Europe based Saxo Bank Capital Markets released a list of 10 predictions or “outrageous claims” as they put it for the year ahead. The bank says that if their “outrageous claims” transpire, economic conditions will worsen dramatically in 2009.
Nothing like optimism at this sacred time of the year or as Saxo chief economist David Karsbøl put it, “2009 will be a turning point because it can’t get much worse.”
Here are Saxo’s predictions; the comments (in italics) are ours.
• There will be severe social unrest in Iran as lower oil prices mean that the government will not be able to uphold the supply of basic necessities.
Many are predicting social unrest in the U.S., which most likely will remain the most stable country in the world so all bets are off everyone else.
• Crude will trade at $25 as demand slows due to the worst global economic contraction since the Great Depression.
$25! Come on Saxo step out. Crude has dropped $108 or 74% since July and more than 60% since October and is trading below $40 right now. GO big or go home—you need to call for $200 crude on the top side or below $10 on the downside to qualify as outrageous.
• S&P will hit 500 in 2009 because of falling earnings, vaporizing housing equity and increased cost of funds in the corporate sector.
See previous response
• The EU is likely to crack down on excessive government budget deficits in several member states, and Italy could live up to previous threats and leave the ERM completely.
The ERM is the European Exchange Rate Mechanisms and yes I had to look it up. Doesn’t sound too outrageous though and there is only one appropriate response: we’re happy for them.
• The AUDJPY will drop to 40. The decline in the commodities markets will affect the Australian economy.
OK. See above
• EURUSD will fall to 0.95 and then go to 1.30 as European bank balances are under tremendous pressure because of exposure to the faltering Eastern European markets and intra European economic tensions.
This one is interesting. The euro has just gained back more than 50% of its losses against the dollar since this summer’s reversal. The Fed just cut rates to zero affectively, so I find a major dollar recovery hard to fathom, particularly as Europe still considers a thing called inflation.
• Chinese GDP growth drops to zero. The export driven sectors in the Chinese economy will be hurt significantly by the freefall economic activity in the Global Trade and especially of the US.
An economy that has grown at 10%+ per year for several years based on huge exports may suffer a little during a global recession. Hmm. They forgot that whole outrageous thing with this one.
• Pre-In’s First Out. Several of the Eastern European currencies currently pegged or semi-pegged to the EUR will be under increasing pressure due to capital outflows in 2009.
OK.
• Reuters/ Jefferies CRB Index to drop 30% to 150. The Commodity bubble is bursting, with speculative excesses so large they have skewed the demand and supply statistics.
While commodities have come down to Earth in 2008, they went up for a reason. It was not a bubble in the classic sense as the tech bubble and housing bubble. China and India had been growing by 10% plus per year consuming more of the world’s commodities and the dollar did decline by more than 40% from 2001 to mid-2008. It was not necessary to claim a new paradigm to justify the commodity bull market, just basic supply and demand fundamentals. Many of those fundamentals will remain though a global recession could continue to affect demand for commodities. All things being equal, things with intrinsic value, like commodities, will probably be a better investment choice than equities.
• 2009 will see the first Asian currencies to be pegged to CNY. Asian economies will increasingly look towards China to find new trade partners and scale down their hitherto US‐centric agenda.
CNY refers to the Chinese currency, the remnimbi. And yes I needed to look-up CNY. Isn’t the remnimbi still—with minor modifications— pegged to the dollar? Good luck especially with Chinese GDP at zero.
Tags: 2009 predictions
