Back in my investments days, one of my favorite reads was Byron Wien’s “10 Surprises” for the upcoming year. Back in the 1980’s and 1990’s, Mr. Wien was the Chief Investment Strategist for Morgan Stanley. He would define a surprise as an event that was outside the consensus thinking at the time of his writing, but that he believed had a better than 50/50 likelihood of happening. Given his profession and his audience, he would confine his surprises to the financial markets (which were always full of surprises), and he would dip his toes into the political arena only to the extent that such event would affect the financial markets. With an ode to Mr. Wien, here are my “10 Things” for 2022. Many of these are in line with consensus thinking, so no “Surprise” in the title. I do believe that my list will hold a couple of surprises. And I will offer up some viewpoints on the financial markets, but I will also venture into other areas as well. With that, here is my list:
1. Inflation will be the #1 concern of economists,
the financial markets and people in general in 2022. The latest Producer Price
Index (PPI) reading came in at 9.2%. The PPI is often seen as a foreshadowing
of consumer prices, which were most recently 6.8%. Look for consumer prices to
approach double digits if they follow the PPI. Although I have not seen any
consensus estimates for inflation next year, my guess is that no estimates
approach double digits.
2. The Federal Reserve has indicated that they will
raise interest rates at least three times in 2022. Most economists believe that
this will be in the form of 3 25 basis point (bp) increases. I say with inflation
being a greater than anticipated problem, at least one increase will be at least
50 bp. Look for long-term rates to rise more than expected as well. The Fed has
clearly been behind the curve on inflation, finally giving up the whole idea
that inflation will be “transitory.” I never believed it would be. In 2020, the
money supply increased by over 20% (an all-time record) in a year in which the economy
contracted by 3.5%. Inflation is simply too many dollars chasing too few goods.
With the 2020 money supply increase, the “too many dollars” part was taken care
of, and with various supply chain disruptions, the “too few goods” part was taken
care of as well.
3. Returns in the financial markets will be muted
in 2022. Look for negative returns from bonds (higher rates produce lower bond
prices), and equity returns will struggle to eke out any sort of positive return
(which I believe will be less than 5 percent). I would not be surprised to see negative
equity returns, as higher interest rates will depress equity valuations.
4. The economy itself will still be good.
Definitely slower in 2022, as next year’s results will be going up against
tough comparisons. Unemployment will remain low, and wages will see good
growth, though not enough to keep up with inflation.
5. The big political event next year will be the
mid-term elections in November. I will stay with consensus that expects the
Republicans to take both the House and the Senate.
6. The NFL will have a COVID-related work stoppage.
Too many positive tests have depleted too many rosters. When play resumes, look
for the Chiefs to have to play its second consecutive Super Bowl on its
opponent’s home field versus the Rams. With Super Bowl XVI being played in SoFi
Stadium in Los Angeles, it’s sure to be a Rams crowd.
7. In college football, Alabama will beat Michigan
for the national championship, and in college basketball, I believe Baylor will
become the first repeat champion since Florida did it in 2006 and 2007. Defense
travels.
8. I have no idea who will be nominated for the
Oscars. I cannot tell you the last time I saw a movie in a theater. Do they
still show movies in theaters?
9. My social life, on a scale of 1-10, will be a
-3. And quite honestly, I rather like it that way. If I have the time to string
together this list, and enjoy doing it, the life is pretty good.
10. I wish all of you a most blessed, prosperous and
healthy 2022, with the richness of God’s blessings bestowed on each of you.
I do not believe in New Year’s Resolutions. Let’s face it,
they are all obliterated by January 3. The art of being your best self is a
daily grind, in which you give it your best each day. Many days we fall short. I
know I certainly do. We get back up the next day and keep grinding to be our
best. And don’t forget to stop and smell the roses. One of the things that
makes us our best is a spirit of joy.
Since I commented on what I expect to see from the financial
markets, and since I still have that old equity analyst still in me, here are a
few stock recommendations. Look at some large company stocks that have been
beaten down in 2021. Intel, AT&T, and IBM come to mind. Pharmaceuticals, Food
& Drug retailers. Next year could belong to the value investor. I would avoid
high flying tech stocks. Many of them have valuations that make no sense.
Happy New Year!
