… setting President Trump up for a successful run at a second term in 2020 by promising a $5 trillion credit line to fund Trump’s “beautiful” new infrastructure projects. Inflation reaches 6%, is reported at 3%, and the Fed policy is stuck at 1%. That’s deleveraging you can believe in.
4: Prime Minister Corbyn sends GBPUSD to Parity
Labour sweeps to a resounding victory and names Jeremy Corbyn as prime minister on the promise of comprehensive progressive reform and a second referendum on a “to-be defined” Brexit deal. The Corbyn Labour government embarks on a mid-20th century-style socialist scorched earth campaign to even out the UK’s gross inequalities. Sterling is crushed on the double trouble of ugly twin deficits and lack of business investment on the still-unresolved Brexit issue… all the way down to parity at 1.00, a move of over 20% – with one dollar being equal to one pound for the first time ever.
5: Corporate Credit Crunch Pushes Netflix into GE’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, as investors panic over GE’s $100 billion in liabilities at the same time as the firm sees deteriorating cash flow generation.
See also: Netflix Debt: Company Plans $2 Billion Bond Issuance
The carnage even spreads as far as Netflix where investors suddenly fret the firm’s fearsome leverage, with a net debt to EBIDTA after CAPEX 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.
6: Australian central bank launches QE on housing bust Down Under
In 2019, the curtains close on Australia’s property binge in a catastrophic shutdown driven most prominently by plummeting credit growth. In the aftermath of the Royal Commission, all that is left of the banks is a frozen lending business and an overleveraged, overvalued mortgage-backed property ledger and banks are forced to further tighten the screws on lending. Australia falls into recession for the first time in 27 years as the plunge in property prices destroys household wealth.
7: Germany Enters Recession
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. 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. 2019 will create a laser-like focus on costs, domestic markets and production, and the further use of big data and reduced pollution – the exact opposite of the trends that have benefitted Germany since the 1980s. Recession arrives as early as Q3 2019.
8: X-Class Solar Flare Creates Chaos and Inflicts $2 Trillion of Damage
As solar astronomers are well aware, the sun is also a seething cauldron of activity capable of producing incredible violence in the form of solar flares, the worst of which see the sun vomiting actual matter and radiation in the form of Coronal Mass Ejections, or CMEs. In 2019, as solar cycle 25 kicks into gear, the earth isn’t so lucky and a solar storm strikes the Western hemisphere, taking down most satellites on the wrong side of the earth at the time and unleashing untold chaos on GPS-reliant air and surface travel/logistics and electric power infrastructure. The bill? Around $2 trillion.
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, pushing up air travel ticket prices and maritime freight.
10: IMF and World Bank Stop Measuring GDP, Focus Instead on Productivity
Workers talking in a shipping yardIn 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. Productivity is certainly one of the most popular, and yet least understood, terms in economics. It replaces GDP. 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.
Saxo Sounds (Wistfully) Like it Wants Them to Happen…
Chief Economist at Saxo Bank, Steen Jakobsen said: “This year’s list is both fascinating and shocking while encouraging investors to think outside the consensus box. It 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…. money printing efforts since 2008 have only dug a deeper debt hole, and it has now grown beyond their mandate to manage.”
He added: “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.”
