TheChek News Flow

* Cover Story:

-This past week, Fed Chairman Jerome Powell announced that the Treasury will accelerate the taper of its stimulus spending in a bid to combat the highest inflation rates since 1982. Therein lies the first clue that investors should not expect the kind of returns they saw in 2021. The Fed’s hawkish turn paves the way for an increase in interest rates—probably several—for the first time since 2018. Meanwhile, corporate earnings and economic growth are expected to decelerate next year. About the only constant: the persistence of Covid-19.

* Tech Trader:

Doug Clinton, managing partner at the tech investment firm Loup Ventures, thinks the landscape for tech stocks will remain challenging in 2022, at least for the first quarter. “You want to be on the side of the Fed,” he says. “We’re going to stay cautious ahead of rate hikes.” Clinton estimates that for every full percentage point increase in rates, the risk to tech stock valuations is 10% for the megacaps, and 20% for higher risk companies. “2022 might be the year of the discerning investor, after the year of the meme investor and the SPAC speculator,” he says. “Prices matter again.”

* The Trader:

-“Owning online payment stocks has been painful for the past two months. That’s created an opportunity in at least one smaller company in the space— Shift4 Payments. Everything was fine for payment stocks for much of the year. The ETFMG Prime Mobile Payments exchange-traded fund had gained 5.8% through Oct. 19—not great, but not too bad, considering its 34% rise in 2020. Then the bottom fell out. Since then, the ETF has dropped 20%, while big players like PayPal Holdings, Block—formerly Square—and Global Payments have tumbled even more.”

-“While the Fed has started to tighten monetary policy, it might be acting too slowly to do anything but contribute to a short-term selloff. If real yields remain deeply negative, the equity risk premium could fall even more. That could cause the S&P 500’s cyclically adjusted price/earnings ratio, based on operating earnings, to surge from a worrisome 35 times now to a problematic 45 times by the middle of 2023, Bannister says, putting the S&P 500 at around 6750, a gain of 46%.”

* Features:

-The Internal Revenue Service is being a bit more generous with the formula businesses and eligible taxpayers can use when they tally the tax deductions for their work-related miles on the road. On Friday, the IRS released the standard mileage rate for business-related driving in 2022. The rate will be 58.5 cents per mile for business use. That’s a 2.5-cent climb from the 56-cent rate this year. It was a 57.5-cent rate the year before that, and a 58-cent rate before that.

-“The phrase life is a game does not mean that life is silly,” writes Edward Castronova, an economist and professor of media at Indiana University, in Life is a game: What game design says about the human condition, his fascinating and delightfully weird book on the subject. “It means that life presents all people with choices, and those choices—combined with the inevitable randomness produced by the choices of others as well as Nature herself—come back in terms of gains and losses.” Money is at least one way we keep score. In 2020, when the game “Animal Crossing” became a huge hit, many marveled at how suddenly kids and adults across the world were inadvertently learning about how prices and arbitrage work.

* Europe:

-Turkish markets have been shaken in recent weeks by the combination of the central bank’s ultraloose monetary policy in the context of soaring inflation, and generous government handouts to the population.The Turkish central bank on Thursday yet again cut interest rates, to 14%, shortly after President Erdogan had announced a 50% raise of the minimum wage for 2022.

Erdogan had fired the three predecessors of the current central bank governor, Sahap Kavcioglu, for refusing to loosen monetary policy despite his increasingly vocal exhortations.

-The global semiconductor shortage has made this year a tough one for the European auto industry but it also makes the sector a potential buying opportunity heading into 2022.

Chip supply issues have forced production cuts at the world’s largest car makers, with many seeing problems continuing into 2022. European car sales hit a record low in October, according to the European Automobile Manufacturers’ Association. JPMorgan analysts see global production recovering in the second half of 2022, at which point suppliers “should clearly outperform” car manufacturers. French car parts supplier Faurecia is a top pick due to its strong exposure to fast-growing regions such as China, and customers like major manufacturers Tesla (TSLA) and Stellantis (STLA).

* Emerging Markets:

-Emerging markets are ending 2021 miserably. The iShares MSCI Emerging Markets exchange-traded fund has lost 12% since July 1, while the S&P 500 gained 9%. Global inflation has forced emerging markets to hike interest rates, clipping pandemic recoveries, while the US and Europe keep their throttles open. China, which accounts for a third of global emerging markets, has focused on deleveraging and “reform,” including unpredictable attacks on high-flying tech companies. Meanwhile, successive Covid variants keep delaying the reopening process, hitting hardest on developing world tourism.

* Commodities:

Some analysts warn that 2022 will be a difficult year for commodities, with the pandemic’s impact on economic activity set to influence trading after a volatile year marked by a rally in energy that fueled inflation, and a retreat of precious metals prices. But others like Noel Dixon, a global macro strategist for State Street, think “It will be a more challenging year for commodities in 2022 because global central banks are tightening policy.”