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Who Got It Right? A Look Back At Expert Predictions For 2021

Who Got It Right? A Look Back At Expert Predictions For 2021

Last year, the editorial team at Visual Capitalist scoured through 200+ reports, articles, podcasts, and more, to create our 2021 Prediction Consensus—a big picture and aggregated..

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Who Got It Right? A Look Back At Expert Predictions For 2021

Last year, the editorial team at Visual Capitalist scoured through 200+ reports, articles, podcasts, and more, to create our 2021 Prediction Consensus—a big picture and aggregated look at the key trends that experts predict for the year ahead.

If 2021 taught us anything, it’s that things can change at the drop of the hat. Amidst all this uncertainty, how many of the highlighted predictions came to fruition, and which ones didn’t pan out exactly as expected?

Before we start, it’s worth revisiting the prediction bingo board for 2021:

Below, we’ve evaluated a handful of the predictions for 2021 to determine whether or not they actually materialized.

The Easy-to-Quantify Predictions for 2021

Some of the predictions were easy to quantify—like the price of Bitcoin, or GDP targets.

PREDICTION 1: Bitcoin hits the $50,000 mark

Did it happen? Yes

As many of the experts forecasted, Bitcoin, and the crypto space in general, had another explosive year in 2021.

Bitcoin’s price rose 72%—from $29,000 at the start of 2021 to roughly $50,000 today (after reaching an all-time high of $69,000 in November).

The price increase wasn’t without its fair share of volatility, with Bitcoin suffering three different pullbacks of at least 30%, the greatest being a 50% correction in May.

Bitcoin’s ascent is impressive considering the amount of attention and capital that poured into other cryptocurrencies and sectors in the space. Layer one blockchains like Ethereum (+483% in 2021) and Solana (+12,500% in 2021) greatly outpaced bitcoin’s price growth, and NFTs emerged as one of the hottest markets this year.

PREDICTION 2: Global GDP grows 5-6%

Did it happen? Yes

By the end of 2021, Euromonitor International expects global real GDP to increase by 5.7%, which aligns perfectly with expert predictions from last year.

However, despite the global economy’s overall growth, this year hasn’t come without its challenges.

Supply chain issues have triggered a rise in global commodity prices. And since supply constraints are likely to continue into 2022 or beyond, global inflation is expected to keep rising, which could create a drag on real GDP growth.

PREDICTION 3: Positive growth for small cap stocks

Did it happen? Yes

The S&P Small Cap 600 Index generated a return of 24.6% from December 31, 2020, to December 7, 2021. This mimics the performance of the S&P 500 Index, which grew by 24.8% over the same time period.

Many analysts expect U.S. small caps to continue their momentum into 2022. Historically, the asset class enjoys significant gains during times of robust economic growth.

For context, the International Monetary Fund (IMF) expects U.S. GDP to grow by 5.2% in 2022, outpacing many other developed economies.

The Harder-to-Quantify Predictions

Many of the predictions were more subjective than GDP or stock-market growth, and therefore, were harder to measure. So, for these predictions, we polled nine members of our editorial team to gauge whether or not they panned out as expected.

We also sifted through hundreds of individual predictions from last year to see which experts got it right, and we’ll be highlighting some of them below.

Let’s dive in.

PREDICTION 4: ESG reaches a tipping point in 2021

ESG continued its upward trajectory in 2021.

In Q3 2021 alone, the number of sustainable funds jumped 51% to roughly 7,500 worldwide, and assets under management hit a record $3.9 trillion. In the U.S., sustainable fund assets surpassed the $300B mark.

As sustainable investing continues to become a top priority among investors, companies are starting to be held accountable for their sustainability efforts. And those that don’t get on board could see it negatively affect their bottom line.

Who saw this coming? DWS Asset Management Group said, “ESG will continue to play an increasingly important role in investing.” Fidelity Investments, an American financial services company also got it right, claiming “ESG and climate funds have outperformed conventional funds throughout 2020 and are likely to continue to do so in 2021.”

PREDICTION 5: Work from home is here to stay

Even as lockdown restrictions eased, and the world took small steps towards normalcy, workers across the globe continued to work from home.

By the end of the year, Gartner predicts that 51% of knowledge workers worldwide will be working remotely, up from 27% in 2019.

Luckily, remote work hasn’t seemed to have a negative impact on employee engagement. In fact, a recent Gallup survey found that 36% of American respondents felt engaged at work, a near all-time high.

Who predicted this? Forrester did: “Hybrid work models will become the norm for information workers.” Blue Frontier also predicted this, “Most companies will employ a hybrid work model, with fewer people in the office and more full-time remote employees.”

PREDICTION 6: SPACs will fall out of favor

Special Purpose Acquisition Companies (SPACs) waned in 2021—despite a strong start to the year. The market for “blank check” companies peaked in March of 2021, when a record 109 SPACs were issued.

The SEC cracked down on accounting practices, and Rep. Maxine Waters, chair of the House Financial Services Committee remarked she had “deep concerns about the lack of transparency and accountability that is a hallmark of the SPAC process”.

However, blank check firms haven’t disappeared completely. Singaporean startup, Grab launched on the Nasdaq in late 2021, reaching a roughly $40 billion valuation—a record according to data from Dealogic. As well, issuance is creeping back upward, a sign that the SPAC market could be staging a comeback.

Who saw this coming? John Battelle, co-founder of Wired Magazine, wrote “In 2021, SPACs will lose their luster.”

PREDICTION 7: China will have a strong 2021

China had an impressive first half of the year, but growth slowed down by Q3.

Interestingly, it wasn’t so much COVID-19 that ended up hurting the Chinese economy. Rather, the country struggled with supply chain issues, along with a drastic regulation crackdown by the CCP that ended up hamstringing domestic industries.

Investors were so spooked by the Chinese government’s crackdown, that from Oct 2020 to Oct 2021, investors sold more than $1 trillion in Chinese equities.

Who got this right? James McGregor, China chair of public affairs firm APCO Worldwide, said that “China is going to be ahead of everyone economically, however, its global reputation is not going to improve.”

PREDICTION 8: Big Tech backlash will continue

From congressional hearings to massive fines, the tech backlash continued into 2021.

Big Tech CEOs were hauled before the U.S. government numerous times, including the misinformation hearings of May 2021 and the antitrust hearing in July. Tech companies also faced a rough ride in Europe as regulators didn’t hesitate to hand out hefty fines. In just two examples, WhatsApp was hit with a €225 million fine and forced to make changes to its privacy policy, and Amazon was fined over €1.1 billion by Italy’s antitrust watchdog for abusing its dominant market position.

While Big Tech in general faced plenty of criticism, it was Facebook (now Meta) that bore the brunt of the scorn. This was especially the case after former Facebook employee Frances Haugen leaked thousands of internal documents to the Wall Street Journal, which Haugen claimed shows that the company prioritizes profits over the wellbeing of its users. The pressure is on for U.S. lawmakers to enact new regulations that hold social media companies more accountable, but decisions on what these new regulations would look like haven’t been made.

In contrast, European regulators have managed to get a plan in motion. The EU plans on enacting the Digital Services Act by 2022, which would require tech companies to immediately remove hate speech and other illegal content from their platforms, or pay significant fines.

Two powerful counterpoints to the bluster directed at tech companies are that stock prices are largely up and users still continue to use these services. Even Facebook, which is arguably the most heavily-criticized brand has never seen a drop in users, quarter-on-quarter.

Who predicted this? John Battelle saw this one coming, too: “Nothing will get done on tech regulation in the US.”

PREDICTION 9: Millennials answer the call of the suburbs

Millennials did move away from the city, but not so much to the suburbs. Rather, small towns and rural areas saw the most growth as people streamed away from large, expensive cities.

As people migrated from cities, businesses followed suit. According to data from the National Association of Realtors, urban centers in America experienced a net migration loss (meaning more businesses left the area than moved in) while small towns and rural areas in the U.S. experienced a net migration gain.

Who saw this coming? Joe Tyrrell, president, ICE Mortgage Technology “People are shifting away from metropolitan areas to more rural ones. We expect this migration trend to continue as people redefine what home means for them.”

What’s in Store for 2022?

We publish our annual Predictions Consensus to give readers a big-picture understanding of what experts predict for the coming year.

With supply chain issues, climate woes, and geopolitical tensions continuing to simmer, 2022 is set to be just as uncertain as 2021 was. To help prep you for another turbulent year, keep an eye out for our 2022 Predictions Consensus, which will be published in early January.

Tyler Durden Sat, 12/25/2021 - 23:00

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Economics

The retailers that should weather the coming economic storm

Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates.  These…

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Conditions are about to get tougher for retailers as they face a perfect storm of falling incomes, galloping inflation, and rising interest rates.  These impacts will crimp the discretionary spending power of many people. The one exception could be the under 25-year-old Gen Z demographic, who have fewer non-discretionary costs than other age groups. The retailers who sell to them could fare better than most.

Over the last six months, discretionary retail stocks have been among the worst performers on the ASX, with the S&P/ASX 300 Retailers Accumulation Index underperforming the broader market index by 13 per cent over that period. Admittedly, this recent under performance merely unwinds the 20 per cent out performance of this index in the preceding 18 month period which coincided with the recovery in the market from the pandemic lows.

Over the last six months, only 1 of the 17 stocks in this index has managed to perform better than the broader market, JB HiFi, while four generated losses of over 50 per cent. Notably these stocks, Red Bubble, Kogan, City Chic and Temple & Webster, are all online retailers, and performed very strongly over the first year of the pandemic as they were perceived to be COVID winners.

Figure 1: Total return of retailing stocks between 16 Nov 2021 and 16 May 2022

Source: Bloomberg

The market is concerned that the combination of falling incomes – as households face rising inflation on a broad basis eating into real spending power, and rising interest rates – will reduce discretionary spending power. However, it is not as simple as this. 

While these factors are likely to lead to pressure on overall discretionary consumption, these factors do not affect all segments of the economy equally.

CBA’s economic team has released data for household income and spending growth for the March quarter of 2022. This data is broken down by age demographic.

In looking at the potential impact of spending from cycling the impact of large stimulus payments that were received by households in the prior year, CBA’s data suggests that the percentage of Millennials receiving some sort of government payment has fallen the most relative to the December quarter of 2021 followed by Generation X. Gen Z and Baby Boomers have experienced less of a reduction.

Offsetting the reduction in government benefits is an increase in the percentage of people receiving a salary. This is likely as a result of people returning to work post the pandemic and the current strong labour market.

Figure 2: Share of households receiving government benefits or salaries
(change between 4Q21 and 1Q22)
Source: CBA

This then feeds into the impact on each demographic’s growth in overall income over the last 12 months. This shows that Gen Z has benefited the most from the current strong employment market with increased employment and strong wage growth while the percentage receiving government benefits remains higher than other demographics and above pre-pandemic levels. 

Figure 3: Household income and spending – annual average % change in 1Q22
Source: CBA


Not surprisingly, it is also Gen Z that has shown the strongest spending growth in the March quarter. For the other generations, spending growth has exceeded income growth, implying that their savings rates have declined to fund that growth in spending.

But savings are still well above 2019 levels for all generations and still rising. This will provide a buffer against cost increases and slowing growth in the medium term as inflation and higher interest rates bite. Gen Z has the biggest savings buffer.

Figure 4: Household savings – average deposit and offset balancesSource: CBA

Not surprisingly, overall household wealth is considerably higher than at the end of 2019, primarily as a result of rocketing residential property prices on the back of emergency monetary policy settings. The wealth effect of housing prices is an important driver of discretionary spending in Australia and has benefited retailers over the last two years.

Figure 5: Household wealth – average per household

Source: CBA

Of course, what interest rates can give, they can also take away. With variable mortgage rates likely to increase 1-2 percentage points over the next year, residential property prices are expected to fall, reversing some of this wealth effect.

There is no doubt that conditions are set to tighten for retailers over the coming year. However, reversing wealth effects from falling property prices and falling discretionary income levels will primarily impact those generations that own most of the housing stock, namely the Baby Boomers, Gen X and to a lesser extent the Millennials. Baby Boomers are more likely to be impacted by falls in house prices while Millennials will be more impacted by the need to allocate more of their income toward mortgage repayments.

For those that rent rather than own their home, rents are also likely to rise, as property owners try to pass on rising mortgage, utility and maintenance costs to tenants.

Those with families will be more impacted by rising prices of non-discretionary goods and services like food and utilities. This impact will be concentrated on Millennials and Gen X.

While not immune, the younger Gen Z demographic is likely to fare better than other generations given it faces fewer non-discretionary costs, and is not as exposed to property and wealth effects. At the same time, it is experiencing the strongest income growth and has had the most significant increase in its savings over the last two years.

Hence, we prefer retailers that cater to this younger demographic in the discretionary segment such and Universal Store and Accent Group.

The Montgomery Funds owns shares in City Chic, Universal Store and Accent Group. This article was prepared 18 May 2022 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Goodman Group you should seek financial advice.

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Economics

What Is the VIX Volatility Index? Why Is It Important?

What Is the VIX and How Does It Measure Volatility?In finance, the term VIX is short for the Chicago Board of Exchange’s Volatility Index. This index…

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The VIX strives to predict market volatility through the lens of options trades.

Wavebreakmedia from Getty Images; Canva

What Is the VIX and How Does It Measure Volatility?

In finance, the term VIX is short for the Chicago Board of Exchange’s Volatility Index. This index measures S&P 500 index options and is used as an overall benchmark for volatility in the stock market. The higher the index level, the choppier the trading environment, which makes its other nickname pretty apt: the fear index.

It’s important to point out that the VIX measures implied, or theoretical, volatility. It measures the expectation of future volatility based on a snapshot of the previous 30 days’ worth of trading activity.

What Do the VIX Numbers Mean?

  • A VIX level above 20 is typically considered “high.”
  • A VIX below 12 is typically considered “low.”
  • Anything in between 12 and 20 is considered “normal.”

When there is increased activity on put options, which means that investors are selling more puts, the VIX registers a high number. Investing in a put option is like betting that the price of a stock will go down before the put contract expires because puts give investors the right to sell shares of a stock on a specific date at a specific price.

These are bearish investments, ones that can take advantage of emotions like fear. There is a saying on Wall Street that does “When the VIX is high, it’s time to buy” because the general belief is that volatility may have reached a peak, or a turning point.

When the VIX falls, that means that investors are buying more call options. Investing in a call is like betting that the price of a stock will go up before the call contract expires. In other words, a falling reading on the VIX indicates that the overall sentiment in the stock market is more optimistic, or bullish.Although the VIX isn't expressed as a percentage, it should be understood as one. A VIX of 22 translates to implied volatility of 22% on the SPX. This means that the index has a 66.7% probability (that being one standard deviation, statistically speaking) of trading within a range 22% higher than—or lower than—its current level within the next 12 months.

How Is the VIX Calculated? What Is the VIX Formula?

In a nutshell, the VIX is calculated by the Chicago Board of Options Exchange using market prices of S&P 500 put and call options with an average expiration of 30 days. It uses standard weekly SPX options and those with Friday expirations, but unlike the S&P 500 index, which contains specific stocks, the VIX is made up of a constantly changing portfolio of SPX options. The Chicago Board of Options website goes into more detail about its methodology and selection criteria.

How Do I Interpret the VIX?

There are many ways to interpret the VIX, but it’s important to note that it’s a theoretical measure and not a crystal ball. Even the sentiment it tracks, fear, is not itself measured by hard data, such as the latest Consumer Price Index. Rather, the VIX uses options prices to estimate how the market will act over a future timeframe.

It's also important to understand how much emotion can drive the stock market. For example, during earnings season, a company’s stock may report solid growth yet see shares plummet, because the company did not meet analyst expectations. So much of what goes on in the market can be summed up by feelings, like greed, as investors spot appreciation potential and place buy orders, which drive prices higher overall. Fear is evidenced when investors try to protect their investments by selling their shares, driving prices lower.

At its worst, fear-driven selling can send the market into a tailspin and lead to emotions like panic, which can result in capitulation.

But the VIX is not designed to cause panic. It is simply a gauge of volatility. In fact, some investors, especially traders, view the increased turbulence as a signal to buy, so that they make a profit either through speculation or hedging and thus capitalize on the situation.

Can the VIX Go Above 100?

Theoretically speaking, the VIX can top 100, although it has never reached that point since data collection began in 1990.

The two highest points the VIX has ever reached were the following:

  1. On October 24, 2008, at the height of the Financial Crisis, which stemmed from the global implosion of mortgage-backed securities, the VIX reached 89.53.
  2. On March 16, 2020, during the beginning of the COVID-19 pandemic, the VIX recorded a high of 82.69.

Analysts also believe that had data collection begun in the 1980s, the VIX would have topped 100 during the Black Stock Market Crash, on Monday, October 19, 1987.

This chart from FRED, the Federal Reserve’s data center, details the VIX from 1990 to 2022. Shaded areas illustrate periods of recession:

Chicago Board Options Exchange, CBOE Volatility Index: VIX [VIXCLS]

FRED

How Do I Trade the VIX? Can You Buy Options on the VIX?

Investors can’t invest directly in the VIX, but they can invest in derivatives that track the VIX, such as VIX-based exchange-traded funds (ETFs), such as ProShares VIX Mid-Term Futures ETF (VIXM), and exchange-traded notes, like the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the iPath Series B S&P 500 VIX Mid-Term Futures ETN (VXZ).

What Is the VIX at Today?

To view the VIX’s current reading, visit the webpage maintained by the Chicago Board of Options Exchange; it is updated daily.

What Are the VIX’s Current Volatility Predictions?

The stock market has been in choppy waters for most of 2022. Tech stocks, the Nasdaq, and stocks with high P/E ratios have taken a beating as investors worry about continued inflation, the Russia/Ukraine war’s effect on energy prices, the aggressive pace of interest rate hikes from the Federal Reserve, and China’s extreme “zero-COVID” policies. All of these things are causing the storm clouds to gather around the possibility of recession.

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Economics

Over-Aggressive Fed Faces “Financial Accident” – Guggenheim Warns Recession Risk Rising

Over-Aggressive Fed Faces "Financial Accident" – Guggenheim Warns Recession Risk Rising

Via Guggenheim Partners,

Fed Aggressiveness Following…

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Over-Aggressive Fed Faces "Financial Accident" - Guggenheim Warns Recession Risk Rising

Via Guggenheim Partners,

Fed Aggressiveness Following Delayed Liftoff Sets Up 2023 Collision

The risks of tightening into a downturn.

If two trains are heading towards each other at different speeds, when will they collide?

This grade school arithmetic problem is playing out in the Federal Reserve’s (Fed) execution of monetary policy. In this case, one train is the aggressive tightening plan as telegraphed by the Fed and the other is the U.S. economy which, while still strong, is showing a few signs of cooling. Investors want to know when the collision—a recession—will occur.

The Fed’s dual mandate calls for full employment and price stability. Historically, the Fed would change the fed funds rate in response to changes in the unemployment rate and changes in inflation (i.e., the second derivative of the price level). Simply adding up these changes (flipping the sign for unemployment) has tracked well with changes in Fed policy. This relationship has held over several decades and through both tightening and loosening of monetary policy.

However, over the past year there has been a notable divergence in this relationship. The steep drop in unemployment and sharp acceleration in inflation was met by an unresponsive Fed. This breakdown in the typical reaction of the Fed can be attributed to the unique nature of the pandemic shock, the Fed’s updated policy strategy, and a misreading of the inflation surge as transitory. The result is that the Fed, as it now acknowledges, is badly behind the curve and “expeditiously” moving ahead with 50 basis point hikes to both keep inflation expectations in check and protect its reputation.

At the same time, however, inflation is now decelerating and the pace of decline in the unemployment rate is slowing. Had the Fed followed the historical pattern in the chart above, the fed funds rate would be around 2.5 percent now and the Fed would be able to start pulling back on rate hikes as the economy cooled. Instead, the Fed looks poised to hike to around 3.5 percent into next year, when inflation will have slowed further and the unemployment rate will have largely leveled off. With the passage of time as the Fed continues to hike, we will likely find ourselves experiencing the effects of increasingly restrictive monetary policy.

Well before it reaches this terminal rate the Fed will increase the risk of overshooting, causing a financial accident, and starting a recession. Such an asynchronously tight monetary stance should exacerbate the cyclical slowing of the economy and cause a recession as early as the second half of next year. Given this collision course between the Fed and the cooling economy, long term interest rates are likely near a peak.

As Scrooge asked in Charles Dickens’ A Christmas Carol, “Are these the shadows of the things that Will be, or are they shadows of the things that May be only?” Only time will tell.

And as Guggenheim's CIO, Scott Minerd, noted on CNBC earlier, don't expect The Fed to protect your downside in the market either... "we are going to be meaningfully lower in stocks by the end of the year because The Fed has made it clear that they do not have a put on the stock market."

Guggenheim's fears correspond with SocGen's previous warning that this cycle puts the peak of the Fed Funds at just below 1.0%, or less than 3 more rate hikes before the Fed is forced to reverse!

Tyler Durden Wed, 05/18/2022 - 17:00

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