Saxo Bank, a Danish investment firm, has made 10 "outrageous predictions" for the coming year, inspired by the Black Swan theory of the thinker and financier Nassim Taleb. Mr Taleb has made a fortune and influenced many of the world's most powerful people with the premise that unlikely, unpredictable events such as the September 11 attacks and the subprime mortgage crisis are central to the course of history.
Few, if any, investors saw such events coming and those who did profited handsomely from the knowledge. In its list of unlikely predictions for next year, Saxo said it looked for things that could happen in the coming year but probably will not. The list "should be seen as the black swans of the market rather than outright predictions", said David Karsbol, the Saxo chief economist. "We do believe that the odds of these events happening are somewhat higher than what is currently priced into the market."
In the US, the bank predicts the possibility of the government-run social security fund, which pays out welfare benefits to retirees and the disabled, no longer being able to cover its outlays, which account for almost 7 per cent of the American economy. "This is not so much an outrageous claim as an actuarial and mathematical certainty," the bank said. "The outrageous part is that social security taxes and contributions have been squandered for so long."
As the disillusionment of the US public increases with regard to the political class, a new third political party could emerge and play a deciding role in next year's elections, Saxo believes. The roller coaster of American public life will not be the only place where investors could experience and profit from a wild ride. While Saxo thinks the price of gold is on a long-term rise that should hit US$1,500 an ounce by 2014, it says a serious price drop in the near term is not out of the question.
"This trade seems to have become too easy and too widespread to pay out in the shorter term," the bank said. "A serious correction towards the $870 level could shake out the speculative community while keeping the metal in a longer term uptrend." Sugar, gold's sweeter cousin, could also drop in price by a third, the bank predicts, driven by decreased demand for ethanol fuel in the US. Still, commodities investors should give pause to the second half of Saxo's reasoning for a depressed sugar price.
A return to more normal weather conditions, it said, would mean fewer droughts and disappointing rainy seasons that caused production to drop and prices to spike this year. Not even the great Mr Taleb is on record trying to predict the weather. @Email:tgara@thenational.ae
