The Alonzo Harris 2022 Market Outlook

For the uninitiated, Detective Alonzo Harris is the primary antagonist in one of my all-time favorite films, Training Day. He’s the character for which Denzel Washington won the Academy Award for Best Actor in 2002. Do yourself a favor and take some time between NFL playoff games this weekend to check it out.

Alonzo Harris, for all his character flaws, is at his core a practical, no-nonsense guy.

Alonzo Harris is a realist.

Alonzo Harris does what works.

Alonzo Harris, I would argue, is the patron saint of trend-following…but let’s save that for another post.

Alonzo Harris, more than anything, embodies my thoughts and feelings when I receive a yet another 2022 market outlook in my inbox. In fact, as I write this, another just popped into my inbox.

via GIFER

“This is a [market outlook], right? Its 90% bullshit, but it’s entertaining. That’s why I read it. Because it entertains me.”

Sorry/not sorry for the cynicism. But it’s the honest to goodness truth. And truth be told, 90% of the people writing their outlooks would admit the same thing. In my mind: the bad “outlooks” are BS. The good ones are entertaining BS. And the best ones are out-of-consensus, entertaining BS. Bonus points for actionable ideas and extra special bonus points for doing an honest post-mortem of said actionable ideas at the end of the year.

Market prognostications are to be admired for the sweat, blood and tears that go into crafting them. And trust me, there are a lot of tears. In a past life, one of my friends worked directly under a C-level exec responsible for publishing content devoured by most of the world’s sovereign wealth funds and billionaire family offices. And I can assure you, there were a lot of tears. “What’s that? You’re taking the Mrs. and kids to a movie right now? Tough shit, I need you to refresh this data for the CIO of Norges Bank. Now.” Stuff like that.

So yes, they are to be admired for the sheer mental (and physical) horsepower required. And oftentimes for their creativity. In that regard, the useful “market outlooks” are good at getting the intellectual gears turning to make one aware of consensus and to prompt one to think creatively about the world. But they are not to be relied upon in any meaningful fashion. At least, that’s how I think about things as it pertains to how we operate at Monument, and how I invest my own money. Do your own work, so to speak.

I will always remember something Michael Kopelman (hello, Mike, if you’re reading!) told me while on a trip to New York circa 2010: “money managers never truly outsource their core competency.” At the time he was referencing the relationship between “sell-side” research analysts and their “buy-side” counterparts. But I think that logic applies here as well. We think the same thing but would say it more like this, “You can never outsource your opinions…opinions and advice are what clients are TRULY paying for.”

A Look Back at Five Bold 2021 Predictions

So here are five bold 2021 predictions from five separate (and very respectable) investment groups along with my post-2021 narration.

1. “Emerging markets offer a trifecta of value when looking at equity valuations, exchange rates and balance of payments risks.” Narrator: EM stocks would post negative total returns in 2021, while the U.S. returned close to 30%.
2. “Clearly, this market environment does not set up well for the traditional 60/40 portfolio.” Narrator: a traditional 60/40 returned close to 16% in 2021.
3. “The underlying inflation reality, however, looks set to remain benign.” Narrator: CPI hit its highest readings in 40 years.
4. “We are optimistic in emerging-market (EM) debt, which we believe is a highly undervalued space. Despite the enormous medical and fiscal challenges EM countries face, the steadily increasing probability of a global economic recovery will entice investors into EM debt.” Narrator: EM debt would go on to post even worse returns than EM equities.
5. “As Covid departs, the new economic cycle that has already begun will accelerate. Investors need to take action to prepare portfolios for a post-Covid world.” Narrator: what does that even mean?

Here’s a more comprehensive collection, for those interested. And in the interest of fairness, there are plenty in here that were spot on, in the ballpark, or at least ambiguous enough as to simply warrant a default passing grade.

Five Bold 2022 Predictions

Now that we tackled 2021, here are five bold predictions from others for the upcoming year. I pulled these out in a somewhat random fashion…I’m sure there are some more entertaining predictions in here, so feel free to peruse yourself! Shoot us your favorite! The more out of consensus, the better…

1. “2022 is expected to be a year of two halves, with high rates of economic growth and inflation in the first half, giving way to lower growth and inflation in the second.”
2. “Within commodities and currencies, we see oil around $80 to $81 per barrel next year. Gold is likely to be flat to down, and the dollar strong near term. But we remain bearish longer term, we’re short the dollar versus the pound and Canadian dollar.”
3. “Going into 2022 we remain negative on China with further downside ahead. The government will continue to rebalance the economy by supporting new technology and infrastructure at the expense of old and unproductive infrastructure. Stay away from Chinese onshore and offshore stocks for now.”
4. “As the market’s price-earnings ratio reverts to a more normal 18 from the current 22.5, the headwind is enough to constrain our base-case forecast of 4,400. If that is correct, the S&P 500 will be 3% lower a year from now even with an expected 14% gain in earnings.”
5. “Interest in limited-supply crypto assets is likely to continue to benefit from ongoing worries that central banks could be more seriously ‘behind the curve’ on rising inflation.”

My Top 2022 Predictions

To round things out, I will play along and give my top 5 predictions for 2022:

1. Inflation will remain stubbornly high, but will not hit double digits…at least, not in any “official” readings.
2. EM will outperform the U.S. For those who know my thoughts on EM, you will find this ironic.
3. Gold will outperform EM. Transitive property in play here. Think about what that implies! More irony here as well.
4. I will speak while having my microphone on mute at least 10 times.
5. Despite bankrolling a top five 2022 recruiting class and copious amounts of blue chip transfers with unlimited NIL funds, the University of Texas will once again lose to the University of Oklahoma in the 118^th Red River Shootout on October 8, 2022.

So to wrap. 

Market outlooks.

Let them entertain you. Let them inform you of consensus. Let them thaw your creative juices. But never let them guide you.