At the start of 2021 we had some clear ideas on what we expected from the economy and markets. With pent-up demand real – consumers had pockets jammed with newly minted cash and a near-desperate urge to get out and spend – GDP would recover fast. We expected that, alongside staff shortages, to be one driver of non-transient inflation. We thought we might start to see the fruits of the hard labour many companies put in during the pandemic (to cut costs, digitalise, and strengthen supply chains) in the productivity numbers. Finally, we expected interest rates to rise a little (not as much as inflation, but a little); bond prices to fall (as rates rose); growth stocks (dependent on super-low rates for their high valuations) to fall and more value-orientated stocks (UK ones in particular) finally to make our fortunes.
We were right on much of this. The recovery in GDP here and in the US has been stunning. Wages have been rising and inflation is clearly not transient. A great productivity boom may not yet be upon us, but as James Manyika and Michael Spence note in Foreign Affairs, the pandemic has certainly “spurred” businesses to “radically rethink... operations” – accelerating plans for organisational innovation and adopting the digital behaviours that kept them going. Think telemedicine, the high street turning to e-commerce and self-service checkouts, and the drive for robotics in meat-packing plants: two-thirds of senior executives in the US say they have increased investment in artificial intelligence and automation since the pandemic began. There is an excellent chance we’ll soon see this in productivity (then profit) numbers.
On bond prices, we haven’t exactly been bang on. Normally, US inflation going to 6.8% would have had rates soaring. Not this time. The ten-year Treasury yield is 1.4%. The UK ten-year gilt yield is well under 1%. Those growth stocks that were supposed to collapse? Some of the worst of the loss makers have had a nasty year, but others are as expensive as ever. Gold has also failed (so far) to respond to inflation (it is supposed to go up). For more, listen to our end-of-year podcast (moneyweek.com/podcasts). But it is a reminder, as the FT’s Robin Wiggleworth says, that even if you had foreknowledge of every economic statistic coming in a year, you might still make the wrong bets. On the plus side, we have been wrong often enough to remember to diversify – and the results have been pretty good: on page 31, we look at the (satisfying) performance of our investment trust portfolio over the last decade. It has done well enough to worry us. Diversified multi-use portfolios are not meant to return 15%-plus a year.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
What of next year? We have no idea – about the only thing one can say about our age is that it is one of unpredictability, in which too much relies on government behaviour (in terms of Covid-19 policy in particular). Prediction is pointless. So we have – of course – had a go. Matthew Lynn picks his potential shocks of 2022 (mostly leadership-related); Max King gives his top trust ideas; and there’s our Roundtable – our panellists agree on some things (UK equities are cheap; buy before private equity does) and disagree on others (inflation…). More on all this in the new year. Meanwhile, enjoy our annual quiz.
A very Merry Christmas and Happy New Year to all our readers.
-
Why Trustpilot is a stock to watch for e-commerce exposureTrustpilot has built a defensible position in one of the most critical areas of the internet: the infrastructure of trust, says Jamie Ward
-
Tetragon Financial: An investment trust with stellar returnsTetragon Financial has performed very well, but it won't appeal to most investors – there are clear reasons for the huge discount, says Rupert Hargreaves
-
Why Trustpilot is a stock to watch for exposure to the e-commerce market
Trustpilot has built a defensible position in one of the most critical areas of the internet: the infrastructure of trust, says Jamie Ward
-
Tetragon Financial: An exotic investment trust producing stellar returns
Tetragon Financial has performed very well, but it won't appeal to most investors – there are clear reasons for the huge discount, says Rupert Hargreaves
-
How to capitalise on the pessimism around Britain's stock marketOpinion There was little in the Budget to prop up Britain's stock market, but opportunities are hiding in plain sight. Investors should take advantage while they can
-
London claims victory in the Brexit warsOpinion JPMorgan Chase's decision to build a new headquarters in London is a huge vote of confidence and a sign that the City will remain Europe's key financial hub
-
The consequences of the Autumn Budget – and what it means for the UK economyOpinion A directionless and floundering government has ducked the hard choices at the Autumn Budget, says Simon Wilson
-
Reinventing the high street – how to invest in the retailers driving the changeThe high street brands that can make shopping and leisure an enjoyable experience will thrive, says Maryam Cockar
-
8 of the best houses for sale with electric vehicle chargingThe best houses for sale with electric vehicle charging – from a converted World War II control tower in Scotland, to a Victorian country house in Cumbria
-
Big Short investor Michael Burry closes hedge fund Scion CapitalProfile Michael Burry rightly bet against the US mortgage market before the 2008 crisis. Now he is worried about the AI boom
