The Outlook For 2022 Part 1
I was very bullish for pretty much all of last year but this year is very different.
The Fed is starting to tighten
We are entering a fiscal cliff
Comparisons will be much harder than last year
The economy will slow
Inflation will continue high
2022 will not be pretty. It's going to be much trickier to play than 2021. This week I will go through some of the reasons why.
Debt is climbing to record levels. Government debt is over $20 trillion and rising. Corporate debt is at record levels. Personal debt is not as bad but getting bad quickly. Just today, it was announced that mortgage debt hit a new all time issuance of $1.61 trillion in 2021. That is in addition to the many trillions already outstanding.
So here is the problem. The Fed has said they will raise interest rates three times this year. That has several major effects:
Stocks will go from slightly overvalued to clearly overvalued. That doesn't meant that they will enter a bear market but it does present a stronger headwind for future gains and makes the market more susceptible to bearish news.
All that debt outstanding will now be more onerous due to higher interest payments. Zombie companies may start to go belly up. Less money will be available for government spending because it will be going to interest payments instead. Personal debt payments will increase thus blunting personal spending and causing the economy to slow.
Holding cash will become more attractive, thus bringing cash out of the stock and bond markets.
So Fed policy will present challenges for the stock market, bond market, and the economy. Not pretty.
Tomorrow, I will discuss the upcoming Fiscal Cliff and how it will affect the various markets.
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