No
Bear Market in 2022!
By Victor
Sperandeo with the Curmudgeon
Disclaimer:
The views expressed herein
are those of Victor Sperandeo. The
Curmudgeon has a different opinion which might be the subject of a future blog
post. Any securities mentioned are NOT a
recommendation to buy or sell them.
Introduction:
Victor notes that while
inflation has accelerated, it will likely be lower in 2022. Moreover, the Fed will not raise rates as
many times as investment banks have forecasted.
That will be a set-up to buy bonds and value stocks- one’s with low
P/E’s and high dividends.
2021 vs 2022 U.S. Inflation:
The BLS announced last week that the annual
U.S. inflation rate (headline CPI) accelerated to 7% Year over Year (YoY) in December
2021. That’s compared to 6.8% in
November and the highest YoY CPI print since 1982. Inflation spiked in 2021 due
to pandemic-induced supply constraints, soaring energy costs, labor shortages,
increasing demand and a low base effect from 2020. Economists expect inflationary pressures to
last well into the middle of 2022. A
table of the baseline CPI-U (for all urban consumers) is shown below:
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Despite lingering supply
chain issues and scarcity of some goods, I expect headline inflation (the CPI)
will be quite a bit lower in 2022 – about 4% to 5%. That’s not based on economic fundamentals,
but rather it’s because the BLS is
changing the way the CPI is calculated. That was explained in detail by the Curmudgeon
and I in this post: Inflation too High? BLS to
Change CPI Calculation.
All the BLS said was: “Starting
in January 2022, weights for the Consumer Price Index will be calculated based
on consumer expenditure data from 2019-2020. The BLS considered interventions
but decided to maintain normal procedures.”
Impact on the Markets:
I expect Year over Year
(YoY) CPI-U comparisons will be trending lower, courtesy of BLS finagling. That will be a set-up to buy bonds and value stocks.
Questions to ponder after
two consecutive losing weeks for the U.S. stock market:
·
Why
would Goldman Sachs forecast that the
Fed will raise rates four times this year, while the Fed says three?
·
Why
would Jamie Dimon, Chairman of the Board and Chief Executive Officer of JP
Morgan Chase (the biggest bank in the U.S.) raise
Goldman and say short term interest rates will rise six or seven times this
year?
"My view is a pretty
good chance there will be more than four," Dimon said during the bank's
earnings call Friday. "It could be six or seven."
Answer: Because they want
retail investors to sell their stocks which they will buy!
Victor’s Favorites:
My most bullish bets are oil and gold-mining stocks with big
dividends. Other low P/E stocks with high dividends are also attractive. Look at the charts of British Tobacco (TBI) and AT&T (T) [1.], which are up +
26.2% and 22.3%, respectively from the end of November 2021. That’s amazing relative performance considering
that high P/E tech stock favorites have declined during that same period.
Note 1. AT&T’s
dividend will be cut after the Warner Media spin-off. Discovery will own 29% of the spin-off
company, to be named Warner Brothers Discovery (WBD).
Conclusions:
Remember that this is an
election year. I believe the Fed will
raise rates two times at most in 2022 and only to save face. As the Curmudgeon noted, “I don’t think this
Federal Reserve and this leadership has the stamina to act decisively. They’ll
act incrementally,” Henry Kaufman told Bloomberg in a phone interview.
If the Fed causes a
recession by raising rates too much or too fast, the Democratic party will take
a huge hit in the midterm elections. One
which will take them a long time to recover from.
End Quote:
“The reason I talk to
myself is because I’m the only one whose answers I accept.”
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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