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Saxo Bank 10 Outrageous Predictions For 2012

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Published on ZeroHedge. The theme for this year is the perfect storm.

OUTRAGEOUS PREDICTIONS 2012

1 – THE STOCK OF APPLE INC PLUMMETS 50 PERCENT FROM 2011 HIGH

No sovereign or corporate empire has ever maintained its superior position for long because attacks mount and loyalty fades. Going into 2012 Apple will find itself faced with multiple competitors such as Google, Amazon, Microsoft/Nokia, and Samsung across its most innovative products, the iPhone and iPad. Apple will be unable to maintain its market share of 55 percent (three times as much as Android) and 66 percent on the iOS and iPad as Android will gain further momentum and Amazon’s low priced Kindle Fire will cut deeply into Apple’s tablet reign. In relation to current earnings Apple is not expensive but expectations about future profit growth will come down hard as competition reaches insane levels and crushes Apple’s profit margins.

2 – EU DECLARES EXTENDED BANK HOLIDAY DURING 2012

The December EU Treaty changes prove insufficient to solve EU funding needs – particularly those in Italy – and the EU debt crisis returns with a vengeance by mid-year. In response, the stock market finally caves in and drops 25 percent in short order, prompting EU politicians to call an extended bank holiday – closing all European exchanges and banks for a week or more. EU leaders gather like Vatican cardinals at a conclave to hammer out a “New Europe”. This could result in EU officials overstepping their mandate once again with new burdensome command and control measures that further violate the principles of the EU and free markets. Regardless, this “final” attempt leads straight to a popular overthrow of the old order and beginning of destruction of the sovereign debt time bomb. A period of pain is inevitable, but this will quickly allow a “new EU” to regroup with new membership and a new base from which its economies and markets can start planning for the future, rather than dealing with the mistakes of the past.

3 – A YET UNANNOUNCED CANDIDATE TAKES THE WHITE HOUSE

In 1992, a savvy, yet highly erratic Texas billionaire named Ross Perot managed to take advantage of a recessionary economy and popular disgust with US politics and reap 18.9 percent of the popular vote. Step forward to 2008, and Obama promises “real change” from eight years of Republican rule as the economy is nose-diving. Now, three years of Obama has brought too little change and only additional widespread disillusionment with the entire US political system. Going into the election in 2012, the incumbent Democrats are in ideological disarray and will get the blame for continued economic malaise and the favour-the-rich Republicans will never win the popular vote with the US rich/poor gap at a record width and social tension rising. In short, conditions for a third party candidate have never been riper. Someone smart enough to sense this and with a strong programme for real change throws his hat in the ring early in 2012 and snatches the presidency in November in one of the most pivotal elections in US history, taking 38 percent of the popular vote. A new political order is born.

4 – AUSTRALIA GOES INTO RECESSION

The Chinese locomotive has been losing steam throughout 2011 as investment and real estate led growth becomes harder and harder to come by due to diminishing marginal returns. The effects of the slowing of the up-and-coming Asian giant ripple through Asia Pacific and push other countries into recession. If there ever was a country dependent on the well-being of China it is Australia with its heavy dependence on mining and natural resources. And as China’s demand for these goods weakens Australia is pushed into a recession, which is then exacerbated as the housing sector finally experiences its long overdue crash – a half decade after the rest of the developed world.

5 – BASEL III AND REGULATION FORCE 50 BANK NATIONALISATIONS IN EUROPE

As 2012 begins, pressure will mount on the European banking system as new capital requirements and regulatory pressure force banks to deleverage in a great hurry. This creates a fire sale on financial assets as there are few takers in the market. Troubled sovereigns, structural funding gaps and massive trading books set the scene for the largest bank rescue operation in Europe’s history. Politicians, eager to score points with the public, create a regulatory mob enforcing value destruction in the banking system “in the name of greater good”. A total freeze of the European interbank market forces nervous savers to make bank-runs, as depositors distrust deposit guarantees from insolvent sovereigns. More than 50 banks end up on government balance sheets and several known commercial bank brands cease to exist.

6 – SWEDEN AND NORWAY REPLACE SWITZERLAND AS SAFE HAVENS

Sweden and Norway are at risk of replacing Switzerland as the new safe havens – “risk” because, as we saw with Switzerland, becoming a safe haven in a world of devaluing central banks presents a number of risks to a country’s economy. The capital markets of both countries are far smaller than Switzerland, (the combined FX volume in Sweden and Norway being a mere fraction of Switzerland’s), but the Swiss are aggressively devaluing their currency and money managers are looking for new safe havens for capital. At the same time, Germany and its balance sheet are embroiled in the EU debt debacle and the classic safe haven appeal of 10-year Bunds is fading fast. Sweden and Norway sport excellent current account fundamentals, prudent social policies and skilled and flexible labour forces. Flows into the two countries’ government bonds on safe haven appeal becomes popular enough to drive 10-year rates there to more than 100 basis points below the classic safe haven German Bunds.

7 – SWISS NATIONAL BANK WINS AND CATAPULTS EURCHF TO 1.50

Switzerland’s persistency in fighting the appreciation of its currency will continue to pay off in 2012. After the dramatic failure of direct FX intervention in the market in 2009 and 2010 and after EURCHF threatened to destroy the Swiss economy with its death spiral towards parity in mid-2011, the Swiss National Bank and Swiss government finally joined forces to engineer an aggressive expansion of money supply and established a floor in EURCHF at 1.20. With Swiss fundamentals – particularly export related – continuing to suffer mightily in 2012 from past CHF strength, the SNB and government bear down further to prevent more collateral damage and introduce extensions to existing programmes and even negative interest rates to trigger sufficient capital flight from the traditional safe haven of Switzerland to engineer a move in EURCHF as high as 1.50 during the year, much to the chagrin of those who believe central banks can’t intervene successfully.

8 – USDCNY RISES 10 PERCENT TO 7.00

The impressive growth rates in the world’s second-largest economy, China, since the end of the Great Recession have been predicated on investment and exports. As marginal returns from building million-inhabitant ghost towns diminish and exporters struggle with razor-thin margins due to the advancing CNY China gets to the brink of a “recession”, meaning 5-6 per cent GDP growth. Chinese policymakers come to the rescue of exporters by allowing the CNY to decline against a US Dollar – buoyed by its safe-haven status amid slowing global growth and an on-going Eurozone sovereign debt crisis – and send the pair up to 7.00 for a 10 percent increase.

9 – BALTIC DRY INDEX RISES 100 PERCENT

Despite the dry bulk fleet being expected to outgrow demand in 2012, leading to further over capacity, several factors could surprise resulting in a price spike in the Baltic Dry Index. Lower oil prices in 2012 could lead to an increase in the Baltic Dry Index as operating expenses go down. Brazil and Australia are expected to expand iron ore supply, further leading to lower prices and therefore higher import demand from China to satisfy its insatiable industrial production. In combination with monetary easing this leads to a massive spike in iron ore demand. The last shock that could impact the dry bulk market is exceptional dry weather, due to El Nino, leading to a plunge in hydropower electricity generation and thereby fuelling demand for coal imports.

10 – WHEAT PRICES TO DOUBLE IN 2012

The price of CBOT wheat will double during 2012 after having been the worst performing crop in 2011. The drop was brought about due to a combination of farmers responding to high prices in 2010/11 and normalised weather in the Former Soviet Union. However with 7 billion people on the earth and money printing machines at full throttle bad weather across the world will unfortunately return and make it a tricky year for agricultural products. Wheat especially will rally strongly as speculative investors, who had built up one of the biggest short positions on record, will help drive the price back towards the record high last seen in 2008.

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What The IMF Has Done To Ireland

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IMF has honed its skills most notably in Argentina in how to crash an economy and reap the rewards afterwards. Adrian Salbuchi had this to say about the decade the IMF ran Argentina.

Clearly,this was a massive banker-orchestrated, government-backed robbery of the assets and savings of 40 million Argentinians.Half our population quickly fell below the poverty line, GDP contracted by almost 40% in 2002, millions lost their jobs, their savings, their homes to foreclosures, their livelihoods and yet… not one single bank folded or collapsed!

Argentina was used as a testing ground by the global power elite to learn how a full-scale financial, monetary, banking and economic collapse can be controlled and its social consequences suitably engineered to ensure that, with time: (a) the bankers came out unharmed, (b) “democratic order” is re-instated and the new government imposes another sovereign debt mega-swap, balance their numbers, and calm the people down (or else!), and (c) put big smiles back on bankster faces…Business as usual!

The lessons learned in Argentina in 2001/3 are today being used in Greece, Ireland, Spain, Italy, Iceland, the UK and the US.

The last sentence sums it up and you can directly see its results in Ireland today as the economy gradually declines and unemployment rises. The tradition in Ireland with a population of 4.5 million is to emigrate when unemployment rises. In the bad times in the 80’s about 50,000 per year were leaving, now we have seen 76,oo0 emigrated this year alone with stories every day of more to go. After 4 years of austerity and new taxes, its clear that economically the situation has deteriorated.

Costas Douzinas recently documented how the IMF blames the failure of its growth predictions, and austerity measures, on the impact of Greek public resistance. Yet in well-behaved not-Greece, the same bad medicine has resulted in a rising deficit, stagnant growth, sustained emigration, and unemployment at about 15%. In its latest quarterly report, the IMF praised Ireland’s “exceptional” efforts to meet its targets, but this praise comes at a time when the fiction of a reward for good behaviour is falling apart.

The technocrats from the EU have taken their opportunity well to introduce a “fiscal compact”.

It is clear that “austerity” primarily involves rapidly socializing as much bondholder debt as possible, in advance of a possible default. The recent European council summit meeting may result in making permanent much of the current framework of external oversight of the Irish public finances. The fiscal compact, if passed into law, would constitute the most revolutionary development in the Irish economic landscape in the history of the state. The strengthening of budgetary surveillance by the European authorities, the balanced budget amendment, and the inclusion of automatic, treaty-prescribed sanctions for transgression, could condemn Ireland and other eurozone countries to lengthy periods of economic stagnation.

But Ireland does have a chance to get its own back by withdrawing from the constraints of the Euro which clearly has been a disaster for the economy. Without the ability to control its interest rates which would have stopped the massive borrowings which got Ireland into the situation its in, it also doesn’t have the ability to devalue its currency which would help to reduce quickly its debt and improve competitiveness.

The far-reaching implications of the fiscal compact will surely outweigh political anxiety about volatile public opinion, and result in a referendum. Should the government decide otherwise, it is almost certain that a constitutional challenge will be made, though it remains far from certain that the supreme court would demand that the fiscal compact be ratified by referendum, rather than parliamentary statute.

A referendum would constitute a major political event – both for Ireland and the EU. Referendums may be blunt instruments for agreeing and ratifying complex policy choices, but the government has already framed any such event as an existential social choice – a referendum on Ireland staying in the euro or departing to a dystopian future. Be that as it may, what Ireland needs more than anything is that long postponed public conversation. In particular, we need to ask not just what kind of society we want, but what will be left of society if the latest neoliberal mutation is signed into law.

Source: The Guardian, Adrian Salbuchi

How Iran Would Close Straits of Hormuz

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ZeroHedge has written an excellent article on how Iran plans to close the Straits of Hormuz if it needs to. The information for this was gotten from the Iranian website Mashreq News, which is close to Iranian military circles, posted an article on December 15, 2011 outlining military measures that could be taken by Tehran to close the Strait of Hormuz should the regime choose to do so.

The article enumerated the forces and weapons that Iran could employ in such a military operation, including fast attack craft carrying anti-ship missiles; submarines; battleships; cruise and ballistic missiles; bombers carrying laser-, radar- and optically-guided missiles; helicopters; armed drones; hovercraft; and artillery.

In accordance with Iranian doctrine, the article pointed out that these weapons would actually not be necessary because there would be suicide operations, and added that “the faith of the Iranian youth, and their eagerness to sacrifice their lives, will sap the enemies’ courage.”

Despite statements by Iranian government spokesmen, including Oil Minister Rostam Qasemi and Foreign Ministry spokesman Ramin Mehmanparast, that the closing of the strait is not currently on Iran’s agenda,[2] Majlis National Security Committee member Pervez Sarouri said that the Iran would be conducting 10 days of naval maneuvers, called “Velayat 90,” beginning December 24, 2011, to drill closing it.[3]

 

I highly recommend reading it. For further reading of the article, click here.

2012 Economic Predictions

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Mish gives his ten predictions for the year ahead.

  1. Severe European Recession as the sovereign debt crisis escalates: Austerity measures in Italy, Greece, Spain, and Portugal plunges all of Europe into a major recession. Spain and Portugal will follow Greece into an outright depression.
  2. Political Crisis in Europe: French President Sarkozy loses to socialist challenger Francois Hollande. German Chancellor Angela Merkel’s coalition collapses. The Merkozy agreement is either modified to do virtually nothing or is not ratified at all. This chain of events will not be good for European equities or European bonds.
  3. Relatively Minor US Economic Recession: The US will not avoid a recession in 2012. Retail spending ran its course with the tail-off into Christmas of 2011. The Republican Congress has little incentive for fiscal stimulus measures in 2012 so do not expect any. However, with housing already limping along the bottom in terms of construction and investment (not prices), a US GDP decline will not be severe. The US may see a recession even if GDP barely drops. Certainly the US recession will be far less severe than the recession in Europe and Australia.
  4. Major Profit Recession in US: Profit margins in the US will be torn to shreds as businesses will be unable to reduce costs the same way they did in 2008 and 2009 (by shedding massive numbers of employees).
  5. Global Equity Prices Under Huge Pressure: Don’t expect the same degree of reverse decoupling of US equities we saw in 2011. The US economy will be better than Europe, but equities globally will take a hit, including the US. Simply put, stocks are not cheap.
  6. Fiscal Crisis in Japan Comes to Forefront: Japan’s fiscal crisis and debt to the tune of 200+% of GDP finally matters. The crisis in Japan will start out as a whimper not a bang, but will worsen as the year wears on. If Japan responds by monetizing debt, not a remote possibility at all, Japanese equities will massively outperform in nominal and perhaps even in real terms. “Real” means “yen-adjusted”, not “inflation-adjusted” terms.
  7. Few Hiding Spots Other than the US Dollar: US treasuries and German bonds were safe havens in 2011, but with yields already depressed don’t expect huge gains. Expect to see a strengthening of the US dollar across the board against all major currencies. Moreover, cash (one the most despised asset classes ever), may outperform nearly everything, even if the dollar goes virtually nowhere. Hiding places will be few and far between for much of 2012.
  8. US Public Union Pension Plans Under Attack: States finally realize the need to rein in pension plans much to the dismay of public unions. Social and economic tensions in the US rise.
  9. Regime Change in China has Major Ramifications: China will start a major shift from a growth model dependent on housing and infrastructure to a consumer-driven model. The transition will not be smooth. Property prices in China will collapse and commodity prices will remain under pressure.
  10. Hyperinflation Calls Once Again Will Look Laughable: Unless there is a major disruption in the Mideast (which I do not rule out by any means), oil prices will drop and food prices will follow. If so, we will once again see silly talk from the Fed about preventing “unwelcome drops in inflation”. As always, the deflation key is not prices at all but rather credit and credit marked-to-market. Expect credit in all forms to come under attack and expect junk bonds take a hit as well. By the way, regardless of what happens to oil prices, hyperinflation calls will look silly.

 

Was MF Global a Tool?

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And more dirty tricks in the PM suppression story as told by JS Kim (Managing Director, Chief Investment Strategist & Founder of SmartKnowledgeU)

Did bankers use the MF Global to suppress gold and silver prices and create the panicked appearance of collapsing precious metals to give themselves additional precious time to delay the crash of the Euro and the US Dollar? As crazy as this sounds, a closer investigation of some key data seems to imply this possibility.

 

bankers increasingly turned to the paper futures markets to manipulate and control the price of gold and silver and also served up additional bogus derivative products to the public like the GLD and SLV ETFs. Bankers knew that there was no way they could possibly control the price of gold and silver if the supply and demand determinants of physical gold and physical silver had anything to do with the price, so they conspired to fool the world into believing that the fake paper price they set was set by the supply and demand of the physical markets.

 

And here’s where MF Global enters the banking cartel gold and silver price suppression scheme. Today, short-term futures and spot prices of gold and silver have almost nothing to do with the physical supply and demand dynamics of gold and silver, as odd as that may sound. Bankers invented fake paper gold and silver contracts, because they knew that if they could not fulfill contractual obligations to deliver physical gold and physical silver because the contracts were a binding lie to begin with), that they could always renege on these contractual obligations and give the people the nothingness they truly owned in return. And thus, we have the story of MF Global.

 

Source: Aweber

Austerity Can’t Work, You Need to Devalue Your Own Currency!

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David McWilliams put it well when talking about austerity not working, he said

Yet the really strange thing is that it(austerity) is billed as being mainstream economic thinking. It is not mainstream economics, it is highly radical. What is mainstream and proven is the power of devaluations. Yet those recommending the course of action that mainstream economics tells us to do are labelled radicals.

Because Ireland isn’t able to devalue, it chooses the austerity route.

Therefore, government spending will be reduced dramatically. But if the government is not spending, who is?

We should be, but we are not because we are worried about the future, so we are saving. Who is spending the missing 11pc of our income which has just been taken out of the Irish economy? Now here is where our policy gets a bit hopeful to say the least because in order for our economy to stay just as it is, foreigners need to massively increase their buying of Irish goods.

Ireland has tried an “internal devaluation” through cutting wages. Latvia has tried a similar soultion, but how does this stack up with Iceland who simply devalued their currency and became competitive overnight.

Irish and Latvian wages have remained more or less the same since 2008 against our competitors. In contrast, Icelandic wages against its competitors have fallen dramatically. Iceland has become dramatically more competitive vis-a-vis Ireland and Latvia because it devalued its currency dramatically in 2008/09. Iceland in one sharp devaluation has achieved what Ireland and Latvia are supposed to achieve over years of grinding down wages. If we are supposed to achieve Icelandic levels of wage competitiveness, we will have to shrink the economy over the next few years. By having their own currency the Icelandics did in a few weeks what we have been trying — unsucessfully — to do over four years.

We are currently being told that the euro breaking up is a terrible thing but David McWilliams is of the mind that having your own currency and devaluing is the solution.

Having its own exchange rate allows a country to adjust quickly. Yes, living standards when measured in euro fall, but that has to happen in both the Irish and the Icelandic case. The question is how do you achieve this and are you giving your people a chance?

There is a reason why no economy in the world has ever emerged from a recession like ours without changing its exchange rate. The reason is that it simply can’t be done. There is no evidence anywhere, ever, that shows that a country can operate a successful “internal devaluation” — particularly an economy carrying as much debt as we have.

Is Irelands “internal devaluation” really working?

Much is made of the “flexibility” of the Irish labour force. But the flexibility is not in wages but in levels of unemployment. The Irish labour market adjusts alright, but the adjustment comes not in falling wages but in rising unemployment and emigration. This is what we don’t want to happen, yet this is what the policy is leading to.

So those getting paid too much in Ireland still get paid too much, yet the people who feel the real cost of the “internal devaluation” are those who lose their jobs because rather than cut wages, employers cut staff.

When people are laid off, it is very difficult to get a new job because no one is spending in the economy. The government is not spending and the people are not spending. But what about the the much heralded export-led growth which postulates that foreigners will buy loads of Irish goods, more than compensating for the fall in domestic spending?

Well it doesn’t happen, partly because Irish wages don’t fall as we can see in the chart, so Irish goods are no more competitive than they were a few years ago. Yes, exports have risen, but nowhere near enough to offset the local contraction. This is why unemployment has trebled in three years and why emigration is running at over 1,000 people a week. It is not that the policy of internal devaluation is not working, it can’t work. It has never worked anywhere, ever.

As economists who propose the normal tried and tested solution to carrying too much debt, i.e. devaluing your currency, now politicians and the MSM are labelling them as radicals or extreme.

The truth is that what is extreme is following a policy which has never worked anywhere and the cost of which is mass unemployment and mass emigration. Now that is truly radical.

 

UK Plans For Euro Failure

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The UK is making plans for a country or countries leaving the euro and the problems this will cause by the flight of capital into Britain. It will naturally strengthen Sterling and affect its exports.

Britain’s response to the possible break up of the euro would reflect measures taken by Argentina when it dropped the dollar peg in 2002, according to sources.

In addition to the risk of an appreciating currency, dealing with potential UK corporate exposures to the euro poses a considerable challenge for the Treasury.

Britain’s top four banks have about £170bn of exposure to the troubled periphery of Greece, Ireland, Italy, Portugal and Spain through loans to companies, households, rival banks and holdings of sovereign debt. For Barclays and Royal Bank of Scotland, the loans equate to more than their entire equity capital buffer.

Under European Union rules, capital controls can only be used in an emergency to impose “quantitative restrictions” on inflows, which would require agreement of the majority of EU members. Controls can only be put in place for six months, at which point an application would have to be made to renew them.

Capital controls form just one part of a broader response to a euro break-up, however. Borders are expected to be closed and the Foreign Office is preparing to evacuate thousands of British expatriates and holidaymakers from stricken countries.

The Ministry of Defence has been consulted about organising a mass evacuation if Britons are trapped in countries which close their borders, prevent bank withdrawals and ground flights.

Source : Telegraph

 

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