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Why we need a crisis ? Saxo Bank Capital Markets Johannesburg, November 2012

Why we need a crisis ? Saxo Bank Capital Markets Johannesburg, November 2012. 30 years of experience in a few lessons. John Maynard Keynes. Joseph Schumpeter. Denial. Protest. Mandate for change. Printing money : the only game in town …. Entitlement South Africa ?.

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Why we need a crisis ? Saxo Bank Capital Markets Johannesburg, November 2012

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  1. Whyweneed a crisis?Saxo Bank Capital MarketsJohannesburg, November 2012

  2. 30 years of experience in a fewlessons John MaynardKeynes Joseph Schumpeter Denial Protest Mandate for change

  3. Printing money: the only game in town…

  4. Entitlement South Africa? • ZAR willweaken (-5%) • SARB will cut 100 bps • Public Sectorneed to slow-down vis-a-vis investments • Cohessive social policy of essence

  5. Europe is drowning in denial

  6. Social unrest: 101 Organic Growth Leverage

  7. Everybody’s hero: Prez Reagan started the excess….Obama perfected it…

  8. US fiscalcliffwillhappen…but to whatdegree?

  9. Why does fiscal cliff matter to investor…the math: .

  10. Game changer: US shale gas

  11. Demographicsare not a drag compared to peers

  12. Eurozone indicators point towards more gloom

  13. Eurozone’s growth trajectory below bond yields…

  14. China’s next phase looks difficult • Nov 8-18th Party Congress • Q4 2013 – Meeting of the “third plenary” • Economic growth is slowing • Labour force to begin shrinking • Transition to domestic consumption • Competitiveness is declining

  15. China slows down to 2008 levels

  16. …more evidence of slowdown

  17. Unsustainable wage pressure in China

  18. “Reality divergence” largest since Dot-com bubble

  19. Impliedearningsgrowth of 12-16%…complete fantasy

  20. Earningsfearelevated but with goodreason

  21. Market at ”fair value”?

  22. Global equitiestradebelowhistorical average

  23. Saxo Bank favours small capstocks

  24. Commodities will dance to the “tune of 2012” • Commodities to repeat 12’ unless oil spikes • Oil is all about geopolitical risk • Gold to reach 2,075 in 13’ on demand • Crop prices to remain elevated

  25. Commodities likely to repeat 2012 unless…

  26. Crude oil in 13’ is all about geopolitical risk

  27. Gold driven by financial investment demand

  28. The impact of the highly improbable • It’s an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. • It carries an extreme impact • In spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable Source: New York Times, April 22, 2007: NassimTaleb

  29. Prediction for Brent in December 2010 - Consensus

  30. Reality was very different

  31. This happened……

  32. Black Swans has formed history Data “machines” - 1941 Viagra - 1996 A “man” walks on water - 32 9-11- 2001 The Big Bang Theory - 1965 X-ray - 1895 African Spring uprise - 2011 World War I - 1914 Internet - 1983 Internet - 1983 Penicilin - 1928 Tsunami Japan - 2011 Berlin Wall falls- 1989 Source: Saxo Bank & HolbergFondene

  33. Black Swans has formed financial markets End of Gold standard 1971 Saving- and Loan crisis 1991-92 World Trade Centre 2001 Russia default 1998 Lehman Banrupcty 2008 Stock market crash 1987 Iraq invades Kuwait SNB starts FX war -2011 Dot.cameDot.gone - 2000 Source: Saxo Bank & HolbergFondene

  34. Macro Themes Less is more Global imbalanceswill start reversing Unit Laborcostimportancewillfall. US willretake global growthlead from Asia Asia needsdecade of ”transition” Energy priceswillfall over nextdecade (Shale gas) Mandate for changewillbecoming via micro-economy

  35. Macro Predictions(12-24 months) EURUSD in 1.0000 (Growth and capitalaccess) USDJPY in 100 (Yieldpick-up) Crude to fall to 50 $ a barrel (Shall gas and lack of growth) Gold in 3.000 (Printing even more money) AUDUSD in 0,8000 Global yields to hit rock bottominsidenextsixmonths Stocks to perform duringPretend-and-Extend but trailingduring ”earlyexpansion” but nextdecadewillbe >+50 pctreturn USDZAR +5% and SARB to cut by 100 bps in 2013

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