Non-predictions for 2022

Since predictions usually do not work, I do no do them … But, here are some thoughts about what might happen, or not …

I start by referencing the title of a memo,
which might serve as a quote just as well:
You Can’t Predict. You Can Prepare.

Energy markets will be interesting in 2022 as a topic. I am reasonable certain of that. Please realize here how broad this non-prediction is. The word ‘interesting’ does not explcitly call for high or low returns during 2022, neither does ‘energy’ precisely defines oil, LNG or (Russian) gas, uranium or electricity prices as the investment theme. Interesting might merely mean that there will be many headlines. If you are searching4more interesting / isightful headlines, I urge you to look past the mainstream media or at least not only consuming mainstream media. There is a ton of other, often conflicting news out there. Not necessarily always right per se, but at least it opens the possibility for discussions, ideally based on facts and logic. Unfortunately, such discussions become a rarity nowadays, it seems. Watching Prof. Sinn’s lectures Energiewende ins Nichts address Germany’s unrealistic energy transition, i.e. non-sufficient energy from wind and solar during the winter months. As always in serious science, you can come to other conclusions, but I have more the impression that his results were politically unwelcome (like his Target2 topic) and thus political discussion was and still is largely unwelcome. But it is essential to honestly approach concepts and research if they are suitable to tackle climate change, IMHO.

Extract from an interview with Claus Kleber in Die Zeit (30-Dec-2021)
  • I started the year with a rather high exposure (11.6%) to energy.

Cyclicals and all things supply-chain-related will be interesting as well. The current events* in Kazakhstan might be a good reminder that investing in a commodity and its miner give you both exposure to the former, but the return profiles/distributions are not the same (here: KAP LI <> Uranium).

  • My small position in Zim shipping (ZIM US) is very much supply-chain related.

Crashing markets in 2022 has something going for it. Markets gave us a very strong performance in the last few years, so a downturn might be natural. They also rallied a lot after March 2020, but covid is still a thing! I think there are some segments in the market with extremly streched valuations and in aggregate it appears unlikely that growth and profitability expectations will be met. More precise: I believe most investors in those names do not have any fundamental expectations at all for things like sales/margins/capex, but purely (did) buy on the notion of they have great products or the stock did rose in the past — and who can blame them? The strategy worked perfectly fine for a long time! So, I think it is likely that some market segments might see a crash in 2022.

  • I feel comfortable with my Flow Traders position (6.6%).

Lagging perforamce. There will be many people, investors, speculators and fintwit accounts that will not only post but actually have a much better performance for 2022 than me (and probabaly you – purely statistically speaking).

Politics will continue to be a big driver. Might be demonstrations or uproar (Kazakhstan1). Chinese political decisions could act as the prime example, and what if the West would follow its steps and truly hinder big tech’s growth. Import-/ export rules, esp. in the energy sector (Indonesia). The EU could start various programs to drive its ESG agenda and/or funding south European states even more indepted than others – of course each and every program will have a nice name and acronym. What about H-TONE. If you think a match with Hidden Tax On Northern Europeans is a pure coincidence, then think again! This might even be the perfect possibility to hike rates. We (citizens in Northern Euro countries) can just make up for it with other nice sounding transfer scemes sponsoring south European living styles, including lower entry-ages into the living as pensioneers. This view cannot be easily argued away.

Inflation and the potential for rising rates could stay with us, or disappear as fast as it came up. Some regions (US?) might be more capable to react to inflation, since others (Euro) are held back by imbalances within the Euro-area (indebtedness, growth, unemployment, and competitiveness or the lack thereof. With rising rates, emerging market defaults could experience a comeback.

  • An unsettling thought is, that most central bankers are probabaly to young to have ever needed to fight serious inflation (the same goes for many novice investors, including myselfe2, and experiencing a bear market)

Depending on where we live we will experience a re-opening, or a re-closing or a back and forth due to new covid situations, political interests or simply due to new variants and natural waves of infections (lower infections result in more contacts which lead to more infections). And since most investors learn far to precise lessons from their most recent capital markets experience, the danger might lurk in playing re-opening titles (airlines, restaurants, …) that worked out so fine before.

  • I only hold L’Occitane and Oriental Watch but they hardly qualify as re-opening plays (both luxury retail). I am currently looking at a HK restuarant company, though.

Britain will be present in the media during 2022 and then frequency of reports will fade. The German consensus3 media will keep reporting about supply problems and other struggles related to Brexit. Seldom will they mention the potential or at later even materializing upside of Brexit: not being stuck in the EU, weighed down by far to many members and votes, with different interests and not being derived from any sensible measure, ie economic power or number of citizens. It can be questioned if the benefits of Brexit will ultimately outwiehg the harm and it can further be questioned if voters were weill informed and did vote with rational minds, but anyway, it could be grouped under the below concept which is so important for operators and money managers or CEOs, or simply capital allocators:

enduring short term pain for long-term gain

… it might also apply to the Kazakhstan society, humans with regard to reduced consumption for tackling climate change, kicking out unqualified Euro-countries (how much better would Greece’s economic situation be today if only politicians were willing enough?), citizens reducing contracts for quicker reopenings (?), and many more.

I will also end the post with a quote:

»Investing is the art of positioning capital so as to profit from future developments.« – Howards Marks

Howards Marks (in his memo uncertainty)

1) Events like currently unfolding in Kazakhstan are always sad, dangerous, multufaceted, a tragedy for individuals and in this case maybe a chance for improvements for the society as a whole. But, for the latter, hopes should not run too high, as the many examples of the ‘Arabian Spring‘ (do not know if internationally other terms are used) showed, unfortunately.

2) I was born in 1988. I experienced the GFC during my banking apprenticeship on the trading floor — besides other departments — where the crisis was felt most. The GFC was 2nd most present, and only slightly behind the trading floor, at the bank’s cash currencies department, delivering foreign notes and precious bullion to other banks and clients. This department — usually rather dull — worked overtime during the GFC due to record levels of physical gold deliveries that had to be packed and processed.

3) Using this expression with refenrence to an interview with Claus Kleber in Die Zeit (30-Dec-2021)

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