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• Saxo Bank outlines ten possible Black Swans for 2023
• Geopolitical risks could lead to negative stock market sentiment
• The energy crisis and inflation could continue – possibly with dramatic consequences
Rarely has the political and economic situation been as tense as it is now. The Danish Saxo Bank also recognizes ten potential dangers that could turn out to be dramatic turning points with catastrophic consequences. In financial jargon, such an event is referred to as a “black swan” – but what exactly does that mean?
What is a black swan?
A black swan is a term used to describe a rare and unpredictable event that has significant consequences. It was popularized by the philosopher and statistician Nassim Nicholas Taleb through his book The Black Swan (2007). He used the term to describe events that are highly unlikely but would have massive repercussions if they did occur. In financial markets, a black swan could be a sudden and unexpected financial crisis, a natural disaster, or a major technological breakthrough that overturns the status quo. These events can have a significant and long-lasting impact on the financial markets and lead to significant changes in asset prices and market trends. In retrospect, it may well turn out that there were indications of a black swan. In some cases, the event was also foreseen by an expert who, however, was not heard, understood or taken seriously. As every year, Saxo Bank recently published a list of ten such potential threats for 2023 that could result in black swans with serious consequences.
1. Richest countries open new Manhattan clean energy project
According to Saxo Bank’s definition, black swans do not always have to be events with negative effects. So the first scenario, which Saxo Bank sees as a potentially decisive event for the financial markets, would probably have a positive effect. As the Danish bank writes, it is conceivable that the constantly growing demand for energy will drive the richest countries in the world to join forces and start a research and development project. This would be of a dimension the world has not seen since the Manhattan Project (1942-1945), which gave the United States the first atomic bomb.
2. French President Macron resigns
The second scenario would probably have a particularly negative impact on European equity markets. According to this, the political gridlock in France and the rise of Marine Le Pen after the 2022 elections would force incumbent President Macron to step out of politics and leave office. Macron, who is considered to be economically liberal, is generally appreciated by financial circles, while a Marine Le Pen presidency would have a deterrent effect on investors.
3. Gold price rises to $3,000
The third black swan scenario should excite gold investors. This is when the gold price surges to $3,000 an ounce level as markets and central banks realize that the notion that inflation will ease in 2023 is proving false. Prices stayed high for longer than expected, prompting investors to flee to gold. Gold is generally regarded as a protection against inflation and could therefore benefit from a persistently high inflation rate.
4. The European Union sets up its own army
In view of the Ukraine war and the associated hardening of global fronts, especially between NATO and Russia, Saxo Bank considers the formation of its own EU army to be possible. By creating its own armed forces, the European Union could defend itself against various geopolitical risks, such as the war between Russia and Ukraine. Should this actually happen, the geopolitical tensions are likely to escalate, which in turn should benefit defense companies such as Rheinmetall, HENSOLDT, and Lockheed Martin.
5. A state bans meat production by 2030
The fifth scenario may seem particularly bizarre at first glance, but in view of the trend towards sustainability it can by no means be completely ruled out: According to this, a country would decide to completely ban domestic meat production by 2030. In a bid to become a global leader on the path to net-zero emissions, such a move would certainly garner recognition from both climate- and food-conscious consumers. So far, however, experts have only discussed the possibility of a separate meat tax in order to reduce the population’s meat consumption; the complete abolition of meat production, on the other hand, is still more of an extreme and rarely advocated demand.
6. Britain votes on exit from Brexit
Great Britain is in the midst of a serious economic crisis: Inflation is particularly high in the British Isles, the political chaos of the past year caused great uncertainty and Brexit is also increasingly showing its negative effects on the British economy. According to Saxo Bank, it is possible that there will be another referendum on the UK’s EU membership in 2023. The majority of the crisis-ridden population could vote for an exit from Brexit and reintegration into the EU, which would certainly cause great turbulence on the stock and foreign exchange markets.
7. Price controls and rationing to limit inflation
A look at economic history shows that governments often resorted to drastic measures to curb official inflation figures. A popular means was drastic price controls, especially in times of war, which producers and retailers had to adhere to. Also, especially in times of war, there were often strict rationings. In the worst case, there could also be a renaissance of the war economy in 2023, as Saxo Bank fears. Restrictive measures by the state would lead to a number of unintended consequences in the financial markets and could thus trigger a meltdown in the stock markets.
8. OPEC+, China and India leave IMF
Another horror scenario is also related to the increasing polarization of world politics: According to this, the OPEC+ countries around Russia, Saudi Arabia and Iran as well as India and China would leave the International Monetary Fund (IMF) and agree to trade in new currency reserves. According to Saxo Bank, the reason for this drastic measure could be the sanctions against Russia. These would have led to major unrest in countries that do not consider the United States an ally. To get rid of it, these countries are withdrawing from the IMF and creating a new reserve medium. This would reduce the importance of the US dollar as the world’s leading currency and further exacerbate the global lines of conflict.
9. Bank of Japan decides to cap USD/JPY
The ninth potential black swan relates to Japan’s troubled currency, the Japanese yen. This has lost considerable value over the past year: while a dollar still cost 110 yen at the beginning of 2022, the value of a dollar in October was at times around 150 yen. In 2023, the Bank of Japan (BoJ) could try to prevent the currency from falling further. If less stringent regulations are unsuccessful, Japan will restart its entire financial system. If USD/JPY rises above 180 yen, the Bank of Japan could step in and set a legal limit at 200 yen per dollar.
10. Tax havens will be banned
The last black swan would also have serious consequences: the ban on any tax havens by the OECD countries. In the general climate of de-globalization and polarization, national interests and the assertiveness of sovereign states are becoming more important. In this sense, the OECD countries could turn their attention to tax havens such as the Bahamas, the Cayman Islands, the Bermuda Islands, or Panama. If the OECD countries actually managed to fill the tax loopholes, this would evoke an enormous shift or even destruction of private capital in the billions. The state ministers, on the other hand, should be happy about rising revenues.
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