No Bear Market in 2022!
By Victor Sperandeo with the Curmudgeon
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.
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:
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!
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).
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.
“The reason I talk to myself is because I’m the only one whose answers I accept.”
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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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