Common Cents & 2022 Predictions

At the start of it, had you told me 2021 was going to be almost as bizarre as 2020, I wouldn’t have believed you. How could it possibly? The key word here is almost, as, in my estimation, nothing can top 2020. Still, it was a wild one, and some of the numbers didn’t make a lot of sense. Actually, a lot of it didn’t make a lot of sense. However, we played the cards dealt pretty well, and intend to do so again next year.

So, what does the crystal ball say for the upcoming year? The tea leaves? The magic 8-ball? With a little help from some other members of Oakworth’s Investment Committee, here are some (but not necessarily all) of our predictions for next year.

 

• After years in development and lengthy delays, NASA finally launched the James Webb Space Telescope at the end of 2021. The pictures it will return to the Earth will fundamentally change how we view astronomy and our place in the universe. It proves to be awesome. (How can one prediction be both so obscure and so accurate at the same time? Ha!)
• The Fed will embark upon a less accommodative monetary policy in 2022. However, it won’t be anywhere near as restrictive as many fear, and will still be extremely loose by historical comparisons.
• With little room for significant multiple expansion from year-end valuations, stocks will be even more dependent on corporate profitability to produce positive results. The good news is earnings should continue to be strong in 2022, and results should still be positive. The bad news is the markets likely won’t generate the same type of outsized results they have over the last three years.
• Contrary to most predictions, inflation will probably begin to roll over at some point next year. This is largely due to a slowdown in consumer demand coupled with less ‘fuel for the fire’ from the Federal Reserve.
• As consumer demand cools, the bottlenecks in the supply chain will begin to ease. Although it is a simple function of supply, demand, and market economics, politicians and bureaucrats will take credit for their “work” in alleviating the crisis.
• The GOP will likely make some gains during the mid-term elections, perhaps sizable. This is due to the two primary reasons: 1) the country isn’t quite as “progressive” as the Democrats think it is, and; 2) the ‘opposition’ party typically make gains during mid-term elections.
• Due to hard to ignore increases in blatant theft and weapon-related crimes in many of our major cities, the “defund the police” movement vanishes into the ether.
• Tesla acquires a major, nationwide travel center/truck stop chain, and Apple looks to expand its focus into healthcare/fitness by buying an technology-centric athletic equipment company.
• The Chinese Communist Party continues to ‘rein in’ capitalists, private media outlets, casinos, freedom fighters, and other Western-focused influences in the Middle Kingdom.
• After a disastrous year of jaw-dropping mismanagement, the Turkish economy shows great strains of collapsing like Lebanon’s did this past year. Ankara will likely have to ask for help from the IMF to stay afloat, and strongman Erdogan will see his grip over the country start to loosen.
• Just as Uganda found the ‘devil is in the details’ with its loan from the Chinese to update the Entebbe International Airport, many African and Latin American countries will start to realize Beijing’s new version of colonialism: suck the money and resources out the country, but don’t go to the expense of actually occupying it.
• Vladimir Putin is going to keep pressure on the Ukraine, and will use the slightest provocation out of Kiev to officially annex the Donetsk and Luhansk separatist “people’s republics” in the Donbas. It will be a fait accompli by the time the West is able to respond in a meaningful way.
• After her conviction, it is high conceivable Ghislaine Maxwell could end up being a very suspicious suicide, just like her partner in crime Jeffrey Epstein.
• In 2021, there was an historic mismatch between interest rates and inflation. Something will have to give in 2022. Either interest rates will have to go up, inflation will have to come down, or there will be a combination of the two. The safest bet is inflation will fall slightly faster than interest rates will go up. Regardless, real interest rates will NOT be as negative in the new year.
• With inflation potentially peaking and eventually ebbing, it will be interesting to see what happens with cryptocurrencies in 2022. Intuitively, many investors used them as inflation hedges in 2021, as gold actually fell as inflation spiked. However, this is still a relatively new asset class, so the outcome is far from certain. Obviously, this is less of a prediction than a statement.
• After two years of pandemic induced seclusion and paranoia, people will have to start to learning to live with others again. While it sounds crazy, this will be more difficult than it should be.
• Thanks to government overreach and high tax rates, so-called “blue states” with a history of positive net migration will see many of their residents with the ability to “get up and go” will get up leave.
• Due to the continued dearth in creativity in our show business industry, “Hollywood” will continue to pump out even more comic book movies, sequels, prequels, and otherwise insipid forms of what passes for entertainment. After all, there is no reason to be clever and take risks when you can make a lot of money by doing the “same old, same old.”
• The Democrats will continue to try to pass the “Build Back Better” legislation. In order to succeed, they will need to learn the age-old adage: “you catch more flies with honey than vinegar.” If they employ the same tactics in 2022 as they did in 2021, not only will they NOT get any GOP votes, they will also likely see more ‘defections’ like Sen. Joe Manchin’s.
• As they usually are, US stocks will continue to be the most reasonably valued of all overvalued asset classes.

 

Take care, have a Happy New Year, and here is to a prosperous 2022!  I hope this newsletter finds you and your family well, and may your blessings outweigh your sorrows not only on this day but on every day (and don’t forget to listen to our Trading Perspectives podcast)!

 

As always, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our investment committee, are subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the reset of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.