Frisby’s Forecasts – what does 2022 have in store for investors?

It’s my first Money Morning of the year, which means it’s predictions time.

What’s going to happen in 2022?

Read on and I’ll tell you – to the nearest decimal point.

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A 40% rise in predictions – and that’s just for starters

Fourteen predictions this year, more than the usual ten – that’s inflation for you.

One observation I’ve made over the course of writing many New Year predictions pieces over the years is that life doesn’t change on 1 January. Trends that dominated the latter months of the previous year tend to continue into January, and it’s only as new events occur, new stories emerge and new narratives take over that psychologies change and new trends transcend the old.

One broad trend of the past ten years – you might even say the past 20 – has been the incredible outperformance of tech stocks. Twenty years ago, the likes of Google and Facebook barely existed; now they are among the world’s biggest companies.

But it’s in the last ten years that tech has really flown. For how long have people been saying tech is overvalued? Yonks. And yet the sector – from the Nasdaq to cryptocurrencies – continues to defy the naysayers.

Why? Because this is the Digital Revolution. Tech is where the intellects, the innovators and the entrepreneurs gravitate to; it’s where the quickest returns are found, and so it’s where the investment capital goes as well.

Digital has a scalability that the physical world cannot compete with. Who’s going to invest in a dirty mine in Timbuktu that won’t see any return on investment for ten years when you can stake real estate in the metaverse and triple your money in a matter of months?

Or – for those like me who still haven’t got their heads around what the metaverse is, let alone how you go about buying real estate in it – just buy a Nasdaq tracker, return 27% and enjoy hedge fund-like returns.

Is the Digital Revolution suddenly going to end now that it’s 2022? Of course it isn’t. It’s going to carry on attracting more talent; innovating, growing and expanding.

There are bound to be violent corrections – there always are in the bubbly world of invention. But the Digital Revolution goes on.

With that in mind, we start with…

1. The Nasdaq keeps on rising

Just for clarity, I’m talking about the Nasdaq Composite; the uptrend continues and it goes above 19,000 for the first time.

2. Oil – get ready to revisit $100

We’re going to need to burn a heck of a lot of fossil fuel to realise “Net Zero” and all the various green revolution goals that governments have in mind. Only problem: governments have been attacking the fossil fuel industry, whether via taxation, legislation, regulation or even propaganda, leading to a shortage in investment and thus a shortage of product.

Why go drilling for oil in the deepest, most far-flung and inhospitable places on earth, when you can build a mediation app? The result? Brent crude stares down the barrel (sorry!) of $100, if it doesn’t go through it.

3. The US dollar – weak start, stronger finish

One trend that does seem on the verge of rolling over – in fact the top may have come in mid December – is the US dollar. Starting in late May 2021, the US dollar entered a bull market that led to falling commodities prices (mostly), and more volatile stocks.

The level of 95 on the US dollar index is support. Below that and the six-month bull market looks like it’s over. A falling dollar means rising precious metals, emerging market strength, even a stronger pound. It also means risk is on.

I’m inclined to think this is a rollover of the shorter variety – in other words it will just be for a few months. Longer term the dollar looks like it can go a lot higher. But I think we see a weaker dollar in the first few months of the year, though later on we could head into the high 90s.

4. Gold – back above $2,000

I often seem to get gold wrong in the New Year predictions, usually by suggesting its time has finally come, when it never has. On the one hand I stare at gold’s chart and see eerie similarities between gold today and gold in 2011-2012, when it traded in a range just beneath its old highs before capitulating lower and embarking on one of the most vicious bear markets ever to befall humankind.

On the other hand, I see gold’s moving averages lining up beautifully and a massive cup-and-handle pattern – which is an extremely bullish set-up – formed over ten years, portending much higher prices.

Gold, the ultimate analogue asset in an age where all the value is digital. But, heck, let’s be positive. Gold goes above $2,000 an ounce.

5. S&P 500 – 5,000 here we come

While we are on round numbers, the S&P 500 goes above 5,000. In this age of zero rates, the S&P 500 has become America’s savings vehicle and that’s where the newly-printed money goes. The S&P does what gold is supposed to do. Harsh but true.

6. Cryptocurrencies keep booming

And so to gold’s nemesis. Everything we gold bugs said would happen, happened. Except it didn’t happen in gold, it happened in bitcoin.

It’s stuck in a bit of range at the moment, just under $50,000, while, under the crypto counter, metaverse coins and defi (decentralised finance) seem to be on fire. The result is that bitcoin is losing market share – bitcoin is now below 40% of total cryptocurrency market value, while ethereum is at 20%. This time last year, bitcoin was at 70%.

There are over 16,000 different coins, according to coinmarketcap. It’s nuts. But bitcoin remains the dominant monetary network. The sector is growing – coins you may never heard of will be the new market leaders. Coins that were the market leaders three years ago have faded into ignominy. Lord knows how you keep up.

Currently the sector is worth $2trn. In 2022, it goes over $3trn.

7. Bitcoin goes legal beyond El Salvador

At least two more nations follow El Salvador’s lead and adopt bitcoin as legal tender, most likely in dollar-dependent Latin America.

8. Copper electrifies

The copper price goes up and above $5/lb.

9. UK houses grow even less affordable

It pains me to say it, but more of the same when it comes to the UK housing market. While debt-servicing costs are this cheap, the market will remain propped up and Generation Rent will continue to be priced out.

The solution for the priced-out young is lower prices. Lower prices will come from greater market supply – either via more building or higher interest rates. Can you see this government allowing either to happen? Expect lots of lip service but no change to what is the greatest intergenerational injustice of our times.

House prices continue their inexorable march higher.

10. The pound – higher against the euro at least

Fans of Frisby’s Flux – the eight-year cycle in the pound – will know to expect the next cycle low in 2024. On this basis I am looking for highs in the 2022-2023 time frame – though, in what is supposed to be its bull cycle, sterling has been rather pathetic, so I’m not wildly optimistic about these highs.

The days of a pound over $2 are history. If it can get to the low- to mid- $1.40s I’d say it’s a short. So to my prediction: currently butted up against resistance, in 2022 the pound breaks out against the euro, however, and gets to €1.24.

11. Silver disappoints as always

Is this the year silver finally delivers on its potential and returns to $50? Nope. It can’t get above $30.

12. Politics – Boris surprises us all

Boris Johnson, to everyone’s amazement, is still prime minister this time next year.

13. Bruce-y Bonus sport prediction: Manchester City win the league

It’ll take something pretty extraordinary to upset that particular apple cart. Meanwhile, Norwich, Watford and I can’t work out if it’s Newcastle or Burnley all go down. Let’s assume Newcastle are saved by a huge January spending spree and say Burnley.

14. An extra Bruce-y Bonus prediction: we have passed Peak Covid

One final thought as we head into 2022. It seems that almost everyone I know has come down with the latest Omicron variant of Covid over Christmas. If I hadn’t tested positive, I wouldn’t have known I was ill, beyond a slight headache and general lack of motivation for a couple of days – which is fairly typical for me over Christmas anyway.

Gosh, I hope Omicron can bring closure to this unfortunate chapter in the history of civilisation. A weaker, but highly infectious strain of the virus gives us the craved herd immunity and no longer justifies our new medical ruling class holding such sway.

I doubt their new found powers will be ceded lightly, but my feeling is that Peak Covid has now passed and something akin to free movement can slowly return. It’s more a hope than a prediction – based on my own instincts not data or science – but fingers crossed.

Anyway, here’s to a great 2022. I hope you make pots of money!

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is now out in paperback at Amazon and all good bookshops, with the audiobook, read by Dominic, on Audible and elsewhere.