dumbass
07-11-2007, 09:25 PM
This was Saxobank's "10 Outrageous Predictions" posted at END OF 2006 , they raised some interesting themes that have turned out to be quite prophetic
Our central prediction for 2007 is that the first half of the year will offer a
continuation of trends already familiar from 2006. Carry trades will continue higher
vs. JPY, stock markets will continue higher and precious metals will test or make new
highs. The only exception will be energy prices, which in our prediction will pick up
steam again from the beginning of 2007.
But by mid-year these trends will be exhausted, both from a fundamental and a
technical perspective. Carry Trades will run into technical resistance and analysts
across the world will look at JPY fundamentals and scream about how undervalued it
is.
Also by mid-year, a sharp deceleration in the US housing market will materialize in
the broader economic picture. Long rates, both in the Eurozone and the US, will edge
higher during the first half of the year, reverting by mid-year to levels seen two years
ago.
Outrageous Predictions for 2007
We continue our tradition this year of positing 10 outrageous claims for the
markets in the coming year. These claims are in many cases extreme - but we
believe a valid case can be made for them actually coming true. We usually get
2-3 of the claims right.
As always, we make these calls to stimulate thought and encourage our clients to
think about their portfolios in new ways. This year’s Outrageous Claims are fairly
closely correlated to the overall theme of the outlook:
1. US recession at year’s end 2007
Never before in modern history has there been a sharper deceleration in US home
prices: Home Equity Loans, Mortgage Refinances, Construction... the housing boom
has been a significant driver. International and historical experience with slowdowns
as significant as this suggests that we will see a recession by year’s end 2007.
4. AUDJPY to 100 then to 85
We expect the carry trade theme to continue through the first half of 2007. We also
call an additional rate hike by the RBA, which will squeeze the pair higher. Then we
predict most rate hike cycles from traditional high yields to peak, along with BoJ
continuing their process of normalizing rates.
5. S&P 1500 Home Building Index to 795, then to test lows of 521
The index is now trading around 690. We expect the index to go higher during the
first half of the year. It might even test the neckline of the big head-and-shoulders
formation from 2005. But deteriorating housing figures will weigh heavily on the
index, especially during the second half of the year.
6. USDNOK to 5.40
Our expectation of a significant downside move in this cross contrasts sharply to
market consensus. We expect Norges Bank to go to 5.0%, with the Fed cutting to
4.0%, giving the pair one of the most attractive yield spreads in the market. We also
expect oil to firm above $65 in 2007, a development which will lend additional
support to the krone.
7. NZDSEK to 4.00
We predict a breakdown in Kiwi in 2007. Rates, in our view, have peaked at 7.25%
and we expect Uridashi redemptions, along with a mass unloading of carry trades, to
weigh heavily on the NZD. SEK should continue to strengthen on strong fundamentals
while Riksbank maintains an tighter monetary policy throughout 2007.
8. Silver to $20
We remain silver bulls and continue to favor an extremely tight supply/demand setup.
Furthermore, it is common these days to hear of shortages and delays in
deliveries on futures, which will continue to take a toll, sending silver higher through
2007.
9. USDTRY to 135 then to 155
We expect the present downtrend to remain intact through the first part of 2007, but
as the unwinding of carry trades starts, the lack of risk will be felt in emerging
markets where we expect TRY to feel the pain.
10. Fed fund rate to 4.00% by year’s end
We predict a recession by year’s end 2007. Under these circumstances, the Fed's
policy response will be to cut rates beyond the 4.75% currently expected by the
market. Most of the year will be relatively strong, in our view, but economic growth
will decelerate sharply towards the latter part of the year. This won’t leave the Fed
much room (time) to cut more rates to more than 4.00%.
OUTLOOK 2007 – Year of Deceleration
2007 top picks:
We recommend taking a 10 percent position in each of these assets
Long spot silver and spot gold (half and half)
Like last year, we remain bullish on precious metals. We still see an extremely tight
supply/demand set-up for silver. It is common these days to hear of shortages and
delays in deliveries on futures, which will continue to take a toll, sending silver
higher through 2007. Gold should also test the previous highs at 730, when a stronger
JPY will cause turmoil in Emerging Markets.
Long WTI Crude Futures
Asymmetrical risk favours the upside, also in 2007: consider Nigerian elections in
April, a potential meltdown in Iraq (or Iran), and the miracle of Russian supply growth
to peter out. OPEC will likely cut more to maintain oil field pressures and keep prices
above 60 dollars per barrel. There are a number of reasons to be long on energy in
2007, especially from this rather low entry point.
Short USDNOK
Our expectation of a significant downside move in this cross contrasts sharply to
market consensus. We expect Norges Bank to go 5.0%, with the Fed cutting to 4.0%
giving this pair one of the most attractive change in Yield. We also expect oil to firm
above $65 in 2007 adding additional support.
Short NZDSEK
We predict a breakdown in Kiwi in 2007. Rates, in our view, have peaked at 7.25%
and we expect Uridashi redemptions, along with a mass unloading of carry trades, to
weigh heavily on the NZD. SEK should continue to strengthen on strong fundamentals
while Riksbank maintains an expansionary monetary policy throughout 2007.
Our central prediction for 2007 is that the first half of the year will offer a
continuation of trends already familiar from 2006. Carry trades will continue higher
vs. JPY, stock markets will continue higher and precious metals will test or make new
highs. The only exception will be energy prices, which in our prediction will pick up
steam again from the beginning of 2007.
But by mid-year these trends will be exhausted, both from a fundamental and a
technical perspective. Carry Trades will run into technical resistance and analysts
across the world will look at JPY fundamentals and scream about how undervalued it
is.
Also by mid-year, a sharp deceleration in the US housing market will materialize in
the broader economic picture. Long rates, both in the Eurozone and the US, will edge
higher during the first half of the year, reverting by mid-year to levels seen two years
ago.
Outrageous Predictions for 2007
We continue our tradition this year of positing 10 outrageous claims for the
markets in the coming year. These claims are in many cases extreme - but we
believe a valid case can be made for them actually coming true. We usually get
2-3 of the claims right.
As always, we make these calls to stimulate thought and encourage our clients to
think about their portfolios in new ways. This year’s Outrageous Claims are fairly
closely correlated to the overall theme of the outlook:
1. US recession at year’s end 2007
Never before in modern history has there been a sharper deceleration in US home
prices: Home Equity Loans, Mortgage Refinances, Construction... the housing boom
has been a significant driver. International and historical experience with slowdowns
as significant as this suggests that we will see a recession by year’s end 2007.
4. AUDJPY to 100 then to 85
We expect the carry trade theme to continue through the first half of 2007. We also
call an additional rate hike by the RBA, which will squeeze the pair higher. Then we
predict most rate hike cycles from traditional high yields to peak, along with BoJ
continuing their process of normalizing rates.
5. S&P 1500 Home Building Index to 795, then to test lows of 521
The index is now trading around 690. We expect the index to go higher during the
first half of the year. It might even test the neckline of the big head-and-shoulders
formation from 2005. But deteriorating housing figures will weigh heavily on the
index, especially during the second half of the year.
6. USDNOK to 5.40
Our expectation of a significant downside move in this cross contrasts sharply to
market consensus. We expect Norges Bank to go to 5.0%, with the Fed cutting to
4.0%, giving the pair one of the most attractive yield spreads in the market. We also
expect oil to firm above $65 in 2007, a development which will lend additional
support to the krone.
7. NZDSEK to 4.00
We predict a breakdown in Kiwi in 2007. Rates, in our view, have peaked at 7.25%
and we expect Uridashi redemptions, along with a mass unloading of carry trades, to
weigh heavily on the NZD. SEK should continue to strengthen on strong fundamentals
while Riksbank maintains an tighter monetary policy throughout 2007.
8. Silver to $20
We remain silver bulls and continue to favor an extremely tight supply/demand setup.
Furthermore, it is common these days to hear of shortages and delays in
deliveries on futures, which will continue to take a toll, sending silver higher through
2007.
9. USDTRY to 135 then to 155
We expect the present downtrend to remain intact through the first part of 2007, but
as the unwinding of carry trades starts, the lack of risk will be felt in emerging
markets where we expect TRY to feel the pain.
10. Fed fund rate to 4.00% by year’s end
We predict a recession by year’s end 2007. Under these circumstances, the Fed's
policy response will be to cut rates beyond the 4.75% currently expected by the
market. Most of the year will be relatively strong, in our view, but economic growth
will decelerate sharply towards the latter part of the year. This won’t leave the Fed
much room (time) to cut more rates to more than 4.00%.
OUTLOOK 2007 – Year of Deceleration
2007 top picks:
We recommend taking a 10 percent position in each of these assets
Long spot silver and spot gold (half and half)
Like last year, we remain bullish on precious metals. We still see an extremely tight
supply/demand set-up for silver. It is common these days to hear of shortages and
delays in deliveries on futures, which will continue to take a toll, sending silver
higher through 2007. Gold should also test the previous highs at 730, when a stronger
JPY will cause turmoil in Emerging Markets.
Long WTI Crude Futures
Asymmetrical risk favours the upside, also in 2007: consider Nigerian elections in
April, a potential meltdown in Iraq (or Iran), and the miracle of Russian supply growth
to peter out. OPEC will likely cut more to maintain oil field pressures and keep prices
above 60 dollars per barrel. There are a number of reasons to be long on energy in
2007, especially from this rather low entry point.
Short USDNOK
Our expectation of a significant downside move in this cross contrasts sharply to
market consensus. We expect Norges Bank to go 5.0%, with the Fed cutting to 4.0%
giving this pair one of the most attractive change in Yield. We also expect oil to firm
above $65 in 2007 adding additional support.
Short NZDSEK
We predict a breakdown in Kiwi in 2007. Rates, in our view, have peaked at 7.25%
and we expect Uridashi redemptions, along with a mass unloading of carry trades, to
weigh heavily on the NZD. SEK should continue to strengthen on strong fundamentals
while Riksbank maintains an expansionary monetary policy throughout 2007.