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How Did My Top Three Predictions for 2022 Fare?
Prediction is hard. But sometimes, it works.
Like most market pundits, I regularly offer market predictions at the start of the new year.
Many commentators I’ve read have complained that 2022 was a year that was impossible to predict.
I found the opposite was true.
At the close of 2022, the distortions in the value of certain asset classes and stocks were as extreme as they had been in recent financial history.
Whether it was Tesla (TSLA): meme stocks like AMC Theatres (AMC): or new-fangled asset classes like cryptocurrencies…
It was easy to predict that the party would end one day.
A few things stick out to me as I review my predictions for 2022.
First, Wall Street consensus on the S&P 500 was far too bullish.
A poll of 45 Wall Street strategists had forecasted a median of 4,910 by the end of 2022.
Instead, the S&P 500 will likely close to 1000 points below that number.
Second, my predictions for 2022 were uniformly bearish. But with the benefit of hindsight, it was hard to be bearish enough.
My predictions had a common theme: They all related to the bursting of one bubble or another.
From a big-picture perspective, the collapse of specific asset prices was not a question of "if" but "when."
I could have been early, But every historical precedent guaranteed that I would not be wrong.
Third, making predictions for 2023 will be far tougher.
The collapse of bubbles has more to go. So it’s hard to say anything except that I expect more of the same.
Coming up with another set of new slam dunk predictions for 2023 will be more challenging.
But that’s for the next issue of The Global Guru.
Below is a copy of my predictions for 2022, as I made them in Liberty Through Wealth on January 10th, 2022.
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Three Investment Predictions for 2022.
Now, I can’t predict the future. No one can.
With that caveat, here are my three leading investment narratives for 2022 – and how I expect them to unfold.
No. 1: Collapse of Cryptocurrencies
Cryptocurrencies are arguably the most persuasive investment narrative of 2022.
A newfangled cryptocurrency benefits from all the elements of a compelling story. It's a high-tech innovation no one understands, it boasts a mysterious origin story in Bitcoin founder Satoshi Nakamoto, and the sector has a cult-like following.
As a result, the cryptocurrency revolution has transformed snippets of digital code into almost $2 trillion in wealth.
Critics dismiss cryptocurrencies as a Ponzi scheme that relies on a “greater fool” to drive prices up. They describe the supposed computing logic behind cryptocurrencies in such harsh language as “mathematical dyslexia puked out and dressed up as original thinking.”
Indeed, anecdotal signs of a market top in cryptocurrencies are growing.
Broker Crypto.com recently paid $700 million to rename the Staples Center in Los Angeles the Crypto.com Arena.
Back in 2002, the NFL’s New England Patriots called their home “CMGI Field.” Likewise, Baltimore’s M&T Bank Stadium was named “PSINet Stadium.”
Both internet companies went bust soon after the dot-com bubble burst.
Can Crypto.com avoid a similar fate?
I wouldn’t bet on it.
No. 2: Elon Musk and Tesla Come Back to Earth
The media’s obsession with Elon Musk and Tesla (Nasdaq: TSLA) knows no end.
Mainstream news treats every banal tweet by Musk as an oracular pronouncement, sending his Tesla fanboys into a frenzy.
Time magazine even named Musk its “Person of the Year.”
Yes, Tesla continued its relentless rise in 2021, becoming a trillion-dollar market cap company.
And it’s a rise that turned Musk into the richest man in the world.
It also left some of Wall Street’s smartest investors – who were short the stock – with egg on their faces.
Still, Tesla’s valuation remains a farce.
If Volkswagen (OTC: VWAGY) and Toyota (NYSE: TM) were valued the same way, their market caps would be roughly $19 trillion each.
That means the value of each company alone would approximate the value of the entire annual U.S. GDP.
One banker said, “Tesla stocks trade like tokens in the Musk fan club.”
Musk himself sold about $18 billion worth of Tesla stock over the past quarter.
If Musk is as brilliant as his acolytes think he is, there’s no better sell signal in Tesla stock.
No. 3: Endless Money Printing Comes to an End
The Fed “taking the punch bowl away from the party” – raising rates to cool the economy – is a recurring narrative in financial markets.
The size of the fiscal and monetary stimulus following the COVID-19 crash of March 2020 is unprecedented.
Yet a change is coming.
Inflation has overshot the Fed’s expectations. And Fed Chairman Jerome Powell has conceded that inflation is no longer “transitory.”
So far, the Fed has signaled three interest rate rises in 2022.
Hawkish noises are also coming out of the world’s other central banks.
The European Central Bank (ECB) recently warned of "exuberance" in housing, junk bonds, and cryptocurrencies.
Expect the ECB and other central banks to taper the asset purchases that have underpinned the market.
Thus far, global stock markets have ignored the prospects of higher rates.
But a shift in market sentiment could lead to a severe correction in global stock markets.
How to Protect Yourself
A shift in these narratives is not a question of if but when.
And history tells us that the shift will be quick, sharp, and painful.
The highly speculative “innovative” stocks that make up Cathie Wood’s Ark Innovation ETF (NYSE: ARKK) are already down by 40% from last year’s highs.
I expect a similar sell-off will spread to cryptocurrencies and Tesla.
Both cryptocurrencies and Tesla are down from their peaks by roughly 20%.
So if you are betting on a rebound in cryptocurrencies, Tesla, or other Cathie Wood-style stocks…
I wish you luck.
But I urge you to instead book your gains – or cut your losses – and take your money and run…
So, how did I do?
Let me know in the comments below.