Ted Rechtshaffen: 22 financial thoughts on what’s to come in ’22

Your house will be less important and your car will be more important, oh, and Canada should outperform global markets.

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Predicting the future has always been a challenge and it has become almost impossible with Omicron. That said, I am optimistic things will improve considerably on the COVID-19 front in 2022, at least starting in the second quarter.

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This belief is based on a mixture of hope and science that there will be a high enough percentage of people who are fully vaccinated and/or infected with the Omicron variant for the tide to turn on this pandemic.

My belief certainly colors my 22 thoughts for 2022 below.

1) Interest rates will stay low. Yes, interest rates are likely to rise from extremely low to very low in 2022, but don’t confuse rising rates with high rates. Act as if we are in a world with very low interest rates.

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2) Energy and metals are likely to have more room to run. Oil has been so underloved that valuations for some of 2021’s big winners remain very low. Many in the sector have forward price/earnings ratios in the seven range, which is much lower than their historical average and a lot lower than the general market.

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3) Canada should outperform global markets. This is based in part on having a very small percentage of nonprofit/high-growth technology stocks, as well as an overweight in commodities.

4) Increased immigration should help reduce wage inflation. This assumes that COVID-19 does not delay this process for long. More workers at all levels will reduce some of the wage inflation that we are currently seeing.

5) Increased immigration should keep residential real estate prices high. Low interest rates, a stable economy, and high immigration rates are the three-legged stool for driving up residential real estate prices. Prices rose even without the sizeable net immigration over the past two years. Immigration figures should offset the slightly higher rates.

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6) Country house real estate prices may slow down a bit. I say May as it is closely related to COVID-19. As more people work from the office and more people get comfortable traveling internationally, I really think there will be a real slowdown in vacation real estate in Canada. The question is how long it will take to see those drops.

7) Spending will grow. Many people have reduced their spending levels considerably in the last two years. If he feels like he has lost two years of his life, he will try to make it up, COVID-19 permitting.

8) Your car will be more important. There is likely to be a significant lag in the comfort level of returning to public transportation as more people return to the office. This will lead to more money being spent on cars and probably more traffic jams.

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9) Your house will be less important. Of course, this is all relative, but we are likely to be spending less time in our homes (although it may not seem like it right now). This means more money for concerts, restaurants, travel, and experiences, and less for home gyms, pools, and gazebos.

10) Living life can mean indulging in things that are not so good for you: alcohol, drugs, tobacco, sex, gambling, etc. Sin actions can work fine since the return of life (and expense) has to go somewhere.

11) Fitness and wellness may lose importance. This is not to say that there are any major downsides to these areas, which have seen considerable growth in recent years, but in some ways it is the corollary of thought number 10.

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12) Online shopping and food delivery are here forever, but not with the same enthusiasm. The stock market looks to the future and is always looking for momentum. I think some of the momentum in this area will slow down.

13) Build back better…something like. There are some aggressive infrastructure projects and spending to come, but it will probably end up being Build Back Better Junior Edition if the US is any example.

14) Taxes cannot be higher headings. There is a clear reason to raise taxes to help us get out of the huge debt situation, but there are two things standing in the way. The first is the belief that we can get out of debt on our own, which may be partially true. The second is that the current government is much more comfortable giving money away than asking for more.

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15) Demand for mortgages and home equity lines of credit will continue to grow. Even with some increase in rates, the only thing that will stop this growth area is a flattening or decline in real estate values. This can certainly happen, but it probably won’t this year.

16) Rental costs will increase. As residential real estate values ​​and interest costs rise, the desire among homeowners to increase rental rates will be very high. Lack of general supply will just make this worse.

17) Nursing homes will still grow. There is no doubt that the pandemic has increased the desire of many older people to stay home. However, with older baby boomers now clearly in this market, the costs of staying home on the rise, and the home value lottery ticket waiting to be cashed out for many, don’t be surprised if this market continues to grow, in some cases with the possibility of buying instead of renting.

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18) There will be cryptocurrencies. I know this is escape thinking, but the one thing I know for sure is that governments are going to significantly increase regulation and taxation of this space. Beyond that, I’m not going to predict anything.

19) Investment fundamentals will return. Something breaks when the initial public offering of Rivian Automotive Inc., an electric car company with no sales, values ​​it at more than three times that of Honda Motor Co. Ltd. In a world of uncertainty, profits will be valued higher reais and dividends, and less in perfectly listed companies within five years.

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20) Bonds will keep fighting. This asset class is broad enough to find some winners, but the core bond core space will struggle to generate returns with a combination of low yields and rising interest rates.

21) Inflation is here to stay… for now. I don’t want to use the word “transitory” here, but sometime later in the year, inflation will recede into the two to three percent range. This is largely because inflation is measured year over year, and it will be much harder to see five percent inflation rates compared to the fourth quarter of 2021. The other factor is that we just don’t grow as much. Over the past 13 years, the highest annual GDP growth figure before 2021 was 3.15%. It is difficult to sustain very high inflation figures with such low GDP growth.

22) The search for returns on investments will grow. Many investors like steady income from an investment portfolio, but there will be an increasing focus on staying ahead of inflation and taxes. This is likely to place an even higher premium on investments that can generate this type of return.

Ted Rechtshaffen, MBA, CFP, CIM, is President and Wealth Advisor for TriDelta Financial, a boutique wealth management firm that focuses on investment advice and wealth planning. You can contact Ted directly at tedr@tridelta.ca.

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