An EU wealth tax and the end of US capitalism: One bank makes dire predictions for 2024

The Wall Street bronze Bull looks out over an empty Broadway in Lower Manhattan, New York, on August 28, 2011, as Hurricane Irene battered the city and tri-state area with rain and strong winds.

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

Towards 2024, the Danish investment bank suggested that the world will be at an “inflection point, where the familiar road of the last decade will end.”

The predictions focused on a “series of improbable but underappreciated” events that, if they occurred, would “send shockwaves through financial markets.” Predictions do not represent the bank’s official views.

“It’s all about stimulating thought processes, and what I’ve discovered over the last 21 years is that boards like it when they’re doing forward planning, central banks like it for risk mitigation and I think our clients like it because it’s engaging. It’s like being in a nice dinner table conversation where people are pushing against each other,” said the Chief Investment Officer of Saxo Bank’s Steen Jakobsen on CNBC on Tuesday.

The EU has become ‘Robin Hood’

As the European Union needs additional funding for a range of long-term policy objectives, including climate change mitigation, healthcare, education and the war in Ukraine, Saxo Bank Head of Equity Strategy Peter Garnry suggested that bloc leaders can implement a 2% wealth tax.

This would be more likely if the population “realized how little of the tax billionaires actually play,” he said, with social unrest often simmering across the continent.

Citing the Global Tax Evasion Report 2024, Garnry noted that despite its extensive welfare system compared to the US, the EU has 499 billionaires (in US dollar terms) who pay the lowest personal tax as a percentage of wealth compared to billionaires from North America and the East. Asia.

“Billionaires in France have a pre-tax income rate equal to US billionaires despite the fact that the entire population pays between 46-50% in average taxes, which violates the basic principle of reciprocity. In the Netherlands , it’s better to be a billionaire, because the average tax rate is lower than what US billionaires pay, Garnry said.

A 2% wealth tax on EU billionaires would raise 42 billion euros ($45.5 billion) towards financing key policy objectives, while a broader 2% tax on multi-millionaires could raise it to 100-150 billion euros, Garnry expects.

“The EU’s modern version of Robin Hood is sending shockwaves through the European luxury industry. Recent studies have shown a strong correlation between the pursuit of luxury items and levels of income and inequality -equal wealth,” Garnry predicted.

“The EU Commission’s new wealth tax is immediately lowering market expectations for future luxury goods demand and investors are dumping European luxury stocks.”

It will see parts of the French luxury giant LVMHEurope’s second largest company by market capitalization, fell 40%, while luxury car makers such as Porsche and Ferrari will also suffer, the report speculates.

Obesity drugs are causing a health crisis

The success of the new GLP-1 obesity drugs has become an important fixture in 2023, with the very popular Wegovy driving Denmark Novo Nordisk to replace LVMH as the most valuable publicly listed company.

But Saxo strategists say this creates the risk that dependence on such drugs will grow to the extent that populations decrease exercise and increase junk food intake.

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If this coincides with US governments and health insurers increasingly looking to anti-obesity drugs as potential cost-savings, demand could increase and far outstrip supply, leaving the those who started a course of treatment without access and were therefore exposed to this change in lifestyle habits.

“Global adult obesity rates will increase from the current 39% to 45% in 2024, which brings many other side effects, such as an increase in the incidence of diabetes or even an increase in disease in the heart, more damage due to decreased muscle strength and general. reduction in the efficiency of the immune system. The increase in illnesses and sick days is reducing productivity worldwide,” Garnry and fellow strategist Dr. Charu Chanana in the report.

End of US capitalism

Against an increasingly uncertain geopolitical backdrop, Saxo Senior Fixed Income Strategist Althea Spinozzi hypothesized that the US government may be forced to further increase defense spending while the Federal Reserve may still need to tighten monetary policy amid a second wave of inflation.

To avoid social unrest, Congress could be forced to increase fiscal spending, sending the budget deficit above 10% of GDP and meaning the government must urgently stimulate demand for US Treasurys.

“Attention turns to the stock market, where the ‘Magnificent Seven’ has now turned into twelve, thanks to a missed collapse and government support programs directed at lenders and homeowners,” said by Spinozzi. The group currently consists of Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla.

“To join the club are Eli Lilly, Novo Nordisk, JPMorgan Chase, LVMH and ASML. As the ‘Twelve Titans’ have multiplied their valuations in a matter of months, the inequality between investors and non -investor.”

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Realizing that political stability depends on its continued ability to finance a large deficit through US Treasury issuance, thus lowering interest rates, the government must increase the attractiveness of domestic bonds in stocks.

“Under intense pressure from the White House, Congress is making capital gains and interest income on US Treasuries tax-free. With government debt in the hands of domestic investors, the cost of funding becomes more volatile -new,” said Spinozzi.

“This dramatic move marks the end of capitalism, as money flows from private corporations to public ones, and holding riskier assets becomes more expensive. In contrast, the ‘Twelve Titans ‘ consolidated their market dominance, while they benefited from long-term lower funding costs, while the rest of the stock market fell.”

Other wild predictions include: oil hitting $150 a barrel and Saudi Arabia subsequently buying European soccer’s Champions League to take it around the world; a generative AI deepfake that triggers a national security crisis; Robert F. Kennedy Jr. won the US presidential election; Japan is forced to abandon its yield curve control policy; and a coalition of deficit countries forming a “Rome Club” to restructure global trade dynamics.

The bank has made a series of “spectacular predictions” every year for the last decade and some have actually come true or at least come close.

In 2015, Saxo predicted that the UK would vote to leave the European Union following the collapse of the United Kingdom Independence Party, it predicted that Germany would enter recession in 2019 which the country narrowly avoided and it bet that bitcoin would experience a meteoric rise rally in 2017.

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