Steen Jakobsen: Expect A 30% Stock Market Correction in 2014

This week, Chris talks with Steen Jakobsen, Chief Investment Officer of Saxo Bank. We wanted to see through the eyes of a professional economist, which Steen kindly allowed us to do.

Steen agrees that central banks have largely failed in their misguided attempts to boost growth via trickle-down programs. Pretty much all the benefits of the recent years of money printing have gone to the upper echelons, with the true engines of growth and jobs -- small to medium sized enterprises (SMEs) -- getting very little.

As a result, financial asset prices have been driven up too high, which Steen anticipates will correct at some point in 2014; likely by 30% or so:

Here is my practical view. Since Q3 of last year I’ve been 70% in fixed income because I do believe, and I continue to believe, that we’ll see new low interest rates. In a world that cannot restart itself, it a world that believes in 'extend and pretend', you will not have any activity. You don’t have any move towards a mandate for change. So that means that history tells us the only way we get change is through the system failing. I’m not talking about a systemic failing; I'm talking about people owning up to the fact that we need to activate the SME. So I think we’ll see a progression towards helping the SMEs.

But in terms of the market, I have been very on fixed income, an increase in the exposure right now from 70 to 90% taking whatever equity I have down. Not because I’m afraid of 'doom and gloom' but simply because I think you can have a huge amount of leverage into the fixed income market here when everybody seems to believe that interest rates cannot go lower -- now confirmed today by the Q1 data from the US. The world is simply starving because the world is rebalancing. The US current account deficit moved from -800 to -400. The world needs $400 billion worth of new export markets before it gets back to break even.

At the same time, Asia and China certainly are rebalancing their way from nominal growth towards quality growth. Again, the first derivative of that is lower growth, deflation, exported to the rest of the world.

So I think the low comes in economically in Q1 and Q2 in 2015. Every single macro indicator you can find will bottom at Q1/Q2. For the equity market, I think the top is 1900/1950. But you can't both predicted the level and the timing. And I’m more confident about the timing, not the level. So my timing I’m confident, and the timing I am confident on is the fact that the second half of this year is going to see a 30% correction from the top.

He also agrees that rising energy costs and overall resource scarcity are real threats to future economic growth; threats that he believes most economists and investors are blind to.

On all the above, we're in agreement with Steen.

In other areas, our predictions differ. But that's why we have guests like him on the program: to hear the rational behind contrasting views, and to learn what those moving large sums of capital in today's markets are thinking.

Despite the near term likelihood of a major correction, Steen remains quite optimistic. He believes that the correction will be a clearing event not just for overly-elevated prices, but also will serve as a wake-up call about the net energy situation that will lead to better policy decisions. We sure hope he's right, but we sadly think it will take a major price shock or supply shortage of key commodities to get the attention of our leaders.

Click the play button below to listen to Chris' interview with Steen (42m:43s):

This is a companion discussion topic for the original entry at

As I get older my mind looses it traction so I had to listen to the podcast several times. But it was well worth it- until I heard the word "Growth" which made my hair stand on end.
If Japan has decided on no growth and that, No, they are not going to rip their mothers away from their children and use them as fodder, as an asset for "the company"-then I applaud. Japan will end up with a well adjusted society. Heaven knows they need adjustment. 69 years of occidental influence has not served their society well.

Japan is an island. It must be blindingly obvious to them that infinite growth is not possible. It is a pity the other Island, the (sort-of) United Kingdom does not have the mental capacity to absorb this fact.

Lost in the mists of time I heard that the decision about the "Personhood" of a company was decided by the county clerk when the Californian judge abrogated his responsibilities. Perhaps someone can correct this misunderstanding for me.

In any case the economy should be the servant of warm blooded people, not soulless constructs of the Left Brain.

And I object to the word "sustainable" being anywhere near the word "growth".


There are people who 'get it' and some who don't.  Well done Chris in trying to bridge this divide.  I thought you were very gentle with Steen, as I hope/expect most comments posted here will be. With luck Steen will read and respond to comments.  I'll kick it off by asking two questions to Steen.  Question 1. Some are predicting a rise in oil prices of 50% in the next year or so.  How would this affect your predictions? Question 2. If oil prices were to go up to $200, $250 or more in the next decade. Would World GDP be greater or less than it is today in your opinion?

Perhaps I miss understood Steen's point of view.  My recollection is that he believes that a loss of confidence in the currency is at least 50 years away.  Neither did Steen seem to place great emphasis on the drag of massive global debt on future economies.  He mentioned demographics in Japan but I didn't hear mention of the impact of aging populations in other key economies.  I heard no mention of underfunded pension plans that will result from a stock market correction or the world governments ability to cover rising social program costs going forward.   He mentioned water shortages and energy shortages, but didn't connect this idea to what portion of the world's population will be able to afford to feed themselves when water and energy price/availability drive food prices to new highs.  None of the ideas mentioned above are widely disputed and cumulatively they will have a decisive impact on GDP going forward.
Overall, it seemed to me that Steen's talk described a world where business as usual is possible after a normal correction.  I'd love to become a follower of this view, but I just don't see it.


off the bat Steen mentions he's never been more optimistic in 30 years, but unless I missed something, I don't really recall him telling us why?  It was a good podcast on the whole, but throughout the entire 42 minutes I kept waiting for him to explain his position on why he's so positive.  I don't like to put labels on people, but could there be some banker talk in there?
I'm sort of with him in that I don't see the entire thing going up like the Hindenberg, but don't share all of his enthusiasm.  Money, in it's current debt based fiat system form has terminal cancer.  The sooner we get on with the awful consequences of modern day central planning, the sooner we can restore the idea of what the value of money is… a return on your own personal labor.

Russian Roulette – Derivative Style

Posted: 02 Jun 2014 11:05 PM PDT

Read the Latest News About: Gold    Silver    Economy    Central Banking Russian Roulette: Put one bullet in the cylinder of a revolver,... {This is a content summary only. Click on the blog title to continue reading this post, share your comments, browse the website, and more!}

on the derivatives??  Chris, where are you are this???

I guess the takeaway was the 20% is extracting wealth from the 80%.  Except it is more like 0.1% vs 99.9%.  80/20 is natural and what central banks have caused in unnatural.  This interview put me to sleep.

OK, that line about smartphone app energy consumption being suprisingly high triggered me to think about it.
I happen to have a phone with one of the biggest batteries currently on the market, and it has 2.9 Amp-Hour capacity. Since a Li Ion battery has a nominal voltage around 2.6 v, that means the battery has a capacity of about 7.5 Watt Hours. I charge this thing every night (although it’s never really fully discharged). So, just saying that the charger is only 50% efficient (they’re better than that), I consume about 15 Watt Hours per day to charge this thing and power all the “apps” I use. And let’s say your household has 5 of these devices, so you consume 75 WHr per day on all of them. A 30 day month gives us 2250 WHr, or 2.25 kWH (kilowatt hours).
While I haven’t checked my current bills, a quick web check says normal rates are well less than $1 per kWH, so the energy for all those apps is costing me $2 per month (or less). I don’t know about you, but that’s not even a significant chunk of my electric bill, let alone my total energy consumption (gas, fuel, electricity). And even if your kids recharge their phones 10 times a day - well, you do the math.
Surprisingly high?

I took the line about smartphone app energy consumption to mean that the servers on the backend that have to continuously operate for the aps to work are the big energy pigs…not the phone batteries…
Note that Google is among the largest of electricity consumers in the world…

 I work in the Internet Networking business for a major Manufacturer and deal with Power and cooling in Large and small Data Centers all the time.
DCs are huge power consumers.
The drive towards 'Cloud' computing is pushing Massive workloads into these data centers and the power consumption is proceeding in a similar fashion.
Most of the big DCs are located in the pacific northewst to gain access to Highly Available, Green, Hydro power.   I have heard that much of the hydro output from that part of the country is used to support Google, Yahoo and Microsoft DCs.

I would recommend reading this FT Article while pitching salt over the left shoulder for better returns and bigger dividends. [snark] You've been warned.