Outrageous Predictions that weren’t so outrageous
Søren Otto Simonsen
Senior Investment Editor
Summary: Saxo's hallmark Outrageous Predictions will be out next week. The provocative publication has never been about being right - it has always been about being outrageous. Still, sometimes the world catches up and becomes just the right amount of outrageous for the predictions to become true. We've checked our archives to find out which Outrageous Predictions from the past were much closer to the truth than anticipated.
All large market moves are driven by something that surprises expectations - sometimes outrageously. Crystal gazing with this in mind is the core of our annual Outrageous Predictions, as we try to suggest what events that seem unlikely right now could unfold and cause outrage in our world and financial markets - and provoke you to think differently along the way," says John J. Hardy, Head of FX strategy in Saxo.
In this article, we thought it would be fun to go back in time and see which of the past predictions came true even though truth isn't a measure of success with these: "Our Outrageous Predictions are not our baseline forecasts for what will happen in the New Year. Rather, they are meant as an exercise in provoking thought on what unanticipated developments can shock our world and financial markets," says Hardy.
2013 Outrageous Prediction: Gold corrects to USD 1,200 per ounce"Our $1,200 call, at the time of writing, signaled a one-third drop in the price," says Head of Commodity Strategy, Ole S. Hansen who, in 2013, had the first correct Outrageous Prediction.
Here's what he had to say about it: "Gold corrected to and actually went below USD 1,200 per ounce in 2013, as investors increasingly turned their attention to stocks and the dollar as central banks supported a post-GFC recovery in global growth. A major trigger was the April 2013 break below key support at $1,525 - a move that in our mind raised the risk of a bear market taking the price down towards $1,100," says Hansen.
2015 Outrageous Prediction: Brexit in 2017In the Outrageous Predictions for 2015, our Strats wrote that the UK Independence Party (UKIP) would win 25% of the national vote in Britain’s general election on 7 May, 2015, sensationally becoming the third largest party in parliament. UKIP would then join David Cameron’s Conservatives in a coalition government and calls for the planned referendum on Britain’s membership of the EU in 2017. UK government debt suffers a sharp rise in yields.
The timing was a bit off, but the circumstances around it were pretty accurate. “We had a very strong sense that ‘protest votes’ would be coming both in the US election and also ultimately in a vote on Brexit” said Steen Jakobsen, CIO at Saxo.“We, to some extent, correctly talked about the ‘social-contract being broken’ – meaning society no longer benefitted as a whole with monetary policy, creating increased gap in equality.
“This call was too early, but context and reasoning was spot on. The split in the Tory Party could not be healed and the modus operandi of ‘Talking down to the voters’ was blatant mistake, which we used for this call.”
2017 Outrageous Prediction: Huge gains for Bitcoin as the cryptocurrencies riseAs cryptocurrencies, particularly Bitcoin, began to gather momentum in the public eye, our Strats predicted that the then leading currency would have a huge bump in value. The rationale behind the jump was justified by the Trump regime overspending, causing high national debt to rise and inflation to skyrocket. Combining this with the global public wanting to break away from the currencies of central banks, Bitcoin would become a preferred alternative. The Outrageous Prediction ended up coming to fruition and more, with the price of Bitcoin growing to almost USD 20K at its 2017 peak.
However, the circumstances around the prediction weren’t entirely correct for the time. It wasn’t as much due to the macroeconomic movements of the Trump era, but rather the speculation around Bitcoin that fueled its initial meteoric rise. However, when looking at the more recent spikes in cryptocurrencies, particularly Bitcoin in 2021, the justifications outlined in the 2017 Outrageous Prediction held true.
2018 Outrageous Prediction: Volatility spikes after flash crash in stock markets"We did not get a 25% drop in a single 1987-like event, but we did get two dramatic events in 2018 that vindicated our point," says Peter Garnry, Head of equity strategy.
He further explains how the prediction came about: "We got the idea about this Outrageous Prediction in late 2017, as the year was about to end with astonishingly low volatility and Bitcoin had gone from just below $1,000 in late 2016 to around $10,000 in November 2017 (Bitcoin eventually rose to almost $20,000 before year end). Everyone speculated in Bitcoin and selling volatility in currencies and equities were heralded as easy predictable money. That's where we got this super awkward feeling from that the entire euphoria and these types of positions can have dramatic outcomes if conditions change even the slightest."
Garnry says that the volatility started in February and ended in dramatic fashion over Christmas: "The ‘Volmageddon’ event in February 2018 almost completely wiped out short volatility funds including some famous ETFs in these strategies as the VIX Index exploded from 13.64 to 50.30 in just two trading sessions. The event changed the short volatility complex in the subsequent years. Later in 2018, the market was trying to tell the Fed that it was doing a policy mistake by hiking its policy rates because the economy was deteriorating. It led to a selloff of 20% from the peak in October to the intraday bottom on 26 December 2018 with the most dramatic trading sessions happening over the Christmas holiday period when liquidity was drying up. Dramatic events that set the stage for the crazy bull-run in 2019 as investors again forgot everything about risk."
2022 Outrageous Prediction: The plan to end fossil fuels gets a rain checkAs we headed into 2022, Ole S. Hansen, Head of Commodity Strategy, wrote that policymakers would 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.
The overarching prediction also came into fruition, but it was regrettably fueled even further by the unforeseen invasion of Ukraine by Russia.
"Little did we know last November that the world was galloping into an energy crisis triggered by Russia’s war in Ukraine," says Ole S. Hansen, Head of Commodity Strategy, who explains how he then caught on to the idea that fossil fuels would become relevant again in 2022:
"Lack of investments and an increasingly urgent need to support gas over coal led us to come up with the 'The plan to end fossil fuels gets a rain check' which basically envisaged a more investor friendly environment for (up until then) shamed investment in so-called 'dirty energy production. A move that supported a decision by the EU to classify gas and nuclear as green investments," he says.
How will the Outrageous Predictions turn out for 2023?
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.