Investing in 2022: Trends to Watch

The Cobra Effect and Inflation
December 21, 2021

Investing in 2022: Trends to Watch

Today is a fascinating time for investors. Covid and the omicron variant are continuing to wreak havoc on public health, the labor market, the supply chain, and beyond. The world is driving toward cleaner energy. Big technology is bigger than ever. Inflation and rising prices are going strong. In this article, we’ll cover what we consider to be the top three trends to watch as we enter 2022 and our second calendar year of the pandemic.

 

Big Tech & Cryptocurrency

According to CNBC in April 2021, investors put more money into stocks in the preceding five months than in the previous 12 years combined. Stocks of big tech companies such as Apple, Google, Amazon, Tesla, Meta/Facebook, Microsoft, and Netflix are at all-time highs with trillion-dollar valuations.

Cryptocurrencies such as Bitcoin and Ethereum have become buzzy investments, especially among newer, younger investors. While the future of crypto will certainly be interesting to watch, the downside risks are important to consider as well as the potential upside. With little governmental regulation, taxable gains reporting largely on the honor system, high degrees of leverage, and risks of fraud, be sure to proceed with caution.

 

Inflation

Jerome Powell, The Fed President, stated recently that inflation is no longer transitory and is probably here to stay. He indicated the Fed will accelerate their plans to pull back quantitative easing. Wages, rents, food, home prices, eventually gas again, and so many more items are increasing in price and should continue increasing. 

We believe the market is beginning to accept the reality of inflation and reallocation from investments that work in deflationary markets (technology stocks) are flowing into areas of the market that do well during inflationary markets. Many of these investments have been ignored for the last 40 years as interest rates have fallen from 16.63% in 1981 to a low of 2.68% in December of 2020.

 

Energy

The infrastructure bill has passed, and this is likely to kickstart large construction projects, hiring sprees of more workers, and more clean energy investments. America and the world are accelerating the conversion to electric vehicles, along with more solar, wind, and nuclear power. 

However, until we have sustainable and reliable renewable energy across the United States, the demand for oil, coal, and natural gas should continue. Also, think about everything you use in your daily life. A large percentage of these products and materials are made from byproducts of oil. Right now, and for years to decades to come, we believe oil is a necessity. Regulations and the financial impacts of Covid on oil producers have greatly reduced the supply. With greater demand and less potential for supply, we see a great opportunity. 

Demand for Fossil Fuel in Emerging Markets

The demand for energy in emerging markets is likely to rise. Here are two interesting examples: 

  • Just think about cars for a minute between the US and China. In the US we have 800 cars per 1000 people. In China, they have 210 cars per 1000 people. In the US we have 267M cars and China has 297M cars. If China had the same ratio as the US, they would need about 800M more cars! 
  • And in India, only about 7% of households have air conditioning, compared to 90% in the US. Over the next few years, as the wealth of the middle-class rises in India, the demand for air conditioning and electricity will skyrocket in India.

How will India, China, and other markets with growing demands fulfill their needs? We believe in the short term there is only one option, fossil fuels, which will put further stress on all available supply. In the long run, these demands are likely to be met by nuclear plants, hydrogen, solar, and wind.

 

Final Thoughts

These past 21 months during Covid have been a time we won’t forget. Historians will research and write about the massive changes the world is enduring around us as we speak. 

We know that with so much uncertainty about what the future holds, having a financial plan in place can bring peace of mind. If you, a friend, neighbor, or family member are in need of a second opinion on your plan to make work optional, we’d be honored to speak with you and provide a professional analysis.

 

Past performance does not guarantee future results. True Wealth & Company, LLC (“True Wealth”) is a registered investment advisor with its principal place of business in the State of Kansas. This newsletter is limited to the dissemination of general information pertaining to its investment advisory/management services. A complete list of all recommendations will be provided if requested for the preceding period of not less than one year. It should not be assumed that recommendations made in the future will be profitable, or will equal the performance of securities in this list. Opinions expressed are those of True Wealth, are subject to change, are not guaranteed, and should not be considered recommendations to buy or sell any security. Any reference to a chart, graph, formula, or software as a source of analysis used by True Wealth staff is one of many factors used to make investment decisions for your portfolio. No one graph, chart, formula, or software can in and of itself be used to determine which securities to buy or sell, when to buy or sell them, or assist any person in making decisions as to which securities to buy or sell, or when to buy or sell them. Any chart, graph, formula, or software used is limited by the data entered and the created parameters. The data was obtained from third parties deemed by the advisor to be reliable. Nonetheless, the advisor has not verified the results and cannot be assured of their accuracy.

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