Prediction is very difficult, especially if it’s about the future
Forecasters beware!
At this time of year most of the industry looks at the economic tea leaves in the hope of coming up with a future that looks like reality, but as Niels Bohr, physicist and Nobel laureate, said “Prediction is very difficult, especially if it’s about the future.”
Every year Saxo Bank reveals its 10 outrageous predictions for the coming year. Here is a list of the current crop.
1. Billionaire coalition creates trillion-dollar Manhattan Project for energy
2. French President Macron resigns
3. Gold rockets to USD 3,000 as central banks fail on inflation mandate
4. EU Army forces EU down path to full union
5. A country agrees to ban all meat production by 2030
6. UK holds UnBrexit referendum
7. Widespread price controls are introduced to cap official inflation
8. OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve asset
9. USDJPY fixed to the USD at 200 as Japan overhauls financial system
10. Tax haven ban kills private equity
As an observation, they seem to get less outrageous every year and all of this year’s predictions might get relatively short odds from the bookies.
As a gold bug, No.3 appeals to me. Gold has held up remarkably well given the fall out in both equities and bonds and the rise and rise in interest rates in 2022. In dollar terms is started the year at $1829 and closed at $1823. Converted into sterling it’s up 10%. We have seen significant central bank buying, most recently by the people’s Bank of China, which may have a connection with prediction No.8.
The Ghanaians recently announced that they would be using gold to buy oil and as Saxo suggests the OPEC / Chindia complex are keen to abandon the dollar where they can. The Churchillian quote about the end of the beginning springs to mind. The demise of the dollar is still a long way off (see comment on Prediction No.9 below).
One topic not mentioned by Saxo is crypto currencies and here the end is arguably much closer but being kept alive by both the US Department of Justice that takes an inordinate amount of time to put all their ducks in a row and the security services that find crypto world a treasure trail for following “nefarious” activities. Binance, Tether and Bitcoin itself all appear to be living on borrowed time.; a classic example of the greater fool theory?
Prediction No.9 is potentially the biggest “upsetter” of the apple cart; mainly in what it doesn’t mention i.e., the effect of a re-strengthening dollar and the resultant fall out in global bond markets. However, the current direction of the yen is moving the other way. The BoJ relaxed the ceiling on JGB yields and the yen strengthened. Kurodasan retires in March so the new broom may have other ideas. One to watch very closely in 2023.
The next general election in the UK, which will be in January 2025 at the latest, will no doubt incorporate prediction No.6 as one leg of the Labour party manifesto. As one of my colleagues said recently, “If Labour loses the next election, it will be quite an accomplishment.” There is however a precedent in Neil Kinnock’s “triumphal” entrance to a political rally in Sheffield in 1992 a week before the election in which he was the firm favourite to beat John Major; Labour started the campaign 20 percentage points ahead. The next election is definitely Labour’s election to lose, but not we suspect in 2022.
We won’t be pondering on items not mentioned by Saxo; Ukraine, energy policy, US election candidates, effects of China reopening, recessions or the next Tory PM except to say as Yogi Berra, American baseball player, manager, and coach, put it, “The future ain’t what it used to be.”
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