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  • Podcast

    Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning

    Even the US is now 'swimming naked'
    by Adam Taggart

    Wednesday, November 14, 2018, 2:02 AM

Steen Jacobsen, Chief Economist and Chief Investment Officer of Saxo Bank sees economic slowdown ahead.

Specifically, his “Four Horseman” indicators: the drivers of economic growth, are all flashing red.

Jacobsen believes that the central banks will continue their liquidity tightening efforts for as long as they can get away with (i.e., until the financial markets start toppling over). In his opinion, they eased way too much for way too long; and the malinvestment and zombification that resulted needs to clear the system — and it will likely do so more violently and painful than the central banks will like:

I like to make things simple. Right now we have the Four Horsemen: the four drivers of the global economy. They are the quantity of money, which is falling; the price of money, which is rising; the price of energy,which is a tax on consumers and is rising; and globalization/productivity, which is falling.

So, if you look at the economy as a black box, I really don’t know what happens inside of it. But I can observe what goes into the black box: it’s these four things.

Globalization / productivity, we know that’s all about Trump, trade war and the likes. It’s not exactly improving; it’s actually worsening.

As for the quantity of money, a lot of people argue with me that the Central Banks are still expanding their balance sheets, but the fact of the matter is that the QT in terms of the U.S has been reducing the Federal Reserve balance sheet. And we have a stealth reduction of the balance sheet in terms of the Bank of Japan. The EBC would love to cut and is publicly committed to doing so. The Bank of England is doing its first hike. So the quantity of money is falling.

As for the price of money, I think Powell is really in the mold of Volcker. He’s a practical guy, and what he’s decided to do is pretty much just to hike interest rates until the market collapses. That would indicate that pausing from this tightness is probably 5-10% below the recent low that we saw in the stock markets. If we don’t get to that level again, he’s going to continue the hiking.

So you almost have a self-feeding process by which, ultimately, the stock market will have to collapse because behind the scene, the pragmatic way that Powell does his policy really means the interest rate is going up and, hence, you haven’t seen your move to safety yet in terms of Treasurys.

And then, the final one, which is often ignored, the price of energy. Before the dramatic drop over the past few weeks, the price of energy was up at 15 to 20 percent this year in terms of the oil price input. But, if you add to the fallout from the emerging market selloff and the currency-negative impacts, you will have prices on petrol in energy-intensive countries like India, Indonesia, China where the prices are up somewhere between 50 and 100 percent. Imagine how much of the purse that expensive energy takes away from these developing economies in terms of the purchasing power.

So I think the full force of these Four Horsement that drive the world economy is now going to slow economic growth dramatically after this recent boost from the twin tailwinds of the tax cut and repatriation of capital. So even the U.S. now seems to be swimming naked.

Click the play button below to listen to Chris’ interview with Steen Jakobsen (48m:35s).

About the Guest
Steen Jakobsen

Mr. Steen Jakobsen serves as the Chief Investment Officer and Chief Economist of Saxo Bank (Switzerland) SA. Mr. Jakobsen serves as the Chief Economist at Saxo Bank A/S, Research Division. He serves as Group Chief Information Officer and Managing Director for Business Area of Asset Management at Newcap Holding A/S. Mr. Jakobsen has more than 25 years of experience within the fields of proprietary trading and alternative investment. Mr. Jakobsen has been with Saxo Bank for 14 years with a short break from 2009 to 2011 as Chief Investment Officer of Limus Capital.

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7 Comments

  • Wed, Nov 14, 2018 - 7:48am

    #1

    newsbuoy

    Status Bronze Member (Offline)

    Joined: Dec 10 2013

    Posts: 138

    When It Really Hits The Fan (for urbanites)

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  • Wed, Nov 14, 2018 - 11:42am

    #2

    sand_puppy

    Status Platinum Member (Offline)

    Joined: Apr 13 2011

    Posts: 1942

    Four Horsemen Apocalyptic humor

    “And lo, I saw a pale horse and its rider was death.”

     

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  • Wed, Nov 14, 2018 - 1:11pm

    #3
    asgordon123

    asgordon123

    Status Member (Offline)

    Joined: Aug 05 2018

    Posts: 3

    Energy cliff

    seems to me that energy affordability is key to energy consumption…globally, energy is becoming increasingly unaffordable even at currently relatively low prices.  at a certain price demand for oil (energy) plummets.  low oil prices bankrupt producers…higher oil prices lead to recession.  my posiiotn is we are in for a massive decline in oil prices due to lack of global demand caused primarily due to affordability and OVER supply in the short term.  longer term (2-3 years out) the spike will follow as supply dries up due lack of new discoveries and investment.

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  • Wed, Nov 14, 2018 - 3:15pm

    Reply to #3

    Chris Martenson

    Status Platinum Member (Online)

    Joined: Jun 07 2007

    Posts: 4706

    The Energy Trap

    asgordon123 wrote:

    seems to me that energy affordability is key to energy consumption…globally, energy is becoming increasingly unaffordable even at currently relatively low prices.  at a certain price demand for oil (energy) plummets.  low oil prices bankrupt producers…higher oil prices lead to recession.  my posiiotn is we are in for a massive decline in oil prices due to lack of global demand caused primarily due to affordability and OVER supply in the short term.  longer term (2-3 years out) the spike will follow as supply dries up due lack of new discoveries and investment.

    The whipsaw effect is one that we’ve been talking about here for a while.  On our recent Peak Prosperity Summit tours I’ve been showing that the return on capital of the oil majors has plummeted from 20% – 30% all the way down to single digits and even into negative territory over the past 5 years.
    So there’s a price of oil below which they are not viable concerns.  
    On the demand side there’s a price of oil above which the economy cannot survive.  
    Mathematical game over is when those two prices cross.  How close are we?  Much closer than we were ten years ago when global debt was some $100 trillion lower.
    The relative collapse in the price of oil over the past few weeks is very much a source of concern for those following the oil industry.  There’s going to be some major trouble if oil stays down here in the mid $50’s for very long.  There’s no money to be made at these prices for any of the shale producers I study.  
    There’s also much less incentive to explore for new finds offshore, or in other capital intensive, long lead time palces either.  
    Later, that lack of investment leads to lack of supply and then prices shoot up (I think in ~2020, the IEA is recently saying they think 2020).  Either way, practically tomorrow.

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  • Wed, Nov 14, 2018 - 4:28pm

    Reply to #3

    blackeagle

    Status Bronze Member (Offline)

    Joined: May 16 2013

    Posts: 224

    2020 horizon...

    This horizon, could mean a coup in Venezuela to install a friendly government which will make oil flowing again relatively quickly to help dampen the shortage shock.
    As long as the current government mismanages the country and drowns in its problems, this oil stays aside for later use.
    I am sure many (all?) oil companies are honing their teeth for the day this country becomes more friendly.

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  • Wed, Nov 14, 2018 - 8:59pm

    #4

    sebastian

    Status Member (Offline)

    Joined: Feb 08 2010

    Posts: 4

    Ka Boom

    It sure does feel like it’s the start of the Ka Boom…
    I have a hard time sharing the PP message with my neighbours and friends.
    Not because I don’t want to or think they wouldn’t benefit from it but because most folks are so entrenched in the status quo that I feel I would ostracize myself. 
    Its sad but is my belief that most people are happy with taking the blue pill and will fight change til way  past overshoot….
    Get out of the city if you can. 
    Seb. 

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  • Thu, Nov 15, 2018 - 3:42pm

    #5
    Uncletommy

    Uncletommy

    Status Bronze Member (Offline)

    Joined: May 03 2014

    Posts: 524

    Short term gain means long term pain - shale producers!

    We musn’t forget that shale oil has a lighter profile and is great for making gasoline and other low density products. The current glut of crude is, basically, coming from the huge activity in fracking those tight/light formations. Couple this with lower consumption of gasoline powered vehicles due to reduced use, purchases of electric or hybrids vehicles, denser housing, on-line shopping, etc, and you have a formula for lower gas prices. Also, the fact that many new vehicles are financed over 8 years, who would want to own a gas guzzler, especially considering that they are about 14% less fuel efficient than compression/ignition diesel. “Where’s my Ford 150?”
    And, if you happen to be in the fracking business, borrowing money to drill wells that produce a product below the price of production, you might just want to consider supplying the cheaper, heavier stuff to sell to refiners. Diesel prices appear to remain higher, currently. Price has a wonderful effect on supply. The Canadian supplier, Cenovus, has even suggested that some of Canada’s production should be shut in to bring up the price. The current price differential between WTI at $56.46 to WCS at $24.64 has got to make you wonder! Add to this capacity restraints on delivery and huge stock piles and how we got here. Why are many of the BRIC countries still buying gold? Look no father than the counrties buying gold and consuming the most energy. I don’t know what Mr. Trump is going to do when all those US dollars come flooding back home. Maybe he can build another wall! 

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