about 3 years ago • 3 mins
After 2020 defied just about everyone’s attempts to predict what the future holds, my eye was caught this week by the brave folks at Denmark’s Saxo Bank and their annual list of 10 “outrageous” market predictions for the year ahead.
Saxo’s keen to stress that these outrageous predictions aren’t its “official” view on the market, and that their aim is instead to provoke outside-the-box thinking. So with that caveat, let’s have a look at what 2021 might have in store (maybe).
1️⃣ A successful coronavirus vaccine returns life to normal – and promptly causes a spike in inflation as “the ripping post-vaccine recovery rapidly overheats the economy.” Yields on longer-term US government bonds surge. Weaker companies – particularly old-school retailers – struggle to keep on top of debt repayments as their own bond yields follow suit, since investors subsequently demand higher returns from any new bonds. “For the first time in economic history, a strong recovery sees rising defaults.”
2️⃣ European and US authorities get fed up with big tech companies, moving to tighten regulation and increase taxes.
How to trade it: Short shares of “monopoly tech companies” – especially Amazon.
3️⃣ Nuclear fusion finally becomes a reality as breakthroughs in artificial intelligence help overcome technical challenges. “Fusion energy allows nearly every country to become food- and energy-independent, and sees the most rapid and largest upgrade in living standards ever witnessed.”
How to trade it: Saxo reckons a fusion breakthrough would hit wind and solar stocks hard, with the First Trust Global Wind Energy ETF dropping by 50%.
4️⃣ Governments start paying citizens a universal basic income in an attempt to reduce inequality and stimulate the post-virus economy. This undermines the rationale for young people to move to cities to make their fortune and reduces the appeal of the rat race, resulting in fewer people living and working in large metropolises. As a result, “Commercial office property values are crushed, together with the commercial real estate containing restaurants and shops aimed at servicing commuting worker drones.”
How to trade it: Short real estate investment trusts (REITs) owning lots of city center property such as SL Green Realty.
5️⃣ A combination of accelerating inflation and surging demand from solar cell makers pushes up the price of silver.
How to trade it: Buy silver – which could see its price double to $50 an ounce in 2021, according to Saxo.
Read all 10 of the investment bank’s outrageous oracles here.
Saxo’s predictions are purposefully provocative, but they’re still rooted in a conceivable future reality. So how did the bank’s 2020 calls pan out?
Well, Saxo correctly forecast that a Democrat would win the US presidency – although it was less prescient about the (still-undecided) Senate. It was right about the US and UK seeing sharp recessions that would prompt massive central bank stimulus – but was well off in saying that this would result in higher inflation. Despite ongoing tensions, meanwhile, Hungary remains a member of the European Union.
The bank also reckoned that investors would abandon green energy companies and their “terrible” return on capital – pushing the ratio of the oil-dominated Vanguard Energy ETF compared to the iShares Global Clean Energy ETF up from 7 to 12. In the end, however, oil stocks had a dreadful year and renewables boomed, squishing that ratio down below 3. It goes to show you never can tell…
Got your own outrageous prediction for 2021? Be sure to share it with your fellow Finimizers in our Premium group chats.
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