EU wealth tax and the end of US capitalism: Shocking predictions for 2024

As Hurricane Irene battered New York City and the tri-state area with heavy rain and high winds on August 28, 2011, Wall Street’s bronze bull looked out over an empty Broadway in lower Manhattan, New York.

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An EU wealth tax, the “end of capitalism” in the US and a major health crisis caused by obesity drugs are just some of the “shocking predictions” Saxo Bank put forward in a report released on Tuesday.

Heading into 2024, the Danish investment bank said the world is at an “inflection point, with the familiar path of the past decade coming to an end”.

The forecasts focus on “a series of unlikely but underappreciated” events that, if they occur, would “send shockwaves throughout financial markets.” These forecasts do not represent the bank’s official views.

“It’s all about stimulating the thought process and what I’ve found over the last 21 years is that boards love it for forward planning, central banks love it for mitigating risk and I think our clients love it because of its attractiveness to Saxo Bank “It’s like a great dinner table conversation where people are pushing the envelope,” Steen Jakobsen, the bank’s chief investment officer, told CNBC on Tuesday. “

The EU becomes a “Robin Hood”

As the EU needs more funds to achieve a range of long-term policy goals, including climate change mitigation, health care, education and the war in Ukraine, Peter Garnry, head of equity strategy at Saxo Bank, suggested that EU leaders could implement a 2% wealth distribution policy tax.

He speculated that this would become more likely if people “realized how little billionaires actually spend on taxes,” amid the social unrest that often brews across the continent.

Citing the Global Tax Evasion Report 2024, Garnry pointed out that although the EU has a large welfare system compared to the United States, compared with billionaires in North America and Eastern Europe, the EU has 499 billionaires (in US dollars) paying Personal taxes (as a percentage of wealth) are the lowest. Asia.

“French billionaires have the same pre-tax income as American billionaires, even though France as a whole pays an average of 46-50% in taxes, which violates the core principle of reciprocity. In the Netherlands, it’s better to be,” Garnrie points out. Billionaires, because the average tax rate is lower than what American billionaires pay.

Gary predicts that a 2% wealth tax on EU billionaires would raise 42 billion euros ($45.5 billion) to fund key policy objectives, while a broader 2% wealth tax on multimillionaires could This figure increased to 10-150 billion euros.

“The European Union’s modern version of Robin Hood has brought shockwaves to the European luxury goods industry. Recent studies show a strong correlation between the pursuit of luxury goods and income levels and wealth inequality,” predicts Garnry.

“The European Commission’s new wealth tax immediately reduced market expectations for future luxury demand, and investors sold European luxury goods stocks.”

This will see shares of French luxury goods giant LVMHThe report speculated that shares of Europe’s second-largest company by market value plunged 40%, while luxury carmakers such as Porsche and Ferrari would also suffer losses.

Obesity drugs spark health crisis

Success of new GLP-1 obesity drug key in 2023, with popular Wegovy boosting Denmark’s development Novo Nordisk Replaced LVMH to become Europe’s most valuable listed company.

But Saxo strategists say this carries the risk that dependence on the drugs will increase, leading to less exercise and more junk food.

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If this coincides with the government and U.S. health insurance companies increasingly viewing anti-obesity drugs as potential cost-saving devices, demand could soar and far exceed supply, leaving those who have already started treatment without access to it. Faced with this change in living habits.

“Global adult obesity rates will soar from 39% currently to 45% in 2024, leading to many other side effects, such as rising rates of diabetes and even a surge in heart disease, more injuries due to reduced muscle strength and general Immune systems become less efficient. Increased illness and sick days lead to lower global productivity,” Garnry and fellow strategist Charu Chanana predicted in the note.

The end of American capitalism

Amid growing geopolitical uncertainty, Althea Spinozzi, senior fixed income strategist at Saxo Bank, hypothesizes that the U.S. government may be forced to further increase defense spending, while the Fed may still have to tighten monetary policy amid a second wave of inflation. .

To avoid social unrest, Congress may be forced to increase fiscal spending, pushing the budget deficit to more than 10% of GDP, which means the government must urgently stimulate demand for U.S. government debt.

“Attention has turned to the stock market, with the ‘big seven’ now turning into twelve as a result of missing out on the downturn and government support programs for lenders and homeowners,” Spinozzi said. The group currently includes Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla.

“Also joining the club are Eli Lilly and Company, Novo Nordisk, JPMorgan Chase & Co., LVMH Moët Hennessy Louis Vuitton and ASML. As the valuations of the ‘Big 12’ have doubled in a matter of months Increased inequality between investors and non-investors.”

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The government, realizing that political stability depends on its ability to continue to lower interest rates by financing large deficits through the issuance of U.S. Treasuries, must make domestic bonds more attractive relative to stocks.

“Under intense pressure from the White House, Congress exempted capital gains and interest income from U.S. Treasury debt. Because government debt is in the hands of domestic investors, financing costs become less volatile,” Spinozzi speculated.

“This dramatic move signals the end of capitalism, as money flows from private companies to the public and holding riskier assets becomes more expensive. Counterintuitively, the Big 12 solidified their market dominance, Because they benefit from lower-cost financing in the long term while the rest of the stock market collapses. “

Other alarming predictions include: oil prices hitting $150 a barrel, Saudi Arabia subsequently buying UEFA Champions League to take it global; generative AI deepfakes sparking national security crisis; Robert F. Kennedy won the US presidential election; Japan was forced to abandon its yield curve control policy; a coalition of deficit countries formed the “Club of Rome” to reorganize global trade dynamics.

The bank has made a series of “shocking predictions” every year over the past decade, some of which have actually come true or at least come close to coming true.

In 2015, Saxo Bank predicted that Britain would vote to leave the European Union after the UK Independence Party won a landslide victory, predicted that Germany would fall into a recession in 2019, but the country narrowly avoided a recession, and bet that Bitcoin would experience it in 2017 Rapid rebound.

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