Saxo Bank’s ‘War Economy’

A snippet of Saxo’s 2023 Outrageous Predictions
War economy
War economy

Saxo, the online trading and investment specialist, has today released its Outrageous Predictions for 2023. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, would send shockwaves across the financial markets as well as political and popular cultures.

In a world where central banks and governments are set to lose their battle with inflation, the risk is that markets will prove as outrageous as ever in 2023 and beyond.

The World at War


The Outrageous Predictions for this year are inspired by the similarities between Europe today and the state of the continent in the early twentieth century. In 1910, Norman Angell wrote The Great Illusion, making the argument that there was no way Europe could become embroiled in a serious war again because mutually beneficial trade had ballooned to enormous proportions in the preceding decades of prosperous peace. Within ten years, Europe lay in ruins after a horrible war of attrition on stagnant fronts.

Fast forward to 2022 and the situation rhymes, as many were shocked to their core by the Russian invasion of Ukraine.

The UK could find itself suddenly far too small to pretend it can remain an independent actor in an abruptly much bigger world, as Saxo outrageously predicts that an ‘UnBrexit’ referendum is held next year.

The US and China are settling into a war economy mentality as their escalating trade and technology rivalry continues. Satellite countries may find themselves hard-pressed to stay unaligned in a ‘trade cold war’.

If Saxo’s thesis of the war economy proves correct in 2023, then persistent inflation is expected.

The Outrageous Predictions 2023 publication is available here with headline summaries below:

French President Macron resigns


The French government has no other choice but to pass major laws and the 2023 budget by a fast-track decree – triggering the constitution’s Article 49.3. Nevertheless, bypassing lawmakers cannot be a way to govern in a democracy. He (Macron) therefore understands that he will be a lame duck for the next four years and he will not be able to pass his signature pension reform. Following the example of Charles de Gaulle in 1946 and 1969, Macron unexpectedly decides to resign in early 2023.

Gold rockets to $3,000 as central banks fail on inflation mandate


In 2023, gold finally finds its footing after a challenging 2022, in which many investors were left frustrated by its inability to rally even as inflation surged to a 40-year high. 2023 is the year that the market finally discovers that inflation is set to remain ablaze for the foreseeable future. Fed policy tightening and quantitative tightening drive a new snag in US treasury markets that forces new sneaky ‘measures’ to contain treasury market volatility that really amounts to new de facto quantitative easing. And with the arrival of spring, China decides to pivot more fully away from its zero-COVID policy, touting effective treatment and maybe even a new vaccine. Chinese demand unleashed again drives a profound new surge in commodity prices, sending inflation soaring, especially in increasingly weak USD terms as the Fed’s new softening on its stance punishes the greenback. Under-owned gold rips higher on the sea-change reset in forward real interest rate implications of this new backdrop.

A country agrees to ban all meat production by 2030


To meet the target of net-zero emissions by 2050, one report estimates that meat consumption must be reduced to 24 kg per person per year, compared with the current OECD average of around 70 kg. Countries most likely to consider the food angle on climate change will be those that have legally binding net-zero emissions targets. Sweden has pledged to reach carbon neutrality by 2045, while others like the UK, France, and Denmark are aiming for 2050. But a carrot and stick approach rarely works, and in 2023, at least one country looking to front-run others in marking out its lead in the race for the most aggressive climate policy moves to heavily tax meat on a rising scale beginning in 2025.

UK holds UnBrexit referendum


In 2023, Rishi Sunak and Jeremy Hunt manage to take Tory popularity ratings to unheard-of lows as their brutal fiscal program throws the UK into a crushing recession, with unemployment soaring and, ironically, deficits soaring too as tax revenues dry up. Public demonstrations break out, demanding that Sunak call snap elections because of the lack of a popular mandate. Amidst the economic ruin, polls even in England and Wales indicate second thoughts on the wisdom of Brexit. A Labour government takes power in Q3, promising an UnBrexit referendum for November 1, 2023. The ReJoin vote wins.

Widespread price controls are introduced to cap official inflation


Inflation will remain a challenge to control as long as globalization continues to run in reverse and long-term energy needs remain unaddressed.

2022 has also seen early and haphazard initiatives to manage inflation. Taxes on windfall profits for energy companies are all the rage while governments are failing to use the classic tool of rationing supplies. Instead, they are actively subsidizing excess demand by capping heating and electricity prices for consumers. In France, this simply means that utilities go bankrupt and must be nationalized. The bill is passed to the government, then to the currency via inflation, and then we have the likely doomed effort by western officials to cap Russian energy prices from December 5. The intent is to starve Russia of revenue and hopefully cheapen crude oil export prices everywhere, but it will likely do neither.

In a war economy, the government’s hand will expand mercilessly as long as price pressures threaten stability. The thinking among policymakers is that rising prices somehow suggest market failure and that more intervention is needed to prevent inflation from destabilizing the economy and even society. In 2023, expect broadening price and even wage controls, maybe even something like a new National Board for Prices and Incomes being established in the UK and the US.

OPEC+ and Chindia walk out of the IMF, agree to trade with new reserve asset


Recognizing the ongoing weaponization of the USD by the US government, non-US allied countries move away from the USD and the IMF to create an international clearing union (ICU) and a new reserve asset, the Bancor (currency code KEY), using Keynes’ original idea from the pre-Bretton Woods days to thumb its nose at the practices of the US in leveraging its power over the international monetary system.

Tax haven ban kills private equity


In 2016, the EU introduced an EU tax haven blacklist identifying countries or jurisdictions that were deemed ‘non-cooperative’ because they incentivize aggressive tax avoidance and planning. This was in response to the leaked Panama Papers, a trove of millions of documents that revealed tax cheating by wealthy individuals including politicians and sports stars. As the war economy mentality deepens further in 2023, national security perspectives turn increasingly inward to industrial policies and the protection of domestic industries. As defense spending, reshoring, and investments in the energy transition are expensive, governments look for all available potential tax revenue sources and find some low-hanging fruits in haven-enabled tax dodgers. It is estimated that tax havens cost governments between USD 500 and USD 600 billion annually in lost corporate tax revenue.

In 2023, the OECD launches a full ban on the largest tax havens in the world. In the US, the carried interest taxed as capital gains is also shifted to ordinary income. The EU tax haven ban and US change to the carried interest taxation rule jolt the entire private equity and venture capital industries, shutting down much of the ecosystem and seeing publicly-listed private equity firms dealt a 50 percent valuation haircut.