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“The Beatles have no future in show business,” wrote an executive at London’s Decca records as he turned down the chance to sign the Liverpool group in 1962. “Groups are out; four-piece groups with guitars, particularly, are finished,” he carried out, before signing up Brian Poole and the Tremeloes instead.
Blunders like that are enough to put anyone off attempting to forecast what might happen over the next 12 months. Even so, focusing on the potential surprises and shocks of the year ahead is a good way of thinking about stuff that might happen — but which has yet to be priced into the market.
There are plenty of thing everyone knows will happen in 2014. The Federal Reserve will carry on the winding down QE but keep interest rates close to zero. The Italian government is expected to collapse. The French will introduce some crazy new taxes. All that is already taken for granted. But here are six things that might catch us all by surprise.
Opec prices oil in bitcoin
There has been speculation for months about whether bitcoins might be accepted as legal tender by a major developed nation, whether the Chinese will accept them, or whether big web retailers will take then instead of conventional currencies. But the big breakthrough for digital money is more likely to come from the oil cartel, OPEC.
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For decades, oil has been priced in dollars but key member states such as Iran, Algeria or Angola are not particularly friendly to the United States, even if they are not quite as hostile as they once were. They have been making noises about switching the price of oil out of the American currency for years, but have never quite managed to agree on alternative.
The euro was a runner for a while, until it started to implode. But what about bitcoins? It is a global currency, with no central bank trashing its value, and it might well prove a better store of value for countries that know their oil won’t last forever. If any single move establishes bitcoin as a serious monetary rival to the dollar, that will be it — and there will be more than a few wry smiles in Tehran over that.
Apple bids for Sony
A generation ago, Sony SNE -0.34% was the company that manufactured the cool, must-have gadgets that everyone wanted. It decided it needed to control software as well as hardware if it was to sustain its success, and went out and bought film studios and records labels to feed the content for its devices.
Fast-forward two decades, and Apple AAPL -0.07% is the cash-rich manufacturer of must-have gadgets, but it is running out of innovations, and needs something to re-invigorate itself. It can’t be long before Tim Cook decides Apple needs content to feed into all those iPads, iPods, and soon to be launched iWatches. So how about buying an ailing Sony? With one move, it can make itself a big player in content. And, as an added bonus, it can learn something about how to make televisions and games consoles as well. It is not as if it is short of the cash — Sony is only valued at $18 billion, which doesn’t count as much more than lose change at Apple these days.
France invades Syria
The economy is in deep trouble. The president is beyond saving in the polls. The country needs deep reforms, and its own currency back under its own control, but no one is yet ready to give up on the euro. So what will the French do? Probably what nations have always done when they need to distract themselves from big domestic troubles — start a war. President Francois Hollande has already shown himself to be a remarkably bellicose leader for a man who appears so mild-mannered, dispatching French troops into Mali and the Central African Republic. But he will need a bigger war than that to stop people wondering why the economy is in a triple-dip recession when the U.K. and Germany are growing again. How about invading Syria? With the civil war claiming mounting casualties, it won’t be hard to claim a moral case for intervention — and the rest of the major powers might just be happy for the French to do the dirty work for them.
Italy restructures its debts
MarketWatch Interactive: CUTTING THE CABLE CORD
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Italy was always known as a country with high inflation. Not anymore. In Italy, inflation dropped to just 0.6% in November, lower than in the U.S., U.K., or indeed, Germany. It is only a whisker away from outright deflation. But this is also a country with one of the highest debt-to-GDP ratios in the world — 126% of GDP. Falling prices and massive debts are the most lethal combination known to economics. By the end of the year, Italy will have no choice but to restructure — and with the world’s third bond market, that will send shockwaves throughout the financial system.
South Africa starts an emerging markets crisis
Not long ago, South Africa was meant to be the S in the BRICS, alongside fast-growing Brazil, Russia, India and China. With the rand in steep decline, and with growing budget and trade deficits, and with slowing growth, it can hardly claim membership of that club right now. At some point in 2014, the ratings agencies will downgrade South Africa, foreign money will flee, and the country will be in a full-blown financial crisis — and that will trigger a wider sell-off in the emerging markets.
Europe faces a constitutional crisis
Most people in Europe have long regarded the elections to the European Parliament as about as interesting as a Soviet-era lecture on tractor production — and as about as relevant to their lives. But the 2014 elections will be different. A wave of parties hostile to the European Union itself will score big victories, from the U.K. Independence Party, to the National Front in France, Alternative for Deutschland in Germany, and the Freedom Party in Holland. They will form a majority. The Parliament has more power than most people realize — it is just that so far, controlled by EU enthusiasts, it has been happy to support the Commission. A newly-elected anti-EU majority won’t be so supine, throwing out the budget, blocking legislation, and vetoing the appointment of commissioners. After the elections, the EU will be in a full-blown constitutional crisis — and the currency will be the first victim of that.
