It is not bad economics that will send this market lower. It’s good economics.
- Kerrin Rosenberg, Cardano UK
We are now only a couple of months away from the publication of my first book – The End of Indexing (see below). With passive investing growing by the day, how on earth have I come to the conclusion that the end is nigh as far as indexing is concerned? At this early stage I just want to whet your appetite. More on the subject next month.
Saxo Bank’s outrageous predictions
In the meantime, let’s switch to something that is far more relevant to the January Absolute Return Letter. As you may recall, the January letter is always about risks that we should worry about in the year to come. Readers often ask me: “Why are you always so negative?”. I am really not, but the Absolute Return Letter is about risk management; hence the negative bias. Have you ever heard about risk managers focusing on the opportunity set? Just asking.
Talking about things we should worry about, Saxo Bank has made a habit of publishing its so-called Outrageous Predictions every January, and they didn’t disappoint us this year either. Yet again, Saxo came up with a basket of predictions that were thought-provoking and entertaining at the same time. Don’t assume I agree with all of them, just because I list them, but here they are:
- Fed loses independence as US Treasury takes charge.
- Bank of Japan loses control of its monetary policy.
- China issues CNY-denominated oil futures contract.
- Volatility spikes on sudden S&P 500 ‘flash crash’.
- US voters push left in 2018 mid-terms, bonds spike.
- ‘Austro-Hungarians’ launch hostile EU takeover.
- Investors flee Bitcoin as governments strike back.
- South Africa resurgent after ‘African Spring’.
- Tencent topples Apple as market cap king.
- Women take the reins of corporate power.
Which ones do I agree with? First and foremost, you have to remind yourself they are called outrageous for a reason, but that doesn’t imply they are all so far-fetched, it’s almost laughable. In the world I see in front of me, the most likely to unfold in the year ahead are numbers 3, 4, 7 and 8.
As far as #3 (CNY-denominated oil futures) is concerned, knowing China’s desire for a place at the main table, it is not at all unthinkable that they would introduce a CNY-denominated oil futures contract. Having said that, I don’t know enough about China’s role in international oil markets to quantify the risks and opportunities implied by that.