It's the quiet ones you have to look out for
No one wants it any more, I am talking about gold and more generally about precious metals, which have had a bad year. To be convinced of this, one only has to look at the scores of the compartment since January 1st (in USD I specify): -6.0% for gold, -11% for platinum, -15% for silver and -24% for palladium, while most of the other commodities have posted positive scores in double digits.
This displeasure with the barbarian relic reminds me of the 2017-2018 period, during which gold also underperformed even though the context was favorable. Today, despite the price momentum, the environment still remains supportive of the gold metal for the main reasons I will list below:
Not-so-transient inflationary pressures. Nominal rates cannot rise faster than inflation, real long-term rates will remain negative, a good thing for gold which does not deliver a return. Central bank purchases. Possible exogenous shocks? Such as a worsening of the Russia-Ukraine and China-Taiwan conflicts.
In this context, diversifying one's portfolio with a dedicated gold pocket can be interesting, by selecting thematic ETFs or gold mining companies. This approach would be rewarded if gold prices return to USD 2,000 in 2022, or even higher, as one should always beware of sleeping dogs.
Several prophecies for the price of one
Elon Musk resigns as CEO of Tesla, and the manufacturer does not take advantage of the tax incentives put in place for American manufacturers whose employees are unionized, the price falls sharply. Not scalded, Elon Musk creates his own crypto-currency, the Muskoin. In the wake of this, Donald Trump creates his own, the Fakecoin. The One Piece manga and its derivatives continue their rise. Sales explode. Shueisha, the Japanese publisher of One Piece comics, goes public in Tokyo, and makes a killing. Binance partners with Meta to enable transactions in BNB (Binance's in-house crypto), and opens shops in the metaverse.
Salesforce will buy Twitter
Salesforce, the leading platform for Customer Relationship Management (CRM) solutions, helps customers empower sales forces, optimize sales data processing, manage call centers, partner relationships and implement marketing solutions.
To expand its reach, Salesforce acquired Slack, the massively used enterprise messaging app, in late 2020 for $27.7 billion. Slack's integration with the Salesforce Customer 360 cloud offering adds value to the platform to bring together people, data, and tools so that teams can collaborate and work from anywhere.
To complete this strategy, I think it's a good idea for Salesforce to acquire a company like Twitter, a social network that is widely used by professionals and whose influencers are often older and in the workforce, unlike Instagram, which reaches more people under 25. A rumor had already been launched in September 2016 when members of Twitter's Board of Directors were considering selling the social network.
Twitter's shareholders have been penalized for more than a decade by the dip in the schedule of its ex-CEO, Jack Dorsey, then head of Square since 2009, one of the largest fintechs in the world which is now called Block, which is also involved in blockchain projects. The share price has risen by 0% since its IPO in November 2013, compared to 550% for Facebook, now Meta. The recent management change with Parag Agrawal as the new CEO (a pioneer in machine learning) and Bret Taylor (co-creator of Google Maps) as head of the executive committee should improve things but does not rule out a potential buyout at all.
Facebook share price compared to Twitter share price since November 2013
Salesforce wants to become a digital giant like Microsoft, which developed Teams in 2016 to compete with Slack. This hypothetical Twitter takeover would be similar to Microsoft's takeover of LinkedIn in 2016. Twitter could be used to market tools to professionals and would be an additional brick to Salesforce's CRM software. Slack vs. Teams, Twitter vs. LinkedIn and Salesforce vs. Microsoft,
Twitter would also be an opportunity for Salesforce to focus on mobile. The expertise in CRM software associated with a mobile social network would accelerate the movement on data analysis and the relevance of solutions provided to professionals for mobile. Twitter's database combined with Salesforce's technology expertise could lead to relevant collaboration.
Finally, while Salesforce has a strong software foundation, how people perceive it has a strong impact on its success. What better way to communicate with your community than to control a social network?
A crazy gamble, but one that makes sense given Salesforce's strategy over the past several years
The Play-to-Earn trend will take off
In recent decades, the video game industry has established itself as a very lucrative entertainment market, and the catalytic effect of the global pandemic has greatly boosted the sector. The industry is expected to reach $175 billion by 2020, a 20% increase over the previous year. Free-to-Play or Freemium models are popular, with advertising or in-game purchase incentives to generate revenue. But a new model is emerging: Play-to-Earn.
It is based on NFTs (Non Fungible Tokens), which represent a unique and certified digital object on the blockchain. It is about monetizing experiences in video games (weapons, infrastructures, objects, terrains, vehicles, characters... ) by allowing players to exchange these between themselves against digital value.
Video games on the model: Play-to-Earn (Source: Coin98Analytic)
The concept of Play-to-Earn opens up a new avenue for amateur gamers. The giants of the sector will want to seize the opportunity and from my point of view, the year 2022 will be a pivotal year for this new economic model and it will gradually become the reference for developers.
Airbus will be crushing Boeing
Boeing is still much better value than Airbus. This is my 2022 belief: Airbus will finally close the gap with Boeing. In the great battle between The Boeing Company and Airbus, the American group always benefited from more generous valuation multiples than its European rival. Because it has long been alone in the world. Because it has a substantial defense branch that guarantees it a recurrence of contracts with the American authorities, which are not disguised aids, but still a little. Because its shareholders are pampered (a little too much, we'll soon discover).
I remind you that this market functions as a duopoly, since the outsiders have been relegated to regional aircraft or have disappeared. And that the Russians and Chinese themselves are afraid to climb into the current Russian and Chinese alternatives. For a long time, Airbus dominated the single-aisle segment, while Boeing dominated orders in the more lucrative widebody market. The American group was the master, the European was second.
As is often the case in such situations, the leader rested on his laurels. The group was no longer managed as an industrial company but as a machine to pay its shareholders, as shown by the numerous documents published since the latest fatal accidents involving the B737MAX. The image of a company run by cost hunters at the expense of engineers has been widely used.
In short, Boeing's image of excellence has eroded with the B737MAX. Even the previous successful B787 and B777 programs have suffered setbacks. Airbus, on the other hand, has been more innovative. Of course, the A380 program did not find its audience, but it did provide significant feedback, which benefited other developments. The A350 found its audience and the modernized version of the A320 family, called the A320neo, crushed the poor B737MAX. What's more, Airbus is now the sole player in a niche that Boeing had abandoned, that of long-range single-aisle jets or those with a large carrying capacity, with the A321neo success story. Here again, because Boeing refused to develop a successor to the B757.
The Seattle-based manufacturer has begun to take control. But injecting a new dynamic into an organization of 140,000 people is a major challenge, especially in a sector, aeronautics, where investment cycles are extremely long and expensive. As a result, Airbus is expected to maintain its commercial lead over Boeing, which is already visible in order intake and deliveries in the current and previous years. Most recently, the European aircraft manufacturer has again won Qantas and Air France-KLM contracts at the expense of its rival.
Diplomatic Crisis: China vs. the World
Sporting events are a constant reminder of the ability of certain countries to turn a demonstration of athletic excellence into a vehicle for international politics. The practice is not recent (everyone knows the history of the Berlin Olympics in 1936), but the global visibility of these events has never been so great.
The Beijing Winter Olympics in February 2022 will be the second games hosted by China in fourteen years. Except that in 2008, China had not yet reached its full power of today. Moreover, the eyes of the world are riveted on the Middle Kingdom for an unprecedented amount of controversies, including the repression of the Uyghur communities, the mysterious disappearance and reappearance of the Chinese tennis player Peng Shuai, or the repeated provocations with Taiwan and the clashes in Hong Kong...
To make matters worse, relations between the US and China are frosty, while the collapse of real estate giant China Evergrande is putting financial markets under stress as China urges its companies to leave US markets and return home. Similarly, the US is again blacklisting Chinese companies because of their affiliation with the Chinese central government (prohibiting American investors from investing in these companies) and sanctioning others to limit access to US data by Chinese technology players.
These winter games are likely to act as a catalyst for strong political reactions from the US and China, bringing back memories of the Cold War. 2022 looks set to be the scene of a strong diplomatic war between China and the Western democracies.
Always question your beliefs
Since we are talking about predictions and beliefs, I would say that we should not have any in 2022. Don't be convinced that rates will rise and cause indexes to fall, since historically, indexes tend to rise when rates are rising. Not being convinced that said rates will rise, since as in 2018/2019, the slightest sneeze from stock markets could cause central bankers to flip-flop. Not being convinced that banks will actually go up, after a nice recent run.
In 2021 we have seen two types of markets. On the one hand, bullish steamrollers, bigcaps, luxury, semiconductors, long quiet rivers that have benefited from unceasing (and historic) flows and on the other hand, small and midcaps that are having a blank year, in the US (Russell 2000) as in Europe. It is hard to say whether the situation will change, but it is not inconceivable, especially if value returns to neglected and potentially undervalued stocks.
In 2021 we have also seen a rather positive phenomenon that several managers have told me about recently. Speculative pockets have formed the beginnings of speculative bubbles, on SPACs, US growth stocks, the famous zombie companies that don't make any money, etc. Each of these bubbles is now in a state of collapse. But each of these bubbles deflated as they went along and returned to the "norm".
If I had to choose one asset for 2022, it would be volatility. After a very directional and bullish year on almost all stock markets, I would not be surprised to see jolts, air gaps, a market still supported by central banks, but to a lesser extent, and with possible momentary bearish accidents. A sort of large horizontal channel (range) where we should not hesitate to cash in on increases of 15 to 20% and to pay on decreases of 10 to 20% also depending on the files and / or indices.
Perhaps the time for stock picking will be in full swing, and we will have to rely, as always, on companies with good fundamentals, in order to guarantee ourselves a certain security. A period where we would benefit from downturns rather than bullish accelerations, as we have seen this year, a period where we would have to be a little more cautious. A period where you should be a little more cautious, and/or more agile, depending on whether you want to remain passive or optimize (a big debate for another time).
Healthcare companies will outperform other sectors
As the Delta variant continues to rise and Omicron is fast replacing it, vaccines still have a lot to live up to.
While markets have anticipated vaccine needs for 2021, they have not factored in the need for as much vaccines in 2022, due to the emergence of variants such as Omicron, which appears to be partially evading the protection of vaccines.
In addition, the billions invested by governments to develop innovative treatments will pay off in 2022, with new drugs and vaccines, not just against Covid.
One indicator to watch will be the MSCI World Healthcare, which could outperform the MSCI World.
Most importantly, regardless of the market's direction, the healthcare sector will do well. Indeed, defensive stocks will be favored if the market is bearish, while a bull market will push investors looking for growth and quality companies - of which there are many in this sector - towards healthcare.
European indices will grow faster than US indices in 2022
In its Beige Book published at the beginning of December, the US Federal Reserve indicated that between October and November, economic activity evolved at a moderate pace in most districts. Consumption is picking up slightly but supply problems are still being felt. The construction sector is the most affected. The manufacturing sector is experiencing solid growth, but is operating at a low ebb. Finally, loan demand continues to rise, although some districts have reported a decline in residential mortgages. Related to employment, businesses are expressing difficulties in recruiting and retaining employees. Children, retirements and Covid were the most cited reasons for this dynamic. Logistical challenges, labor market tensions and high demand for raw materials explain why producer prices, consumer prices (some companies are able to pass on higher costs to their selling prices) and wages have been rising in recent months. Even if access to certain resources is becoming easier (semiconductors and steel, for example), this context justifies the Governor's remarks and explains why rate hikes are necessary and to be expected in the United States.
Make no mistake, despite the many similarities, the situation is not quite the same in Europe. Despite rapidly rising inflation (estimates revised upwards to 4.9%), wages are barely keeping pace, with the exception of certain sectors experiencing labour shortages (hotels, restaurants, industry). The average wage increase in the eurozone was only 1.73% in the second quarter, i.e. lower than in 2018 and 2019 despite the intensification of price increases. However, we will have to wait for Q4 data to see whether or not wages are frozen and thus speculate on the temporary nature of the price rise in Europe. It is worth noting that Christine Lagarde has not yet expressed any concern about a potential inflation-wage spiral. However, given the involvement of employees during the crisis, the difficulties in recruitment, the rise in consumer prices and the very good results of companies, it is difficult to imagine a world where negotiations do not lead to an increase in pay. However, it is interesting to note that pay rises are much easier to implement in the US than in Europe. This is because in the US, many industries are dominated by a few giants, whereas competition is much greater in Europe. A pay rise is even unthinkable for some French and German companies that are fighting with international competitors and need to remain competitive to survive. Finally, following this reasoning, one could almost believe that Europe's economic weakness will allow us to avoid an inflationary spiral and therefore a precipitous rise in rates. It is therefore the shareholders who will benefit through markets that continue to rise, to the detriment of employees and their purchasing power.
In this respect, it is possible that these divergences in monetary policy (if they continue) will lead American operators to strengthen their presence in European growth stocks that still benefit from advantageous rates. This, incidentally, could do a lot of good to Europe's indexes.
Another line of thought leads us to the same conclusion. This is the evolution of GDP. Let's take the case of France: between 2019 and 2020, French GDP fell by 7.99% (yoy) against "only" 3.40% in the US. The 2020 data have therefore largely deviated from their 40-year regression, which moreover indicates an average annual GDP growth in the US of 2.66% against 1.75% in France. The recovery potential therefore seems greater and faster for the countries that have suffered the most, an assumption that can be widely commented on. However, analysts seem to agree with this reasoning since when we look at the French and American GDP forecasts for 2022, we find 2.670 and $21,194 billion respectively, i.e. a growth of 3.8% for France and 4.3% for the US compared to the 2021 figures (which are also estimates). It can be seen that the difference between the estimated growths for the two countries is smaller than what has been observed historically.
The economic context and the various reasons mentioned above lead me to believe that the European markets will grow faster than the US markets in 2022. For those I have just shocked, let's remember that the historical performance of the French CAC40 GR is around 8.7% per year for a volatility of 21% and that that of the S&P500 NTR is around 8.5% for a volatility of 19.5%.
However, the S&P500 NTR and the CAC 40 GR were not initiated at the same time. Similarly, the CAC 40 GR does not reflect the performance of the European markets and the S&P500 is not the only American index. Obviously, information on wage increases in Europe may call into question this prediction.