The world is at an inflection point, with the familiar road of the past decade coming to an end, according to Saxo Bank's annual Outrageous Predictions report for 2024.
The Danish investment bank’s list of eight events that are unlikely to occur in 2024 – but would send shock waves through global financial markets if they did – include the EU introducing a wealth tax, the US making government bonds tax-free, deficit countries forming a “Rome Club” to negotiate new world trade terms and Japan's surprise economic surge leading to a policy shift by the Bank of Japan.
“The smooth road the world has travelled on since the great financial crisis, with stable geopolitics, low inflation and low interest rates, was disrupted during the pandemic years,” says Steen Jakobsen, chief investment officer at Saxo, indicating a shift towards a future filled with unpredictability.
Over the years, Saxo Bank’s Outrageous Predictions report has gained recognition for its uncanny ability to forecast developments that initially seemed improbable.
For example, the bank predicted a massive rally in Bitcoin in 2017, the postponed plan to end fossil fuels in 2022 and a country’s ban on meat production for 2023.
The Covid-19 pandemic era of near-zero interest rates and fiscal and monetary stimulus came to an end in March last year, when record-high inflation, a supply chain crunch and the war in Ukraine forced the US Federal Reserve and other central banks around the world to raise interest rates to cool their economies amid a cost-of-living crisis.
In October, the International Monetary Fund said it expected global inflation to decline steadily, from 8.7 per cent in 2022 to 6.9 per cent in 2023 and 5.8 per cent in 2024. This is still well above the preferred 2 per cent target of central banks.
Here are Saxo Bank’s eight outrageous forecasts for 2024:
1. EU introduces wealth tax
Outrageous prediction: As the EU needs more funding for various policy goals, including climate change mitigation, health care and education, and the population realises how little in tax billionaires are paying, the EU Commission implements a law that annually taxes 2 per cent of wealth.
What Saxo says: The law sends shock waves through Europe’s luxury industry, with the luxury behemoth LVMH plunging 40 per cent.
Market impact: LVMH shares plunge 40 per cent on the EU Commission’s new wealth tax and the share prices of other parts of the luxury segment, including Porsche and Ferrari, suffer badly.
2. Generative AI deepfake triggers a national security crisis
Outrageous prediction: Generative artificial intelligence becomes a national security threat after a daring AI deepfake heist against a high-ranking official in a developed country.
What Saxo says: Governments clamp down on AI with new regulations, puncturing the AI hype as venture capitalists flee the industry.
Public distrust in AI-generated news soars and governments impose new laws, allowing only a small group of entities to disseminate public news.
Market impact: Traditional media companies soar in value, with shares in The New York Times Company doubling. Adobe shares plunge as government penalises the company, as the catastrophic deepfake was made using its software.
3. US introduces tax-free government bonds
Outrageous prediction: The US government is forced to increase fiscal spending exponentially amid the 2024 elections to keep the economy going and avoid social unrest.
Due to lingering inflation pressures and foreign investors repatriating capital, demand for US Treasuries remains sluggish, provoking a sharp rise in US Treasury yields.
In a desperate attempt to normalise borrowing costs, the US government makes income from government bonds tax-free.
Market impact: US Treasuries rally across all tenors and the yield-curve bull flattens as investors can lock in the highest yields in decades without tax burdens.
The stock market tumbles but a select group of cash-rich companies benefit from an inverted yield curve.
4. Deficit countries form ‘Rome Club’ to negotiate trade terms
Outrageous prediction: The sustained and worsening divergence in current accounts between a group of surplus and deficit countries is a result of managed currencies and is not sustainable long term.
As the US debt situation has become uncontrollable, a group of six deficit countries form a “Rome Club” to co-operate on reducing deficits by collectively negotiating new world trade terms with the surplus countries.
What Saxo says: We see gold, silver and cryptocurrencies doing very well in an unpredictable environment for the world’s reserve currency and the unsustainable current accounts among deficit countries.
Market impact: The fact that the world’s reserve currency is spinning out of control reduces faith in the fiat money system, setting up big gains for gold, silver and cryptocurrencies.
5. Japan’s 7 per cent GDP growth rate forces BoJ to abandon yield-curve control
Outrageous prediction: Japan experiences a surprising economic surge, leading to a significant policy shift by the Bank of Japan.
What Saxo says: The deflation era in Japan has ended, bringing wage growth back. With a yield-curve control policy in place, the Japanese economy is overstimulated as real rates decline with nominal yields capped but inflation expectations rising.
The BoJ is, therefore, forced to end its yield-curve control policy in 2024. This causes a rout in global bond markets as Japanese investors move money back home.
Market impact: The yen strengthens as Japanese investors repatriate money to domestic assets, pushing USD/JPY below 130, EUR/JPY below 140 and AUD/JPY below 88.
6. Robert F Kennedy Jr wins 2024 US presidential election
Outrageous prediction: In 2024, for the first time in US history, a third-party candidate, Robert F Kennedy Jr, wins the US presidential election.
What Saxo says: His populist platform against the warmongering Democrats and corporate elites resonates with both disgruntled traditional Democratic and Donald Trump supporters.
A new political era in the US begins with a dramatic pivot away from plutocracy, as voters demand an end to drastic inequality and injustice and the end of forever wars.
Market impact: Mr Kennedy’s pro-peace message and promise to end the abuses of the US healthcare system and break up excess corporate power causes defence, drug and healthcare companies to nosedive, and the internet and info-tech monopolies trade nervously on concerns that a wider war against monopoly companies will follow.
7. World hit by major health crisis as obesity drugs make people stop exercising
Outrageous prediction: GLP-1 obesity drugs are considered to be a solution to the world’s obesity epidemic but the ease of taking a pill makes people stop exercising and increase their intake of junk food.
What Saxo says: As the supply of GLP-1 obesity drugs falls short of demand in 2024, there is a pickup in obesity rates and related health problems around the world, resulting in lower global productivity.
Market impact: The processed food industry experiences a significant demand lift. McDonalds and Coca-Cola stock prices outperform broader markets by 60 per cent each.
8. With oil at $150, Saudi Arabia buys Champions League franchise
Outrageous prediction: As oil prices soar, Saudi Arabia will acquire one of the most coveted franchises in sports to create a World Champions League.
What Saxo says: Saudi Arabia’s restructuring of its economy away from oil revenue towards becoming a tourism, leisure and entertainment powerhouse receives an added boost from a spectacular rise in oil prices, which reached $150 a barrel around mid-year on stronger-than-expected demand.
Now holding the keys to the cherished football competition, the Saudis immediately move to transform it into a global club competition.
Market impact: Manchester United's stock price doubles and Brent crude goes to $150 a barrel.