2022: the year of all dangers

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After a brilliant year of recovery in 2020 where the planet has returned to life intensely after the deprivations of 2020 with the waves of Covid which followed one after the other, the arrival of the early vaccine 2020 allowed all hopes. Consumption exploded to such an extent that the economy could not keep up with this demand, creating huge disruptions in the supply chain. The most critical was the scarcity of microprocessors omnipresent in all goods: the TV, the washing machine or the fridge, electronic games, smartphones and more and more in the automobile. The manufacturers had to shut down their factories and the shortfall amounted to 100 billions of dollars. Massive investments are being made in new factories, especially in the United States which have become aware of their Asian dependence, even if it is these same Asians who are creating these new factories, especially in Texas. Samsung has planned 100 billion dollars over 3 years, Taiwan Semiconductor 80 billion dollars, Intel 80 billions of dollars … But the arrival of these new factories is scheduled for 2024 and, in the meantime, it will be necessary to track down all the existing capacities to increase production.

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These constraints did not prevent the world economy from rebounding vigorously this year , posting a 5.6% increase in GDP after a 3.6% drop in 2019. If Asia and in particular China as well as the United States have largely exceeded the level of 2018, Europe has lagged behind, especially Germany, which has suffered the most from the dislocation of the supply chain. France, on the other hand, has regained ironic optimism, the French spending lavishly on services, with reservations in certain restaurants having to be made several weeks in advance. Hoteliers have never seen such a rush for the holiday season.

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The flip side was a strong surge in inflation, as industry and services could not do in the face of demand for various reasons: rising energy and raw material costs, increases caused by supply disruptions such as in the automotive industry, rising wages to attract employees to neglected sectors such as the hotel industry and Restoration. The increase at the end of November reached 7% in the United States and 5% in the Euro zone, levels never seen since the oil shock of 1120. Energy is up % at the pump in the United States and most raw materials remain expensive. There is nevertheless an easing in the price of maritime transport which had soared. The 5% hourly wage did not cover inflation.

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Soaring inflation in the world

FactSet The year 2021 does not seem as serene as 2020, full of hope at the start of the year thanks to the arrival of several very effective vaccines. They fulfilled their role well through intensive campaigns and by the spring a wild hope was born that the crisis was coming to an end. The holidays were a dream… Unfortunately the Delta variant landed in the middle of the summer and developed a 4th wave. But unlike the other waves, the vaccination worked miracles since the impact of the Delta was very small on mortality and we hoped to live with it. And then thunderclap, Omicron landed 4 times (!) More contagious than the Delta, itself terribly contagious. The world is in total uncertainty as to the future development of the pandemic and the possibility of containing it with existing means. This is the first of the uncertainties that will weigh on the market in 2021. The evolution of inflation is the second major uncertainty which ended up setting off all the central banks. Social tensions are perceptible to “preserve” purchasing power through wage increases which will complicate life for companies. The best indicator is the inflation induced by the rates of bonds indexed to 02 year. After reaching a record of 2, 66%, it came back to 2, 35%, leaving hope that the peak of inflation has been reached and that a slowdown economy will put less pressure on demand. Still, the investor’s dilemma is how to protect his capital by 2021. The third risk, the most important in our eyes, is the policy followed by the central banks. The Fed announced the acceleration of the end of its QE (Quantitative easing, massive purchase of debt) program now scheduled for next March. Its current balance sheet is $ 8.7 trillion. The other announcement concerns 3 rate hikes planned for next year. The yield curve quickly adjusted and the 2-year yield fell from 0, 12% one year ago at 0, 66%. On the other hand, this increase had no impact on long rates, which tended rather to fall. An obligation to 02 years earns 1.4% and is far from covering inflation. For now, the market has not been surprised by the Fed, but a more virulent fight against inflation could see a strong market correction as it ends 2018.

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Towards a flattening of the yield curve

FactSet A multitude of other risks could emerge, such as crash of the Chinese economy with the bankruptcy of promoter Evergrande and other colleagues, a crisis in Taiwan, the tensions between Russia and Ukraine which could create a huge shock on the already mad natural gas, a systemic crisis on the Euro. We cannot exclude the bursting of a state debt bubble which is reaching peaks.

These risks will not necessarily materialize, the planet is working hard to counter the Covid. New vaccines are coming out of the labs and Pfizer’s antiviral pill could be a game-changer. We are seeing the start of normalization in the supply chain and the decline in sea freight prices. The huge forced savings accumulated during the Covid could support the economy. The Christmas shopping went well overall. Whole swatches of workers have not returned to their jobs, but the end of their savings will perhaps bring them out of their lair in 2020. On the corporate side, morale still seems to be steel because their coffers are crammed with profits. They earned 38% more profit this year and expect to see 7.8% growth again next year, revised up. They bought a record of billion dollars of their shares, or 2.6% of their capital which was added to the dividend, a sign that they have confidence in the future. The economy should not disappoint according to the latest forecasts of global growth of 4.3% after 5.6% this year. The Eurozone is in a good position with 4.3% and 4% for France.

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For the first time, our valuation model of the US market shows a higher price target after the recent correction, due to very low long rates and remarkable profits, despite a P / E (price on profits) which is displayed at 14, 1 x the results 2021 vs 14, 4x for the Euro zone, but the difference is amply justified by the compositions of the two indices. Again, it is almost impossible to find a risk-free investment that simply protects against inflation. As a result, equities remain an essential asset class over time and our other recommendation is to take advantage of the still very low rates to invest in residential, starting with your main residence.

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