2022: The Year of Breakdown
2021 is in the dustbin. 2022 is freshly hatched.
As a financial newsletter, we are duty-bound to give our annual market forecast — such as it is.
So today we fetch our crystal ball from storage… blow away the dust… and gaze for images of the year ahead.
How long will the virus continue to menace us? Will the economy find its bounce?
Where will the stock market end the year? Where will gold end the year? Where will Bitcoin end the year?
The answers — carved in granite — anon.
But before we glimpse how markets will end 2022, let us glimpse how they began 2022…
Stocks Open 2022 in the Green
The new year opened with a swing. The Dow Jones gained 246 hopeful points. The S&P 500 added 30; the Nasdaq, 187 points of its own.
Here is CNBC and its pair of pennies:
Stocks edged higher on Monday as investors began the new year by betting the economy could overcome the latest surge in COVID cases and lifted two of their favorite stocks to significant milestones.
These stocks are Apple and Tesla.
Today Apple became the first U.S. corporation to eclipse $3 trillion in valuation. Tesla sprang 13.5% in today’s trading, a fantastic leap.
Gold, meantime, took a good harpooning… down a dreadful $26.48 on the day.
At writing, Bitcoin goes at $45,975 — down $1,323 today — and down some $19,000 since Nov. 8.
But we are far less concerned with where we are… than where we are going.
What about the way ahead? What prizes, what treasures, what traps, what buried mines await us in 2022?
Welcome to the Banquet of Consequences
Daily Reckoning contributor James Howard Kunstler has peered into his own crystal. It presents a scene of horror, of dismal portents:
If 2021 was the year of maximum corruption, political decadence and [lunacy] in U.S. history, 2022 is looking like a convulsive snapback to the harrowing rigors of reality, spiked with shocking losses, reckonings and not a little retribution for the rogues and reprobates who drove our country into a ditch… Welcome to the banquet of consequences.
These and other ghoulish visions parade before his disbelieving eyes:
After two decades of papering over our inability to pay for running our society, the Federal Reserve has finally achieved old-school inflation — the destruction of money itself — not just the pumping up of share prices, their specialty for so many years…
What I predict for 2022 is that the Federal Reserve will embark on a much-heralded tightening program — and then abandon it at the first sign of trouble, the inevitable stock market downturn. Then the Fed will be back to buying our own debt paper and attempting to stuff interest rates back down, if they can, which may not be possible anymore. The Fed soon loses all control over American money. They may try to retire “old” dollars and replace them with “new” dollars backed by something, gold and silver being the obvious candidates. That will lead to a severe upward repricing of both metals. Let’s predict gold at $5,000 and silver at $200 by the end of 2022.
What of Bitcoin?
I kind of doubt Bitcoin and its imitators will survive a whole lot longer after the financial system is forced to recalibrate to reality. They have thrived solely as targets of speculation. The blockchain is very clever, but ultimately Bitcoin and its ilk represent… nothing… no-thing(s). They attracted a lot of money that was just sloshing around the system during the years of artificial pseudo-prosperity, and that’s over. Anyway, they depend utterly on a stable internet and electric grid to function and you’d be surprised at the fragility lurking in both those systems. Early 2022 may be your last chance to get out of Bitcoin with anything to show for your adventures in it.
How many of James’ projections will manifest this year? All of them? None of them? One of them?
The Year of Breakdown
Another Daily Reckoning contributor — Charles Hugh Smith — divines that 2022 will be the “Year of Breakdown”:
Predictions are hard, especially about the future, but let’s look at what we already know about 2022. Viewed from Earth orbit, 2022 is Year 14 of extend and pretend and too big to fail, too big to jail and Year 2 of global supply chains break and energy shortages…
I often refer to first-order and second-order effects, and that’s the story that will be told in 2022 with explosive results. First-order effects: Actions have consequences. Second-order effects: Those consequences have consequences…
2022 is the year that the second-order effects come home to roost: All the risk that has been transferred to the financial system as a whole will generate consequences the Fed and other central banks are unable to control. The stupendously toxic incentives to speculate will generate consequences the Fed and other central banks are unable to control. The stupendously toxic wealth inequality will generate consequences the Fed and other central banks are unable to control…
If we look at the fragility and instability of essential systems, it’s clear that 2022 will be the year of breakdown.
Last Year’s Scorecard
We now come to our own rafter-raising forecast for 2022 — a forecast guaranteed to knock you down.
Let us first grade our soothsaying for 2021. Last Jan. 4 we divined that:
The virus will cease to be a menace by summer. The economy will expand 2.3% this year. The budget deficit will come in at $2.41 trillion. Interest rates will remain at zero. The Federal Reserve’s balance sheet will near $9.77 trillion. The Dow Jones will close the year at 28,617. Gold will close the year at $3,893.51. Bitcoin will close 2021 at $47,588.26.
How did we grade? We will award ourself a gentleman’s C — on a very generous curve of course.
The United States budget deficit scaled $2.77 trillion in 2021. We hazarded $2.41 trillion… close enough… as is said… for government work.
Interest rates did remain at zero. Though in fairness, tomorrow’s sunrise represents a greater uncertainty.
The Federal Reserve’s balance sheet closed the year at $8.57 trillion, marginally less than our $9.77 trillion divination.
We prophesied that Bitcoin would end 2021 at $47,588.26. Bitcoin in fact ended 2021 at $46,350.63 — near bull’s-eye.
We are awarded F’s on all remaining items. Yet let us proceed with three stunning predictions for 2022…
Three Stunning Predictions for 2022
Prediction No. 1:
In 2022 the stock market will rise. Or fall. Or — or — it will end the year precisely where it began.
Prediction No. 2:
Bitcoin, gold, oil, United States Treasury notes and all remaining assets will rise, fall… or hold steady.
Prediction No. 3:
The economy will expand in 2022 — unless it contracts. Bear in mind: The economy may do neither.
There you are — three thundering predictions for 2022.
And recall, fortune favors the bold.
But you are dissatisfied with our cowardly shirking of the prognosticating responsibilities required of a newsletter man. You want specific predictions.
Then specific predictions you will have…
The virus will cease to be a menace by summer. The economy will expand 2.3% this year. The budget deficit will come in at $2.41 trillion. Interest rates will remain at zero. The Federal Reserve’s balance sheet will near $9.77 trillion. The Dow Jones will close the year at 28,617. Gold will close the year at $3,893.51. Bitcoin will close 2022 at $47,588.26.
There is 2022 for you — down to the final jot, down to the final tittle — down to the final decimal point.
Getting Your Money’s Worth
But you raise a thunderous objection: This year’s forecast is last year’s forecast. You are taking me for a sleigh ride. You are razzing me.
You are quite correct. Yet last year’s forecast and this year’s forecast will likewise be next year’s forecast.
As the dead clock gives correct time on occasion, we hazard our crystal-gazing will eventually give a true reading.
Of course, The Daily Reckoning is a free publication. We charge nothing for the (mis)information posted above.
And this you must admit: At least you are receiving your money’s worth…
Managing Editor, The Daily Reckoning