If Things Go Right in 2022
During this time of the year, most financial media consumers are treated to a rash of predictions for 2022. While many of these predictions are thought-provoking, many others are dire and heavily skewed to scare readers into buying this or that product or service.
Well, I am an optimist at heart, although I’m also a realist. Sure, things can go wrong in the markets in 2022. In fact, I suspect we will see more challenges in the year to come due to changing Federal Reserve policy, rising inflation and the lack of huge fiscal stimulus of the sort markets have become used to over the past year.
Yet, what if things go right in 2022? What if the naysayers are wrong, as they so often are? What will that mean for stocks in the year to come?
To answer this question, I am going to provide an excerpt from the Dec. 28 issue of my daily market briefing, the “Eagle Eye Opener.” This publication is a joint venture between me and my “market insider,” a Wall Street pro who provides institutional research to many of the top pros on Wall Street, but who also allows me to share some of his insights each trading day in the “Eagle Eye Opener.”
So, here is what could happen if things go right in 2002.
We’ve identified five catalysts that, if they all break the right way, could push stocks meaningfully higher — meaning by more than 20%. Below, we’ve identified those catalysts, along with key events or indicators to watch.
What Could Go Right 1: Inflation Peaks. Next Key Event: Consumer Price Index (CPI) on Jan. 14. We expect inflation to be a major influence on markets in 2022, primarily because of the politics of inflation: It is now listed high among concerns for consumers and voters, and as such the focus on inflation from Washington (including the White House, Capitol Hill and the Fed) is as intense as we’ve seen it in decades. That is one of the major factors behind the Fed’s more aggressive tapering of quantitative easing (QE), and if inflation peaks, starting with the CPI in three weeks, that will take some of the pressure off the Fed. It will also reduce the chances that the Fed tightens too quickly.
What Could Go Right 2: Central Banks Don’t Tighten Too Much. Key Indicator to Watch: 10s-2s Yield Spread. This obviously goes hand in hand with inflation. If various measures of inflation begin to back off (CPI, Core PCE Price Index, Inflation Expectations) then the chances the Fed overtightens will decline significantly, and that could be an unanticipated tailwind for stocks in Q1 2022. The 10s-2s spread is the key metric to watch here, and if it continues down towards 0%, that’s a clear sign that the markets are worried about over-tightening. If it can rally comfortably above 100 basis points, that’s a sign that the market feels good about the pace of tightening (and that will again be a positive for stocks).
What Could Go Right 3: 2023 Earnings Remain Very Strong. Next Key Event: Week of Jan. 10-Feb. 4, Q4 Earnings Season. That 2023 is not a typo. Sooner than later, (by early to mid Q2), the markets will begin to focus on 2023 earnings, which currently are estimated to be $250/share for the S&P 500. If corporate earnings commentary in the coming weeks again downplays inflation pressures and margin compression, and we see earnings estimates for both 2022 and 2023 rise, then that will allow the S&P 500 to trade decidedly higher from here and still be in the bounds of “reasonable” valuations.
What Could Go Right 4: COVID-19 Ends. Key Indicator: Case Counts. Each successive wave of COVID-19 has seen less and less of a market reaction, including with regard to Omicron. If, as the market currently expects, Omicron essentially “burns out” and we are left with the vast majority of the global population with some protection against future disease (either natural antibodies or vaccines), then markets will increasingly view COVID-19 as “over.” That will provide a general tailwind for stocks.
What Could Go Right 5: Republicans Win Either the House or Senate. Key Indicator to Watch: Polls as We Move Towards November. Markets prefer gridlock over one party being in total power, as this usually guarantees that there will be no major changes to tax policy or other important regulations or laws. And while a divided government will set up a potential repeat of the debt ceiling and shutdown dramas of the ’12-’16 periods in 2023, the markets will embrace a divided government in 2022.
As you can see, there are a lot of things that could go right for markets, and if these do happen, we could see stocks have another very strong year. Now, for all of these elements to go right seems as though it would be the macroeconomic equivalent of pulling an “inside straight” for the poker players out there. Yet, pulling that inside straight is possible, and as always, you will have the best seat at the table if you’re watching the action unfold alongside us as a reader of the “Eagle Eye Opener.”
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ETF Talk: Add to The Holiday Haul with This Retail ETF
The holidays bring the season of giving, receiving and overall merriment.
For most, there is a common theme in all three of these things: shopping. Holiday shopping encompasses not only gifts but also food and decorations.
According to the National Retail Federation (NRF), the American budget for holiday gifts, food and decorations is roughly $998 for this year. In addition, a significant portion of the shopping will be done online. In fact, online retail sales have jumped from 11% to 15% year over year, according to the NRF.
One exchange-traded fund (ETF) that is reaping the benefits of holiday shopping is the VanEck Retail ETF (NASDAQ: RTH). The fund tracks the MVISA US Listed Retail 25 Index. RTH’s holdings run the gamut from distribution and wholesale retail to specialty and food retail.
One unique thing about RTH is how it started. RTH began as a holding company depository receipt (HOLDR) product offered by Merrill Lynch prior to December 2011. Though it is now a true ETF, it has clung to its roots and has retained its concentrated exposure to only U.S.-based retail companies. Even though the fund’s concentration excludes global retail companies, its holdings provide investors with access to U.S. retail giants that have worldwide reach, making it a potentially less risky investment than a retail fund with global holdings.
The fund not only has an appealing expense ratio of 0.35% but a distribution yield of 0.80%, as well. The fund has a weighted average market cap of $442.73 billion. It also has $258.35 million in net assets and $232.54 million in assets under management. As mentioned earlier, RTH is reaping the benefits of the holiday season, and the chart below is proof. After seeing a sharp dip in March, the fund began a steady upward climb, which then turned into a momentous spike in early October. Proving its strength, the fund opened at $193.14, which is at the high end of its 52-week range of $147.18 to $199.65.
Courtesy of Stockcharts.com
While RTH comprises only 25 holdings, they are big-name players and household names. Its top five holdings include: Amazon.com Inc. (AMZN), 20.28%; The Home Depot Inc. (HD), 11.60%; Walmart Inc. (WMT), 8.27%; Costco Wholesale Corp. (COST), 5.04% and Lowe’s Companies Inc. (LOW), 4.92%.
So, in the spirit of giving, receiving and merriment, the VanEck Retail ETF (NASDAQ: RTH) may be the perfect gift for investors who are looking for a fund with a solid expense ratio and strong current performance. Though the fund only invests in U.S.-based companies in the retail industry, its concentrated exposure makes it a safer play than its global counterparts.
However, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
Battle Buddies, Gold and Exposing Fraudsters
One of the best things about having the Way of the Renaissance Man podcast is I get to have great conversations with the some of the smartest people in the world.
And on the latest episode, I do just that, as I welcome my friend, fellow U.S. Army veteran, West Point graduate and the premier expert in the field of precious metals investing, Rich Checkan.
Rich is the President and COO of Asset Strategies International (ASI), which is the only dealer of physical gold, silver,and other precious metals that I recommend.
In this episode, we discuss the importance of being a critical thinker, and the importance of talking about ideas and exposing oneself to all opinions. It is through the process of filtering out the good from the bad ideas, and knowing when you can, and cannot, compromise, that you become a better decision maker.
Other topics in this wide-ranging discussion include the Jan. 6 insurrection, the importance of rational arguments, the virtue of rational persuasion, the role of passion in the world and the critical need to do something meaningful in life.
Plus, no discussion with Rich Checkan would be complete without his expert view on gold and precious metals.
I always enjoy my conversations with my “battle buddy” Rich Checkan, and I know you will too.
In case you missed it…
Embracing the Giving Season
The holidays are the giving season, and it is called the giving season for good reason. You see, it’s estimated that about 30% of annual donations occur between Thanksgiving and the start of the new year, with the majority of those gifts being sent in the final three days of the year.
This year, I’m proud to say that I have donated more to charity than any other year in my life, and part of the reason why I have been able to do so is due to the success of my newsletter advisory services. You see, the more money you make for your subscribers, the more subscriptions you sell and the more renewals you get.
So, by helping you out by providing great investing information, you reward me with more subscription revenue and more personal income. And the more personal income I have, the more I am able to donate to the charities of my choice.
Now, in addition to the increased amount of money I am able to donate to the charities of my choice, more personal income and more investment success also mean more “units of choice.”
I’ve written about the concepts of “units of choice” before in this publication, because it’s a great way to look at the role of money in our lives. You see, the more capital we have, the more things we can do with that capital. More importantly, we can do more with the limited time that we all have.
This year, I spent a lot of my “units of choice” doing things that matter to me and donating to the charities that matter to me. For example, this year, I donated one of my older automobiles to a charity that provides assistance to disabled military veterans.
I also spent some time at charity events for my favorite veteran’s organization, Friends of Freedom.
This group was started by my friend and fellow Renaissance Man David Haddad, who was a guest on my podcast last year. Under David’s expert stewardship, Friends of Freedom has delivered over 750,000 cigars for troops to enjoy in war zones in Iraq and Afghanistan.
Your editor playing in the annual Friends of Freedom charity poker event.
Friends of Freedom also helps veterans by assisting them with rent, utilities, car repairs, the transition to civilian life and more.
If you’ve looking for a charity to support with veterans in mind, then choose Friends of Freedom.
Another, more recent, charity event that I attended just this past weekend was sponsored by the iconic heavy metal band “Metallica.” I was there for the band’s epic 40th anniversary takeover of its home city of San Francisco, where the performers played two incredible sold-out shows at the 18,000-seat Chase Center.
Your editor, alongside Eagle Financial Publisher Roger Michalski, rocking out and doing a charity beach clean up in San Francisco.
I also had the privilege of doing an early morning beach clean-up alongside hundreds of other Metallica fans, including my Eagle Financial Publishing colleague Roger Michalski, who is arguably one of the band’s biggest fans.
This event was sponsored by Metallica’s charity, All Within My Hands, which helps raise money for a cross-section of national and local charities. Importantly, every penny of the donations received by All Within My Hands goes directly to the organization’s charity partners.
I must say that it felt great to be out in the very chilly San Francisco morning air, doing good and helping clean up the city’s beautiful beach. No, I didn’t get anything out of this other than a sense of accomplishment, and the warm and fuzzy feelings one gets knowing one is doing something good for his fellow humans (oh, there was that cool t-shirt they gave us, too, but I digress).
So, this year, if you’ve found yourself doing well, making good investment decisions and/or feeling otherwise healthy and wealthy, why not take some of your units of choice and aim that at the charity of your choice? And whether you choose to donate a little time, a little money or like me, a little time and a little money, I guarantee it will make you feel good.
Finally, remember that we only get so many trips around the Sun before our time here expires. So, within those beautiful trips, why would you want to be anything but kind to your fellow travelers?
Happy holidays, and may we always live our lives in the name of the very best within us!
The Wisdom of Books
“How many a man has dated a new era in his life from the reading of a book.”
–Henry David Thoreau
The new year brings with it many a pledge to improve one’s lot in life. One way to put yourself on the fast track toward intellectual improvement is to read more books. This includes listening to audiobooks, which I’ve found to be a great way to consume information while also completing chores, such as walking the dog, feeding the horses or doing the dishes.
One word of advice on this front is to read/listen to something that you might not normally choose. Stretch yourself and push your intellectual limits. And even if you don’t like a book, or if you disagree with the author, hearing an opposing view is always a good way to provoke thought. And in this social media-curated, tribalistic intellectual milieu, hearing an opposing view will do us all good.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
In the name of the best within us,