December 24, 2021
Doug Kass 2022 Surprises
* Another Trump/Clinton Presidential race seems more and more doubtless in 2024 – But it is not the Trump you assume!
* “Slugflation” (sluggish progress and stubbornly excessive inflation) turns into a generally used time period to explain the worldwide financial system subsequent 12 months
* The Federal Reserve turns into “Volcker-like” by aggressively tightening coverage
* Musk and Bezos battle to see who can set the document for greatest lack of a private fortune in a single 12 months
* Berkshire Hathaway and Apple go on a company shopping for spree
* Share costs of “The Nifty Seven” (FAANG + Microsoft and Nvidia) are underneath strain many of the 12 months
* Precious metals lastly have their day
* A failing Robinhood is acquired by JPMorgan at $2/share
* What little is left of worldwide concord is upended in a 12 months characterised by increasing geopolitical tensions on three continents.
* Read on for extra surprises…
Like Diogenes along with his lantern, I’m, once more in 2022, a cynic wanting for reality – as I have interaction in my annual assault on the consensus and “Group Stink.”
Remember, my Surprise List just isn’t a set of forecasts. Rather, the List represents occasions that the consensus views as having a low chance of occurring (25% or much less) however, in my judgment, have a greater than 50% likelihood of prevalence. In betting parlance that is called an “overlay.”
I’d word a change within the format of my Surprise List this 12 months (and final), as, within the age of social media, consideration spans are shrinking – so this 12 months’s Surprise List will once more mirror this new actuality (of fewer characters and fewer phrases) by being noticeably shorter than prior to now twenty years.
Here are My 15 Surprises for 2022:
1. The Deteriorating Health of Both Biden and Trump Becomes The Biggest Surprise of The Year – The Irony Is That It Will Likely Lead to Another Trump/Clinton Presidential Race in 2024!
President Biden turns into sufficiently incapacitated such that President Harris turns into the primary feminine President of the United States. She instantly turns into, in impact, a lame duck president and has no vital profitable legislative accomplishments over the subsequent 12 months. Leaked tales of abusive mood tantrums within the Oval Office make headlines.
Both Vladimir Putin and Xi Jinping instantly put Harris to the take a look at with a sequence of international coverage crises – and he or she proves to be less than the duty.
The November mid-term elections lead to a landslide for the Republicans, who take the Senate and win a sizeable majority within the House of Representatives.
Speaker Pelosi retires from Congress.
Meanwhile, Donald Trump additionally turns into sick and broadcasts he won’t run for President in 2024.
This creates a large open area for the nomination in each events.
In mid-2022, Republican Nikki Haley broadcasts that she’s going to run for president and assumes the (defacto) mantle of her occasion’s management and takes a robust lead for the 2024 Republican Presidential nomination.
Leading Democrats converse out and encourage Hilary Clinton to run, once more. Though she stays publicly uncommitted, she is clearly very , and, in line with quite a few sources is severely contemplating a run.
Privately, the previous president, Donald Trump, lobbies, postures and grooms his daughter, Ivanka, to run for President.
Almost in a single day, when his/her political ambition is revealed, Ivanka Trump takes a big lead over Haley as her father’s supporters shortly return in power.
In a speedy response to the Ivanka Trump declaration, Clinton broadcasts her plan to hunt the Democratic Presidential nomination.
The stage is thus set for one other Trump/Clinton Presidential contest in 2024!
2. Powell Turns Hawkish – But Monetary Policy Fails to Dent Rising Inflation
Despite accelerated tapering and an try and sign gradual and regular price hikes, inflation accelerates effectively past expectations. By February inflation is operating shut to eight%. Though comparisons are robust, inflation stays effectively above consensus expectations (sticking at above 5% this summer season).
ESG investing, the entire reopening of the worldwide financial system and rising geopolitical tensions sends oil to over $110 a barrel.
While Omicron proves far much less virulent than initially feared, enterprise closures put in place and uncertainties serve to exacerbate the availability chain dislocations seen in 2021. The continued logistical mess reinforces extra (price push) inflation and mounting inflationary expectations.
The U.S. labor scarcity intensifies and wages develop +6%. The shift from “goods to services” demand submit Covid truly causes extra inflation as, surprisingly, service costs speed up throughout the board.
“Slugflation” (sluggish progress and sustained inflation), a distant cousin to “stagflation,” turns into a characteristic and generally used time period in 2022.
As rates of interest improve (within the U.S. and in Europe), the rising greater debt burdens within the monetary system – which have clearly institutionalized instability – result in a brand new regime of fairness market volatility not often seen in fashionable funding historical past. Daily strikes within the S&P Index of two%-3% turn into commonplace.
The housing scarcity worsens, as labor shortages restrict house building and houses for lease corporations purchase no matter provide they discover. Home costs go up by one other 15%. Eventually, the excessive costs for every part will start to affect affordability and demand, as shoppers cannot afford to keep up consumption when rates of interest ratchet greater later within the 12 months.
The Fed is left in an inconceivable place of lastly realizing it must get “serious” about inflation right into a slowing financial system.
Powell realizes he ought to have let Lael Brainard have the job.
Treasury Secretary Yellen, recognizing that inflation is materially widening the wealth and earnings hole (by appearing as a regressive tax) encourages Powell to do “whatever it takes” to cease inflation.
Whip Inflation Now (WIN) buttons are distributed nationally.
Powell finally ends up extra Volcker-like than anybody predicted. The Fed Chair turns very hawkish and focuses on inflation – not jobs or shares. But it’s too late and the financial pivot fails to materially cut back an elevated degree inflation as years of financial excesses will not be simply reversed.
In 2022 we study that there isn’t a financial coverage that treatments the inflationary affect of continued world provide chain and logistical disruptions and imbalances.
3. After an Early Year Rally to New Highs, The Stock Market Rolls Over
The “innovations” shares that carried out poorly in 2021, all however collapse in 2022 ( (ARKK) trades underneath $70/share – and that’s the greatest performing ETF in Cathie Woods’ universe!). The fallout expands to enterprise capital, the place liquidity tightens.
As non-public and public corporations notice they should tighten their belts, spending on adverts on Meta (FB) , Alphabet (GOOGL) and Amazon (AMZN) declines. The tech mega caps undergo a significand de-rating.
The lack of speculative monies expands into crypto and NFT’s, which undergo giant draw downs.
Beeple’s $69 million digital painting is resold for $10 million at Sotheby’s (with Beeple being the one bidder!)
Later within the 12 months, with the financial system slowing in response to greater inflation and the Fed tightening extra aggressively than anticipated, a full bear market ensues – taking the S&P down 30% from its early 12 months highs.
4. Jeff Bezos and Elon Musk Battle It Out to See Who Can Set The Record for Biggest Loss of Personal Fortune in a Single Year
Amazon runs into bother with greater labor and transport prices, declining advert gross sales and slowing demand for AWS.
Elon Musk over celebrates being named Time’s “Person of the Year” and winds up hospitalized after a drug overdose.
Tesla’s shipments and market share are adversely impacted by a bunch of aggressive EV choices from home and non U.S. producers.
EVs lose their luster and enchantment because it turns into clear that the electrical grid is nowhere close to prepared for a mass swap… neither is your house. (Try charging and operating a significant equipment on the identical time).
5. Value Stocks Materially Outperform Growth Stocks
Shockingly, AT&T outperforms a faltering “The Nifty Seven” (Facebook, Amazon, Apple, Google, Netflix, Nvidia and Microsoft)!
6. Berkshire Hathaway, With Over $150 Billion in Cash Goes On a Late Year Shopping Spree and Buys or Rescues 2-3 S&P 500 Companies
In the bear market within the final half of the 12 months, Berkshire’s frequent advances 25% and is without doubt one of the 5 greatest performing corporations within the S&P 500.
7. China’s Economy Worsens Relative to Even Low Current Expectations
As the engine of worldwide progress, China pulls down world commerce and the world’s financial system.
Accelerating property weak point, extreme debt, destructive demographics and political management intent on reigning within the accumulation of wealth in public corporations all contribute to the a lot worse than anticipated downturn in gross home manufacturing.
With China’s political management in jeopardy – and, to be able to preserve reputation/place (by way of diversion) – Xi Jinping initiates army confrontations on two fronts. (See Surprise #1)
8. The SAFE Banking Act Finally Passes and Cannabis Stocks Surge After Uplistings on the NYSE
Two of the most important 5 multi-state hashish operators merge in an effort to turn into the dominant hashish model within the U.S.
A 3rd, giant multi-state operator is acquired by a well-known U.S. packaged items firm.
The largest hashish ETF ( (MSOS) ) doubles in 2022.
9. Robinhood Is a Casualty of the Bear Market and Is Sold to JPMorgan For Only $2/share (the identical value initially bid for Bear Stearns)
10. In a Heated Bidding War With Amazon, Apple Acquires ViacomCBS for $55/share (in inventory) – Dwarfing the Previously Largest ($3 billion) Acquisition by Apple of Beats In 2014.
11. More High Profile Wall Street Names Are Exposed in The Epstein Probe
12. Precious Metals FINALLY Have Their Day!
13. Turkey’s Economy Collapses and Erdogan Is Assassinated or Overthrown – Its New Central Bank Head Raises Interest Rates and The Lira Rallies Back Under 10 and Turkey’s Economy Starts to Recover
Turkey’s inventory market is among the many greatest performing on this planet.
14. One Fatal Space Accident Serves to Halt Space Tourism in Its Track for a While
Virgin Galactic Holdings ( (SPCE) ) trades underneath $5/share.
15. Israel Takes Military Action Against Iran
What little is left of worldwide concord is upended and 2022 is a 12 months characterised by heightened and increasing geopolitical tensions on three continents.
(This commentary initially appeared on Real Money Pro on Dec. 22. Click here to study this dynamic market info service for energetic merchants and to obtain Doug Kass‘s Daily Diary and columns from Paul Price, Bret Jensen and others.)
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