Outrageous predictions for 2024

 Dear All,

(belated) Happy New Year!

Following a long standing tradition, here they are - my outrageous predictions for 2024:

1. T-Day. Trump wins the US Presidential election in November. A sad day for US and global democracy. In a private phone conversation with the President elect, Putin threatens to release sex tapes of Trump with Russian escort girls, recorded over the years in Moscow luxury hotels, in case he doesn’t stop military aid to Ukraine immediately after taking over as President in January. On Christmas Day, Trump announces that he will increase US military aid to Ukraine. By a factor of 2. The power of democracy works in mysterious ways.


2. Inflation. Food prices in the Eurozone will fall (yes - food deflation): fruit, vegetables, bread, milk, butter, eggs will fall more than 10%; fish and meat by low single digits. After a pick up in YoY inflation in the first months of the year due to base effects, Eurozone annual inflation will end 2024 at 2%.

In the US, inflation will prove sticky in the first half of the year. The source of stickiness is service inflation. Meaning: wage inflation. However, housing accounts for 1/3 of US CPI and is part of the service sector (for the economic geeks among you - yes, including owner equivalent rent). Housing inflation will turn negative in the second half of the year (geeks again - yes, the Zillow Index is a beautiful leading indicator). As a result, wage growth moderates and US annual inflation will fall below 2,5% by December.


3. Germany: rapid de-industrialisation and economic “Untergang”. Following Germany's rapid independence process from Russian natural gas, the higher energy prices will prove to be structural and lead to a rapid process of de-industrialisation. Given that the German industry accounts for almost 25% of GDP and 20% of employment, Germany’s economy is doomed. So the current mainstream view, published all over the (not only) German press, goes.

The numbers tell a different story: the energy intensive industries (chemicals, steel,…) are the only ones that could materially suffer from structurally higher energy prices. These industries account for only 17% of Germany’s total industrial value added and 15% of industry employment. Meaning: around 4% of German GDP and 3% of the country’s total employment. Even if the entire energy intensive industries were to move abroad over the coming 5 years, Germany’s economy would hardly feel it.

Germany will have a recession in 2024. But relax - it won’t collapse. Lesson for the year: if you want to understand reality, don’t follow the noise generated by powerful corporate lobbies (Bayer, BASF, Thyssen Krupp….). Follow the data.


4. AGI. The first Artificial General Intelligent system will be developed this year. Forget Sam Altman - it won’t be created by OpenAI. The London-based DeepMind team at Google will do it. DeepMind’s founder, Hampstead boy Demis Hassabis, becomes Time’s Person of the year. London truly is the world’s greatest city, isn’t it?


5. European (Parliament) elections. Extreme right parties make a lot of noise and have little substance. They also have a narrow constituency. On aggregate, they will account for less than 15% of the EU vote.


6. The Japanese Central Bank (BoJ) will abandon its Yield Curve Control (YCC) policy. Within 1 week of the announcement, the JPY will appreciate 20% against the major world currencies. And Emerging Market equities will tank - the JPY carry trade reversal is an awesome thing to watch.


7. The equal-weighted S&P 500 will outperform the Magnificent Seven. Reversion to the mean is a beautiful thing.


8. The European & US High-Yield markets will outperform their respective equity markets. It’s all about what is priced in.


9. Two wars, two different outcomes. The Ukraine war will not end in 2024. Putin can’t withdraw without losing face; for Zelensky it is too early to negotiate a ceasefire and peace treaty.

The war in Gaza instead will end. Iran will not get directly involved and spread the conflict across the Middle East. The Ayatollah regime remembers all too well what happened in January 2020: Iran’s top general, Qassim Suleimani, was killed by a presumably US drone. Wars used to be about military infrastructure targets and civil collateral damage. Here we had a targeted attack on a top Iranian decision-maker. The US President at the time was Trump. With Trump as a very serious contender to win the US Presidential election, Iran’s top brass will think twice before getting involved in a direct war with the US. Having a maverick as a potential US President has its upsides for peace. Democracy really works in mysterious ways.


10. Argentina. Dollarisation is a combination of (i) currency re-domination across the board (asset & product prices) and (ii) buyback of the outstanding local currency denominated money supply with US Dollars. President Milei wants to dollarize Argentina. Alas, the Argentine Central Bank has not enough USD to do it - and the IMF & Co. will not lend the needed amount. Dollarisation won’t happen. In a desperate measure to find a robust alternative economic strategy, Milei will appoint his cloned dog, Conan, as official advisor to the President. It’s all about (cognitive) diversity these days.


11. Football - Euro 2024 in Germany. After a phenomenal start in the tournament, the German team will quickly overcome the local fans’ current scepticism about its ability to perform at the highest international level. Germany will keep progressing in the competition and playing brilliant football. German fans will go wild - in and off the stadiums. After three weeks, the entire country will be in complete football fever and party mood. Germany won’t win. For the rest stay tuned. My Euro 2024 predictions will be published in June.


12. Punctually late. My 2025 outrageous predictions will reach you by mid January next year.

Enjoy 2024. It will be spectacular.

Life is good!