Jan. 3, 2022

2022: The Year Of Uncertainty.

We discussed last week, what is rapidly becoming my central thesis for the year 2022: The Year Of Uncertainty.

Essentially for anyone who models the economy, last year was the year when you just had to “plugin” a number. You didn't know what the real number was. So you just used your best estimate of what you thought should be the number.

Fundamentally this all stemmed from the tremendous impact that the various stimulus packages had on our economy. My best guess is that last year's overall economy, there I go plugging in another number. But my best guess is that last year's economy came in somewhere between 19 and 21 trillion dollars, as measured by the Gross Domestic Product.

I know that's a pretty large spread, but that's just the first indication of just how uncertain I am. 

The reason for this uncertainty is that we had an incredible $9 trillion in combined Stimulus payments enter the economy. And amount so large, that the regular government reporting agencies, told us all year long, that they would not/could not estimate that impact.

And if they can't, none of us can either. 

So what I'm saying is that as much as one-half of last year's national income came not from the hard work of the American people. But was simply a gift. A gift from those generous people up in Washington. Including both President Trump and President Biden. And those 565 Representatives and Senators, who were generous enough to spend not just our money, but our grandchildren's grandchildren's money.

Creating a mountain of debt that is truly astronomic in scope. 

But more of that later. 

What were concerned about today, is: the impact of those stimulus payments. After all, that's what this investing and finance business is all about. The basic concept is to buy shares in companies that are making a profit, and are likely to make a profit in the future. And there's an awful lot of fog surrounding the second part of that statement: the future. 

Oh sure, many companies were very profitable last year. When consumers spend those stimulus dollars with wild abandon. But what about this year. A year without stimulus. What happens now?

And I can tell you that the average Wall Street Analyst is sweating bullets right about now, trying to figure it all out. 

Take a look at this week's Economic Calendar. The calendar has four columns: the first is the report, then what it did last time, what the Street estimates it will do this time, and then the new result. 

It's that third column that's in trouble. There are more blanks than I ever remember. It's as if Wall Street came in for a very tough exam, and they simply don't know the answers. So they leave it blank.

I don't ever recall seeing this number of blanks.

Why? Because analysts are afraid to stick their necks out. With this level of uncertainty, they're not going to be the ones caught out in the left field.

Let me give you a couple of examples of economic reports that this week have no Wall Street Estimates. The Jolts report: how many hired last week, how many quit. No answer from the Street. Same for initial unemployment claims. The Street is mum.

OK, here's an easy one, how about this week's 30-year mortgage rate, it doesn't change that much. How about a Street estimate on mortgages. Nope, nada.

Alright, alright at last I've found a report the Street is estimating: The November Trade Balance, after all, you've had a month to think about it. And guess what? The Street does have an estimate. They project that the Trade deficit will range somewhere between 70 and 81 Billion. A span big enough to drive a semi-truck through. In other words, Wall Street isn't at all sure what the trade deficit will be, but they're willing to take a wild guess.

And I'm willing to guess that they'll all be below.

Now we can all have a pretty good laugh at the trouble that the Wall Street Analysts find themselves in. But it underscores, what I think is the largest problem for all investors this year.

We assume that everything is normal right now. That the economy is behaving like it usually does. And certainly, the market averages, with all their repeated records indicate that all is well. 

And that may indeed be the case.

It may well be that the economy has weathered the storm. And that all the record levels for the DOW the NASDAQ and for the Standard & Poors, all indicate that 2022 will continue those winning ways.

But I don't believe that for a second.

That little voice in the back of my head keeps telling me, that we don't know where we are. We are in uncharted waters. And while we may sail our way out of here, it won't be before we run into a could of storms.

My puritan Grandmother always told me, you don't get "nothing" for nothing. 

And remember last year, we got half our national income for free. 

And remember last year the stimulus gave us half our nation's income for free.