The author is the executive editor of MoneyWeek
Imagine that you could save your money in a bag following the MSCI World Index a year ago and then disappear for a long time.
Now you seem to find that you have returned about 20 percent. If you went to the North American index, that figure would be 25 percent. Not bad. You might be excited – and when asked what challenges you would like to see in 2022, you might say the same. Until you looked at the story. At the same time you can change your mind.
We did not see the obvious stock market growth in 2021. It was a closed year in the world – a vaccine that was supposed to see us quickly return to normal living did not work as well as we had hoped. It reduced the risk of serious illness but did not prevent it, and we were constantly pressured.
It was also the year when budget cuts in the US and UK escalated to 1945, personal debt rose sharply (up to 100 percent of UK household sales – the highest since 1963) and central banks continued to buy. many debts of their governments. At the same time electricity prices went up (even twice the price of coal), a large ship blocked the Suez Canal for an unusually long time, many factories suffered from shortages, work became difficult to find and rising prices again came up surprisingly.
In the UK, the inflation rate (not a valid price measure but with a very long history) hit 7.1 percent – the highest annual increase for more than 30 years. The consumer price index is at 5.1 percent. In the US it is 6.8 percent and in Germany 6 percent. There was a time when the Bank of England said the CPI would reach a peak of 4 percent and then disappear. They never say it no more. There were also good things (at least in the market).
Governments are pushing for almost every pocket they can get and with central banks offering unlimited financial support such as lower prices and printing presses, GDP grew sharply – almost the entire developed economy has reached a level close to their Covid peak. .
The findings did the same: a recent estimate shows that US business growth will reach 43 percent in 2021 (in the UK the figure is 73 percent). If the market is as large as anything else, perhaps a return to this year’s market would make sense.
Even so, owning one is still beyond the reach of the average person. In terms of price / profit ratios, the US market is much higher than in 1929, 1973 and 2007. Prices are rising, central bank stimulation is slowing and Omicron is disrupting a already damaged wagon. Not exactly the Goldilocks experience is it?
So what can you do to make sure you can recapture the two-tier market in 2022 – for the fourth year in a row? More. The important thing to consider is how market conditions can change for the better in order to justify rising prices.
For this to happen you will need Covid to be identified as a viral and viral virus instead of just thinking about it all. This is possible, thanks to the growing evidence that the Omicron brand is smaller than the last and that antiretroviral drugs are becoming more widely available.
But, with the recent instability of mental panic, it has not been addressed. You need encouragement to take on a global economy because of this. This is also possible because both companies and consumers have money. But signs are not wise. In the US, consumer and consumer sentiment is declining. In the UK, the latest GDP figures are not encouraging (third quarter economic growth has changed to 1.1 percent).
You also need to raise inflation to start falling, something that seems impossible because electricity prices are still going up fast and the job market is very strong. You need a central bank to find a way to do things without making a mistake. I will never bet on this – it is useless. And you need a higher interest rate (to reduce inflation without lower prices) when your earnings are already at the GDP level in the US, inflation is rising in all sectors and there are new corporate taxes coming up that will not exactly. Help.
Relative equity charges – that they are cheaper than bond yields – do not last long as yields begin to rise. You can see that the US market was also smaller than the US bonds above the 2007 interest rate, one of the worst times to invest in stocks, according to Ned Davis Research analysts. None of this would have been difficult if we had known that money is still flowing in the markets no matter what.
But this is not the case: as Deutsche Bank analysts point out, the end of a cash loan after a decade of lower interest rates means the end of the “free money” market. And rising bonds can make available money more stable.
Add all of this and 2022 looks to be coming up with several types of possible results. They can, they can come together to give you the same information. But the risks are too high – 2022 could be more dangerous to your health than 2021, but I doubt it could be a threat to your economy.