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Ranmore Fund Management founder Sean Peche shared his 10 market surprises for 2022, inspired by chairman of the Blackstone Advisory Group, Byron Wien. Peche believes the big tech will experience pain, as he expects Covid-19 will fade into irrelevance with life reverting to more normalised standards. He also anticipates value stocks to outperform growth stocks, with the latter dominating for the better part of a decade. – Justin Rowe-Roberts
Sean Peche on 2021 in review
A lot has happened and I thought it would be interesting to have a look at 2021. So, there’s a chap – and I’d encourage your listeners to go and have a look at this – but there’s a gentleman called Byron Wien, the chairman of the Blackstone Advisory Group. Every year he puts out Byron’s 10 surprises for the year, and he has been doing it since 1986. What he does is he puts out 10 surprises that just seem ridiculous to everybody, who believe there’s just no way it is going to happen.
But he’s obviously been successful enough; that, so often, what is unexpected happens, and he still does it 35 years later. So, let’s take a look. What did he say were going to be his surprises at the end of last year. He said the success of five and 10 vaccines would allow the US to return to some form of normal. That has largely happened.
The Justice Department softens its case against Google and Facebook. That hasn’t happened. The economy develops momentum on its own, and depressed hospitality and airline stocks become strong performers. Well, at the end of last year, the GDP growth was -1%. It is currently 9.7%. So, I’d give him half a mark for that because hospitality and airline stocks haven’t recovered. Unemployment falls to 5%. It was 6.7%, it’s now 4%. I’d give him a mark there. The Federal Reserve and Treasury embrace modern monetary authority. Give them a mark.
Oil price would recover to $65. At the time, it was $48. It’s currently $71; $65 felt a long way from $48, so he gets a mark there. Risk on, the S&P trades at 4,500 in the year. At the time, S&P was 3,500 so he got a mark. The surge in economic growth causes the Treasury yield to rise 2%. It was less than 1%. I would give him half a mark. The slide in the dollar turns around. Well, the dollar is up 7% since then, so I actually scored him 75%. That is quite amazing. Those were all things that just at the time felt miles away.
On his 10 surprises for 2022
I have come up with what I think are my 10 surprises. Let’s look at those. Covid-19 fades into irrelevance. Omicron, I think it could actually fade into your irrelevance. A few days ago, I wrote my fact sheet about Pfizer, but some of the data coming out about how mild it is and how it is spreading faster than the Delta [variant], maybe it fades into irrelevance, and that gives the Fed an excuse to raise rates. So, the Fed funds rate was 1.75% pre-Covid-19. It is now 0.25%.
What happens now if there’s an excuse to raise rates and it just goes back to 1% … it seems like a long way but it doesn’t seem unreasonable. Here is the controversial one. The tech basket falls 30%: Apple $2.7trn, Microsoft $2.5trn, Amazon $1.7trn, Google $2trn and Tesla $1trn. Those few companies together add up to $10trn. Just five years ago, the thought of a trillion-dollar company was quite something. Amazon’s earnings fell last quarter.
If the world economy opens up, if Covid-19 is no longer an issue, we’re not going to be spending money on tech. We want to go travelling. We want to go to restaurants. We don’t need to refresh our iPhones. I think the tech basket could easily fall 30%. Value smashes growth by 30%. They’re both up 17% year to date. There is no difference. Amazon is flat. Deutsche Bank’s beaten Amazon this year. Small caps beat large caps. Small caps are up 12% year to date. Large caps are up 18%. I think next year, small caps will absolutely destroy large caps. If people start to scurry out of tech stocks, that $10trn has to find a home.
Even if you get half a trillion dollars moving out, you know that’s going to move the small caps. Europe beats the US. This year, Europe is up only 8.7%, the US is up 21%. For next year, I think Europe will beat the US. I predict Bitcoin will bite the dust and fall 50%. I think inflation will fall because Covid-19 fears will dissipate and some of these other commodity prices will start to soften. The dollar will fall 10% and the oil price will hit $100 are my final surprises.
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