Before we get started today, I just wanted to flag two articles from last week. First, my special report on helium. And, second, Dr John’s latest on bonds. Both for paying subscribers, there is lots of valuable info to be had, so please check them out.
So to today’s piece … Every December Saxobank puts out ten outrageous predictions for the year ahead.
It does not claim that these predictions will happen, but that they could happen. The purpose of the exercise is to stimulate thought, discussion and debate.
And that is just what Saxobank has achieved because today we consider its ten outrageous predictions for 2023.
The 10 outrageous predictions for 2023
I went back to look at their predictions for 2022 to see if any of them actually happened.
The very first was “The plan to end fossil fuels gets a rain check.” Net Zero has not yet been abandoned, but this year has certainly seen a quite dramatic change in attitude towards fossil fuels.
The second was “Facebook faceplants on youth exodus”. Facebook has certainly faceplanted. But I wasn’t aware the youth were ever on it.
After reading the first two, I was about to bestow Nostre Damus status on Saxobank, but the rest of their 2022 predictions did not really pan out. I won’t go through them here. They are in the past. Nobody can do anything about the past. It’s the future we need to worry about.
So to 2023. Saxobank describes the year as a “war economy”. The days of low-interest rates and a harmonious world built on renewable energy, equality and independent central banks are gone. Now “sovereign economic gains and self-reliance trump globalisation”.
That’s the macro. Onto the specifics.
Prediction one. The pressing global energy needs drive the world’s richest to launch an “R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb”.
Well, you can bet your bottom dollar that they are talking about it. But I don’t think it happens. Not just yet, anyway. Somebody would have to organise it.
Prediction two says that, due to the political stalemate in France, and the rise of Marie Le Pen since the 2022 elections, President Macron resigns.
I don’t see that happening either. France’s daft electoral system is what enabled him to be President. The political stalemate means he stays President. Presidents like Macron don’t resign unless they are forced to. Too big an ego. Though this McKinsey affair does seem to be hurting him.
The gold price surges to $3,000
Prediction three is that gold goes to $3,000.
Now you’re talking my language!
“As markets and central banks realise that the idea that inflation is transitory is wrong and that prices will remain higher for longer, gold is sent through the roof,” says Saxobank.
To rocket, gold needs inflation expectations to be markedly higher than government bond yields - negative real rates in other words. In the US we do not yet have that. Saxobank is describing a situation where we do.
I’ve got to be straight with you guys. I don’t think gold goes to $3,000 in 2023. It’s got a better chance of going to £3,000.
Prediction four suggests an EU army is coming and that it forces the EU down the path to full union.
We know that, despite denials, the EU has been talking about an EU army for years. With that man Mr Putin on the doorstep the need gets rather more pressing. It’s possible but it needs the US to take a backward step in its global policeman role, something President Biden and the US military-industrial complex seem unlikely to do.
Like many of Saxobank’s predictions, I’ve no doubt it’s coming. Just not next year.
We come to prediction number five and one that made me smile.
“In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.”
I’d never thought about it before, but I do think about it now and I know it’s inevitable.
Under the pretence of climate change, somewhere is going to impose meat taxes. I don’t think meat production will be banned - that’s too big a political ask - but meat taxes are coming. And, if you’ve read the definitive book on taxation that is Daylight Robbery, you will know that taxes are easily imposed, often for moral reasons, but not so easily gotten rid of. Meat taxes are coming - again maybe not a year, but they are coming. It will be for your own good. And once imposed they will stay.
Outrageous predictions for 2023: time to wind back Brexit?
Prediction six suggests that the UK will hold a referendum to wind back Brexit.
Bregret is a big thing now in the UK. A recent YouGov poll found that only 32% now think leaving the European Union was a good idea; 56% say it was a mistake.
The Conservative Party have made the most almighty balls up of the opportunity. The primary reason given for voting leave was sovereignty, yet, as the people trafficking and illegal migrant crossings show, they have been unable to even police our borders. No wonder only 21% think Brexit is going well.
There will be calls for another referendum. But the Tories won’t have it on their watch and I suspect Keir Starmer will be too scared of losing Red Wall votes to make it an electoral pledge.
So I doubt we will see a referendum - not next year - even if the sentiment is there.
Prediction seven is next and that is for widespread price controls to cap official inflation.
Inflation and price controls are forever partnered, and war is never far away from the dancing duo. We have already seen plenty of new price controls this year though. Will we see yet more? Probably.
The US dollar is dethroned
And so to prediction eight - and this is one I do see coming. Well, a watered-down version. And, again maybe not as soon as next year. “OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve asset.”
De-dollarisation is a big theme, especially for those nations that make up the Shanghai Cooperation Organisation - which is Russia, China, India and Iran and pretty much every nation between.
They are not allies of the US and they want a non-US dollar asset they can trade with. The problem is what? (I have some ideas).
I don’t see them necessarily walking out of the IMF but some non-US-dollar international asset is coming. Or they’ll use an existing one. Before the end of next year? Possibly.
It might be gold. It might even be bitcoin. It might be something else.
Prediction 9 - we are almost there. Japan fixes its currency to the US dollar at 200 as it overhauls its financial system.
The yen has been a basket case - even worse than the pound, believe it or not. Here we see it against the dollar over the last decade. From 60 to 170 is quite some drop. (If the chart below is rising it means the dollar is getting stronger).
But this is as much a function of US dollar strength as it is yen weakness and Japanese monetary policy.
To go to 200 is not that big an ask, but the US dollar has pulled back quite a bit of late and may have made a long-term reversal.
But to go to 200 and then get pegged. I’m not sure.
Outrageous predictions for 2023: bye-bye private equity
And so finally we come to prediction ten.
Tax haven ban kills private equity, says Saxobank. “The OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.”
The OECD has been wanting to do that for yonks. It has not been able to find a way. Maybe war gives them the excuse. I’m not so sure. The practicalities are difficult. You can’t ban Panama. You can’t ban Switzerland.
Saxobank explains how it would work. The OECD would launch a full ban on the Cayman Islands, Bermuda, The Bahamas, Mauritius and the Isle of Man.
“The ban means that corporate acquisitions in OECD countries cannot be made with capital arriving from tax haven entities and only from OECD countries or countries that adopt OECD transparency standards on capital, which would include the automatic exchange of information, beneficial ownership registration and country-by-country reporting”.
Ouch. It would decimate private equity. You can be sure that the motivation is there. Will it happen?
It depends on how nuts things get. And things are getting nuts.
Thanks very much for reading. I’ll have my own predictions for you, as is always my way, at the beginning of next year.
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Have you got you Kisses on a Postcard CDs yet?
This article first appeared at Moneyweek.
10 outrageous predictions for 2023