10 OUTRAGEOUS PREDICTIONS FOR 2012
Each year Saxo Bank releases their 10 outrageous predictions for 2012. The list is intended to highlight outlier risks as opposed to actual expected outcomes for the year. They say the list will hopefully get investors to consider potential downsides, prepare in advance and maybe even get policymakers to consider action that avoids any of the following. As a risk manager, I’m always in favor of considering and preparing for the worst. You can see their predictions from the previous two years here and here. And with that in mind, here is the list:
1. The stock of Apple Inc plummets 50 per cent from 2011 high
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. Apple will be unable to maintain its market share of 55 per cent (three times as much as Android) and 66 per cent on the iOS and iPad.
2. EU declares extended bank holiday during 2012
The December EU Treaty changes prove insufficient to solve EU funding needs – particularly those in Italy – and the EU debt crisis returns with a vengeance by mid-year. In response, the stock market finally caves in and drops 25 per cent in short order, prompting EU politicians to call an extended bank holiday – closing all European exchanges and banks for a week or more.
3. A yet unannounced candidate takes the White House
In 1992, Texas billionaire Ross Perot managed to take advantage of a recessionary economy and popular disgust with US politics and reap 18.9 per cent of the popular vote. Three years of Obama has brought too little change and only additional widespread disillusionment with the entire US political system, and conditions for a third party candidate have never been riper. Someone with a strong programme for real change throws his or her hat in the ring early in 2012 and snatches the presidency in November in one of the most pivotal elections in US history, taking 38 per cent of the popular vote.
4. Australia goes into recession
The effects of the slowing up-and-coming Asian giant ripple through Asia Pacific push other countries into recession. 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. 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.
5. Basel III and regulation force 50 bank nationalisations in Europe
As 2012 begins, pressure will mount on the European banking system as new capital requirements and regulatory pressure force banks to deleverage in a great hurry. This creates a fire sale on financial assets as there are few takers in the market. 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
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 capital markets of both countries are far smaller than Switzerland, but the Swiss are aggressively devaluing their currency and money managers are looking for new safe havens for capital. Flows into the two countries’ government bonds on safe haven appeal becomes popular enough to drive 10-yearrates there to more than 100 basis points below the classic safe haven German Bunds.
7. Swiss National Bank wins and catapults EURCHF to 1.50
Switzerland’s persistency in fighting the appreciation of its currency will continue to pay off in 2012. With Swiss fundamentals –particularly export related – continuing to suffer mightily in 2012 from past CHF strength, the SNB and government bear down further to prevent more collateral damage and introduce extensions to existing programmes 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 as1.50 during the year.8. USDCNY rises 10 per cent to 7.00
As marginal returns from building million-inhabitant ghost towns diminish and exporters struggle with razor-thin margins due to the advancing CNY China gets to the brink of a “recession”, meaning 5-6 per cent GDP growth. Chinese policymakers come to the rescue of exporters by allowing the CNY to decline against a US Dollar – buoyed by its safe-haven status amid slowing global growth and an on-going Eurozone sovereign debt crisis – and send the pair up to 7.00 for a 10 percent increase.
9. Baltic Dry Index rises 100 per cent
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. In combination with monetary easing this leads to a massive spike in iron ore demand.10. Wheat prices to double in 2012
The price of CBOT wheat will double during 2012 after having been the worst performing crop in 2011. 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. 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.
Source: Saxo Bank
now some of those were sure interesting!
When the title said “10 Outrageous Predictions” I was expecting to see: US hyperinflation, Dow = Gold = 5000, and a list of other nonsense like that.
What I got an interesting and well thought out list. Thanks for posting.
I don’t have a financial interest in AAPL.
I don’t see the stock dropping anywhere near 50%. Even though marketshare is declining, absolute sales and earnings are still growing substantially. The smartphone and tablet market itself is still in a high growth phase. Apple is one of the only players in mobile which has been able to maintain healthy profit margins on hardware, and the stock trades at 13x PE.
A 50% drop in price would require a 6.5x multiple at zero earnings growth or a disastrous decline in earnings, neither of which seem plausible.
A better argument for a significant decline in AAPL would be that it is certainly one of the most crowded trades on the planet. Some external shock which caused a mass hedge fund unwind could drop the price quite a bit for a time…
Most of the predictions don’t seem so outrageous. I may have become too biased towards the pessimistic side…
That was my thought! Most of the predictions are, for me, almost base-case!
Another outrageous prediction. MD (head of ECB) FT interview latest remarks On ECB’s/focus on maintaining credibility = catalyst for down big time?
Catalyst for GOLD down big time?
This is the FT link http://www.ft.com/intl/cms/s/0/15bcafb0-296c-11e1-8b1a-00144feabdc0.html#axzz1gynNUsMw
I think it works for no subscribers.
http://www.marketwatch.com/story/france-finally-realizing-what-a-bad-deal-euro-was-2011-12-19
http://www.bloomberg.com/news/2011-12-19/china-currency-data-signals-unprecedented-second-month-of-capital-outflows.html
I’ll make a prediction. 2012 will see a significant move toward membership in US labor unions. This is the only recourse for lower and lower-mid income workers. They’re at breakpoint. Walmart is a likely target, but there are many. The rebirth will launch with a major strike, and inflation will finally get its foothold.
Interesting. I’ll chip in with my 2 cents.
The nasty scar of the HH BSR debt load w/ cause a 5-10 year decrease in PCE as the HH sector anticipates lower future wages and desires to net save for safety.
That is a headwind towards growth here in the US. We may never see <2008 return.
I don't believe MMT has a strategy for this (via sectoral balances).
And darn it, apparently I am not the only one concerned about this:
http://www.moneynews.com/Economy/economy-debt/2011/12/18/id/421364
Newt will win. Military coup will take control within two years.
i hope you mean the military will take control of North Korea, surely you don’t mean a coup in the USA?? God forbid. Although if Newt were the president, I can understand why it might happen.
For those who claim a Military coup is possible your off your feakin rocker, we, those who serve will never turn on our own country, I don’t care who is President
“More than 50 European banks end up on government balance sheets and several known commercial bank brands cease to exist.”
This is not as outrageous as it seems. Given that many EU banks are leveraged up 20 to 30 times, and given the fragility of the Euro and the EU credit markets, this is something that has a probability ranging from 1% up to as high as 25%. Gary Shilling was on Bloomberg TV this a.m. predicting that “at least” one major EU bank would be nationalized and bailed out during 2012.
Pretty interesting to go back and look at the previous lists. For 2011:
* “US 30-year Treasury yield dips to 3%” (currently slightly under)
* “oil to surge to $100 before correcting by 33%” (Brent hit ~$127 in April, now trading ~$104; WTI hit ~$115 in May before falling to ~$75 in Oct, now at ~$94)
* “gold powers to $1800″ (hit ~$1900 in Sep; now at ~$1600)
Maybe some of them aren’t as “outrageous” as advertised…
amazing stuff. I think we’ll see at least four of these predictions come true. I think the EURCHF could be one of them!
I’m glad my family is full of celiacs.
Fascinating stuff.
Thanks again, Cullen, for provoking so much thought, and happy holidays to you and all.
I like this list. Now you can see why the Banks are having a hard time.
They’ve mixed up there econmic forcast with the outrageous list. Well at least we got the forcast for free. Poor Saxo Bank clients.
Naive Chinese unveil their weakness. Want envy more evidence they are hurting bad? Capital flight is accelerating. Gess who is taking the most money out?
China opens up to offshore renminbi investors
http://www.ft.com/intl/cms/s/0/2dd28108-2938-11e1-8b1a-00144feabdc0.html#axzz1gynNUsMw
I don’t agree with #9 and #10. Both require – IMO – the USD to go down the drain and that’s not what I expect for 2012. (i.e. USD getting stronger). Currently I am long the USD.
For #3 to materialize, I think we need the US economy to go “”down the drain”" much more. I wouldn’t be surprised to see general (dictator ??) David Petraeus occupying the White House).