2022: Here’s What I See Ahead
As I’ve said in past blog posts, head for the hills if anyone tries to predict the future.
That said, 2022 is just around the corner and since I’m often asked my opinion, I’ll give you my read, which takes into consideration information at hand, known unknowns and, as always, a healthy dose of human behaviors. We’ll start with the unknowns, as these pain points should make anyone take predictions with some hefty grains of salt.
2022: Known unknowns
The pandemic: Any discussion about 2022 has to include the pandemic — yes, we’re still in it and as I write this, COVID-19 numbers are rising in some regions, causing national (and some international) case numbers to tick up just as head into the holiday season. (In some areas, we’re already looking at higher case numbers than we had last year at this time and Thanksgiving is just two weeks away.) Companies that adapted quickly and pivoted to meet changing customer needs will continue to succeed into the new year and beyond.
Politics: Analysts herald the outcomes of last week’s elections as a barometer of public sentiment today and a window into 2022 midterms. If that’s the case, 2022 doesn’t bode well for progressive agendas. Further, the Biden administration’s optimism for sweeping legislation was reduced to a far less robust package. Within the resulting legislation, though, there are still opportunities for several industries.
Supply-chain challenges: Some analysts see this as an ongoing problem, some see it easing. Others view it as a balance to the on-fire economic rebound.
In my opinion, there’s truth to all sides and how to move forward depends largely on each person’s own tolerance to adapt. For example, if we become more tolerant of waiting for products, then that could generally ease the challenges and manufacturers may not make any major changes to production and distribution. If, though, we need what we want, when we want it, there will necessarily be more inventory at every point.
While I don’t see a reversion to old ways of overstocking, I think product-dependent businesses will try to find more of an inventory “happy medium'' than we’ve seen in decades.
Inflation: A while back we looked at transitory versus longer-term inflation and to me, it looks like inflation and its impacts are going to stick around for a while. In fact, as I write this post, The Wall Street Journal reports that U.S. inflation reached a 30-year high in October, annualized at 6.2%.
As proof that everything’s relative, an update on the price of ethanol, which we all know as the gas additive, is bad news for consumers who are now paying an average of $3.41 per gallon at the pump but, as quoted in The Wall Street Journal, we have this:
“We’ve seen the stars align in recent weeks,” said Geoff Cooper, chief executive of the Renewable Fuels Association. “Ethanol demand is hot right now.”
2022: Stocks and other assets
Although this isn’t new, it’s a trend that bears watching: international conglomerates segmenting to leverage particular brands and industries (and to disassociate from their own potentially controversial brands and businesses), including planned public offerings for the spinoffs. Vector Group announced that it would segment and spin off Douglas Elliman, its preeminent real estate brand, which it plans to trade on NYSE (appealing to investors who love real estate but stayed away from Vector because of its tobacco-based business, for example). And GE announced that after years of paring down its immensely diversified businesses, it’s taking that further to focus on energy, healthcare and transportation. I’m of the opinion that this trendline is one to watch as companies regain control of manufacturing and distribution and favor investment in obvious growth opportunities, while downplaying profitable-but-unpalatable business.
As I’ve said since I started this blog, stocks are overvalued. I think a train’s coming down the tracks — and even a slow train or a short train is a powerful train. I won’t tell you when or what to do but I will say, keep your eyes open and watch the best investors — I think we’ll see a shift to more conservative positions to reduce some exposures.
I predict that companies providing regular dividends will gain favor as the frenetic pace of investing slows. On that note, I think bonds will gain favor again as our aging population looks for stability. Although the last few years and the last 18 months in particular were an anomaly, keep in mind that downturns happen much more swiftly.
There’s no doubt, too, that as companies look to improve efficiencies and reduce waste (aka, human error), the application of AI will continue to grow. As reported recently on CNBC, “McDonald’s said Wednesday it has entered a strategic partnership with IBM to develop artificial intelligence technology that will help the fast-food chain automate its drive-thru lanes.” And here we are: McRobo serving up your McRib.
Still, while AI and machine learning are making swift strides, we see that when businesses rely too heavily on short-term data, they’re at a disadvantage, particularly when the time frame includes an anomaly-driven event, because they take as gospel information that resulted largely from erratic behaviors (Zillow is one example). Companies that use what we’ve seen over the last 18 months plus behaviors that we’ve seen for 10, 20 and even 30 years will be better off, because they’re accounting for a broader range of behaviors and habits.
The question is, what are the skews that we need to look for? Companies that can identify those will be much better positioned in 2022 and, likely, for years to come.
Certainly, companies that focus on clean energy — clean electricity, in particular — will grow. This includes those that find better ways to produce it and those that harvest, store and distribute it to make it cost-effective and efficient for use in our homes and on our roads. Keep an eye on those.
I think in 2022 and beyond, we’ll see great opportunities for businesses that accommodate and optimize work-from-home/work-from-office hybrids that make the overall experience better for employees and employers alike. Most likely, this will be in tech, such as optimizing and leveraging high-speed internet service, but think broadly about what we’ve learned from current challenges and where opportunities may be.
And while it could be wobbly depending on which way the pandemic goes over the next couple of months, there’s definitely pent-up demand for personal and business travel. That said, which companies are offering this? Who's doing it differently to ensure safety, efficiency and comfort? Explore those.
2022: Crypto and other alternative investments
These days, just about anyone with a few Reddit followers can launch a cryptocurrency and still, there are no tangible underpinnings. Even if bitcoin rises to $100K, then, there’s still not much that gives it real value, except human beliefs, which we know are highly susceptible to change.
Cryptos may continue to rise in value for a while, but I think that in time, governments may create their own cryptocurrencies, backed by their federal treasuries and regulated (and taxed) by their various authorities (or, like China, squash them). If that happens, what then? Whether they achieve global acceptance as usable currency — and, thus, retain real value — is anyone’s guess. My guess, though, is that they’ll diminish in time.
2022: Residential real estate
As with companies that are peeling off brands to optimize them, in 2022, I think we’ll see an effort to change, and improve, the ways that agents are valued, which includes enabling the best of them to leverage their brand value. For example, during the recent frenzied buying spree, top agents understood the advantages they provided and leveraged them to become even more powerful; likewise, their individual brands became more important and in 2022, this power dynamic will continue to rise.
Real estate brands that correlate with financial brands is another area to watch; Forbes Global Properties is one strong example. This is important because in nearly every market, residential real estate is now a complete asset play and a growing investment class, not just something bought and held for family shelter.
In 2022 and beyond, I also see tremendous potential in companies that can optimize the transaction experience. I think we’re eventually going to see a national MLS and a national, standardized transaction process, so companies that are at the forefront of that are interesting to me. I think that there’s also an opportunity to use tech to improve agent-to-agent communications and improve efficiencies in that part of the transaction process. Another area with growth potential is emerging tech that’s focused on streamlining the underwriting process to improve residential real estate as a hedge.
And here’s an interesting thing: A few months ago, I had the pleasure of meeting analyst Ivy Zelman at an industry conference. She made a name for herself by calling the housing-market blowout (which she called as early as 2005, although it didn’t implode until a few years later).
Now, Zelman’s going against the grain again: In her analysis, she says that there’s no shortage of home supply and that supply-chain issues are, in actuality, helping to regulate the risk of over-development. As reported via The Real Deal:
“The perception that housing is drastically undersupplied and that a strong demographic picture lies ahead is creating a false sense of security,’’ according to a report by Zelman’s firm entitled ‘Cradle to Grave.’’ “By our math, both single-family and multi-family production are already ahead of normalized demand and estimates of a housing deficit are grossly exaggerated.’’
What??? As the article says further on, “Homebuilders, the National Association of Realtors and Freddie Mac are pushing a now-familiar narrative that soaring demand for scarce housing is driving up prices. By NAR’s estimate, the U.S. has about 6 million fewer homes than people want.”
So, who to believe? If you read the post (and I encourage you to do so), she presents some sound arguments. How to use this information simply depends on whether you’re in the market for a home or looking to make significant investments in residential housing assets, like REITs and others.
Beyond 2022
At some point, I hope and believe, Covid-19 will be a managed disease, like the flu. One reason for my (relative) optimism is that biotech has made incredible progress in the areas of research, vaccines and other treatments. Not only will this impact COVID-19, but it will have positive implications for other healthcare challenges. If there’s any silver lining to the pandemic, this has to be it.
So, if (like me) you’ve let your guard down since getting vaccinated, take extra care as the holidays approach — let’s work together to ensure that by the time I make my 2023 predictions, we can talk about this in past tense, for good.
