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10 Truly Outrageous Market Predictions for 2011


The creator of Saxo Bank's annual "10 Outrageous Predictions" presents his 10 outrageous predictions for the coming year.

Editor's Note: Steen Jakobsen is a founder and partner in Limus Capital Partners. Prior to founding Limus, he was the Chief Investment Officer for Saxo Bank, London and Copenhagen, where he ran the Saxo FX and Macro programs and where he originated the popular annual "10 Outrageous Predictions" for the coming year. Before joining Saxo Bank, Steen was formerly the head of prop trading at UBS. In addition, he has held positions with Swiss Bank Corp. in London, Chase Manhattan Bank in London and Citibank and Hafnia Merchant Bank. He has a Bachelor's degree in Economics from the University of Copenhagen.

The reason I launched the Outrageous Predictions in 2001 for Saxo Bank was I felt most outlooks were of little or no value as they merely extend present-year trends into the next. Instead, I wanted to present 10 ideas that could force the investor/reader to adjust their positions -- the premise being it is better to be proactive than reactive.

Never was this an exercise in being right -- or even in trying to be right. Hence, some years nine out of 10 ideas go nowhere, while in a year such as 2008, nearly 10 in 10 come through. Rather, the strength of the concept is that it forces readers to think about scenarios that no Ivory Tower investment minds would or could politically touch.

Below are my 10 out-of-the-box ideas for 2011:

1. Monetary Union With Canada and Mexico, Fed Abolished

By end of 2011, the US is forced into monetary union with Canada and, later, Mexico. Part of the equation being the Fed is abolished. Ron Paul is gaining power, so is the Tea Party; there is no doubt in my mind that the present exercise in futility by Ben Bernanke et al will leave Congress with no option but to dissolve the Fed. Think about it: What does Mexico have that the US does not? Cheap labor and oil! What does the US have that Mexico lacks? Human capital and research. Perfect match!

2. Germany Leaves the EU
, the EU Splits

Germany leaves the EU -- or rather Germany is forced to leave the EU with its strict rules on emergency funds. From a game-theory point of view, several countries would be better off outside the EU rather than inside. The EU splits into two tiers: one with Germany and restrictive fiscal policy rules, and the other comprised of countries on the outside -- namely, the PIIGS.

3. Social Tension in China

Social tension in China reaches highs not seen since Tiananmen Square. Food prices explode, up 25% and the CPI reaches10% or more.

4. State of Illinois Files Bankruptcy

The state of Illinois is the first to file for bankruptcy, followed by California and New Jersey. This creates massive social tension as local state wise unemployment reaches 25%.

5. GM Goes Bankrupt... Again

American cars versus German cars. Need I say more? If... the new Volt model is everything General Motors (GM) has for us in terms of the future, GM has issues.

6. Wells Fargo De-listed, Taken Over by Treasury

Wells Fargo (WFC) becomes victim of the combined municipal deterioration and the housing collapse. WFC gets bailed out by a consortium of Goldman Sachs (GS), JP Morgan (JPM), and Bank of America (BAC), but eventually is de-listed and taken over by the US Treasury.

7. IMF Becomes the De Facto ECB

European Central Bank capital is eroded and governments need to replenish capital. The International Monetary Fund becomes the de facto new European Central Bank paving the way for one truly global banking system run by bureaucrats with no election process and no accountability.

8. Crude Oil to $20/bbl (Not $200, $20!)

Crude oil falls to $20 a barrel due to slow growth and a substantial drop in China growth.

9. Emerging Markets Plunge by June

Emerging Markets, specifically the BRICs, are down 50% by the half-year mark. Emerging markets are going into 2011 15% overvalued. Brazil is about to see a US-like banking scandal that becomes the catalyst.

10. US Interest Rates Double

US interest rates double and could even see 10% toward the end of 2011 -- the end of fiat currency is happening and the marginal cost of capital is finally rising. Bernanke is doomed to failure and so is the Chinese version of state capitalism emulated by President Obama.

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