Happy
New Year everyone!
Life
is good. Especially if you live in interesting times. And 2019 will be very
interesting indeed. Here my outrageous predictions for the next 12 months:
1.
The FED's quantitative tightening (QT) will intensify the global USD shortage.
Bank shares will keep falling led by the ones with the largest USD short
positions, i.e. the Europeans (Deutsche, BBVA,...)......until the FED announces
the end of QT.
2.
Donald Trump will keep up the pressure on FED's Chairman Jerome Powell for a
more lax monetary policy. To send a clear signal of FED's independence to the
markets, Jay Powell will keep QT in place for longer than the US economy
fundamentals would justify and even increase interest rates by 25 bps one or
two more times. The US yield curve inverts. The US enters a recession.
Donald
Trump's 2020 re-election becomes a low probability event. The US institutional
framework of checks and balances does work in mysterious ways.
Chairman
Powell, high five!
3.
Theresa May's Brexit deal is voted down in parliament. For weeks there is no
majority in parliament for what Brexit-related path to follow. Newsnight (BBC
2, from Monday to Friday at 10:30pm UK time) becomes the world's greatest
comedy show for quite a few weeks.
Eventually,
the UK parliament calls a second referendum and the EU agrees to extend the
29th of March Brexit deadline by 1 year. The referendum is held in September.
Remain wins by a surprising large margin (55% vs. 45%).
The
GBP goes through the roof. London's real estate prices start to go wild again.
Brexiteers are angry. Boris resumes playing cricket with other Etonians in
North London.
4.
In May, populists parties across Europe secure less than 15% of the overall
European Parliament's seats. Even if they formed a single parliamentary group,
it would be smaller than that of the two leading parties.
The
EU is perceived as having saved another set point by the British press.
Brexiteers are angry. Boris is still playing cricket.
5.
China launches a major stimulus programme. The Chinese aggregate debt levels
keep rising and surpass 260% of GDP, 5% short of Italy's total debt to GDP
ratio. This combined with Xi Jinping's aggressive anti-corruption campaign and
the communist party's rising interference in China's large private companies,
makes Chinese entrepreneurs increasingly nervous and looking for ways to
transfer some of their wealth abroad.
China
has strict capital controls in place. The capital account is closed. However,
no capital controls system is 100% watertight. With the yuan denominated
financial assets / foreign reserves ratio currently at 12x, a 4.2% leakage of
financial assets abroad will cut Chinese foreign reserves in half. And force a
devaluation of the currency.
The
capital flight happens. The yuan devalues 15% vs. de USD (to USD/CNY of 8.0).
Trump is not happy.
6.
An EU-wide recession is currently fully priced in by European stock markets. An
US recession is currently priced in with a 50% probability by both European and
US stock markets. In the European high-yield market, high single to mid-teen
yields are available on names of strategic industrial companies benefiting from
implicit core-EU government support.
2019
will be a good year to deploy capital. You just have to be patient. Contrarian.
And long-term greedy.
7.
Portugal will remain the European football champion in 2019. I'm 100% certain
about this one.
The
next European Cup will only take place in 2020.
May
2019 be a FUNtastic year!
