RM's 2022 Predictions

Every year we try and challenge ourselves to take a short term stab at what we think will matter most for millennials in 2022. Our focus tends to be private and public markets but often extends into global macro. Our batting percentage is far from perfect but it isn’t bad considering the pitches and swings we’ve taken.

With any luck, our predictions in 2022 will turn into good returns on career and investment choices for listeners of our podcast.

With Omicron taking hold of our immediate term narrative, we’ve chosen to ignore its impacts and focus on narratives for life after this variant runs its course.

1. Work From Home

a. The pandemic evolves into an endemic in the first half of 2022, companies reopen their offices and their regular employees will largely opt to go back to working together in offices.

I qualified this with “largely” and “regular” because I don’t think we will go back to everyone in the office again. Companies have become much more comfortable hiring remote employees who don’t live near HQ. These employees have made it clear that they want/need the flexibility to work from home a day or two a week. And in response, some companies have moved to an entirely remote work environment. But I think the dominant form of working will return to “in office, with others” by the end of 2022.

b. The top 5% of employees/talent figure out that the future of work isn’t just work from home but a Polygamous Career. The underlying tooling that allows people to build their own businesses and work for themselves, across categories, will continue accelerating under this new narrative — in commerce, healthcare, education, financial services, etc.

Talent will start rearchitecting from an old school vertical structure (I work for a company) to horizontal (I have a talent set I am going to apply across projects/companies/people) and reward/incentive/payment systems will need to evolve with that. In 2021 we saw an explosion of professional corps, llc’s and entrepreneurship. This has been largely the combination of a never ending pandemic and new SAAS tools that unlock brand and scale for the individual.

2. Carbonization

Energy Stocks are still CHEAP! In 2022, Oil and Gas companies continue to out perform the broader market. $70 - $80 WTI puts all un-levered and unhedged companies in a position to return an obscene amount of their cash to shareholders in the first half of 2022. The story continues to be all about insufficient investment in O&G which results in higher prices for longer.

In second half we start to see the impacts of the capital investment in green infrastructure. This unlocks management. Since 2016, the executive teams of O&G haven’t had the share prices needed to invest in the future, and by the second half 2022 we start to see meaningful investment in infrastructure and exploration which kills the ROC programs and special dividends.

Think: $SU, $CPG, $OXY, $MEG, $RDS.A and $CNQ

3. Decarbonization

Carbon offsets, effectively a voluntary form of self carbon taxation, will take off in 2022 and by the end of the year, we will have a global market in excess of $10bn (up ~10x in 2022).

I think the big unlock will be bridging between the existing carbon offset market and the crypto markets where decentralized finance tools can bring massive innovation and demand to this market very quickly.

4. EM outperforms the S&P500

The S&P has an average year putting up a painful 8% return while China and the Broader Asian/Emerging market mean reverts. The 275% out performance of the S&P500 over the last 14 years reverts.

This predictions stems from a historical view on Chinas 5 year plan. The EM market often under performs on new 5 year plan years (2021). Years 2-4 are the best. Place your bets.

Think: $VEE, $KWEB, $TCEHY

5. ETH flips BTC marketcap.

Ethereum’s market cap will surpass Bitcoin’s in 2022. Ethereum’s merge in 2022, combined with the understanding that productive assets must be worth more than non-productive assets, make this a fairly obvious prediction.

I think we are likely to see a dump early in the year, as leverage ratios are high. But over the next 12 months, ETH drastically out performs BTC making a fool out of Micro Strategies CEO.

6. Inflation

Global governments printed a lot of money to fend off the pandemic. Combine this with supply constraints that the pandemic caused and you had a perfect recipe for inflation. BUT in 2022 we should start seeing some signs of relief. The two main drivers will be the reversal of the above. The large reduction in fiscal policy combined with the potential for tightening monetary policy should ease inflation expectations.

The seasonal decline in shipping combined with the broader return to work should continue to loosen the tension on supply chains. This is already starting to bear out in commodity markets where prices are down 4% from their October 2021 highs and the rate of change should slow heading into Q1 of this year.

Most importantly there will be a meaningful “topping effect” in inflation data by the summer of 2022.

7. Proliferation of Content Fortresses

Another trend for 2022 will be businesses building media arms of their companies. Customer acquisition has become so costly that starting/buying your own media company is now an economically viable growth strategy.

Eg. Content Fortress - FB Shops.

The FB Shops product allows merchants to host their stores and service transactions directly within the Facebook Blue and Instagram apps: because users never leave a Facebook app, Facebook has full transparency into those transactions in a first-party setting and can use purchase data to target ad campaigns in compliance with ATT and, likely, upcoming privacy regulation.4. K12 systems around the North America (and around the world) faced with teacher shortages and desperate to erase several years of learning shortfalls, will increasingly adopt online learning services in the school building in lieu of and in addition to in-class learning.

Think PayPal buying Pinterest when you think about aggregation of payments with content.

8. Community Investing

The next big thing in 2022 is social investing in communities. In 2021 we saw the rise of social investing, people investing together going after the gains of Wall Streets hedge fund wizards. In 2022 this trend is going to grow and we are likely to start seeing more social, grassroots investing in communities and causes, with crypto pushing what’s possible.

The major benefactors here are green energy, municipal level fund raising and the small city illiquidity/capital shortage problem.

9. Data companies continue to achieve astronomical growth

Software engineering best practices have begun to infuse data: data observability, specialization of different layers, data exploration, and data security all thrived in 2021 and will continue as users stuff more data into databases. Large software companies accelerated growth this year.

While 2021 was a year of multiple contraction and explosive growth for SAAS, 2022 is setting up as a year where the best in class position themselves as sector leaders and boom leaving the incumbents and competition in the dust.

Think: $TWLO, $DDOG, $NET, $UPST, $CRWD

Conclusion:

The current environment is one of the most difficult asset allocation environments we’ve seen in a long time. Stocks have boomed and are overvalued by many “historical” metrics. Bond yields are low and incapable of generating high returns. Crypto markets have boomed and are as unpredictable as any market in the world. Real estate has surged well above the 2006/2007 housing bubble levels.

During environments like this it’s generally better not to be over exposed in individual sectors or instruments that can expose you to catastrophic asymmetric downside. As John Bogle liked to say, “stay the course”, but during times like these, where behavioural risk is elevated because assets are overvalued, it’s important to remain patient and diversified.

And to be consistent with the RM message - today is always the best time to invest in yourself, develop personal skills and prepare yourself to be ready when/if some of these asset classes we talk about above can become more attractive.