In a year dominated by climate change, social inequality and the Covid-19 pandemic, the theme of revolution shaped Saxo Bank's annual Outrageous Predictions report for 2022, according to the Danish investment bank.
The bank's list of 10 events that are unlikely to occur in 2022 – but would send shock waves through global financial markets if they did – include postponing the plan to end fossil fuels, Facebook faceplanting as youths shun the platform and US inflation breaching the 15 per cent mark on the back of a wage-price spiral.
“There is so much energy building up in our inequality-plagued society and economy,” Steen Jakobsen, chief investment officer at Saxo Bank, said on Sunday.
“Add to that the inability of the current system to address the issue and we need to look into the future with a fundamental view that it is not a question of whether we get a revolution but a more a question of when and how.
“With every revolution, some win and some lose but that is not the point – if the current system cannot change but must, a revolution is the only path forward.”
The Covid-19 pandemic last year tipped the world economy into its worst recession since the Great Depression, forcing countries into lockdowns that led to higher unemployment, reduced salaries and businesses to close, according to the International Monetary Fund.
While countries have eased restrictions and reopened their economies, a culture war resulting from the pandemic is now raging around the globe and "the divide is no longer simply between the rich and the poor”, Mr Jakobsen said.
Here are Saxo Bank’s 10 outrageous forecasts for 2022:
1. The plan to end fossil fuels gets a rain check
Outrageous prediction: policymakers kick climate targets down the road and support fossil fuel investment to fight inflation and the risk of social unrest while rethinking the path to a low-carbon future.
What Saxo said: “Realising the inflationary threat from surging commodities prices and the risk of an economic train wreck due to the unrealistic timeline for the green energy transition, policymakers … relax investment red tape for five years for oil production and 10 years for natural gas production to encourage producers to ensure adequate and reasonably priced supplies that bridge the gap from the energy present to the low-carbon energy future.”
Market impact: the iShares Stoxx EU 600 Oil & Gas ETF surges 50 per cent as the energy sector finds a new lease on life.
2. Facebook faceplants on youth exodus
Outrageous prediction: the young abandon Facebook’s platforms in protest at the mining of personal information for profit; the attempt by Facebook parent Meta to reel them back in with the metaverse stumbles.
What Saxo said: “In 2022, investors will realise that Meta is rapidly losing the young generation and thus the future potential and profitability of the company. In a desperate move, Meta tries to acquire Snapchat or TikTok while throwing billions of dollars into building the creepy metaverse, which is aimed at surveilling users more directly than ever before and getting young people back into Meta’s universe of social media platforms, in the perceived wisdom that being a first mover is always best in technology. The plan struggles to take off as the young generation fails to sign up.”
Market impact: Meta struggles and is down 30 per cent versus the broader market. It is urged to spin off its components as separate entities, shattering Mark Zuckerberg’s monopolistic dreams.
3. The US mid-term election brings constitutional crisis
Outrageous prediction: the US midterm election results in a stand-off over the certification of close Senate and/or House election results, leading to a scenario where the 118th Congress is unable to sit on schedule in early 2023.
What Saxo said: “In the wake of the 2022 election, a handful of key Senate and House races come down to the wire and one or both sides move against certifying the vote, making it impossible for the new Congress to form and sit on its scheduled first day of January 3, 2023.”
Market impact: extreme volatility in US assets as US Treasury yields rise and the US dollar drops on hedging against the existential crisis in the world’s largest economy and issuer of the world’s reserve currency of choice.
4. US inflation exceeds 15% on wage-price spiral
Outrageous prediction: by the fourth quarter of 2022, the wages for the lower half of US incomes are rising at an annualised 15 per cent pace as companies scramble to find willing and qualified workers who are increasingly selective. This is due to a rising sense of entitlement as jobs are plentiful relative to the meagre availability of workers at all skill levels.
What Saxo said: “The official US consumer price index reached a peak at 11.8 per cent in February 1975. It was not until the recession of 1980-1982 and brutal policy rate increases to levels as high as 20 per cent that inflation was finally killed. In 2022, the Federal Reserve and Fed chair Jerome Powell repeat the same mistake all over again … as a consequence, US inflation reaches an annualised pace above 15 per cent before the start of 2023, for the first time since the Second World War.”
Market impact: extreme volatility in US equity and credit markets. The JNK high-yield exchange-traded fund falls as much as 20 per cent and the VIXM mid-curve volatility ETF soars as much as 70 per cent.
5. EU superfund for climate, energy and defence announced, to be funded by private pensions
Outrageous prediction: to defend against the rise of populism, deepen the commitment to slowing climate change and defend its borders as the US security umbrella recedes, the EU launches a bold $3 trillion superfund to be financed by pension allocations rather than new taxes.
What Saxo said: “Given the EU’s ageing population and heavy tax burdens, policymakers know that it will be impossible to finance the superfund with higher taxes on incomes or other traditional tax revenue. Instead, France has a light-bulb moment as it seeks to overhaul its pension system and looks at Europe’s enormous pensions. It decides that all pensions for all workers above the age of 40 must allocate a progressively larger portion of their pension assets into superfund bonds as they age."
Market impact: bond yields harmonise across Europe, leading to German Bunds underperforming. EU defence, construction and new energy companies are some of the best performers.
6. Women’s Reddit Army takes on the corporate patriarchy
Outrageous prediction: mimicking the meme stock Reddit Army tactics of 2020-2021, a group of women traders launch a co-ordinated assault on companies with weak records on gender equality, leading to huge swings in equity prices for targeted companies.
What Saxo said: “Although women have been struggling with lower salaries, they have higher saving rates than men. Those savings will now come in handy as they decide to take the situation into their own hands and throw their considerable influence around in a #metoo movement in financial markets.”
Market impact: the movement achieves real results as the broader market catches on to the theme and joins in, forcing company prices to fall sharply, which results in companies scrambling to change their ways. It marks the beginning of a gender parity renaissance in markets.
7. India joins the Gulf Co-operation Council as a non-voting member
Outrageous prediction: the world’s geopolitical alliances will lurch into a phase of drastic realignment as we have an ugly cocktail of new de-globalising geopolitics and much higher energy prices.
What Saxo said: “Countries reliant on imports for the majority of their energy inputs in a rapidly deglobalising world will need to move fast to strategically reorientate strategic alliances and secure long-term energy supplies. One such alliance could involve India, with its mighty technology sector, joining the GCC as a non-voting member, or in some sort of free trade zone. This alliance would see a reduction in India’s energy insecurity as it secures long-term import commitments."
Market impact: the Indian rupee proves far more resilient than its emerging market peers in a volatile year for markets. The bubbly Indian stock market corrects with other equity markets in early 2022 but proves a strong relative performer from the intra-year lows.
8. Spotify disrupted due to NFT-based digital rights platform
Outrageous prediction: musicians are ready for change as the current music streaming paradigm means that labels and streaming platforms capture 75 per cent to 95 per cent of revenue paid for listening to streamed music. In 2022, new blockchain-based technology will help them to grab back their fair share of industry revenue.
What Saxo said: “In 2022, an NFT-based service takes hold and begins offering music from notable stars – perhaps the likes of Katy Perry, The Chainsmokers and Jason Derulo, all of whom have recently backed an effort to create a new blockchain-powered streaming platform. Other well-known artists begin pulling their music from the now 'traditional' streaming platforms, which suddenly find themselves terminally disrupted. Investors see the eventual writing on the wall for podcasts, movies and other forms of digitisable content as well.”
Market impact: investors recognise that Spotify’s future is bleak, sending its shares down 33 per cent in 2022.
9. New hypersonic technology drives space race and new Cold War
Outrageous prediction: the latest hypersonic missile tests are driving a widening sense of insecurity as this technology renders legacy conventional and even nuclear military hardware obsolete. In 2022, a massive hypersonic arms race develops among major militaries as no country wants to be left behind.
What Saxo said: “In 2022, it is clear from funding priorities that hypersonics and space are the heart of a new phase of the deepening rivalry between the US and China ... other major powers with advanced military tech join in as well, likely including Russia, India, Israel and the EU.”
Market impact: massive funding for companies like Raytheon that build hypersonic technology with space delivery capabilities, as well as the underperformance of “expensive conventional hardware” companies in the aircraft and shipbuilding side of the military hardware equation.
10. Medical breakthrough extends average life expectancy by 25 years
Outrageous prediction: in 2022, a key breakthrough in biomedicine brings the prospect of extending productive adulthood and the average life expectancy by up to 25 years, prompting projected ethical, environmental and fiscal crises of epic proportions.
What Saxo said: “The prospect of a massive leap in human quality of life and life expectancy are huge wins for mankind but bring an enormous ethical and financial quandary. Imagine that almost everyone can look forward to living to an average age of 115 and more healthily … then there is the ethical question of whether it is humane to not make the cocktail available to everyone. In short, how would our value systems, political systems and planet cope?”
Market impact: what would this mean for private and government pensions, or even the ability or desire to retire? And what about the cost to the planet if it is set to support billions more people, not to mention whether or not there is enough food to go around?