Saxo Bank Quarterly Outlook: End Of A Cycle Like No Other

Saxo Bank's provides an ominous economic outlook in its second quarter report.

What follows below are snips from a 35-page report by Saxo bank. I condensed the report for readability. Any emphasis in italics is mine. Until the final paragraph what follows are snips from various Saxo Bank analysts.


End of a Cycle Like No Other – Steen Jakobsen – CIO

We are nearing the end of the largest monetary policy experiment of all time, and ascendant nationalism, staggering inequality, and a widespread loss of hope among the younger generation are among its varied fruit. The good news? Things only change when they absolutely must.

Q1's brief volatility spasms notwithstanding, today's capital markets are in a zombie-like state, with low volatility and extreme valuations in all assets with no net increase in growth and productivity, and a massive increase in inequality.

The benefits from the globalised system and particularly from the 's asset-pumping response accrued near-entirely to the already wealthy, while the average economic participant lost out. This is the process that drove the advent of Brexit and Trump.

So now we have our first great new showdown since the Cold War, which saw the victory of capitalism over communism. Now comes the fight between nationalism and globalism. Nationalism is winning big, as country by country the outlook is turning inwards, with an increase in placing the blame on external forces from immigrants to the real and imagined misbehaviour of trade partners. Talk of trade policy and protectionism is now labelled “trade wars”.

What we are forecasting is that technology will move from app-creation and data harvesting to becoming compliant with new data regulations – again, a cost. The US economy will get no big upside from the tax cut; housing prices have already dropped 15-20% in New York and inflation still will not materialise as net lending demand, or the velocity of money, continues to be depressed and will soon enter negative territory.

The geopolitical scene will be driven by nationalistic agendas, meaning less and more expensive trade and – in the worst outcome – a world split into China versus the US, with the rest of the world having to decide which side to join.

For yet another angle on how this cycle is different from anything in recent or even distant memory, see the chart above (courtesy of my fellow Dane Torsten Sløk of Deutsche Bank in New York), which I deem to be the most negative I have ever seen.

Please explain to me how a 35-year-old can be less optimistic about the future than a 55-year-old! It defies logic, nature, and reasoning. It is a case of young people feeling the pain of the present economic reality: it's hard to find a decent and or even interview for a job when you need a PhD to start with. The young are increasingly indebted by education costs and priced out of getting onto the house ownership ladder.

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