Outrageous predictions for 2023

Welcome to 2023 - and Happy New Year everyone!

Keeping up with a well-established tradition, and with the usual few days' delay, here are my outrageous predictions for the year ahead:

1. Before you ask: no, the Ukraine war will not end in 2023. Putin will be too busy playing ice hockey to notice that being an international pariah state is no good long-term strategy for Russia. And three warm meals and a well-heated home in winter is all that is needed to keep the vast majority of Russians supporting the war - being self-sufficient in food and energy does wonders to win political support in a mostly poor country. Sorry to disappoint the well-travelled among you, but Moscow and St. Petersburg are not Russia.

2. Another year, same story: Germans will not freeze and the German industry will not have to shut down in winter. With alone the two new LNG terminals already in operation as I write, 20% savings in natural gas consumption across the board will be enough to get comfortably through the 2023 winter months. The German industry - via efficiency measures and switching to other fuels - can easily save more than the required 20% (with the exception of the glass and ceramics industry), as shown in 2022. Turning down the thermostat by 3 degrees Celsius is all that is needed for households to save 20% in their nat gas consumption. Given that the average room temperature in German houses pre-Ukraine war was 20-22 degrees Celsius during winter time, living with 17-20 degrees is hardly an unbearable sacrifice to make in order to defeat Putin. Fleece jackets will become the most fashionable piece of clothing in Germany. Again.

3. Following the successful first steps in the “Energiewende” (i.e. in terminating the dependence on Putin’s gas), Robert Habeck will be Germany’s most popular politician by the end of the year. Again. The same can’t be said about Macron in France following his reform of the retirement age & public pension system. C’est la vie, Monsieur le Président.

4. History repeats itself not. With the experience gained in 2022, there will be no panic reaction neither in the European nat gas (Dutch TTF) nor the global LNG market ahead of the winter 2023/24. So, no: nat gas peak prices 2022 will not be seen again in 2023. Scaremongers will have to find a new field of activity.

5. It will look like a space invasion. Feel like a space invasion. But relax, it will not be one. With covid restrictions fully lifted by the end of 1Q2023, Chinese will start to travel again around the world. And especially to the west. Chinese revenge traveling will be pure joy - for duty-free shops at airports and luxury brand shops in the west's major cities. Who said that globalisation was over?

6. Elon Musk still holds around 11% of Tesla's shares worth around USD 39bn. To finance its acquisition of Twitter, Elon needs to raise additional USD 13bn in cash (for a total of Eur 21bn equity financing). This means cutting down its Tesla stake. The more Tesla's share price falls, the more shares does he have to sell, which in turn will force the share price further down. The market knows it. Hedge funds know it. They will keep short-selling the stock. In the end, Elon will hold less than 5% of the company. Swapping the world's leading EV firm for 140 characters - legend!

7. In the UK, political stability will finally be back. Charles III (ex-prince Charles for the uninitiated in British royal affairs) will still be King at the end of the year.

8. The annual inflation in USA and the EU will come down quickly in the first three months of the year - basis effects are a beautiful thing. The expectation of a US soft landing triggers a rally in equity and credit markets. In the second half of the year, however, US inflation becomes sticky. "Higher (interest rates) for longer" becomes the new investor mantra and equity markets give up all their gains for the year. The rapidly increasing probability of an US recession does the rest: equity markets crash. The S&P 500 finishes the year 20% below its December 2022 closing level. Financial markets are never boring, are they?

9. Here we go again: at some point in 2023 markets will start to price in an Italexit and break-up of the Euro. I could now start arguing that Italians are strongly pro-EU and Euro and that the shambolic state of British politics post-Brexit only reinforced this sentiment. As a reminder: the "Italexit for Italy" party, who has Nigel Farage as strategy advisor, captured less than 2% of the vote in September's Italian general elections (get over it, Nigel). I could further argue that the country's economic fundamentals are much better than general perception has it: a country running current account surpluses for at least 9 out of the last 10 years (2022 numbers have not yet been published) is surely not a weak Euro member. I could add that the ECB is a superpower able to keep Italian credit spreads under control, at any time. And that Nigel Farage doesn't speak Italian. Then again, drawing on the experience from his Brazilian exile during World War II Stefan Zweig would put it better: "Italy is the future European crisis. And always will be." ("O Brasil é o pais do futuro. E sempre o será.").

10. The western European extreme right is more loud than powerful. Spain will prove it once more: the Vox party will not pass the 15% popular vote threshold in the country’s general elections.

11. Led by German coach Roger Schmidt, Benfica will be the big surprise of the current edition of the Champions League. It will reach the final - and win it. Happiness galore in the streets of Lisboa! For the European Union's north-south combination of talent, knowledge, and skills, not even the sky is the limit.

12. The next edition of my outrageous predictions will reach you in January 2024. After a phenomenal 2023. Enjoy - life is good!

World Cup 2022 - it's happening. All you need to know

Dear All,

We had Trump. Four British prime ministers. The end of Merkel's golden era and the beginning of colourful cool Germany (note: for conservative Germans cool means that heating prices are not what they used to be). A pandemic. An ongoing war at EU's doorsteps. The rise and fall of crypto - several times. The goodbye of the all-time world's number 1 magician: Roger Federer. Four years is a long time. It's time for another football world cup. 

For those who don't want to know what is going to happen in Qatar between 20 November and 18 December, stop reading now. For all the others, here is all you need to know:

1. Qatar. How could it be any different? The Qataris will try to bribe every rival team during the group stage with cheap natural gas deliveries for the next 10 years. Ecuador and Senegal couldn't care less. Netherlands' gas storage capacities are fully filled up. Qatar will find out that nat gas can't buy you love. Nor football success. The hard way - its journey will end where it started: at the group stage.

2. Italy. What a team full of elegance, attacking beauty and above all unshakeable self-confidence! So much so that it seriously thought to be able to win the world cup without qualifying for the competition. Mi dispiace - it's not the way it works.

3. Germany. A new generation. Colourful and cool - like the new post-Merkel Germany in the making. Kimmich will finally play in midfield and be one of the tournament's highlights. Die Mannschaft will do much better than the German public expects. And worse than the rest of the world fears.

4. Mexico. Exports to the USA account for 24% of the country's GDP. It makes Mexico what most Mexicans never wanted to be: USA's 51st Federal State. And places the country miles away from what Mexicans always dreamed to be: worse economically and better in football than Argentina. Arriba Mexico! And above all: keep dreaming.

5. Iran. It's not easy to be an Ayatollah these days. First, massive international pressure following the uncovering of Iranian military drones being used by Russia in Ukraine. Then, political upheaval at home. Girl power bringing the regime to the brink of collapse. And now this: having to play England and the USA - the USA! - in the group stage of the world cup. But worry not - Iranian players will be received as heroes on their return home. The double defeat against England and USA will trigger a collective nervous breakdown of the already very fragile Ayatollahs and - yes! - regime change. Football, clever girls and democracy - what is there not to like?

6. England. For the first time in living memory the English players will arrive in top shape at a major international tournament. Full of energy, youthfulness and ambition (let's forget team manager Southgate for a minute) England will be a welcome addition to the top favourites shortlist. Fans all over England will be more enthusiastic than ever in their hopes, celebrations and pub drinking. After the group stage, the country's newspapers will be dominated by headlines about the perfect connection between fans and players: "drink team at home supports dream team in Qatar". In the end, tradition will prevail: the drink team will massively outperform the dream team. Cheers!

7. USA. Having won World War III in the match against Iran, the US players will go back to what they do best: play baseball. This football world cup is all about diversity.

8. Canada. Just a gentle reminder to the Canadian team: only the goalkeeper can use his hands. And only in his own box. Ok? Whatever.....

9. Netherlands. Cruyff's home country. Cruyff! Cruyff! Cruyff! The most influential and revolutionary personality in the history of the game, first as a player and then as a coach. The best football mentor I never had. Netherlands attacking football will be the usual delight for the spectator. Cruyff style football without Cruyff. Cruyff never won the world cup for his country. What goes around comes around. Now his country will not win the world cup for him. 

10. Belgium. It has been the secret favourite of all major tournaments for at least the past 6 years. Not this time. Without the external pressure of the public and media, the players will feel more relaxed than ever and play like never before. Plus ça change, plus c'est la même chose. Belgian chocolate pralines anyone?

11. Spain. What a team! How much talent! A true delight to see them play! Sergio Ramos, Piqué, Puyol, Xabi Alonso, Busquets, Xavi, Iniesta, Villa, Torres. History books are great. And past performance is not indicative of future results.

12. France. La Grande Nation. The world champions. The perfect combination of outstanding technical skills, speed and physical strength. Four years ago, the country's football strategy led by President Macron was clear: "Liberté! Egalité! Mbappé!" It's clear this time as well: "Liberté! Egalité! Croissant & Café!". What can you say? The French always have the right priorities.

13. Argentina. Messi! The best football player I have ever seen. The footballer without weaknesses capable of making the impossible possible on a consistent basis. Watching Leo Messi and Roger Federer play will remain as two of the greatest privileges in anyone's life. Human beauty supreme. Federer finished his career without being the Grand Slam titles record holder. Messi will finish his without winning the world cup. Super heroes are not what they used to be.

14. Portugal. The most talented team of the tournament: Diogo Costa, Cancelo, Rúben Dias, Nuno Mendes. Bruno Fernandes, Bernardo Silva. Otávio, João Félix, Rafael Leão. Technically outstanding. Highly creative. Tactically sophisticated. Unlimited ambition. The perfect average age. Portugal also has the legendary Cristiano Ronaldo in the squad. And Fernando Santos as a coach. It could have been glorious.

15. Brazil. Jogo bonito. The world cup winner speaks Portuguese.

Enjoy!

Best wishes,
Rui

Outrageous predictions for 2022

Dear All,

Happy New Year!

I’m spending too much time in the Metaverse - some call it Financial Markets - these days and almost missed that 2022 had already started.

But worry not. I did not forget that you need my guidance to walk confidently through 2022. So here they are - my outrageous predictions for 2022:

1. By the end of 2022 everyone will be asking: "remind me, what was that covid thing again"?

2. Companies are building inventory so aggressively that we will end up with an excess supply of durable goods in the 2H2022. Meaning: wait until September to buy that new coffee machine. Fridge. Bike. Car. Or start your flat refurbishment. It will be (much) cheaper then. Durable goods deflation is a beautiful thing.

3. With US inflation proving to be more persistent than initially expected, the Fed will have to decide between fighting inflation aggressively or protect asset prices. Protect the poor or the rich. In full compliance with its mandate, it chooses the former. And it panics, tightening monetary policy much more aggressively than expected (and necessary). Stock markets collapse: peak-to-trough the S&P 500 loses 30%. The Nasdaq 40%. Tesla 60%. Meme stocks anyone?

4. It will be the year of the great re-opening. And revenge travelling will take off decisively. Book your holidays for the next 2 years. Now! (PS Travel & Leisure stocks will be some of the very few with a positive performance for the year. Just saying).

5. Boris will still be British PM in December, proving that Brits have a brilliant sense of humour. The world’s best. What is there not to like about a good party anyway? 

6. Putin invades Ukraine. Better now than after it becomes a NATO member, his rationale goes. The Nordstream 2 gas pipeline is discontinued. US and Middle East (more expensive) LNG replace Russian gas in the EU. The green energy revolution will pick up speed - and yes, nuclear energy will be part of the new green.

7. In the US, the democrats will lose the mid-term elections. Sorry Joe! 

8. By the end of the year, Trump will be by far the most popular politician in the US. Encouraged by his rising popularity, he sets course for world domination: he announces a Deutsche Bank debt financed takeover bid for Twitter. 

9. In December, the football World Cup will take place in Qatar. For the first time in living memory, English players will not arrive at a major international tournament in much worse physical shape, after a long Premier League season, than their rivals. Given England’s strong squad, they are serious contenders to win the title. Christmas will see record alcohol sales in England. “Drink teams“ will be formed all over the nation to forget the “dream team’s” failure to win the World Cup. Consolation prize: Germany won't win either. Can’t wait for that roaring party at number 10!

10. At the end of December you will be eagerly awaiting my outrageous predictions for 2023. I’ll send them out in January. The Metaverse is very addictive indeed.

Outrageous Predictions for 2021

2020 was a year of turmoil, disruption and transformation - as predicted in January 2020.

I failed to correctly anticipate the source of the massive shocks we were about to witness. It was the ultra-tiny Corona virus (aka c19) - instead of Trump (re-election), Boris (Hard Brexit) and Cummings (digitalisation and numeracy of Whitehall) - that triggered 2020 life-changing events. You can't get all the details right, can you?

Main takeaway from the year 2020: size doesn’t matter. Just your talent and potential to transform the world.

Equipped with the wisdom gained and lessons learned over the past 12 months, here are my outrageous predictions for 2021:

 

1. The year 2021 will prove to be as intellectually stimulating, disruptive and transformative as 2020 was. But c19 won't be the main agent of change.

 

2. The new c19 UK strain will spread all over Europe and force longer and more severe lockdowns during the 1Q2021 than expected. Vaccination will however prove effective and by August all travel restrictions in the European Union will have been lifted. Do you remember the utopian dream of empty sandy beaches in Southern Europe in the summer? Prepare for dystopia in the summer of 2021.

 

3. In mid-March financial markets had 7 questions:

 

a) Is c19 highly deadly or just highly contagious?

b) Will lockdowns flatten the curve (quickly)?

c) Will home office actually work?

d) Will governments and central banks intervene decisively?

e) Will the temporary nationalisation of business life avoid a massive wave of defaults?

f) Once the economies start to open up will we have a quick, V-shaped recovery?

g) Will we have an effective vaccine in less than 2-3 years? 

 

All questions were answered at the most extreme positive end of the initial range of expectations.

 

With the new c19 UK strain on the rise, and normality taking longer to return than expected, governments and central banks will have to build longer bridges. And they will do whatever it takes to build them.

 

Markets won't be shocked by c19 anymore. Don’t expect more than a 10%-15% stock market correction even if the newsflow becomes supremely negative (e.g. full lockdowns across Europe till end-March, home office is here to stay, vaccine not fully effective against new c19 UK strain)

 

 

4. Bitcoin won't be banned by US and EU authorities. In October the Economist will run a cover story titled " Bitcoin - the digital gold?". Timing is everything.

 

 

5. CDU and Greens will form a coalition government following the German general elections in September 2021.

 

I will vote. Jens Spahn will be Chancellor. Green Annalena Baerbock will be Deputy Chancellor. 

 

A gay head of government. Girl power continuing to be represented at the very top of German political decision-making. Alliance between conservatives and greens at the summit of German politics.

 

Modernity, diversity and tolerance. Youthful spirit. Brilliant Germany.

 

 

6. One of the first measures of the new German government coalition will be to pass legislation making equal time sharing of government paid parental leave for the two parents mandatory.

 

It’s a tiny measure at first glance. It will do more to break up the still very much patriarchal German job market (especially at the top management level) than 100 (boardroom) quotas for women.

 

Size doesn’t matter.

 

 

7. Massive street protests across Scotland will force the UK government to give in. Scotland will hold an independence referendum in 2022. Nigel Farage founds a new political party: "Scots-don't-get-back-control". What a time to be alive!

 

 

8. Joe Biden will engage in negotiations with Xi Jinping to improve US-China relations. No much progress here. By the end of the year Hong-Kong will be fully under Mainland China control. Chinese democracy was a pipe dream.

 

 

9. Portugal's new flying football generation will display pure technical beauty at the Euro 2021. Football fans all over the world will fall in love with Cancelo, Rúben Dias, Rafael Guerreiro, Bruno Fernandes, Bernardo Silva, João Félix. Portugal will end the competition as it started it: the European Champion 2016.

 

10. A meteorite will hit New York in May and wipe out all my predictions - especially the ones related to financial markets. Er.....context man! Stop thinking 2020. In 2021 normality returns and impossible things simply won't happen. Relax people! 

11. At the end of December 2021 you will be eagerly awaiting my "Outrageous Predictions for 2022". They will arrive in January 2022. Portuguese punctuality never disappoints.

 

Outrageous Predictions for 2020

Dear All,

here we are again: new year. Same people. Better world and life. And my outrageous predictions for the year just started:

1. Trump will be re-elected US President. God bless America.

2. The killing of General Soleimani triggered a burning desire by Iran's ruling elite to seek revanche against the US. It also exposed Iran's deep vulnerability to US military's tech supremacy, starting with the personal physical safety of its leaders. The latter effect will tame the former - there won't be any major Iran-led attacks to US interests in the West.

3. Boris Johnson. No one in living memory enjoyed being British PM so much like Boris. He will also prove to be an unexpected bold strategic thinker. Here a snapshot of his thinking: it doesn't make sense for the UK as a non-EU member to be regulatory fully aligned with the EU and in order to have full access to the single market be a contributor to the EU budget. It would mean that the UK would be in exactly the same position as non-EU member as it is currently as an EU-member. With one major difference: it would have to fully comply with EU regulations without any saying in its design. Moving from a rule (co-)maker to a rule taker isn't very smart. Neither very British.

Consistent with his thinking, Boris will seek maximum regulatory divergence from the EU (ultra-flexible labour laws, weak social protection, ultra-low corporate taxes to foreign direct investment projects) to offset the impact of EU's WTO tariffs on British exports (on average 2.8%; for car imports 10%; for dairy products rising to around 35%). And thus try to transform London into the Singapur on the Thames.

Result: there will be a Hard Brexit on 31 December 2020. God save the Queen.

4. Dominic Cummings is a crazy man. Then again, he will revolutionise UK government's decision-making process by starting to rely on big data instead of big ideas. On evidence instead of perceptions. Whitehall will start to be populated by boys and girls who actually have strong numeracy. Instead of only literacy and social skills.

It will be a beautiful combination: literacy, numeracy and social skills - what is there not to like?

5. The Greens will be solidly leading the polls in Germany by the end of 2020. Fridays for the future anyone?

6. Spain. For the first time following democratic elections in the post-Franco era, Spain has a coalition government. Podemos, the supposedly left-wing radical party, is PSOE's (the Spanish social democratic party) coalition partner.

Spanish traditional right wingers expect the worse: an irresponsible government leading to the collapse of the Spanish economy. And then of the entire country. Spanish traditional left wingers expect nothing less than the worse: the military rolling out the tanks and crushing the left-wing government. Spain moving back to the dark side. A new military dictatorship is unavoidable.

Quality institutions and being part of the EU - which acts as a top quality institutional anchor - makes life sometimes apparently too predictable and boring. Exciting narratives all too appealing. It's all very much understandable.

However, I would suggest the Spanish media to build a narrative comprising Pedro Sanchez meeting Boris Johnson on a spaceship travelling to Mars designed by Elon Musk. There they would meet with Donald Trump, play golf with Angela Merkel and be lectured on Voltaire's great contributions to mankind by Emmanuel Macron. The probability of it occurring is the same as the currently propagated narratives by traditional Spanish left and right wing media.

But the latter narrative would be more fun to follow.

On a slightly different note, worry not - the Spanish paella is as good as ever.

7. 2019 was a happy year for investors across (almost) all asset classes. Based purely on valuations 2020 should be a very difficult year across (almost) all asset classes. But valuations are just one part of the equation. The other is liquidity. On the latter, the FED made the largest liquidity injection on record in September 2019 (to shore up the US repo market when it suddenly froze up). And the Chinese Central Bank started liquidity injections again in the 4Q2019.

Cutting a long story short: it will a good year to make money by being long equities and high yield bonds. For all the wrong reasons.

PS Anyone willing to assess the probability of a Hyman Minsky Moment vs. Samuel Beckett's Waiting for Godot in 2021, please give me a ring. I'm happy to discuss.

8. Euro 2020. The European Football Championship will for the first time take place in several European countries. Portugal was European Champion in 2016. It will finish the Euro 2020 as European Champion 2016.

In June 2020 I will issue my (not so) outrageous predictions for the Euro 2020.

Seriously!

Outrageous predictions for 2019

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! 

The beautiful game: world cup 2018 forecast (with perfect foresight)

Today, for something completely different. The World Cup 2018. Spoiler: you will see the future.

-----------------------------------------------------

 

I can feel your sense of anticipation. The excitement. And relate to the sleepless nights in search of answers to the supreme existential question: is there any meaning to life beyond seeing your team winning the football world cup?

Well, life is good. And today is your lucky day - here are all the existential answers you have been looking for (you're welcome):

1. Italy won't win the world cup. They have bigger plans for the summer: leave the Euro without anyone noticing.

2. Holland won't win either. They decided some months ago not to participate in this year's tournament. Despite not having any plans at all for the summer at the time. Now they are considering going to Italy on holiday and organise daily football matches with the locals. There is hope for the Euro's survival.

3. The US will contribute as much to raise football's quality standards as President Trump to make a rules-based world great again. It will be beautiful!

4. Putin is a man of vision. Why participate in a G7 +1 summit when you can host the world cup? Russia's football team will play with the same flair, diversity and success that characterises the Russian economy.

5. England won't win. Nothing new but at least England has an excuse this summer: there is no time for distractions - the nation has to focus all its energy in turning the Boris-Rees Mogg Brexit master plan into a major success by mid-July. 2018. No one really knows what the master plan looks like, starting with Boris and Rees-Mogg, but there is no reason to panic as the deadline is still a distant five weeks away. Well informed sources in Westminster say that Brexiteers have never been more confident about delivering a successful Brexit and destroy the Euro along the way. After Boris has been spotted ordering a Pizza Margherita in Islington yesterday, rumours are rampant that he plans to invade Italy to kick the Dutch out of the country.

6. Belgium is the secret favourite. So secret that no one will miss them when they head home after the quarter-finals. The Belgium chocolate pralines remain world class though. Then again, that's not a secret.

7. Portugal will start the world cup as European Champion. And finish the world cup as European champion. If anyone wants to bet against it, please call me.

8. Spain will play Portugal in its first match. It's an early final. What would be the point to have the same match in the final again? Right....

9. France has a fantastic team. It's true that Napoleon suffered an history changing defeat in Russia (calm down Boris and Jacob, we know: Waterloo was epic) and that it still weighs heavily on the Grand Nation's collective memory. However, France has now an Über-President who can turn the nation around: young, dynamic, competent, eloquent, an ex-investment banker, a broad thinker with attention to detail. From my generation. Just like me in fact. Ok, France won't win.

10. Germany. It was in Stalingrad in 1943 that the new cool Germany was born (sure Boris and Jacob, we know: Churchill was magnificent). Who said that a devastating defeat can't mark the dawn of a much brighter and happier era? Cheer up Neuer, Kroos, Özil & Co: Germany's football will become even better following your performance in Russia.

11. Argentina has Messi. Messi! Messi! Messi! The clinical magician. Cruyff on the bench and Messi on the pitch have been a generation's football heroes. The ones who radically reinvented the game and in the process took us to places no one ever thought could possibly exist. It's a pity that Messi has Argentina.

12. Brazil has nothing in common with Russia, except being an emerging market. Brazil is Southern hemisphere; Russia is Northern hemisphere. Brazil is hot; Russia is cold. Brazil is a chaotic, lively democracy; Russia is an organised, sombre authoritarian state. Russia meddles in other countries elections; Brazil can hardly keep track of what is happening in its own elections. Brazil has Neymar, Coutinho, William; Russia doesn’t. Opposites attract. Brazil is the top favourite.

What's up with Portugal?

Matthew Klein, from FT's creative department (FT Alphaville), did a very good analysis about Portugal's economic journey post-Euro adoption in 1999. Here the link to Matthew's article: FT Alphaville looks at Portugal

And a few remarks:

1. The increase in Portugal's household debt in the post-Euro period was to finance consumption. Not real estate acquisitions (mortgages). There was no real estate boom in Portugal over the period. The increase in household debt combined with the increase in government debt (part of it directed to infrastructure spending / construction) led to the massive increase in foreign debt pre-Eurozone crisis.

2. The phenomenal improvement in Portugal's current account balance since 2011 is a combination of three factors

a) luck: tourism picked up to a large extend due to competing destinations' troubles (North Africa, Turkey,...)

b) sheer need: PT's export companies had to expand into new geographies as demand from Spain & Co collapsed

c) FDI: reforms made PT more attractive. Some foreign companies established operations in the country (e.g. Rocket Internet); already present ones expanded their existing operations (e.g. Siemens, Bosch, Peugeot, BNPP...)

3. Reforms (read tax incentives) implemented post-2009 attracted many EU-citizens as permanent residents. Golden Visas attracted non-EU residents (Chinese, Brazilian, Angolan. And more recently Turks). These individuals are the main force behind the boom in the Lisbon / Porto real estate markets. The ECB has little to do with it.

Tourism boom and VIPs as permanent residents (Madonna, Michael Fassbender, Cantona, Monica Belucci, Philippe Starck....) doing high profile marketing of the country - for free - led to an international (re)discovery of Portugal. And have created a positive feedback loop for tourism and investment.

The main gap in the whole story: a much more aggressive FDI attraction strategy (a la Ireland) is needed. FDI is the only way for Portugal to massively broaden its export base, increase productivity and raise living standards sustainably over a reasonably short timeframe (10 years).

An Eurozone private sector transfer union based on a FDI core-periphery bridge is what the EU(rozone) authorities should focus on. It would be a win-win situation for core and periphery. And therefore a no-brainer:
http://cubismeconomics.blogspot.de/2017/05/macronomics-missing-piece-private_16.html

Tesla vs. BMW – all you need is imagination

Equity investors seem to regard Tesla as the future leader of the global affordable luxury car segment. The company’s current market capitalisation already roughly matches that of BMW - nothing that a giant dose of imagination and creativity can’t possibly justify.

--------------------------------------------------------

We are in September 2027. The electric car revolution made Tesla the world’s leading affordable luxury carmaker – the new BMW. Tesla’s 2027 car sales are expected to reach USD 120 billion (matching BMW Group’s sales in 2017).

Tesla has a similar net profit margin (7.4%) and is trading at a similar PE multiple (7.4x) as BMW was 10 years ago. Its market capitalisation just hit USD 68 billion. It was USD 61 billion in September 2017. As no dividends were paid out over the past 10 years, Tesla shareholders earned a 1.2% annualised return in 2017-2027. They are disappointed.

When buying Tesla shares in September 2017, they had a vision: Tesla would become the new BMW in 10 years time. Accordingly, they expected to make a 10% annualised return on their investment. They would have made it – if they had bought Tesla shares 56% below the then prevailing market price.

That’s not a very realistic vision of Tesla’s future, some enthusiastic Tesla investors may now argue. BMW’s current PE multiple is depressed. In 2027, a very successful Tesla will trade at higher multiples.

Ok. Let’s think about an alternative future. In September 2027 the new BMW – aka Tesla – will trade at 10x earnings 2028 (post dotcom bubble BMW only traded, on average, higher in phases of depressed earnings during recessions). This would translate into a 2017-2027 annualised return of 4.3% - assuming that no further equity or quasi-equity financing will be needed over the coming years. Factor in a 10% capital increase (i.e. USD 6bn - Tesla’s cash burn rate in 1H2017 was USD 2.4billion, USD 3 billion of cash is left on the balance sheet) and the resulting dilution would lead to an annualised return of 3.3%.

But, hold on, Tesla is not only cars! What about the energy generation and storage business? Sure - currently it accounts for 10% of Tesla’s sales. Therefore, even if it was able to mirror the growth and profitability of the car business in the Tesla-is-the-new-BMW scenario over the next 10 years, it would hardly move investors’ return-on-investment needle.

Imagination and optimism are good things. They cannot change the big picture: even if Tesla turns out to be the new BMW, with a successful energy and storage business attached, it is doomed to be a poor investment. 

It’s what usually happens when a stock is priced for perfection.