One thing is certain: numerous predictions about 2020 and 2021 in categories ranging, from the emergence of a pandemic, to continuance of the pandemic, how best to cure the pandemic, to rates of inflation, supply and demand in the economy, to the ability of technology to make accurate predictions… were wrong.
Possibly the largest factor affecting the US economy today, inflation, was not even on the list of biggest risks at the 2021 World Economic Forum.* This is not to poke fun at the predictors but rather an indication of how misguided predictions about risk can be.
Things that did happen included:
- Surges in inflation nationwide (mostly a bad thing)
- Supply and labor shortages (mostly bad)
- Continuance of the pandemic (bad)
- Leadership and government “misses” (mostly bad; partly good)
- Rises in income, available money to spend (bad & good effects)
- US and world stock markets UP a fair amount (good, even great)
- Retirement a reality for a fair number of US savers & investors (great)
- Advances in space travel (good)
- Increase in presence of cryptocurrencies (good?)
Where do these data points lead in 2022? Only time will tell but here are several risk-based guesses.
1. Risk of inflation continues, based on a US Fed currently hesitant to raise interest rates and the amount of already distributed and potentially to-be-distributed government stimulus money. How to combat inflation? There is not much an individual can do outside of monitoring spending and asset allocation, being ready for continued sticker-shock and adding to savings.
2. Stock prices and returns remain difficult to predict, based on the amount of current uncertainty in critical government policy and lawmaking. How to make money in the markets amidst uncertainty? Perhaps the same actions to combatting inflation (#1, above). Admittedly, the economy and potential for intermediate-term stock gains remain fairly strong with household savings levels still slightly above average pre-pandemic levels. Caveat: see #1 above.
3. Cryptocurrency continues to progress in value, use, risk, and the ability to invest in via ETF and other modes, “wallets,” and markets. There will be far, far more air time and research regarding cryptocurrency so please stay tuned to TGIF 2 Minutes and other informed sources.
4. The labor market and workforce participation rate will be key factors in getting the year started. The workforce (or labor) participation rate measures the country’s active workforce including those who still want to work even though they are unemployed and have stopped looking for work. The number of people over the age of 16 who stopped looking for work went disturbingly UP amidst multiple rounds of government stimulus. In a rebound in recent weeks with emergency stimulus money expirations, the number of those looking for work has increased, equating to a rise in the labor participation rate. On balance a good sign – and could contribute to lessening strong inflationary forces.
5. The (fake) champagne shortage subsides. This one took care of itself with any shortages the result of consumption of the bubbly. All the more reason to avoid the dreaded and wasteful “champagne spray”. Loyal TGIF 2 Minutes readers will laugh at this one.
*Greg Ip, “Covid-19, Inflation Make a Mess Out of Predictions”. WSJ.com.